The "What Comes Next" title is a reference to one of the songs sung by King George in Hamilton. We can't quite put our finger on it, but it feels like there are certain parallels between Mad King George and our current situation.
What exactly is our current situation? From an S&P 500 standpoint, we're back to where we were at the start of September. These 11 weeks have been far from flat, though. Down 10% over the first three weeks in September, then up 10% over three weeks into October, then down almost 8% in the three weeks leading up to the election, and then up 10% in what can only be described technically as a face-melting rally since the election.
To recap: pre-election, there were widespread expectations of a "blue wave", and the market sold off a bit because it didn't like seeing the specter of inflation in all the anticipated government spending that presumably Democratic Executive and Legislative branches would entail. As election results came in and the blue wave never materialized, the market rallied. A Deomcrat presidency with a Republican Senate probably means gridlock in DC and not much in the way of fiscal stimulus. Thus, the burden of economic stimulus continues to fall to monetary policy and the ever-ready dovish accommodation of the Fed. Moar QE, in short. And as we have detailed previously and somewhat exhaustively, QE is good for stock prices.
Then Monday morning last week, Pfizer came out with a positive announcement on their vaccine's Phase 3 trial, and the market rips. Small caps up 8%. Airlines up 16%. Cruise lines up 23%. Movie Theaters up 60%. Retail up 24%. Even Hertz (still in bankruptcy, by the way) up 25%. Face melting.
As I’m writing this (first week in March), the market is in the middle of some obscene volatility thanks to the coronavirus that has started taking over the world like the second coming of Genghis Khan. The crystal ball is decidedly murky on this one, so no telling what things will be like when you’re reading this in April, but here’s hoping the zombie apocalypse chapter story you’ve read in these very pages hasn’t been a massive case of cosmic foreshadowing!
Something I’ve heard a lot in the last week from clients is: “should we be selling stocks?” Perhaps you’ve had the same thought yourself. Fortunately, there’s a straightforward answer to that question: yes, you should sell.
But, but....what about long-term investing and buying the dip and “the market will recover” and everything else people say? Irrelevant! Let me explain:
Apparently Santa came early this year! Or at least that’s what we’re telling ourselves given that top of our Christmas list every year is “less government”. So we’re going to choose to look at this Christmas, with about ¼ of the government shut down, as a happy little present and just ostrich out all the nonsense about why we’re actually in a partial government shutdown and how much of 2019-2020 will also be spent in a partial shutdown…
For the equity markets, however, it has been an absolute bear of a holiday season. Quite literally:
This summer, like every summer for the last 600 years, saw the annual Running of the Bulls festival in Pamplona, Spain. This summer, like every other summer for the last 10 years, saw the continuation of this current bull market for stocks (“current” assuming no unmitigated disaster between writing and press time). In point of fact, August marked the longest ever bull market in the US - our very own running of the bulls.
Happy Memorial Day!
And welcome to the first official newsletter of ATI Wealth Partners! Don’t worry, it’s the same semi-sensical content you’re used to seeing, just in a different wrapper. Or really, the exact same wrapper, just with a different name. Which, coincidentally enough, is a brilliant segue into this week’s topic: the resurgence of active management.
What a month! And we’re only halfway through it! Well, more than halfway I guess, February being a short month and all...let’s recap what we’ve seen so far:
- The market (Dow Jones Industrial Average) lost 1,033 points last Thursday (2/8). That would have been the largest single-day point total drop in history. Ever. Would have been, except that on Monday (2/5) of last week it dropped 1,175 points.
- Two 4%+ down days in a week led to the fastest correction (defined as a 10% decline from a new high) in 80 years (outside of an outright market crash). It took all of 9 days for the market to drop over 10%. That’s pass out from the g-forces fast.
- And after ending on that note last Friday, this week the market responds by having its best week in nearly a decade.
Everyone has heard of bulls and bears in relation to the stock market we’re sure, but have you heard of the cat? It’s a dead cat, to be precise. And probably the third most-alluded to animal in stock market commentary. If only we had a research assistant who could fact-check these claims…
What’s the weirdest thing you’ve ever gotten for Halloween? We know you all had a candy hierarchy back in the day. Our own Maslow’s Sweet Tooth was something like:
Tier 1 - Reese’s. Also Nerds and Sour Patch Kids and Skittles and Junior Mints.
Tier 2 - Generalized chocolate candies (3 Musketeers, Crunch, etc.). And those green apple and caramel lollipops.
Tier 3 - Chocolate candies with nuts (Snickers, etc.).
Tier 4 - Chocolate candies with caramel (Twix, etc.). Non-Sour Patch sour gummy candies.
Tier 5 - Small, non-exciting or non-chocolate items. Hershey Kisses. Smarties. Twizzlers. Good ‘n Plenty. Now ‘n Laters. Bottle Caps. Warheads. Gobstoppers. Laffy Taffy. Oh Henry. Those candy necklaces. Butterscotch.
Non-candies - Milk Duds and bubblegum.
We had a neighbor growing up that used to give nickels for Halloween. Yes, the 5 cent coin. Seriously? I mean, even if there was a Cracker Barrel walking distance from where we were trick-or-treating (and since we weren’t hitting up cars on the side of the interstate that’s pretty unlikely), I think you need 10 cents these days to buy one of their hard candy straw things. Sigh. There’s inflation for you. At least the days of handing out rocks are (hopefully) over.
All this to say sometimes you get treats, and sometimes you get tricks. Well-meaning, unintentional tricks we’re sure, but tricks nonetheless.
So much for the summer doldrums! Three big things happened this month that probably went unnoticed by most of you reading this. And please note, when we say “big things that went unnoticed”, we mean “big” in that super geeky personal finance way and not “unnoticed” because we think you are all ostriches.
Those three things are, in no particular order of importance: our one-year anniversary, passage of the DOL fiduciary rule, and a Fed announcement of quantitative tightening. If you caught all three of those things this month, give yourself a gold star! And if not, well that’s what we’re here for...just keep reading.
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