We just keep on keeping on
Part of the client experience at Haystack FP is a semi-annual client newsletter containing firm updates, reminders about upcoming events (e.g. semi-annual review meetings or benefits enrollment season), and my commentary on the markets & economy - what’s happened and where they could be headed. The first edition went out the other day and I wanted to share a one-time sneak peek of the commentary. Enjoy!
Looking back
Our work together is viewed through the long-term lens of your life which means there’s not a heavy focus on the short-term fluctuations of the markets and economy. However, that does mean we ignore what’s happening.
Overall the stock markets finished the 6-month period up yet provided us with interesting and at times perplexing moments. During the initial recovery from the March 2020 low, investors favored mega-cap tech companies while shunning the so-called BEACH (booking, entertainment, airlines, cruises, and hotels) ones. The BEACH companies had a bounceback in 1H2021 (the “re-opening” trade) followed by another decline as there was a returned focus on underlying fundamentals and on companies with strong balance sheets positioned to prosper in the post-COVID world. Headlines were heavily populated with stories about ‘meme stocks’. Day traders from the r/WallStreetBets message board of Reddit, and later on social media, seemingly banded together to move prices on some of their favored companies like GameStop and AMC Entertainment. If you want to review what happened with GameStop, you can read this blog post I wrote with my friends Simon and Mike.
Interest rates continue to be at or near all-time lows. In remarks prepared for the House Financial Services Committee, Federal Reserve Chairman Jerome Powell said the economy is “a ways off” from where it needs to be for the central bank to change its ultra-easy monetary policy. The expectation is that the Fed Funds rates will remain unchanged with the first rate-hike not happening until 2023. This had led a lot of investors to riskier high-yield bonds in a search for additional yield. Low interest rates are also good for stocks as it helps bring the value of the company higher.
Cryptoassets got a lot of attention. Tweets from Elon Musk (CEO of Tesla Motors) sparked massive fluctuations in the price of Bitcoin and Dogecoin. The internet was abuzz with “laser eyes”, “HODL”, “have fun staying poor”, and loads of memes espousing the virtues of digital currency. NFTs (non-fungible tokens) were all the rage as artists, sports leagues, celebrities, and influencers all created digital moments for their fans to buy. The crypto “revolution” was in full swing with announcements from traditionally conservative corporations that they would start holding cryptoassets (usually Bitcoin) on their balance sheets. This blog post I wrote is a good primer on cryptoassets.
In real estate, suburban homeowners have been in a position of power as many families clamor to leave the cities for more space. There have been many stories of major bidding wars, properties bought sites unseen without inspection, and listings coming down within 3 days of being up. There’s also been an increase in the migratory pattern from the higher tax states (e.g. California and New York) to lower tax states (e.g. Texas and Florida). While this move is very common, we typically associate it with people who are getting ready to retire or are retired. This time there’s a large number of young families making the move as many companies extended work from home, implemented it permanently, or shifted to a hybrid model.
What does all this mean? Where are we headed for the rest of 2021 and beyond?
Looking ahead
The COVID-19 pandemic is still dictating many aspects of our lives which of course impacts the broader landscape. From a global perspective, the recovery is likely to be staggered as the lagging countries (e.g. Japan and India) improve vaccination rates and work towards herd immunity. As vaccination rates increase here in the US, the economy should fully embrace the re-opening which would mean consumers spend more money on services versus goods. We all want to resume those experiences (e.g. dining out, a spa day, or travel) we’ve missed while predominantly working from home these past 16+ months. There’s bound to be more talk and debate about who can/cannot require vaccinations or proof of vaccination. With the rise of the Delta variant, there’s potential for the pandemic to become an endemic where COVID never goes away and becomes another virus we have to navigate, similar to the flu.
My expectations are there will be a lot of short-term fluctuations (some bigger than others) in the markets with the Delta variant being the most likely cause. There will be plenty of “noise” with the prognosticators and talking heads doing their usual routine of trying to stir up panic and fear. The data supports a positive outlook. Global supply chains are starting to recover (provided no other ships get stuck in the Suez Canal for 6 days) from the shortages caused by the lockdowns and restrictions. There’s lots of news out of Washington DC around infrastructure. President Biden has made the $1 trillion bill (with $550 million dedicated to roads, bridges, and broadband internet) a top priority of his administration. If it passes, it would bring long-overdue improvements to the nation and potentially significant job growth. The innovations and efficiencies born out of necessity from the pandemic continue to work through the economy and we have not yet seen the full impact.
Our work remains focused on the long-term with the focal point being on the items we can control. Being diligent with those items can have a bigger impact on your financial success than trying to decode the markets and economy.
As always, I’m here to talk if you have any questions or concerns.