Looking for more economic news? Confused Mr Market still ‘Waiting for Godot’
WASHINGTON – I’ve found it hard to come up with columns over the last week. That’s largely because a confused Mr Market is back up to his old, indecisive tricks. Having failed to learn once again from past experience, he seems once again to be “Waiting for Godot.” Who, of course, will never come.
Big rallies are typically followed by nasty pullbacks on fairly short order. One index of stocks soars, while two decide to head south.
Making matters worse, the bond ghouls are back to their old tricks, selling off bonds as if inflation were going to hit double digits tomorrow. They anticipate that individual Americans will recklessly spend down their latest $1400 presents from the Federal government on trifles, goosing that long dormant inflation number. Even though they’ll eventually have to pay for this largesse, probably via massive tax increases already promised by the Obama Biden administration. After all, it’s what Democrats always do.
Confused Mr Market ponders the Fed and the
Porkulus Stimulus bill
Marketwatch worries about what the Democrats’
porkulus stimulus bill will accomplish as it ripples through the economy.
“The big talk not just in markets but in politics is whether the new round of stimulus will overheat the economy.
“Bank of America’s research investment committee say it won’t, and brings some new data to the table. First, it cited data from the Census Bureau showing that of the households who received a $600 stimulus check in the first half of February, 73% saved or paid down debt. Consumer credit also unexpectedly fell in January.
“Bank of America also surveyed more than 3,000 people to ask how they would spend the new stimulus check. Even in the lowest-income category, 53% say they plan to either save, pay off debts or invest.
“So what does that mean for investors? Bank of America says don’t count on anything more than a temporary inflation rebound. Supply disruptions will be relieved as the labor force returns to work, plus progress on artificial intelligence and automation could mean fewer industrial jobs to return to. If wage growth does accelerate, companies can afford to accelerate research and development.”
What a world, what a world! But will all this move our very confused Mr Market decisively into either rally or crash mode? Nobody knows, although many opine, because that’s what they’re paid to do. (And readers and viewers rarely remember who turned out to be right or wrong.)
Which gets us back to “Waiting for Godot,” who has yet to show.
We can trace this week’s Wall Street riff on Beckett’s finest Theater of the Absurd plot back to a rally last Friday in the Dow Jones Industrials, a big-stock average that’s been lagging of late. CNBC had a good rundown on that action in a Friday online column.
“The Dow Jones Industrial Average jumped to another record high [last] Friday as rising reopening optimism continued to encourage the rotation into cyclical stocks. Meanwhile, surging bond yields rekindled valuation fears and took the comeback momentum out of tech names.
“The 30-stock benchmark climbed 293.05 points, or 0.9%, to close at a record at 32,778.64. Bank stocks gained amid rising rates, while industrials continued their strength on the back of new stimulus. Goldman Sachs shares jumped 2%, and JPMorgan climbed 1.2%. Boeing and Caterpillar popped 6.8% and 4.2%, respectively.
“The S&P 500 erased earlier losses and inched up 0.1%, eking out a record close of 3,943.34. Tech and communication services were the only two sectors registering losses. The Nasdaq Composite shed 0.6% as rates surged. Alphabet and Facebook dropped 2% each, while Apple, Amazon and Microsoft all closed in the red.
“The 10-year Treasury yield jumped 10 basis points to 1.64% at its session high Friday, hitting its highest level since February 2020. The benchmark rate started 2021 at around 0.92%.
“The rapid rise in bond yields prompted investors to dump the Nasdaq names again after a brief rebound earlier this week. Sharp increases in interest rates can put outsized pressure on high-growth tech stocks as they reduce the relative value of future profits.”
Interest rates on a perpetual bungee cord
You can see the game in this release. Investors – normal ones at least – are always interested in yield, whether derived from stock dividends or bond interest. Until fairly recently, investors almost routinely dumped bond holdings for stocks. That’s because many stocks, still somewhat depressed in price, were paying excellent dividends at a competitive rate.
So to buy more high-yielding stocks, investors dumped bond holdings to come up with the cash to refocus their portfolios. And, as I’ve noted many times before in this column, mass selling of bonds results in lower bond prices for those eager to buy them. Which then causes the effective interest rate on those bonds to go up. New owners pay less to “own” the same, fixed interest rate payout, usually made quarterly.
But lately, with bond yields, particularly in US Treasury issues, headed up (as the price of these bonds heads down), the effective interest rate slowly but surely becomes more competitive with stock dividends. Which is now causing investors to dump stocks and raise cash to purchase those newly high-yielding bonds once again.
The surprise victim of this latest switcheroo happens to be the tech stocks, heavily represented in the tech-heavy NASDAQ index. Techs typically pay lousy dividends because their shareholders want lots and lots and lots of growth and are willing to sacrifice dividends to get it. But the increasingly nonsensical year-long lockdowns in the US have blunted the growth of many tech high flyers to the point where shareholders are deciding to bail out and head back towards those higher yielding and generally much safer bond issues.
A preview of coming attractions
The Big Tech Dump looks to be peaking right now. But investors await the latest word from the Fed, which we should get on Wednesday afternoon. (Although bigwig investors, unlike us little guys, probably already have the inside news on this.)
Depending on how the Fed decides to read the economic tea leaves, and depending on a likely rate of future inflation, the perception of Fed policy will be what moves Mr Market tomorrow. One way or the other. Who knows? Maybe Godot will finally show up. We might have to find someone to retcon Sam Beckett’s most famous play. Maybe we could call it “Finding Godot.”
Are you confused? So are we. And so is Washington. And so is a still confused Mr Market
All matters Godot aside, if this somewhat speculative column seems confusing to you, well, it is. Because its author is confused as well. In truth, we are witnessing an out-of-control, radical leftist dominated Washington Establishment that’s hell-bent on completing Barack Obama’s “fundamental transformation” of America into a Marxist empire led by wealthy tech oligarchs and their wholly-owned Democrat (and Republicrat) politicians. I.e., the first “top down” Marxist regime the world has ever seen. All of it “run” by a figurehead “president” who’s never even sure what day of the week it is. This will have major, but as yet unknown, negative effects on Mr Market over all.
Meanwhile, so much for the “dictatorship of the proletariat.” These top-down fake Marxists don’t much care for “the people” or what they think. But they still successfully conceal their plans under things like the current “stimulus bill.” That pork-bloated monstrosity, like Barack Obama’s big “stimulus bill,” is in reality a vast laundry list of payoffs to those individuals and interest groups who made sure swing state vote counts went in their favor back last November. And the hell with the details, most of which are likely in the shredder by now. Talk about an American Tragedy. We’re in one right now.
Meanwhile, what our terminally confused Mr Market and his friend Godot are trying to figure out is if it’s possible to make money under an increasingly kleptocratic Marxist regime. And if it is possible, do investors making this money actually get to keep it? These pose numerous cosmic questions most Americans never thought they’d have to answer. But the right answer now could result in handsome profits near-term.
Now, if we only knew where to stash those profits when the IRS comes looking for them.
No wonder a puzzled and very confused Mr Market remains nervous and unpredictable. And still waiting for No-Show Godot.
More later this week.
– Headline image: Image via screen grab from publicly available YouTube PR promo clip previewing the classic 2013-2014 Broadway revival of Samuel Beckett’s “Waiting for Godot,” starring Ian McKellen and Patrick Stewart. Fair use in market trading analogy.