When I was working, I used to call this taking off my hat as a human being and putting on my hat as an investor.
As a human being, I’m concerned about the war in the Middle East, the war in Ukraine and what seems to me to be the intentional cruelty of “conservative” politicians in denying women medical care. And then there’s the report that Donald Trump has told the heads of major international oil companies that he will scupper US efforts to combat climate change in return for a $1 billion payment, ostensibly to his campaign. Maybe the most troubling to me is the question of how the FBI knew to look for the ultra-secret documents Trump hid at Mar a Lago.
But put all that to the side.
What strikes me:
–the S&P 500 and NASDAQ are both up by 10%+ so far in 2024. That’s already a full year’s work. And we’re reaching the summer, which is usually a slow period for stocks. So I think it’s reasonable to expect that we’ll go sideways for a while
–looking at the story stocks that drove the market during the pandemic, using ARKK as a proxy for them, these speculative names appear to have bottomed 18 months ago. But they have been trading in a narrow range since then and have not participated in the overall market’s rally. For 2024 to date, for instance, ARKK is down by about 13%, meaning 20+ percentage points of underperformance vs. the major indices. At some point, maybe even today, it will be important to pick through the rubble in this corner of the market. For now, I’m not so interested, but that could easily change
–the domestic economy is increasingly trending back toward normal, as I see it. That doesn’t mean the status quo ante, though. And it doesn’t mean we’re all the way there, either.
Retail and fast food are, as usual, informative. Chipotle, which is relatively expensive, is strong. McDonalds, which is aimed at a less affluent audience, is not. Starbucks’ shows a similar pattern–higher income customers are back in force, while lower-income, once-a-day customers are not. Walmart (I recently bought a small number of shares, so I’m an owner for the first time this century) just reported strong results this morning. One reason for the earnings gains is that the company seems to be keeping more than the usual number of customers who traded down during the pandemic. Another reason, and one at least as interesting to me, is that I think management mindset may have shifted from defending the business it has already built to trying to expand it aggressively.
It seems to me that retail will continue to be a very important area for finding earnings surprise.
–Wall Street strategists seem to me to be unusually confused. My guess is that their general negativity comes from their having their roots, broadly speaking, in the bond market. Two consequences of this last: straight bonds have few defenses against higher interest rates; and because rates have been until recently in a secular downtrend since the early 1980s (meaning 40+ years!!), no one has much practical experience of how a period of rising rates unfolds