Market Update
To what can we attribute this rather emotional market? Let’s just blame Covid-19, or Covid-22 as a child in our orbit just recently quipped, because ultimately it is all the pandemic’s fault no matter what year is on the end of the name.
However, while Covid’s Omicron variant has given us nearly five times the infections as the Delta variant, it has not come with the economic knock-downs on GDPs seen in early rounds. A few counties have dabbled in renewed restrictions but for the most part, China remains the only economic heavyweight still devoted to a zero infection policy that comes with stringent personal and business lockdowns. In the U.S., government-imposed restrictions have been almost non-existent.
Millions more people have contracted Covid just this year. It’s been painful for them of course but also hard on their families, co-workers and students, even as the illnesses have been mostly short-lived. The short-lived part is important to emphasize. South Africa, which alerted the world to Omicron in November, has already returned to its pre-crisis GDP. For the rich countries with the resources, subsequent waves of the virus will wash over us and go out to sea.
Case in point, the number of new jobs created in January in the U.S. was over 3.5 times as high as the most optimistic forecasts. Businesses hired 435,000 new employees and hourly earnings bumped up 0.7%. This is exciting, but has also bolstered the case that all is well, prompting the Federal Reserve to respond by raising rates by either 0.25% or 0.50% in March.
The bond market continues to react strongly and again today, bond yields climbed higher as investors sold off ahead of these policy changes. Shorter-term fixed coupon bonds are especially sensitive as these securities are most likely to lose value when the Fed raises the short-term rate, called the Federal Funds rate. Investors do not like to be stuck with lower-coupon fixed income securities when new issues have higher rates. Thus, the sell-off; remember that yields rise when prices fall.
Overall stock markets around the world are moving in reaction to inflation and overall economic strength. This is not just a U.S. issue as many central banks are discussing higher rates as a means to slow down spending. The U.K. just lifted its interest rate for the second time as has Brazil. Canada and Australia are moving in that direction too. The European Central Bank rate is currently -0.5%. It has signaled that it might lift it slightly rattling European markets. Japan is staying pat on its rate, maintaining that it is just barely starting to heal from the pandemic.
Conversely, China is lowering rates, as is Turkey, which has sky-high inflation. Turkish inflation, officially listed as 36% and believed by many to be much higher, has been aggressively lowering interest rates to 14% from around 50% at the start of the pandemic. Turkish President Erdogan is working on the premise that low rates curb consumer spending, an unconventional and yet unproven premise.
Also driving markets is a flood of earnings reports. As of this morning, just over half of the S&P 500 companies had released earnings. Profits have averaged 8% above projections yet this has not been enough to soothe stocks at their current prices. While averages are up a bit on the week, the action beneath the headline numbers has been nothing short of wild. Some of the biggest corporations have been on a roller coaster ride straight down or straight up. On Wednesday afternoon Meta, previously Facebook, announced earnings and saw its stock drop over 25%, pulling down a good many technology stock sympathizers with it. Just a day later, Amazon’s higher earnings sent its price as much as up $500, or 18% on Thursday in the after-hours market before settling down a bit. These two companies alone are weighted roughly 5% of the S&P 500 and thus have an outsized impact on index returns.
The energy sector continues to be a consistent winner in this environment, extending its lead this week. Energy tends to do well in inflationary times anyway but add in a world economy that is still getting back on trend with travel plus tight supply and it makes a perfect setup for the sector. Speaking of supply, the Wall Street Journal reports that the U.S. is permanently trending down on production just 3.5 years after becoming the world’s largest oil producer.
Let The Games Begin Again
Less than six months since the late-starting Tokyo Summer Olympics closed, we are being treated to the Winter Olympics which begins today in Beijing. But such are pandemic times and NBC is prepared to offer you 2,800 hours of content to binge on. Here's what else is happening around the games:
Recycling and Renewable
The Bird’s Nest, the setting for many events in the summer of 2008, is the backdrop for the opening and closing ceremonies. In all, five venues will be reused from Beijing's 2008 Summer Olympic games.
All 13 competition venues will be powered with renewable energy, primarily solar and wind energy.
Protesting
U.S. diplomats are boycotting ongoing human rights abuses and will not be in attendance. India, Canada, the U.K., Australia and others are also keeping official delegations at home.
Missing
Real snow. It is plenty cold there but the snow will be 100% artificial.
Pita Taufatofua, the Tonga flag bearer. Famous for many things but particularly his lack of shirt and his participation in both Summer and Winter Olympics, Taufatofua is at home helping with the recovery from last month’s tsunami that hit the Tonga islands after a massive undersea volcano erupted. Returning Spectators will be allowed, unlike in Tokyo last summer where stands were empty save for a few athletes, coaches and officials. Attendance will be strictly limited and to those watching at home, crowds will still seem very light.
The Jamaican bobsledders! Having not participated since 1988, this team kept in shape by pushing a car around during Covid-19 lockdowns, Cool Runnings style. Medaling The winter Olympics has just seven main sports categories: biathlon, bobsledding, curling, ice hockey, luge, skating and skiing. Athletes will compete in 109 events in those categories. Healthy China has focused on a zero-Covid policy that extends to its Olympic guests. All athletes, their entourages and the journalists are required to be vaccinated or to quarantine for 21 days. Covid is present but with daily testing, face masks and temperature checks, officials hope that interruptions will be minimal, or ideally zero. Rhyming Politically, these games rhyme historically with the 2014 winter games in Sochi, Russia. China’s Xi Jinping and Russia’s Vladimir Putin share high regard for each other and little for the rest of the world. Russia is again amassing troops on the borders of Ukraine, which it invaded just days before the end of the Sochi Olympics. China likely does not want a scene-stealing Russia to invade before the end of these games but how this will unfold is still a mystery to most everyone not named Vladimir Putin.
Where's Elon Now?
You’ve never heard of Jack Sweeney but his Twitter account caught Elon Musk's attention recently. Jack is 19 years old and a curious techie, much like the man he has been stalking since June 2020, when he began posting publicly available air traffic data to chart the movements of the Tesla founder's private jet. Musk was understandably concerned about his security and asked the young man to stop advertising his whereabouts. He also threw in $5,000 to sweeten the deal.
Jack countered with a $50,000 offer, because $5,000 does not compensate him for the entertainment he is getting from the hobby. He also gave some free advice to Musk on how he might cover his jet's trail with a little work on his end. It seems that Musk took the advice but did not follow through with any payment. This might seem a little stingy; afterall Musk is the second richest man in the world.
On the one hand, it is fair to assume that he doesn’t know that the US allows tax free payments of $16,000 annually to any person(s) you want to gift in a year. So Musk could have offered that for Jack's agreement to cease tracking him. Or better yet, a job to the student who is already working at UberJets, a start-up helping fancy people find cheap seats on private planes.
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