Stocks and TINA

We talked to a prospect this week about investing in the stock market and he said that he is very nervous about all the uncertainty and lack of confidence in the markets. My response was “when did you not feel nervous about the stock market?” He laughed, agreeing that we are always worried about markets. It always feels like today is the worst it gets, forgetting the last time we felt this way.

I hope you are still drinking water and breathing because the drama continues. The 10 year US Treasury yield moved above 1.5% and the stock market felt the impact. The correlation between asset classes is an important consideration in modern portfolio theory. When the overall system is threatened, standard correlation or lack of correlation is disrupted. This happened on Tuesday this week when the 10 year Treasury yields crossed above 1.5% for the first time since June 2021. On the same day the stock market averages also declined significantly. Usually, correlation says the stock market declines and US Treasuries rally with higher prices and lower yields. This happens when markets are under stress. In this case, the Fed told markets that they will be tapering their bond purchases this year and are looking at rate increases beginning in 2022. A growing economy and increased inflation that might last, according to the Fed, will last into 2022 are making markets nervous from an economic and monetary perspective. Add in the continuing funding of the government, raising the US government debt limit, and congressional legislation on bi-partisan infrastructure, pandemic, and the additional budget proposal for $3.5T in human infrastructure spending has us in suspense as of today.  

TINA

“TINA” is alive and well. TINA= There Is No Alternative. Since 2008 with interest rates so low and growth tepid but nevertheless still growing, favored stocks are in the growth area and this has worked really well. This week might have been a wake-up call but we have been here before. Buy during the dips has prevailed. Is it different this time?  

A continuing resolution to keep the government open was announced this week.  Check that box!

COVID

The vaccine/mask wars continue. The widespread impact of the pandemic is felt in every element of our lives. We visited NYC this past week and our observation was: What Pandemic? Mask wearing was optional in stores and, compared to SF compliance, mask-wearing was much less. Downtown SF is still pretty deserted.  Some lunchtime spots are open but there is no wait to be serviced in the Apple Store in Union Square. 

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