Welcome to the December edition of the newsletter!
It’s a little hard to believe that 2021 is almost in the books. Hopefully you find a quiet moment to reflect on the past year and to think about all of the gifts you may have received – tangible or intangible.
One ‘gift’ none of us were looking forward to is another variant of COVID. The World Health Organization designated the newest strain a ‘variant of concern’ and gave it the Greek letter Omicron. Existing vaccine efficacy against Omicron’s mutations is unknown, though the drug companies are striking a confident tone. Still, markets reacted negatively to news and sold off sharply in a shortened trading session on Friday, November 26th.
How worried should we be about Omicron’s economic impact? Supply chains have been playing catch-up all year, so the new variant could increase delays if countries choose to tighten restrictions. Consumer spending has been robust heading into the holiday season, so even if tighter restrictions return to bars, restaurants, and stores, we may see a dip rather than a full disruption in spending patterns.
In short, there’s a distinct possibility that Omicron’s impact is limited to a few bad trading days at the end of the year. At worst, Omicron’s impact may end up being like easing off the economic accelerator rather than slamming on the brakes – though the situation remains fluid and new information could alter the outlook.
Image source: Coindesk
In other news, did you know an original copy of the US Constitution was up for sale? Hedge fund billionaire Ken Griffin won the auction with a $43.2 million bid, a record for any book, manuscript, historical document, or printed text, according to auction house Sotheby’s.
Notably, Griffin beat out ConstitutionDAO, a crowdfunded coalition of 17,437 donors seeking to acquire the historical document. DAO stands for decentralized autonomous organization, a coalition of unaffiliated individuals organized using blockchain technology.
Would you believe the Empire State Building was once acquired in a similar way?
In 1961, a coalition of over 3,000 individual investors joined developers Lawrence Wien and Harold Helmsley to purchase the Empire State Building for a then-record $65 million. The average investment was $10,000. Known as a syndicate, the approach allowed individual investors to own a piece of the Empire State Building’s profitability without taking on the risk of operating the building themselves.
Even though ConstitutionDAO wasn’t successful, it’s not the first time a group of smaller investors banded together to acquire a piece of Americana – it’s just the first one to involve blockchain technology!
We’re grateful to count you as a client. If there’s anything you need, please schedule some time with our office.
Stocks were mostly negative this month as the market digested news of the latest COVID-19 variant and the potential implications of tightening monetary conditions.
Energy retained its spot as the top-performing sector this year, however, not without a volatile November. Real Estate leap-frogged into the top-three by losing less than Financials, which dropped nearly 6% in November.
Industrials, Consumer Staples, and Utilities each suffered a down month in November, though year-to-date performance remains positive.
The market retreated from stocks in favor of bonds, nudging performance into positive territory for the month. Despite the bump, bonds remain negative year-to-date.
President Biden re-appointed Jerome Powell as head of the Federal Reserve – good news for those hoping for continuity at the central bank. Powell concluded his term by signaling his desire to tighten monetary conditions by inching up interest rates and tapering the Fed’s bond purchases. Now that he’s been reappointed, expect the Fed to follow through on those two policies. If the market hates anything, it’s uncertainty.
Image source: New York Times
As Powell begins his next term, we find ourselves in a three-way stand-off between the Fed, the pace of economic growth, and the rate of inflation.
The Fed’s decision to drop interest rates to zero and pump billions of liquidity into the system doused the recessionary fire caused by the global pandemic. However, while the economy recovered faster than any recession before, the amount of money circulating in the system helped send inflation to levels not seen since the 1990s.
Historically, the Fed uses higher interest rates to attack inflationary conditions. The thinking there is that a higher cost to borrow money will discourage spending and encourage saving, giving the economy time to find a healthier equilibrium between supply and demand.
So, why not stop printing money and raise interest rates right now – just get it over with? There are very real concerns that moving too quickly could trigger another recession just as the economy is finding its footing (November’s unemployment rate came in at 4.2%, a few points from pre-pandemic levels) – drastic action often begets drastic results. Meanwhile, the pace of inflation may force the Fed to raise rates before they intended.
And so, while we wait to see how the situation evolves, we believe that a diversified portfolio aligned to disciplined, long-term approach is the best way to navigate market uncertainty.
Please schedule some time with our office to discuss any questions you may have regarding your portfolio.
Here’s what we’re watching in the month ahead:
November inflation figures. Inflation – as measured by the Consumer Price Index – came in 6.2% higher in November 2021 than November 2020. Will the pace continue, or will the Fed’s tapering help cool off prices?
Retail sales data. Despite in-person shopping volume dropping 28% this Black Friday, retail sales are expected to be 8.5% to 10.5% higher this year, according to the National Retail Federation. That’s good, as robust consumer spending implies a resilient economy. The report comes out December 15th.
Market volatility. With a double-digit year likely, expect some volatility in the final weeks of the season as investors rebalance portfolios for tax-loss harvesting or other end-of-year activities.
Man Who Had Heart Surgery Wins $1Mil Lottery on a ‘CashWord’ Ticket in Get-Well Card – the Winning Word was HEART
Alexander McLeish has won a $1 million prize in the Massachusetts State Lottery’s ‘Cashword’ instant ticket game—and the word that won him the scratch-off jackpot was a ‘heartfelt’ coincidence, to say the least.
Thought for the Month
Kevin Systrom (born December 30, 1983) co-founded Instagram with Mike Krieger, one of the fastest-growing social media applications. When he resigned as CEO in 2018, Instagram had estimated 1 billion monthly active users. Facebook acquired Instagram for $1 billion in 2012.
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
Consumer Prices - CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
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