Market Musings 10/6/2021

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

Conservative Fed playing catch up to surging inflation data. We expect more volatility as incoming Fed action gets concrete timeline. High growth likely impacted; portfolios positioned for more #Flight2Safety.

Markets have been incredibly resilient despite a once-a-century #COVID19 pandemic with the S&P 500 up +95% through August since last year’s low (3/23/20). Even this year, the S&P 500’s peak was up over 20% exiting August after seven consecutive green months. While #InflationFears weren’t exclusive to September, Fed turning hawkish likely turned up the heat on simmering fears and saw the S&P 500 drop -5% in September.

In September’s commentary, Fed Chair Powell signaled incoming asset purchase tapering “may soon be warranted”. Since #COVID19 hit last March, the Fed has purchased roughly $4.5T in treasuries and mortgage-backed securities. Roughly $3T to stabilize markets in April & May and $120B per month since June. This process is known as Quantitative Easing where the Fed injects money to stimulate the economy.

Early in the pandemic, Fed support made a lot of sense. The S&P 500 fell -34% from its mid-February peak (2/19/20) to #COVID19 low. By the end of May 2020, the S&P 500 was only off its mid-February peak by -10% largely stabilized by Fed purchasing. By August 2021, the S&P 500 was up 34% off the pre-pandemic peak as Fed purchasing continued.

With #COVIDRecovery in 2021, investors have been closely watching inflation data all year for signal of Fed tapering purchases and increasing rates (another monetary policy tool). While Powell has conservatively softened increasingly higher inflation data as ‘transitory’, we’ve seen the Fed rate forecast accelerating all year. In March, dot plots forecasted rates wouldn’t increase until after 2023. Six month later in September, Powell signaled rate increases in 2022. While current inflation may be slightly elevated, we don’t view the bulk as transitory and expect Fed action timetable to continue to accelerate.

With Powell finally signaling hawkish action, September fell -5% as investors brace for incoming Fed support removal. Resurgent #RisingYields as 10-year treasury rates spiked +17% triggering more #Flight2Safety Value rotation as high-growth Tech and Communications drop -6%. We expect #InflationFears to keep trending in Q4 as #COVIDRecovery resumes post-delta. We continue to like our portfolio’s #Flight2Safety tilt.

While the market party 🎉 may be coming to an end, we still like #Flight2Safety and #COVIDRecovery names under appreciated in the post-pandemic Growth boom.

No Ursa account yet? Download Ursa here!

The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.

Original Photo by John Guccione from Pexels