THE WEEK IN REVIEW: April 18 – 24
Uneven return to normal
Last week, we surpassed 200 million vaccine doses administered in the U.S. I will freely admit that I had my doubts that we would achieve 100 million doses in 100 days, as President Joe Biden had promised, even though we had 400 million doses of vaccines ordered. But Biden has announced that 200 million doses have been administered in only 92 days. That’s great news, and the prior administration should get some credit; however, so long as people continue to get vaccinated and the economy continues to reopen, that’s all that matters.
Despite the high numbers, the pace of vaccinations is slowing and we are getting conflicting signals from our officials. The whole point of vaccines was the ability to go back to “normal.” To me, that means no masks; requiring people to wear a mask after getting vaccinated doesn’t feel or look normal, plus it’s a disincentive to get the vaccine in my opinion. If we can pay people for getting vaccinated and then wearing a mask, I might be interested.
Europe seems to have stabilized from its earlier vaccine troubles. However, infection news from Asia is still disturbing, with India reporting 300,000 infections in one day last week.
Collectively, this news creates conflicting and uneven messaging. If this continues, it may impact our recovery and stall our economy, which could result in much angst and volatility in the markets.
Waiting for the next big thing
Domestically, the market sputtered last week, as President Biden proposed hikes in the capital gains tax rate and Republicans offered a $568 billion counterproposal to the huge, $2 trillion infrastructure plan. I have written before about unforced policy errors that could impact the markets and the recovery. In my opinion, the Keystone XL pipeline shutdown was one such error, and the bungling of vaccinations (which thankfully hasn’t happened) would be another. Imposing higher taxes could also be problematic. Markets and investors simply do not like higher taxes, and the proposed tax hike will have negative implications for markets if it comes to fruition.
The overgrown infrastructure plan has met resistance as expected. Markets are convinced that the $2 trillion plan will move through Congress mostly unaltered, and this has been priced in, but this wouldn’t be the first time the market has gotten ahead of itself. I would keep an eye on this. If this unravels, we could have trouble.
Existing home sales for March disappointed, coming in at 6.01 million instead of the projected 6.19 million. (Still, the market continues to be red hot.) Lockdown darling Netflix took a hit, with subscriber growth slowing and cancellations picking up as people spend less time streaming and more time outside.
Canary in a Coal Mine?
Remember the song by The Police from 1980? “First to fall over when the atmosphere is less than perfect. Your sensibilities are shaken by the slightest defect.”
Every time we do a postmortem on why the market stumbles or goes into correction territory, we find the one or two glaring warnings of things to come. Please humor me as I discuss some potential “canaries in the coal mine” that may tell us markets are about to teach us yet another lesson.
Like the miners who carried canaries into the mines as an early warning against carbon dioxide and other toxic gases, I am confident there will be some market event(s) that should have told it was high time to cash in our winnings, rebalance or reposition for the rough patch that lay ahead. These would be events similar to the Bear Stearns collapse and sale for $2/share to J.P. Morgan in March 2008 or watching bubble poster child buying Super Bowl advertising. What will be the defining moment when we all collectively say, “Yup, should have seen that coming a mile away?” For your consideration, I offer not one but two possibilities: Dogecoin and the European Super League.
Dogecoin debuted last week and was briefly worth more than $50 billion. That’s more than Ford. You know, the company that makes the cars and trucks a large portion of America drives. You might even have one in the driveway. How much Dogecoin do you have jingling in your pocket? To be fair, I’m not a fan of cryptocurrencies as a substitute for real currencies run by government and central banks. If crypto moves in a significant way to become an alternative and infringe on actual state-run currencies, it will likely be crushed quickly. All you need to see is how the U.S. government outlawed holding gold during the Great Depression so it could manipulate the currency. Perhaps it might be fine not as currency but as an instrument of speculation?
The European Soccer League collapse is even easier to understand. In an insanely greedy undertaking, where money is made hand over fist (or in soccer’s case, hand over foot), some of the greediest decided to get greedier. The fans and players rebelled, forcing the venture to collapse.
Coming this week
  • The Federal Reserve will meet Tuesday and Wednesday. No one is expecting any change to the Fed’s current stance.
  • First quarter GDP is expected on Thursday. Estimates range from a 6% to 8% annual rate, which would validate the data we’ve been seeing. Anything below that range should cause concern.
  • We will see more earnings this week. We’ll also get Consumer Confidence and Consumer Sentiment on Tuesday and Friday, respectively. And don’t overlook Personal Consumption Expenditure, which will be released Friday.
  • And of course, on Thursday we’ll get initial weekly unemployment claims, which dropped again last week from 586,000 to 547,000. That’s great news, and we need to continue on that path as the economy fires up.
Have a great week!
Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management
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