Weekly Summary

We believe that the Fed is now “all in” regarding looking through the negative effects of the Delta variant. We surmise that the Fed anticipates, as we do, that this variant will become more manageable in the near future.

Today’s “risk off” day – lower yields and lower equity prices – was prompted by reports that China’s second largest developer, Evergrande, will be unable to meet its upcoming interest payments.

So far, consumer inflation expectations seem to be rising in a very consistent pattern for many months. Consumers seem able to look past the more variable monthly statistics on inflation, employment and economic growth rates.

When investor “positioning” has become extreme, market sentiment can shift very quickly. Given the extreme dispersion of investor opinions about inflation, economic growth rates, employment, etc., sometimes a lack of positioning ahead of a significant data point can also lead to surprising market reactions.

Weekly Summary: August 23 – 27, 2021   Key Observations: Post peak economic growth can still be very favorable for Value and Cyclical stocks, as well as for equities overall. Given the great dispersion of economic growth and inflation expectations, shifts in...

As economic growth rates have slowed, rates of inflation have increased. Hopefully, in the words of singer Marvin Gaye, we “can see what’s going on” presently with the Delta variant’s infections and their effect on economies, inflation and financial markets.

The Delta variant experience of India, which has a very low vaccination rate and the U.K., which has a relatively high vaccination rate, both show that Delta variant infections tend to rise quickly but also seem to dissipate rather quickly. Higher vaccination countries like the U.S. should see only a relatively slight delay in its economy more fully reopening.

We view the words that the Beatles first sang in their breakthrough album “Rubber Soul” as very apropos to investors’ current task at hand. We are all trying to “look through” the current data and forecast what lies ahead. But investors’ forecasts are very often “not the same.”

The Delta variant has provided the Fed with greater latitude, enabling it to maintain its easy monetary policies. In its statement at the conclusion of its mid-week meeting, the Fed noted that the “path of the recovery continues to depend on the course of the virus.”

This is a very opportunistic type of market environment and investors must “seize the day.” When the opportunity presents itself, one must act. In this market, we simply can’t afford to wait for an “appropriate” catalyst.