Market Notebook

by | Oct 31, 2021

Discussion – 

Both equities, as measured by SPY, and bonds, as measured by BND, posted gains during the last week. Equities moved to new highs while bond prices established a new consolidation range.

The Dallas Fed’s Trimmed Mean PCE recorded the hottest inflation measurements of the last six months, suggesting recent price inflation is not moderating. Those suggesting that the inflation we have been experiencing is transitory must finish that statement and include a timeframe. If something is transitory across a long enough timeframe, that represents more of a cycle than a transition. So far, bond market participants’ responses to inflationary concerns have been measured, and this suggests that market participants still believe inflation will be transitory over the next several months. If, however, data begins to indicate that inflation could be hotter for longer, then we could see a further selloff in bonds with possible spillover to equities. The above is about the spookiest Halloween statement one can “dig up” regarding the “back from the dead” capital markets.

Of the individual equities I’m following, the established names tend to be trading towards the top of their valuation ranges but not extraordinarily above their ranges. Think COKE “KO,” for example. As such, I’m happy to hold those names for potential further upside unless overall market conditions change significantly. Where I am looking for value is in some of the newer names in newer market segments. Those segments include areas like Artificial Intelligence, Space Exploration, and Electric Vehicles. Additionally, there are some interesting names within the Value Factor Candidate list that may warrant some attention.

Regarding bonds, I risk sounding like a broken record. Rebalancing to underweight bonds may be prudent until we can get a better read on inflation.

Happy Halloween, everyone, and all the best in the week ahead!!