THE WEEK ON WALL STREET
An exceptionally volatile week, marked by wide intraday price swings, whipsawed
investors with stocks ending higher following a surge to the upside on the final
trading day of the week. The Dow Jones Industrial Average rose 1.34%, while the
Standard & Poor’s 500 gained 0.77%. The Nasdaq Composite index ended flat
(+0.01%) for the week. The MSCI EAFE index, which tracks developed overseas
stock markets, declined 3.54%.
Rising bond yields, Federal Reserve uncertainty, and escalating tensions on the
Ukrainian-Russian border unsettled markets all week. The week opened with two
successive days of deep early losses that were erased by furious, late-afternoon
rebounds. The following two-trading sessions that started with strong gains that
evaporated with late-session selling. The most dramatic session was Monday, in
which stocks ended slightly higher after hitting intraday lows that saw the NASDAQ
fall 4.9%, the Dow shed 1,115 points, and the S&P 500 moved well into correction
territory. Technology was at the epicenter of the volatility all week as rate fears
weighed on sector. Stocks rebounded strongly on Friday, managing to conclude a
week on an upbeat note.
FED READIES MARKET FOR RATE HIKES
Last week’s meeting of the Federal Open Market Committee (FOMC) left rates
unchanged, though officials signaled short-term rates would likely be raised at its
next meeting in March. As expected, the Fed also approved one last round of bond
purchases, bringing quantitative easing to an end by March. Left a bit more
nebulous were details on the pace and timing of reducing the Fed’s balance sheet, a
lingering worry of some investors. But Fed Chair Powell indicated that shrinking the
Fed’s asset holdings may occur at a faster rate than in past periods of balance-sheet
reductions, such as in 2014 and 2017.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: ISM (Institute for Supply Management) Manufacturing Index. JOLTS
(Job Openings and Labor Turnover Survey).
Wednesday: ADP (Automated Data Processing) Employment Report.
Thursday: Factory Orders. Jobless Claims. ISM (Institute for Supply Management)
Friday: Employment Situation.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Alphabet, Inc.(GOOGL), Advanced Micro Devices, Inc. (AMD), Exxon
Mobil Corporation (XOM), PayPal Holdings, Inc. (PYPL), General Motors Company
(GM), Gilead Sciences, Inc. (GILD), Starbucks Corporation (SBUX), United Parcel
Service, Inc. (UPS), Stanley Black & Decker, Inc. (SWK).
Wednesday: Meta Platforms, Inc. (FB), AbbVie, Inc. (ABBV), Qualcomm, Inc.
(QCOM), Thermo Fisher Scientific, Inc. (TMO), Spotify Technology (SPOT),
TMobile US, Inc. (TMUS), D.R. Horton, Inc. (DHI).
Thursday: Amazon.com, Inc. (AMZN), Ford Motor Company (F), Snap, Inc.
(SNAP), Eli Lilly and Company (LLY), Fortinet, Inc. (FTNT), Skyworks Solutions,
Inc. (SWKS), Honeywell International, Inc. (HON), Prudential Financial, Inc.
Friday: Air Products and Chemicals, Inc. (APD), Bristol Myers Squibb Company
Corrections are a normal part of market behavior; it just doesn’t feel good when
we’re in the middle of one. There is no such thing as a garden variety correction,
nor a sweet taste behind the painful occurrence. Keep in mind a correction is merely
that, and not a substantive change of direction in our economy. November and
December fundamental data – housing, retail sales and consumer sentiment – have
exceeded expectations. While we find ourselves in the middle of corporate results
announcements, the results to date support the moderate economic expansion
I’ll leave you with a graphic that, in my opinion, sums up investing about as best as
possible. Real life illustrations of the tortoise and the hare. It shows Warren
Buffet’s Berkshire Hathaway (the tortoise) compared to Cathie Wood’s ARK
Innovation fund (the hare). Now, I am not endorsing or disparaging either. Both
may have their place in a diversified portfolio. However, the ARK fund run by
Cathie Wood has been touted as the future. It was really hot in 2020 as she owned
a great amount of technology that was levered to the stay-at-home
economy. Warren Buffet is often criticized as being past his prime and for holding
too much cash and for being too disciplined an investor. He doesn’t chase the “hot”
sectors. He minds his own business and focuses on businesses he believes are
undervalued. For a time it seemed like Cathie was the new “oracle” as her fund just
went up and up. No doubt, she owns some good business, but she paid premium
prices over the past few years for many that weren’t making any money. Sure, if one
had sold at the opportune time they would have enjoyed the quick run up. But, I’ll
stop rambling and let the graphic speak for itself. Once again, we are reminded
investing is a marathon and not a sprint.
Have a good week!