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The Bull

Stock prices forged ahead during October, gaining 7.01% for the month (24.04% YTD) as measured by the S&P 500. This is a bull market, no question about it.  September’s challenges and 4.65% price drop seem a distant memory with the market’s recent strength.  A multitude of interesting headlines have changed the landscape:  Tesla share price rose 47%, lifting its stock value above $1 trillion; Microsoft surpassed Apple as the largest US stock by market cap; and Facebook has re-named itself Meta. Prices are a little punch-drunk having recorded new consecutive daily and weekly highs.

The backdrop is based on a generally positive narrative.  In the US, the pandemic seems to be largely in the rear-view mirror, and there are also positive signs across the globe. Vaccines and recently announced therapeutics from Merck and Pfizer have turned the tide; medical science and effective public health protocols have won. The employment outlook is encouraging as October payrolls showed strong gains in multiple respects and the unemployment rate fell to 4.6%. Wages are improving and jobs are available.

The world around us is changing rapidly and we’re not going back to the “good old days”.  Hybrid work has enabled many businesses to thrive by offering employees modified work from home arrangements and cloud computing is continuing to transform business productivity. Emerging alternative sources of energy and technology that are coming to market exponentially faster and the adoption of EV’s and the related technology (batteries, charging infrastructure, etc.) is advancing at a frantic rate.  It’s fascinating that 25 years ago, the three largest companies in the US were General Electric, Coca-Cola and Exxon.  Today, they are Microsoft, Apple and Alphabet (Google).

In my opinion, while we should expect continued strong economic growth into 2022 and a constructive fundamental backdrop, there are some things to watch.  One is weak consumer confidence; it has not rebounded in synch with the overall economy. The worry is that the pandemic led to a pull-forward of buying that has not yet normalized and is causing a demand slowdown. Consumer sentiment may also be related to the insidious inflation conversation.  The irony is that while jobs are plentiful and wages are higher, consumer mood may be dampened by highly visible price increases in things like gasoline.   

Other obvious concerns across the globe include the impacts of climate change, evolving international tensions and political polarization gridlocking policy making.  In the US, there is an emerging urgency to pay for many of the things (infrastructure) long neglected, some of which may be repaired with the recent $555 billion infrastructure bill. We are also experiencing a change in the culture of work with persistent low participation rates (high quit rates) we’ve not seen before.  Finally, the persistent concerns over inclusivity (specifically racial equity) is a weight on everything. 

As I look forward to 2022, there is good reason for optimism.  The market typically will climb a “wall of worry” during a bull market, rising in spite of investor fears.  I think the inflation scare is largely that: a scare. Core PCE for September indicates a reversion to the mean after the pandemic related surge. With interest rates low, and likely to remain low for an extended period, we are actively looking at other investments we can use to bridge the gap. These include private credit, impact and value-based investing, and some opportunities in the alternative investing space. We are also investigating possible investments we can make in the crypto and carbon credit space that may prove useful in the current marketplace.

Please do not hesitate to reach out if you would like to catch up.  We are working from the office if that helps.  We are happy to review your capital gains in light of the pending tax law changes, or other aspects of financial planning we may be able to help you with as we approach year end.  The last three years have produced some remarkable returns; our goal is to help you preserve your wealth as we navigate the ever changing markets in the years ahead.  Please be safe out there.

Bruce Hotaling, CFA
Managing Partner

Disclaimer:
The views and opinions stated herein are those of Bruce Hotaling, are of this date, and are subject to change without notice.   Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.  Investments are subject to market risk, including the possibility of loss of principal.  Past performance does not guarantee future results.  The S & P500 is an unmanaged index of 500 widely held stocks.    Investors cannot invest directly in an index.   The PE ratio (price/earnings) is a common measure of relative stock valuation.

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