Archive for the
‘covid 2021’ Category

By Randall Coleman, Portfolio Manager

May you live in interesting times. Is that a blessing, or a curse? The day after Thanksgiving is notoriously boring in the stock market. It is a short, early close day, and typically volume is very light. Usually, nothing interesting happens. Since 1928, two-thirds of the 93 Black Fridays saw an average gain of 0.660% in the S&P 500, while one-third saw down days averaging -0.747%. Pretty boring, until, of course, Covid of the Omicron variety reared its ugly head. 2021’s edition of Black Friday saw the biggest day-after-Thanksgiving market decline in 90 years, second only to 1931’s 2.31% decline. Markets sold off sharply around the globe, commodities were slammed with crude oil taking the biggest hit (-13%) as investors reeled from the potential threat of a new virulent Covid strain. Are we doomed (again)?

Hand-in-hand with big market moves comes a spike in volatility, measured by the VIX, the CBOE Volatility Index. This index is commonly known as the Fear Index and measures the market’s expectation of volatility in the near future. Not surprisingly, the VIX leapt to its highest reading since May and ended the day at its highest level since February 25 and its sixth highest closing value of 2021. Below are two graphs of the VIX, the first represents the past year and the second is a long-term representation over 30 years.

VIX Year-to-date

VIX over 30 years

I would like to draw your attention to several points. Every time volatility has spiked and even stayed at an elevated level for a period of time, it has always subsided. Yes, it can stay elevated for months and years, but it has always returned to a more normal, or calm, level. Higher periods of volatility are frequently periods of extended market decline. Higher volatility equals higher fear. Fear peaked in October 2008, with the VIX measuring over 60 for most of the month, but the market didn’t find its bottom until March 6, 2009, when the VIX had dropped to the 40-50 range. Short-term jolts cause short-term corrections, while long-term trends take months to make themselves apparent. The point is that market sentiment takes a long time to change direction. Often (May 11-13, July 19-20, August 18-20, September 20-21 e.g.), short-term spikes subside just as quickly as they crop up.

The “potential” threat of the Omicron strain dealt a savage blow to crude oil prices as well as stocks. US crude fell more than $10 a barrel, or -13% on the day. While that move put a big dent in energy-related stocks, it also took a big chunk out of future gasoline prices. For drivers in California, where $5/gallon prices are common now, that’s decidedly good news. There are two sides to every equation.

Are we in an endless cycle of Covid mutation-flare up-lock down? I’m not a doctor, and I don’t play one on TV, so I can’t answer that question. What I do know about is investing in stocks. Stock prices go up and down. Fear levels go up and down. Investing in stocks is a pathway to financial goals and getting there is not a straight line. Indeed, stocks climb the Wall of Worry and the historical experience is that stock values move higher over time.

Call it a slap in the face or a wake-up call. It is good to get reminders occasionally that the market is not a linear progression. Risk matters and that’s why we at ACM take such care with our clients’ portfolios.

We live in interesting times and I’ll take that as a blessing.

The Risk-on, Risk-off Teeter Totter

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

Google+Print PdfSumoMe

About the Author

Randall Coleman

Randall Coleman

Randall Coleman, CFA is a portfolio manager focused in international and small/mid cap securities. Before joining ACM, Randall was the co-manager of the Salient Dividend Signal Strategy® portfolios. Previously, Randall was a portfolio manager and analyst for Berkeley Capital Management….
About the Author

Read more

By Dr. Chuck Lieberman, Co-founder and CIO

Economic growth is very strong, profits significantly outperformed optimistic expectations and hiring is robust, even as bottlenecks and labor scarcity hamper the pace of recovery. The rally in the bond market turned on a dime. Most Fed officials still seem to prefer maintaining the current highly accommodative policy stance, but the data are making an eloquent case, at a minimum, that the Fed’s bond buying program should be brought to a swift end. These conditions keep us positively disposed towards stocks and highly cautious about prospects for the bond market.

Evidence for a robust recovery is everywhere and crystal clear in the labor market. With 935,000 new hires in July, an upward revision of 119,000 to prior months, and a 0.5% decline in the unemployment rate to 5.4%, the strong pace of growth is indisputable. The difficulties firms are encountering in hiring are spilling over into wage rates, which have risen 4.7% over the past year and 5.5% at an annual rate over the latest two months for nonsupervisory workers. These cost increases are unlikely to stop.

Delta variant cases raised concerns that growth might weaken and the bond market rallied sharply since mid-March. With the Fed buying Treasury debt as fast as Treasury was issuing new bonds, the enormous deficit was not dumping large new supplies of bonds into the market. Even so, with strong growth and rising labor costs, the Fed’s hopes that inflation pressures will prove to be entirely transitory look increasingly like wishful thinking, so the bond market fell very sharply for two days. Conversations on when the Fed should start to taper its bond buying programs have surely been underway for months, but disagreements are now being expressed in public. Some are suggesting that the bond buying program should be tapered this year instead of waiting until next year. It appears Fed Chair Powell and a number of others would prefer to keep rates low by continuing to add more liquidity, despite the strength of the housing and labor markets, but the strength of the economy and wage inflation make that view harder to sustain. Chair Powell will speak later this month at the Jackson Hole Conference, a venue that has previously been used to announce changes in policy. Even if they choose to defer that decision a bit longer, they are running out of runway. Tapering will begin by the beginning of next year, at the latest, and could start sooner, unless Delta becomes much more problematical. But we suspect the rise in Covid cases will reverse within a few weeks, following the tracks of the U.K. and India.

The implications for investors are really straightforward. The economy is roaring ahead and profit projections are being revised higher, so the stock market should continue its ascent. On the other hand, we have likely hit the low yields for the bond market for the year and rates could rise substantially in the coming months. So, we remain positioned for more economic reopening in stocks and remain fairly defensive in our bond exposure, a game plan that has worked well this year and that should continue to work for the near term.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
About the Author
Dr. Charles Lieberman
Dr. Charles Lieberman

Dr. Charles Lieberman is the Chief Investment Officer and co-founder of Advisors Capital Management, LLC. Dr. Lieberman began his professional career as an academic at the University of Maryland and Northwestern University. After five years in academia, he joined the…
About the Author… Read more