Doves, Hawks, and Turkeys all in the same week… mind your portfolio

Stocks had mixed close on Friday as COVID fears prove to be long-lasting.  Tech shares managed to rally on Friday because no one wanted to miss a potential rally in growth stocks, which outperformed during the pandemic.

N O T E W O R T H Y

For the birds.  If you are located here in the US, this week is all about turkey, a big bird.  Families will gather and celebrate Thanksgiving and mark the occasion by eating turkey in remembrance of some of our earliest settlers sharing a meal with the indigenous locals.  Of course, there is no evidence that the early revelers actually ate turkey, but hey, who doesn’t love a wholesome tradition, especially when it includes eating.  The week ahead for the markets is also all about the birds as well.

My regular readers have read my musings about the hawks that live in the small wood behind my yard.  As the last of the leaves have fallen, I am able to get a better view of the higher boughs of the trees in the wood where these hawks make their homes.  This allows me to watch their comings and goings more carefully.  I observe them circle the skies above as a they search for food, sometimes flying groups in what appears to be a ritual dance.  They generally get along with each other, but I do catch a glimpse of the occasional row between some of the younger ones as they stake out their territories.  This Saturday morning as I sat in my office reviewing notes from last week, one of the handsome birds landed on a bare branch very near my window.  I could see the hawk’s distinct crown and sharp, hooked beak along with its big eyes.  This one look like a Red-tailed Hawk with dark brown back feathers, pale sand-dotted white chest, and long tail feathers that culminated in a red hue.  This one was most likely a male, as it was on the smaller side.  As I widened my view, I was able to spot several others in the distance as if they were all gathering.  I felt lucky to get the close-up view and watched him for quite a while until he took flight and disappeared beyond my sight.

Later that morning, I was in my bedroom which has window on the front of my home.  I front of my bedroom window is a very old, quite large Weeping Cypress tree which both my wife and daughter threaten to have removed every year as it has overtaken a good part of the front facade of my home.  As I looked at the tree, I noticed some movements deep inside the evergreen limbs.  “Could it be another Hawk?” I thought to myself.  I looked closer until the bird finally revealed itself as a Mourning Dove.    Far from the haws in my wood, these doves are not predators and feast on seeds and corn from the farms that dot my town.  This one appeared to be by itself, which is atypical as I usually see them in pairs… I am told they mate for life.  I thought to myself, how ironic is that a lone dove was perched in the front of my home, while an abnormally large number of hawks could be found in the back of my home, all in the same morning.  As I was actually working, the sightings reminded me of the Federal reserve and its changing makeup.

As inflation continues to rear itself, more and more members of the Fed are calling for a withdrawal of financial accommodations.  The hawks, as they are referred to, would like to see bond tapering sped up and rate hikes sooner.  The opposing members, known as doves, are fearful that if rates are raised too quickly, the economic recovery could stall, or worse yet, be pushed back into a recession as it was in the 1980s.  The President is currently deciding on who he will nominate for the next Federal Reserve Chair position.  It is known that he has narrowed down his choices between the current Chair Jerome Powell and current Fed Governor Lael Brainard.  Both are considered doves by Fed watchers, though Powell is more of a centrist.  So, which will it be, and will the next chair actually dictate the direction of the Fed at this very tender moment for the US economy?  As this is a Thanksgiving week, market hours are abridged and economic releases will be compressed into three days, during which there will be lots to consume.  There will be some important flash PMI numbers, Durable Goods Orders, and some regional Fed reports.  On Wednesday alone, we will get Personal Income, Personal Spending, and a second estimate of Q3 GDP.  Fed governors will be very interested in the first two as the GDP is a measure of past performance while the others are a more current assessment.  The real focus on Wednesday however will be on the PCE Deflator, which is the Fed’s favorite measure for inflation.  Economists are expecting a big pick up from last month’s reading, which is consistent with the CPI numbers we just recently received.  Later in the day, the Fed will release the minutes from its last FOMC meeting.  Though it is a lookback, it will provide us with a bit more color on the raging debate between the diminishing number of doves and growing kettle of hawks.  President Biden is also expected to announce his nomination for the next Fed Chair before Thanksgiving.  So, this will truly be a week for the birds.  Pay close attention.  You never know what may land on the stoop next to you.

THE MARKETS

Stocks had a mixed close on Friday as COVID fears gripped the markets.  A full lockdown in Austria and one being considered in Germany was enough to send European shares lower and the US followed suit.  The S&P500 slipped by -0.14%, the Dow Jones Industrial Average fell by -0.75%, the Nasdaq Composite Index rose by +0.40%, the Russell 2000 Index dropped by -0.86%, and the S&P500 ESG Index gave up -0.08%.  Bond rose and 10-year Treasury yields fell by -4 basis points to 1.54%.  Cryptos gained +2.21% and Bitcoin climbed by +0.48%.

NXT UP

• Chicago Fed National Activity Index (October) is expected to have come in at 0.10 compared to September’s -0.13.
• Existing Home Sales (October) may have fallen by -1.4% after rising by +7.0% in the prior reading.
• After the close we will get earnings from Agilent and Zoom Video.
• Lots more in the week ahead.  The market will be closed on Thursday and on Friday, the stock markets will close early, but a week’s worth of important data will be crammed into the next few days.  Please refer to the attached economic and earnings calendars for details.