Double Punch

Double punch.  Stocks swayed yesterday after a disappointing jobless number and climbing treasury yields.  Growth and tech stocks took the brunt of the bruising.


Tomorrow, not today.  One of my mother’s favorite sayings to me as a child went like this: “Morgen morgen, nur nicht heute, sagen alle faulen Leute”.  While we have some pretty good allegorical sayings in English, some of the foreign language ones, I have to say, are certainly noteworthy.  The translation of this passage is “Tomorrow tomorrow, just not today, all the lazy people say.” I’d like to believe that my mother was not commenting on my behavior as a child but rather teaching me how to be a responsible adult, though I did, on occasion, dawdle when it came to cleaning up my toys.  In any case, the old proverb came to my mind when I was thinking about the markets and how there is a constant push and pull between what is happening today and what will happen tomorrow.  There is a tendency to be hyper-focused on what is happening today.  After all, economic numbers, earnings, dwindling savings, etc., they are all real, tangible, present, and mostly mathematical.  The future is full of guessing and projecting, the stuff of speculation… not really mathematical.  So, naturally we like to rely on what we know and where we are today to formulate an investment thesis.  While those bits of current information are extremely important, when it comes to long term investing, it is the future, tomorrow, what investors should be most concerned with.  We are just about wrapping up earnings season and, so far, it has been relatively positive.  Companies are beating expectations, which is good, but the numbers being reported are from business conducted last year, largely encompassing the big spike in virus cases and colder temperatures.  Many of the most highly watched economic figures cover the prior months or even the past quarter.  Now, I don’t think you need me to tell you that the pandemic has caused lots of economic damage.  You probably don’t need me to tell you that unemployment, especially in the services sector, is bad.  You only need to drive through the main street in your town to see the empty restaurants and dark storefronts.  My commute takes me passed a major airport which is historically famous for congestion and delays. Nowadays, I suspect that you could probably play a full 90 minute soccer game on one of the runways without disrupting air traffic too horribly.  We get lots of data about unemployment and much of it is fairly current.  Weekly numbers cover last week’s activity.  Those weekly numbers are painting a picture which we are all well aware of. Unemployment is still a big problem.  We know that it will remain a big problem until the economy can truly reopen, enabling many of the now-unemployed to return to work.  We knew this 9 months ago, but predicting when was difficult, as we were in the throes of a newly emerged pandemic.  Today, that prediction is a bit simpler with infection rates decreasing, inoculations increasing, and warmer temperatures approaching.  Yesterday, Treasury Chair Janet Yellen announced that she was hopeful that employment could return to pre-pandemic levels by 2022.  Of course, it will not all happen in 1 day and there will surely be ups and downs along the way, but we should experience a positive trend throughout 2021, if we agree with her assessment.  Yellen is not alone in her optimism as companies have been increasingly positive in their announced guidance.  It is important to listen to the guidance given by companies, usually delivered along with last quarter’s earnings.  When companies give guidance, there is a lot at stake.  Analysts use that guidance as a base case for their models, obviously challenging or boosting based on their own research.  But ultimately, if those guidance numbers are not realized, a company’s stock price will suffer, and they are likely to rack up some analyst downgrades, so companies are careful when they provide guidance and often, not always, err on the side of conservatism. Yesterday, we received a weekly unemployment number that was worse than expected, and the market reacted negatively.  To be clear, it was not good, but more than the number itself, it is a reminder that unemployment is still a problem… if we actually needed that reminder.  For long term investors, it was bump in the road and for day traders it was an opportunity to capitalize on intraday market volatility.  In other news, treasury rates continue to edge upwards, which has many investors wondering about the implication.  I have written quite a bit about this and will be writing more, so I won’t delve too deeply here.  Treasury yields are going up because bond investors expect the economy to do better in the future.  They are also a reflection of expected inflation resulting from the economic reflation. While the latter has some negative implications, both point to a better future for the economy… and stocks.  Of course, there are potential negatives to consider, but the overarching driver is a reflated economy… we want that.  So, when it comes to that old saying my mom loved, we should modify it to say “tomorrow tomorrow, just not today, all the prudent and optimistic investors say.” I will spare you the German.  


Stocks fell in yesterday’s session on disappointing weekly jobless claims and rising treasury yields. The S&P500 dropped by -0.44%, the Dow Jones Industrial Average, slipped by -0.38%, the Russell 2000 Index fell by -1.67%, and the Nasdaq Composite Index gave up -0.72%.  Bonds fell and 10-year treasury yields added +2 basis points to 1.29%.


– Markit Manufacturing Flash PMI (Feb) is expected to come in at 58.8, down from the prior reading of 59.2.

– Markit Services Flash PMI (Feb) may have slipped slightly to 58.0 from 58.3, according to consensus estimates.

– Existing Home Sales (Jan) are expected to have slipped by -2.4% after rising +0.7% in January.

– We will get more earnings next week in addition to the Leading Index, regional Fed reports, a second estimate of GDP, Consumer Confidence, Personal Consumption, University of Michigan Sentiment, and a whole lot more.  Check in Monday for calendars and details.


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