December 1, 2021

Market Performance (November)

Source: YCharts
Disclaimer: Past performance is no guarantee of future performance

The Good News

GDP expectations continue to go up

JPMorgan revised up their fourth-quarter GDP tracking estimate to an annualized 7% from 5% following today’s data. Morgan Stanley economists took their running forecast up to 8.7% from 3%. https://t.co/fZfZqc9hYK

— Lisa Abramowicz (@lisaabramowicz1) November 24, 2021

And consumers are continuing to spend

Overall consumer spending is accelerating per JPM: November month to-date is +20% vs. 2019 accelerating ~200bps vs October +18% (& +14% in September, and +13% in August). Interesting to see post Stimulus roll off.

Luxury/Jewelry are in another world per BAC. pic.twitter.com/vk2TdbB51q

— Gavin Baker (@GavinSBaker) November 22, 2021

Core capital goods orders is one of the best indicators for how the economy is really doing.

October stronger than expected and a big revision in September as well.

Currently 19.5% above pre-COVID levels, which is a great sign for future productivity and growth. pic.twitter.com/obd9fQHAlB

— Ryan Detrick, CMT (@RyanDetrick) November 24, 2021

And initial jobless claims have officially completed a crazy round trip

This is the first time that initial jobless claims are below pre-pandemic levels.

Source: Bloomberg pic.twitter.com/9nIFXfxc8n

— Nick Reece (@nicholastreece) November 24, 2021

Craziest chart in the world. #joblessclaims
(h/t @EddyElfenbein) pic.twitter.com/T0TnDK7nxa

— Carl Quintanilla (@carlquintanilla) November 24, 2021

And more longer term, TFP (essentially a measure of technology growth) may prove to be a strong tailwind 

Pickup in productivity in cards? Going back 140 years, U.S. total factor productivity has been mean-reverting, ostensibly boding well for businesses/economy given post-GFC decline
⁦@GoldmanSachs ⁦@Conferenceboard @worldpenntables ⁦@PennWorldTable⁩ ⁦@sffed⁩ pic.twitter.com/ypbteW6JBS

— Liz Ann Sonders (@LizAnnSonders) November 29, 2021

The Mixed News

Profit margins are crazy high.. which probably can’t last for that much longer

U.S. corporations outside of the finance industry have posted their fattest margins since 1950. Many executives complain about the squeeze from rising costs of labor and materials. But overall, profits were up 37% from a year earlier: Commerce Dept. data https://t.co/f1ZSXluxkf

— Lisa Abramowicz (@lisaabramowicz1) November 30, 2021

Chart of the week, US profit margins deviation from trend 👇 Can it get any better from here, or will gravity kick in? Ht @BittelJulien pic.twitter.com/syC4eb3zD8

— Michael A. Arouet (@MichaelAArouet) November 25, 2021

The Bad News

We are possibly starting to see the first signs of margins being pressured

"While average selling price inflation eased as firms sought to win customers, the rate of input cost inflation hit a new high, hinting at a squeeze on margins." https://t.co/tcKHpbEW5V

— Sam Ro 📈 (@SamRo) December 1, 2021

RIP Dollar Tree

Dollar Tree is now $1.25 Tree pic.twitter.com/0eVThXyuyV

— Nathaniel Meyersohn (@nmeyersohn) November 23, 2021

Volatility spiked last Friday

The $VIX spiked 54% higher on Friday, the 4th largest 1-day % increase in history (note: $VIX data goes back to 1990). pic.twitter.com/TmZcja9Otd

— Charlie Bilello (@charliebilello) November 27, 2021

And spreads are flattening

2s10s at lowest since January; 2s30s at lowest since September 2020 pic.twitter.com/ghRv5EhlVf

— Liz Ann Sonders (@LizAnnSonders) November 30, 2021

The State Of The Market

And because there always needs to be an immediate explanation, the drop on Friday was due to a new Covid strain

And was extended due to some uncertainty from Powell’s comments

The Fed’s Powell is suddenly taking a new tone, and markets are struggling to know how much of a pivot in policy this really is. “Markets will be very reactive to the data, probably over-reactive. There is a lot of fog we need to get through.” https://t.co/iycKomPZa3

— Lisa Abramowicz (@lisaabramowicz1) November 30, 2021

And a suddenly hawkish Fed wouldn’t be ideal

Hawkish Powell Is a Force Markets Haven’t Faced in Three Years https://t.co/hygrZwVSdu pic.twitter.com/tTtYvoygyG

— Tracy (𝕮𝖍𝖎) (@chigrl) December 1, 2021

But the recent increase in uncertainty surrounding the new Covid strain has also helped ease rate hike expectations

During any and all uncertainty recently, corporations and individuals have just consistently kept buying

Q3 2021 buybacks set a record pic.twitter.com/IGTYQk5uR5

— Howard Silverblatt (@hsilverb) November 20, 2021

And it seems like the ability of corporations to continue to do so (or pay out dividends) remains high

Earnings have fully recovered from the global pandemic. Dividend payout ratio now below 40 year average of 40%.

Plenty of room for corporate America to dish out more of those profits to shareholders.

I know @DividendGrowth is on board….. pic.twitter.com/DtvW3ljGeT

— Chris D’Agnes, CFA (@ChrisDagnes) November 19, 2021

2 charts you won't see from the crowd selling scary equity bubble stories. what about the bubble in FCF margin that few talk about? valuation in isolation is not a useful metric. chart h/t: @EmpiricalRP pic.twitter.com/mDwyGTpPVD

— MrBlonde (@MrBlonde_macro) November 24, 2021

And on the individual side, it’s easy to be scared by this widely shared info

⚠️So much money in this bull market⚠️
*Equity funds drew more cash this yr than in the previous 19 yrs COMBINED
*Europe's largest stock ETF: 12 months of inflows, longest streak since 2014
*BofA private clients allocate 2/3 of their assets to stocks, most since at least 2005 pic.twitter.com/JwDpVSxOxe

— Sofia Horta e Costa (@SofiaHCBBG) November 29, 2021

But context is also important.. just a lot of liquidity and demand out there

Charts Of The Week

I plugged this into portfolio visualizer and it's true and it blew my mind.

$1 million invested in US stocks in 2000 – withdraw $50k a year – it's all gone by 2018. https://t.co/D3CE4Gqzi9 pic.twitter.com/mW7iqIQS7d

— ValueStockGeek (@ValueStockGeek) October 31, 2021

Income vs. price appreciation in stonks and bonds and 60/40

via Verus pic.twitter.com/lfbV39il46

— Meb Faber (@MebFaber) November 23, 2021

Great charts from Barclays, showing how much the pandemic broke the longstanding trend in the relative pricing of goods/services. pic.twitter.com/7rBwZr3irj

— Joe Weisenthal (@TheStalwart) November 22, 2021

Some folks only show up fashionably late to the party…
h/t @cdriebusch pic.twitter.com/PPImoZQTSf

— Peter Atwater (@Peter_Atwater) November 22, 2021

The numbers in here boggle the mind.

The ‘@Tesla-financial complex’: how carmaker gained influence over the markets by @RobinWigg https://t.co/WYiVFuo22M pic.twitter.com/v52O8enoO8

— Patrick McGee (@PatrickMcGee_) November 23, 2021

Disclosure

Clear Rock Advisors, LLC is registered with the SEC as a registered investment advisor with offices in Texas. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Clear Rock Advisors, LLC) or any investment-related or financial planning consulting services will be profitable, equal any corresponding indicated historical performance level(s), or prove successful. It remains the client’s responsibility to advise Clear Rock Advisors, LLC, in writing, if there are any changes in the client’s personal/financial situation or investment objectives for the purpose of reviewing, evaluating or revising Clear Rock Advisors, LLC’s  previous recommendations and/or services, or if the client would like to impose, add to, or modify any reasonable restrictions to Clear Rock Advisors, LLC’s services. A copy of Clear Rock Advisors, LLC’s current written disclosure statement discussing its advisory services and fees are available upon request.