December 7, 2021
Market Performance (YTD)
Source: YCharts
Disclaimer: Past performance is no guarantee of future performance
The State Of The Market
The Fed Chair, Jerome Powell, finally retired the word “transitory” as a way to describe inflation
"It's probably a good time to retire that word," Chair Powell says of the much-maligned term "transitory."
— Jeanna Smialek (@jeannasmialek) November 30, 2021
..Just as the market had finally been giving at least a little credence to the transitory argument
It's notable how much long-term inflation expectations have fallen in the past few months. A gauge of inflation bets over the next 5-to-10 years has fallen to the lowest since Sept. 22, even as short-term inflation expectations pick up. This mirrors the yield curve's flattening. pic.twitter.com/pVYhLmZ5yI
— Lisa Abramowicz (@lisaabramowicz1) December 7, 2021
And as the yield curve had been flattening fairly dramatically
The world is flat(ter)@FT @Bloomberg pic.twitter.com/hA6lniOuYF
— Liz Ann Sonders (@LizAnnSonders) December 3, 2021
Biggest flattening moves were 2005 (Fed hiking cycle), 2015 (commodity crisis), 2018 (Fed hiking cycle) and 2021. $TNX $TLT pic.twitter.com/foC6AcHckY
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) December 6, 2021
And the flattening started right on que with earnings revisions slowing
The yield curve (spread between 2 & 10-yr Treasury yields) has narrowed almost 80 bps since 3/29/21. This is right at the time positive $SPY EPS estimate revisions peaked on a rate of change basis. The bond market is smarter than you think! pic.twitter.com/wRrLusX0iH
— The Earnings Scout (@EarningsScout) December 3, 2021
MSCI ACWI earnings forecast for 2022 dropping. pic.twitter.com/dZaD1LugOq
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) December 6, 2021
Side note – earnings growth has been shocking over the years
Lets home mean reversion doesn't exist! https://t.co/SYHu5yx7Lj
— Wes Gray 🇺🇸🎅🌲 (@alphaarchitect) December 6, 2021
If the fed hikes, what should we expect? Sometimes stocks go down but often times go up
Equity performance around Fed hiking cycles – UBS
Also: https://t.co/bR3Rh6B3Yp pic.twitter.com/vwSgTOPyOS
— Sam Ro 📈 (@SamRo) December 6, 2021
A lot of stocks have been going down recently.. more than you’d probably think
All year, intra-market swings have been dramatic; and though index-level drawdowns have been muted, stock-level drawdowns have been more extreme pic.twitter.com/xndA87rZ7B
— Liz Ann Sonders (@LizAnnSonders) December 6, 2021
Tech, most notably non-profitable tech, has seen the most pain
Almost one-third of stocks in the Nasdaq Composite have lost over 50% from their 200-day peak, according to @AndrewLapthorne pic.twitter.com/Sfozh8cyLV
— Robin Wigglesworth (@RobinWigg) December 6, 2021
Last week was worst week for @GoldmanSachs non-profitable tech basket since March 2020
[Past performance is no guarantee of future results] pic.twitter.com/PRURf1WQDX— Liz Ann Sonders (@LizAnnSonders) December 6, 2021
Something strange has been happening beneath the surface of the S&P 500. Star stocks that were beloved by retail and hedge fund investors are getting slammed, with some saying the price action and factor crush is reminiscent of the quant crisis of 2007.https://t.co/2wva8i93Rt pic.twitter.com/taEruOqYPX
— Tracy Alloway (@tracyalloway) December 3, 2021
New special tonight: Robinhood Traders in Turmoil pic.twitter.com/BzfuH6yE6K
— Ben Carlson (@awealthofcs) December 3, 2021
“Only 32 [S&P 500] stocks are off their highs less than the S&P 500.” – B of A pic.twitter.com/wmONHZVpaz
— Carl Quintanilla (@carlquintanilla) December 3, 2021
And small-cap, which probably includes most of those non-profitable tech names, has also been a rough place to be recently
Small caps have trailed the S&P 500 for 12 straight days, the most ever.
Now we just have to decide if that makes them more or less attractive. (I haven't changed my mind.) pic.twitter.com/CJnFBcPZgk
— Liz Young (@LizYoungStrat) December 1, 2021
SMALL & MICRO CAPs pic.twitter.com/DREpkJxHX1
— Win Smart, CFA (@WinfieldSmart) December 2, 2021
Opportunity?
Small cap vs S&P….
Via @LeutholdGroup pic.twitter.com/8QqXftEDDk
— Meb Faber (@MebFaber) December 3, 2021
We all know the story about high forward P/Es on the S&P 500, but did you know that P/E for small-cap is below its historical below average, and mid-cap is about its average? @yardeni pic.twitter.com/diZ8njc33z
— Rick Ferri (@Rick_Ferri) December 6, 2021
But in a tale as old time, big tech has muted much of these losses if you only look at the main indices
Over the last 6 months, 4 stocks (MSFT, AAPL, NVDA, GOOGL) have generated almost 70% of the S&P 500's return.
— Gavin Baker (@GavinSBaker) December 6, 2021
And this is just another lesson that those are really all that matter to the big indices
Hypothetical stat of the day via @michaelbatnick…
The 50 smallest cos in S&P 500 could *double in size overnight* & that would boost index only 2.2%.
— Nate Geraci (@NateGeraci) December 1, 2021
Charts Of The Week
🇨🇳 We’re writing a very long piece on China at the moment discussing why we like Chinese equities vs. US as a relative long idea for 2022.
A few points to share:
1) Trades at a 40% discount to US
2) Short China top 5 most crowded trades (BofA FMS)
3) China credit impulse up pic.twitter.com/U60aEE0RSS
— Julien Bittel, CFA (@BittelJulien) December 7, 2021
Over past 60 years, massive rotation for public pension plans from fixed income into equities
@SoberLook @DeutscheBank pic.twitter.com/KqfZPe9dbK— Liz Ann Sonders (@LizAnnSonders) December 7, 2021
In case you missed the story last week, Calpers, the US's largest pension fund, voted for the first time in its history to allow leverage to achieve the funds mandated 6.8% return.
Why? This chart 👇 likely has something to do with it…1/ pic.twitter.com/xKVBz3boDx
— Lykeion (@thelykeion) December 6, 2021
A cautionary tale from my friends at @KailashConcepts. High valuations = low forward returns.https://t.co/0khzqZwBjJ pic.twitter.com/EGYg2yD129
— Kara M Murphy, CFA (@MoneyWithMurphy) December 6, 2021
Incredibly important chart from @MichaelKantro and @csm_research and what it would suggest for 2022.#haveaplan #riskmanagement #ETFs pic.twitter.com/oOCOKRsvwy
— Jim Colquitt (@jimcolquitt) December 3, 2021
BlackRock's long-term Treasury ETF just had its biggest one-day inflow, of nearly a billion dollars, since October 2020. This came in tandem with 30-year U.S. yields hitting their lowest levels in 11 months. pic.twitter.com/l2A4VYacaK
— Lisa Abramowicz (@lisaabramowicz1) December 2, 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.