Report (Premium Edition) 12-6-2021

Key Market Trends

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

LastCHG %CHGHIGHLOWSHORT TRENDLONG TREND
Dow34580.09−0.17%−59.7134801.3134264.57BearNeutral
S&P 5004538.44−0.84%−38.654608.034495.12BearNeutral
Crude (WTI)68.1682.68%17.78168.61266.387BullBull
Gold1780.07-3.11%-0.171787.651776.6NeutralBull
10 Year138.50%2.90%0.0391.4021.37BearBull
Bitcoin/USD48638−1.56%−7704950046948BearBull
US Dollar Index96.170.02%0.01996.37996.14bullBear
VIX29.82−2.77%−0.8530.8228.54bullNeutral

S&P 500 Sector Trends

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials-2.00%-3.00%-0.40%19.30%-2.70%59.50%79.60%Neutral
 Communication Services-3.40%-8.30%-12.20%9.90%-12.10%66.60%53.60%Bear
 Consumer Cyclical-2.90%-4.40%4.50%21.90%-0.10%105.50%178.80%Bear
 Consumer Defensive-0.80%-1.70%-1.10%8.70%-13.30%38.20%61.90%Neutral
 Energy-1.30%-5.10%13.70%53.20%31.20%-5.30%-11.20%Neutral
 Financial Services-2.10%-6.40%0.90%31.50%9.50%49.70%82.30%Bear
 Healthcare-2.10%-5.80%-6.60%11.60%-10.40%45.20%111.70%Bear
 Industrials-1.40%-3.20%-1.30%16.50%-5.50%49.90%78.00%Bear
 Real Estate-0.20%-2.40%-2.20%29.30%7.30%45.60%65.10%Bear
 Technology-1.40%-1.00%1.80%23.90%1.90%141.40%290.80%Bear
 Utilities0.70%0.40%-1.90%9.80%-12.20%29.30%67.50%Bull

Key Drivers for the Week of Dec. 6th

TIP – This is a brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • New Covid Virus Strain
  • Rising Inflation & Prices
  • Christmas Shopping Sales
  • Wednesday 10AM– JOLTs Job Openings (October)
  • Friday 8:30AM – Core CPI (MoM) (November)

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

Free AlphaBetaStock's Cheat Sheet (No CC)!+ Bonus Dividend Stock Picks
  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: Omicron Fears, Rising Inflation & Jobs

The market is up this morning as it recovers from Friday’s dip. This week was marked by an increase in volatility (the VIX has risen over 30) due to three things. First, the uncertainties related to Omicron variants and current vaccines’ effectiveness. 

Second, the disappointing Jobs report through the markets into a tailspin on Friday. Lastly, rising inflation. Jerome Powell, for his part, expressed doubts over the notion of temporary inflation and stated that “the risk to persistent inflation has increased.” 

This may be a positive sign for the market, which is currently under severe pressure from two sides (health and monetary). The asset purchase program could be ended sooner if inflation is proven to have occurred. Markets don’t like uncertainty, and this is especially true when central banks stop supporting them.

The Federal Reserve was once again at the center of the action. Jerome Powell, Fed Chairman, put a wrench in the works Monday by changing the rhetoric. The Fed is more concerned about inflation and plans to reduce its asset purchases quicker than anticipated.

Considering the persistent price rises, investors expected such an adjustment.  This announcement was made amid a media-sanitary drama about the effects of Omicron, the most virulent form of covid-19.

Reading between the lines, I think the Fed is TERRIFIED of stagflation and will aggressively do everything they can to avoid it.

Increased sales don’t always increase profits.

As we see more and more increased prices, sales will continue. However, price pressure may reduce profitability.

An example is American grocery stores are seeing lower profits because of domestic supply chain problems. Kroger reported an increase of 14% in sales due to COVID restrictions, inflation-weary customers, and a home-cooking boom.

The boom is not reflected in profit numbers as Kroger reported a 24% drop in profits due to increased costs associated with disruptions in supply chains. 

Due to delayed orders, Kroger and other grocery retailers have to stock more stock. This results in increased warehouse space requirements and rising costs for transport and handling services, which are passed onto the customer.

Dollar & Bonds

The reactions were somewhat strange in the end. The dollar didn’t move much, but one might expect a strengthening of the currency in the context of rising volatility and risk aversion. Even though it is trading at USD 1.2934/EUR, it is slightly lower than last week.

The Swiss franc has logically gained ground against the single currency, CHF 1.03892/EUR. At 13.7591 TRY/USD, the Turkish lira has again declined over the past week. Forex traders continue to punish President Erdogan’s interventionism, which dictates Erdogan’s economic strategy to the central bank of Turkey, whose independence is only paper.

The 10-year US bond market is currently 1.46%. This is a sharp drop from the previous week due to the return to the frontline of the pandemic. For its part, the Bund has dropped back to -0.36%, while briefly, the French OAT was in negative territory.

Data This Week

This week ended with difficult-to-understand data about the US labor market in December. The unemployment rate fell slightly, but job creation was lower than expected. This could impact the Fed’s policy, particularly if the coronavirus continues to be active.

Investors will continue to ask this question until the following major statistic is released. Next week’s schedule includes the German ZEW financial trust indicator (Tuesday), JOLTS job openings survey (Wednesday), and, most importantly, the US inflation for November (Friday).

Commodities/AG/Crypto

Oil prices fell again this week despite a positive weekend. This was due to the Omicron variant appearing almost everywhere around the globe. OPEC+ has confirmed that it will increase production by 400,000 barrels daily starting January 2022. Washington appreciated this decision, and Washington has reduced the price rise. Brent, the European benchmark, trades at 72.5 USD, while WTI trades at 69 USD a barrel.

The gold price is falling below USD 1,800 due to volatility in equity markets. An ounce of gold will cost you just USD 1770, while silver costs USD 22.3. Base metal prices stabilized because traders chose to wait and see, despite conflicting statements regarding the impact of the Omicron variant’s economic recovery on their markets. Copper lost some ground to USD 9500, while aluminum and nickel remained stuck at USD 20185 & USD 2655, respectively.

The Securities and Exchange Commission (SEC), on the cryptocurrency side, is refusing applications for physical Bitcoin ETFs. However, the financial regulator approved futures-backed index funds several weeks ago.

The inconsistency has been raised by two House of Representatives of the United States, and they are asking Gary Gensler, the Chairman of the SEC, to reconsider their filings. The market’s total market capitalization is currently hovering at $2.5 trillion, with Bitcoin hovering between $53,000-$60,000 over the past two weeks.

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