The stock market is the meme market now.
From the GameStop (GME) saga to Tesla’s Bitcoin buy (BTC-USD) to Elon’s Dogecoin (DOGE-USD) purchase, it seems like any internet-based humor that is even vaguely financial manages to impact asset prices.
But factoring in how much of a meme a given asset might be is just not part of traditional portfolio management or anything they teach in the CFA program. Yet.
What investment managers do learn, however, is that sometimes in markets everything that seems like it shouldn’t happen does. In other words, there are market moments during which it makes sense to think about what trades might make the least sense. And there you find your winners.
Monday, February 8, 2021
A version of this article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET.
Companies are smashing expectations, but investors are selling the news
“Buy the rumor, sell the news,” is an old saying in the markets. Simply put, you make a trade assuming some future outcome, and when that outcome is confirmed you close out your trade.
According to the numbers during this earnings season, it looks like the “rumor” was that companies would smash expectations.
When earnings season kicked off, analysts were estimating that S&P 500 (^GSPC) earnings fell by about 9% year-over-year in Q4 2020. However, actual earnings so far have been beating estimates by such a wide margin that it looks like these companies may have actually delivered earnings growth during the period.
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Two ways workplace productivity may have changed forever: Morning Brief Sam Ro
Expect fewer business trips and less time in the office
As the COVID-19 vaccines get administered around the world, much of the economy will gradually return back to the pre-pandemic normal.
But some changes are likely here to stay, even after it’s safe to move freely again.
In a research note published last week, Goldman Sachs economists identified two ways many businesses will have changed permanently.
“First, travel and entertainment spending is likely to remain lower,” Goldman Sachs’ Spencer Hill said. “China hotel revenue per room remains 15% below 2019 levels despite 5% higher GDP, and an Atlanta Fed survey in the U.S. found that business travel may remain 29% lower in the post-pandemic economy.
The November retail sales report wasn’t good. It shows the need for additional stimulus. Many will criticize the $600 checks and the 11 weeks of $300 in unemployment insurance, but it will have a significant impact on spending to start the year. Of course, many want more money, but that’s not up to us. We just play the hand we are dealt.
The checks probably won’t impact December retail sales, so another weak report is coming since there have been more shutdowns and initial claims have increased (although if they go out early next week that would bump up results in December). It’s notable that stock investors are ignoring the weakness in consumer spending as the S&P retail ETF is up 27% since October 30