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- Weekend Investor: The Week That Was
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I hope you had a wonderful week!
The stock market had an outstanding week but it wasn’t earnings season that caused the jump in stocks. The Federal Reserve pausing rate hikes and a weak jobs report were on investors’ minds. You can see the S&P 500 was up 5.85% last week and the Nasdaq 100 rose 6.48%. I’ll get to my thoughts on the data below.
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In case you missed it
Here’s some of the content I put out this week. Enjoy!
Alphabet Earnings Update: Alphabet’s earnings caused the stock to drop 10%, but were they that bad? I didn’t think so.
Zillow Spotlight: The next spotlight stock is out and it’s Zillow. Find out why this stock has 10x potential long-term.
What I’m Buying in November: These are the monthly buys for the Asymmetric Portfolio.
Tesla’s True Cost of Ownership: This wasn’t meant to be a controversion video, despite people’s reaction. I simply pointed out that Hertz — the biggest single owner of Tesla vehicles — said Tesla’s price reductions, lack of spare parts, and lack of repair infrastructure all led to higher than anticipated cost of ownership, driving a decision to stop buying Tesla’s EV vehicles and consider other OEMs like GM. That’s all.
The Economy and the Fed
Investors are weighing a few pieces of economic data that may all seem counterintuitive.
Investors want to know what interest rates will be in the future. Higher rates mean a higher cost of capital, lowering the value of stocks, bonds, and most productive assets. So, the Federal Reserve not raising rates (what the Fed did this week) or speculating that they may lower rates will push stocks higher.
Inflation is a multi-prong risk. High inflation can lead to higher interest rates because that’s the tool used to kill inflation. Inflation also takes consumer dollars away from discretionary spending and puts it toward food, shelter, etc. Finally, inflation can lead to increased labor costs as workers demand more to pay for higher-priced goods, which reduces profit. In other words, inflation is almost always bad for the stock market.
Unemployment is the other factor to look at here and this one is confusing. Investors want to see unemployment high enough that the Fed isn’t going to raise rates further because they see more inflation from higher wages and low enough that the economy keeps humming. This week, the jobs report showed 150,000 new jobs, which was relatively weak and the unemployment rate ticked slightly higher to 3.9%. Right now, fewer jobs are good. But if the economy was a little worse, more jobs would be good. Confusing, right?
So, the stock market was up this week because the Federal Reserve kept the Fed funds rate (very short-term interest rate) at 5.25% to 5.5% and the jobs number was relatively weak. In combination, this led investors to speculate the Fed will keep rates where they are until at least the end of the year.
It didn’t hurt that earnings continued to be relatively strong, but that wasn’t the main driver of the market’s moves this week.
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Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.
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