Your Money - January 8th 2021

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All l I can say is WOW. This week markets displayed what can only be described as hyper optimism in my opinion. We started the New Year on a bit of a down note as Covid cases and mandatory economic shutdowns were spreading like wildfire. The lone bastion of hope lay at the feet of election run offs in Georgia where the Democrats held a narrow lead. Then again, some prognosticators are still wearing the eggs on their faces from the 2016 election results.  But I digress.

On Tuesday, the pundits were correctly predicting a Democratic sweep and market participants boldly stepped back into the markets driving not only return to normal stocks but stay at home stocks as well. Then on Wednesday, we witnessed something straight out of a dystopian novel as the Congressional House of the United States held off an angry mob trying to disrupt the official transition of power from one President to the next one. While the tech heavy Nasdaq index hiccupped, believe it or not, the S&P500 and the Dow Jones Industrial Average, all but ignored the chaos and closed up. That was almost an invitation to buy stocks. If investors choose to ignore an angry mob storming the Capital, what will scare them to sell? Remarkably, the price of gold, the so called safe haven asset plunged $46 on the same day. Meanwhile the price of Bitcoin and other ethereal currencies were on fire.

However, before you rush in with buy orders, you should also know that bond yields spiked above 1% this week, the first time since March 19th, and while that is good for bank and insurance companies (Goldman Sachs up 10% and JP Morgan up 7%), the smart money recognizes the 30 year bond rally may be in for a rough ride. One only has to look at Average Hourly Earnings which was released with the loss of 140,000 jobs las month rose 0.8%. Will that translate into cost push inflation? Not immediately but investors will get a peak of inflation on Wednesday with the CPI which some are forecasting to jump from 0.2 to 0.5.

There is no doubt that markets are in love with a change in administration, but I am very much concerned with the general level of stock prices and earnings season is right around the corner. The banks kick off year end earnings next Friday, so the Honeymoon may be over before it starts or…investors may wait until Mr. Biden assumes control of the Presidency.

Happy Trading.

Stay Safe out there.

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Steve Bokor

Steve Bokor

Portfolio Manager