A busy week for markets ended with the S&P 500 at all-time highs, as markets cheered Friday’s employment report and shrugged off Wednesday’s highly anticipated Fed announcement. Launched last year in response to the pandemic, the Federal Reserve has been purchasing $120 billion in US Treasuries and mortgage-backed securities each month to keep interest rates low and spur borrowing and spending. With inflation at multi-decade highs and Friday’s jobs report for October indicating a 4.6% unemployment rate, such support is probably no longer necessary, and as the market expected, the Fed announced it would reduce, or taper, this monthly bond buying program at a pace of $15B per month, starting in November. However, Fed Chair Jerome Powell struck a cautious tone and stressed that taper was not monetary tightening (i.e., interest rate hikes) and emphasized that future policy decisions would be informed by the trajectory of the economic recovery. As a result, investor confidence that the Fed would remain supportive of the economy surged and the S&P 500 ended this week with seven consecutive days of gains. Fed funds futures markets are now pricing in at least one rate hike by the summer of 2022, but stocks enter the weekend with a litany of tailwinds, including robust consumer balance sheets, strong corporate buybacks, better than expected Q3 earnings, hints of supply chain constraints peaking, favorable seasonality, and the potential for more fiscal stimulus without major corporate tax hikes.
Lately we have been discussing supply chains and/or inflation virtually every week, so we wanted to point out something on the lighter side. Last week, Facebook announced it would change its name to Meta as it seeks to focus on what it believes to be the next frontier of the internet known as the “metaverse”. However, perhaps this rebranding was a bit rushed as it quickly emerged that “meta” actually means “dead” in Hebrew. As a result, Meta was ridiculed on social media and the Israeli emergency unit, Zaka, whose job is to ensure proper Jewish burial, joked on Twitter, “Don’t worry, we’re on it”. Other past corporate decisions that were lost in translation include, KFC’s use of its motto “finger lickin’ good” when it expanded into China, which in Mandarin translates to “eat your fingers off”. As well as Rolls-Royce mistakenly calling a car model “Silver Mist”, when “mist” translates in German to “excrement”. Nonetheless we got a kick out of Facebook’s recent pivot.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO