25 Nov SpringTide Weekly #80: Thanksgiving flights, the Fed put, and Yellen 2.0
Below are some market highlights from the last week and a few things we are working on.
Despite another week of surging Covid-19 cases and hospitalizations, hopes for a reopening fueled by abundant liquidity helped drive stocks to all-time highs. There are now at least two viable vaccines in the U.S. that are expected to be fast-tracked by the FDA and rolled out within weeks. Retailers reported strong quarters last week proving the resilience of the U.S. consumer. In the retail space, the focus will now shift to finding areas where behavior will return to pre-Covid patterns and others where consumption habits may have changed permanently. Former Federal Reserve Chair Janet Yellen, a familiar face for investors, was selected as Treasury Secretary by the Biden administration, pending Senate approval (which is likely). This consolidates the link between the Fed and Treasury that was on display for most of 2020, notwithstanding the recent public exchange between the two institutions. In political news, the GSA started the formal process for the transition to the new Presidential administration.
The Fed balance sheet expanded to over $7.24 trillion as of last Wednesday, a new record high. Gold continued its recent correction, dropping almost 14% from it’s August high as investor attention has shifted to small caps, value stocks and bitcoin, which is closing in on an all-time high.
MORE THANKSGIVING FLIGHTS THAN 2018
About those reopening hopes… more air traffic on the Tuesday before Thanksgiving this year than in 2018 and just slightly below 2019 levels.
THE FED PUT
We have been talking about this for years so it’s good to see more data backing up the thesis.
From Barron’s: “they found a stock market decline better predicts the FOMC’s behavior than any of the 38 macroeconomic indicators available in Bloomberg’s economic calendar or the 85 indicators that make up the Chicago Fed National Activity Index.”
THE REOPENING TRADE
The reopening trade has continued in full force. Per SentimenTrader, the three-month return spread between small caps and large cap technology stocks is 20%, the highest it has been in three decades.
INTERESTING RESEARCH WE READ, LISTENED TO OR WATCHED THIS WEEK
- CNBC: Yellen says the Fed doesn’t need to buy equities now, but Congress should reconsider allowing it: Link
- Baron’s: Yes, the ‘Fed Put’ Really Does Exist. That Could Be Bad News for Bulls: Link (paywall)
- Mish: Wall Street is Celebrating Easy Money Under Yellen: Link
- Crescat November Research Letter: A Vicious Debt Spiral: Link
The SpringTide Investment Team
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