Is The Worst Over For Stocks? Maybe Soon.

The market futures are looking up this morning. Yesterday was not a bad day either and if we look at early movers today like Boeing ($BA) and the homebuilders like Lennar ($LEN) and D R Horton ($DHI) we can deduce that a positive trajectory for today is in the cards. There is increasing talk of Omicron peaking in the US. The US has the most cases of the virus of any country in the world. I believe a slowing down in Omicron is going to do wonders to spark the “re-reopening trade”. Sectors that were slowly losing popularity due to the re-emergence of the virus and the underlying economic condition were replaced with Tech because that’s what worked well over the pandemic. The market, while still at elevated levels, took a breather to assess the Omicron situation and it looks like it is getting a handle on it.

Still, there are some uncertainties. There is a worker shortage, and that is because many people have either quit their job or have trouble finding a good new job, or there are in a new job and must call in sick because sick people are not considered the “above and beyond” workers they once were. Credit behavior is also catching up. The last two years saw the economy flushed with cash, this cash is running out and many are dipping back into their credit cards. Not to speak of student loan payments that will soon start again. If people really accept Covid-19 as endemic, meaning we must live with it as we do with the flu, then things will go back to a more familiar environment once this becomes the popular sentiment. The problem in my opinion lies with the way the virus is being used by the “powers at be”, meaning politicians, to create a crisis that requires massive intervention. These interventions are so monumental that they distort the regular pace of things and often bring a perfectly fine equilibrium out of whack.

So, what does this mean for average Brandon on the street? Prices for about anything are noticeably higher, and the reason is deliberately altered economic conditions, I am not saying that these outcomes were intended but here we are talking about them. Inflation is not a new thing, we know quite a bit about it. For example, we know that inflation is less of a problem when consumer income rises at a rate in step with inflation, meaning as income rises, inflation rises or vice versa. Normally things progress in a slower fashion, but the more intervention we have the more we change this progression. The Fed already said they will raise rates and slow down asset purchases. Even with this being a rather big intervention, it is just slowly undoing some of the interventions we had over the last two years, which is good. With all that being said, we are on the way to a more “natural” market that will continue to be dominated by supply and demand but also fundamentals on a more even playing field. I remain steadfast in adding to my positions on a downturn in the market.

Thanks for reading,

The Punkrock Capitalist