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Stock Market Update 8/4/2021
In this informative yet brief market update, Steve Wolff discusses amazing stock earnings, the Delta Variant and mortgage rates.
Transcript below:
This is Steve Wolff, and we’re going to talk a little bit about what happened in July of 2021, and we’ll do our Monthly Market Update. So this was the month that the COVID variant seems to have made its reappearance. There’s a lot of talk about, should you wear a mask? Should you not wear a mask? People getting vaccinated, et cetera, and that’s had an effect on the market. Earlier in the month, the marketplace actually had one day that was really bad, but then it seemed to come back. I’m not convinced yet that the COVID virus coming back at all is going to really affect the stock market, but it has affected it a little bit so far.
What happened this month? Well, bond yields actually went down a little again, which means mortgage rates are once again on the table. If you haven’t refinanced your mortgage, you might think about doing that right now. I’m seeing rates that you can get under 3%, and that’s pretty cheap. People today think when rates go to 4% that that’s expensive, or 3.5%. I can only tell you that my first house way back when, I had a 10 and three quarters percent mortgage rate. I’m sure some of the people who are watching here, who are older, will remember that; so when we’re talking about 3%, in my opinion, that’s really low.
What else happened? Stock earnings. Stock earnings this month, they’ve really been great. I mean, they actually outperformed high expectations. Now, some of the stocks have pulled back a little bit because I think even with high expectations, you had stocks that ran a little bit maybe ahead of themselves. But that’s okay. They reset a little bit. We talked about this before. I still think that we’re still in the midst of a bull market. As you can see my little friend, Mr. Bull over here, who’s still hanging on. I think that we’re going to be hanging on here for a little bit longer.
Interestingly though, when you’re looking at the stock market, you really should differentiate between the “market” and really what it represents. For instance, what I’m talking about here is that in the S&P 500, the top five stocks make up about 22% of the portfolio, and the top 10 stocks in a 500 stock portfolio represent somewhere around 30% of the portfolio. So really, when you’re talking about the market, you’re really talking about maybe 10, 15, 20 stocks having a big mark on what’s going to happen as far as the markets, and what they’re going to do. So, I would actually look at individual stocks.
When I look at big tech and big online retailers, their earnings were outstanding. They really were. A matter of fact, it’s hard to believe. Usually, you say, in the ocean, the battleship, it takes a long time to turn it around. A rowboat, you can turn real fast. Yet, these huge behemoths of companies have just been… terrific. Until that changes, I still think that the bull market is intact. I don’t see any reason to change where we’ve been for the last couple of months. That’s where we’re at. Mr. Bull, you’re still hanging on and we love it. We’ll talk to you next month. Thanks.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California.
Steve can be reached at 760-692-5190.
Disclaimer
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
WWM Financial is an SEC Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. No advice may be rendered by WWM Financial unless a client service agreement is in place.
In this episode: Steve Wolff discusses how excided he is about the investing opportunities in this techno-digital revolution.
Full transcription below:
Steve Wolff:
Hello everyone, this is Steve Wolff with another edition of Steve’s Stock Stories. I’m here with my
cohort, producer and friend Joscelin Magaña.
Joscelin Magaña:
How’s it going everybody?
Steve Wolff:
This is one of my favorite topics. I am so happy to be alive at this point in time, because we are going
through a technological digital revolution. This must be what it felt like to be in the industrial revolution,
when you went from the horse and buggy to cars. Of course, eventually putting men on the moon. But I
mean, all the things that happened in that time are happening now only they’re happening digitally.
Joscelin Magaña:
I feel the same first feeling when I saw the world change in a dramatic way where I was so excited. Two things that I remember surfacing, the mobile phone and the internet.
Steve Wolff:
Oh, yeah.
Joscelin Magaña:
Remember when the movie The Saint came out? That little phone was amazing. He had video on there, he got text messages. I thought, “Oh my gosh, if that could ever possibly happen.” Then we have way better phones than that now, you just throw that little toy away. Right? The other big thing that I saw was the internet. When I was in college, we were just using email at the time. There were these things called websites. I remember thinking, “Wow, we’re going to be able to buy stuff on the internet
someday.” I remember telling somebody, “Hey, this is going to be an amazing space because we’re just
going to be buying stuff on the internet.” And they’re like, “Who’s going to buy stuff on the internet?
You just go to the store. Why the hell are you going to-?” Okay. One technological advanced before this, which kind of wasn’t, but everybody thought was crazy, was when everybody started buying bottled water; but that’s a whole other subject.
Steve Wolff:
Well you talk about phones. I remember watching the movie Wall Street with Michael Douglas and he
had a mobile phone, but it was probably, I don’t know, 12 inches.
Joscelin Magaña:
Oh, yeah. They were big.
Steve Wolff:
They were huge.
Joscelin Magaña:
They were big, like a shoe box.
Steve Wolff:
Right, they were big. You could make a phone call on there today, my goodness, you could do just about everything. You can turn on your car, you can-
Joscelin Magaña:
You can turn on your sprinklers in your house, you can see your front door. It’s amazing.
Steve Wolff:
What they have in that little phone is way more powerful than what IBM first came up with when they had that first computer that took up, I don’t know, three rooms or something. With vacuum tubes and whatever, it’s just incredible.
Joscelin Magaña:
I guess where I’m going with this is that I’m as excited now as I was when mobile phones were becoming more accessible and the whole mobile phone revolution and the internet. I remember my first job we didn’t even have computers on our desks…
Click on the image above to watch this podcast episode.
Market Update: 7/9/2021
Transcription below:
There’s been a lot of good news in the last month. With COVID cases declining, there are more people getting vaccinated, there has been a lot of re-openings in the economy and the earnings have been good as well. This resulting in a really good time to be in the stock market. The market is still favoring rotation into the pandemic recovery plays. Those stocks that lagged last year have caught up a lot this year. It might even be slowing down just a bit, but June was a good month for that. Financials and energy continued to lead the way with tech stocks being a little bit further behind, although everything grew a little in the last month.
Let’s talk a little bit about inflation because in the middle of June, there was a pretty good-sized dip in the market. This dip was probably 5% to 7% and people got a little bit nervous because suddenly, bonds were spiking up in yields and people were getting afraid because of inflation.
It is really is funny because when the economists talk about inflation, they do ex-oil and ex-food, which means without including those. I think that’s a load of bull hockey for anybody who likes to eat and goes to the grocery store. They know that food is way more expensive than it was just a few months ago. Also, if you are not in one of those battery-operated cars and you have to go to the gas station, you know that you’re paying a lot more for fuel than you were paying before. Inflation is real in your pocketbook, even if the economists aren’t including that.
Crude oil prices are up to $75 a barrel, and that’s the highest they’ve been since 2018. In the U.S., it now costs more than an average of a dollar or two a gallon than it did just a year ago, according to GasBuddy who analyzes fuel prices. If you were paying maybe three bucks last year and you’re paying four bucks today, that’s a 33% increase. I don’t know about the economist, but I think that’s inflation in my pocket.
There’s also been a shortage of semiconductor chips, which is causing some havoc because semiconductors are in everything we have, from toasters to ovens to microwaves to computers to cars. As a matter of fact, the auto industry has really been hit the hardest because they cannot finish producing a car without computer chips. Companies like Ford, Volkswagen, Jaguar, have all had to stop production because they just don’t have enough chips in supply for those cars. Right now, demand is far outstripping the supply of computer chips. Those computer chip companies are probably happy because as soon as they have a chip, they can sell it; and generally speaking, supply and demand means they could probably raise the price a little bit. So those companies probably are doing very well.
Now, looking at the market for the first half of this year, some people might call this a Goldilocks market, and we’ve heard that many, many times in the past. I call it a duck market. Why? Because everything is ducky right now out there. You almost couldn’t ask for a better market.
Now, I think there’s going to be continuing to be bouts of volatility as we go. But if you’re looking forward a little bit, I really think that stocks are still the right place to be because the re-openings are there, for example, anybody who wants to get a job can get one. There are help wanted signs all over the country. Unfortunately, some people are still staying at home because they’re getting a little bit more money to stay at home than to work, but eventually, that’s going to run out. Those people are going to get jobs and I think employment will get back to a pretty good level. Matter of fact, I think tomorrow July 2nd, there’s an employment report coming out. My guess is that as we continue to go into the future, the job market will continue to get better.
For all of you out there who are wondering what you should do, I still think that stocks are the right place to be. I think they’re better than bonds, at the moment. If yields do spike up, bonds will go down in price. It may hurt stocks a little bit too, but that’s a ways down the road. I still think we have time to go before that ever happens.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California.
Steve can be reached at 760-692-5190.
Disclaimer
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
WWM Financial is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. No advice may be rendered by WWM Financial unless a client service agreement is in place.
Click on the image above to view Podcast Episode 11.
What is going on with GameStop?
Today, we’re going to talk a little bit about what the heck is going on with GameStop and Reddit and some of the other stocks that have gone crazy on the stock exchange over this last week. So, the story right now is that there seems to be a fight between the short-sellers and the buyers of GameStop, and there are other stocks that are doing the same thing. But let’s talk about GameStop because that seems to be the focal point of what’s happening.
Basically what’s going on is that there is a forum called Reddit, and Reddit is a discussion site on the internet where people talk about many things, but one of the the areas is called WallStreetBets. WallStreetBets has been pushing people to buy shares of GameStop. Why? Mainly they’re doing it because the stock was so heavily shorted.
Now, what does short-selling mean? Short-selling means you borrow stock from someone, you then go and sell it on the market, and eventually you have to go buy it back again. So theoretically, there is no limit to how much you can lose because when you buy it, you’ve got to buy it at whatever price the market’s at, and if the market keeps going up, and up and up you’re losing more and more and more. That’s exactly what was happening to some of these hedge funds, specifically Melvin Capital has been pointed out as one that has just been brought to its knees. It had a heavy position that was shorting GameStop. So they expected the stock to go down. Remember they borrow the stock and they have to buy it back at some point. So what they really want is for that stock to go down, they buy it back, and they’ve made money. But what happened is now that all these people on WallStreetBets are saying, “Buy GameStop, buy GameStop, buy GameStop,” and there’s more and more and more people driving the price of GameStop higher, eventually the short-sellers are saying, “Well, wait a minute. I’m losing my rear end on this, so I better start covering that short.” By covering, that means they have to buy it back. But meanwhile, they’re losing more and more money.
On the WallStreetBets site, there are a lot of people who’ve been just cheerleading this, and so a lot of the members of of this particular forum are saying, “We’re all gonna buy it and we’re going to stick it to the hedge funds.” Well, in fact, that’s exactly what they’ve done. And part of me says, “Yay,” because I don’t like it when stocks that I own get shorted, but there’s a reason that stocks get shorted. Mainly it’s because of valuations. A lot of people thought that GameStop was a very poor company and that it really wasn’t worth much at all. I think even some people who are on Reddit right now who are buying the stock might tell you the same thing. But they don’t care.
Now, I will tell you that I think that’s a dangerous game. And why is it dangerous? Because the last one in is going to get their head handed to them, and it’s almost a short squeeze in reverse. So a short squeeze, again, is when a company is shorted, lots of people go in and buy it, the price goes up and the shorts have to cover. When you’ve got lots of people who are buying a stock and it’s going up from what was at $5 or $10 a share to $500, $607 a share, those people who were buying at five or six or $700, they could be exposing themselves to a lot of loss because at some point in time, there has to be a real value for what the company is worth. If the company’s not making money, if the company is not doing well, at some point, that stock price should go down in a normal market. So, be very, very careful if you’re out there doing those things.
Now, the way this is really affecting the rest of the market is that those hedge funds are big. So when they’re losing money, what they have to do is because they’re borrowing money, they’re leveraged, and leverage is always the thing that hurts people. They’ve got to come in and either bring more cash in to cover those positions that they had shorted or they need to sell if they don’t have the money or sell other positions that they have to raise the money. So, what’s happening now is a lot of these hedge funds are starting to sell their winners. Their good stocks, the stocks that a lot of you may own. So there is some danger in that. Now, is it illegal? So far from what I’ve seen, it’s not necessarily illegal, but it’s pushing it because basically what they’re doing is saying, “Let’s all band together to move the price of the stock without any relationship to whether that makes sense or not.” Still not illegal, but I think it skirts the issue. So, the SEC is, of course, going to be investigating.
Meanwhile, one of the firms, Robinhood, which is one of the brokerage firms that a lot of the young people have been on, decided that they were going to stop trading in GameStop and some of these other stocks. The people on Robinhood were very upset. And I don’t blame them. All of a sudden the broker says, “Hey you can’t buy anymore.” I’m not sure that that’s fair.
So, basically what’s happened is you’ve had a giant short squeeze. Be careful though. If it were me, I would not be playing in this particular game because when it goes the other way, it’s going to go fast and this will not end pretty, one way or the other. So, as far as the overall market is concerned, this may be a cause for the market retracting a little bit as some of these stocks are being sold. I don’t think we’re in a recession or anything like that because so far the economic numbers that have come out have been pretty good. Most of the earnings numbers have been pretty good. So, not sure I would get too worried about what’s going on with the whole market. I do expect at some point there’s going to be a retracement of some of these gains. Nothing goes straight to the moon, including GameStop. So, be careful out there. And of course, if you have any questions, you can always give us a call or you can always contact me at WWMFinancial.com.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California.
Steve can be reached at 760-692-5190 or click on the following link to contact https://wwmfinancial.com/contact-2
WWM Financial is an SEC Registered Investment Adviser. The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Click on the image above to view Podcast Episode 5
Maintenance Man to Millionaire
Podcast Episode 5
In this episode of Steve’s Stock Stories we hear about how Lou the maintenance man invested his way to 7 figures.
You can reach Steve with any questions at 760-692-5190.
The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
WWM Financial is an SEC-Registered Investment Advisor
