Earnings Season

Futures are up on the 2nd day of the Fed meeting following key earnings reports.  AAPL MSFT GOOGL and AMD all reported earnings and had mixed reviews.  Broadly, the earnings paint the picture of a hot economy, while AAPL is cautious about the 3rd and 4th quarter growth, GOOGL and MSFT continue to be juggernauts printing cloud and advertising money and AMD is selling chips like hot cakes and selling cards that print digital money.  The big cap tech stocks have grown into such a huge portion of the S&P 500 index and the Nasdaq 100 Index.  The top 10  holdings in the Nasdaq 100 make up 53% of the Index.   If there is going to be a correction in the Nasdaq, the big big cap names are going to come down.  This quarters earnings reports do not show any signs of these names slowing.


The Fed has continued its pandemic emergency asset purchases, and are expected to be cautious given the global increase in the delta variant.  Chairman Powel has a balancing act on employment, inflation, and now duration.  Since 2008 interest rates have been low and stayed low.  Long term rates simply continue to drop and drop.  It might be possible that the pandemic’s massive global shakeup has upended the decades long deflationary trend.  Or the fed might be right, and the inflationary effects are temporary and deflation is still as much a worry as inflation.

In any case the only thing that matters for today and the rest of the week is yields, and how its interpreted.   Yields lower have been a risk off spot for equities lately.  It was only a problem last Monday when we had banks and tech selling off in unison.  High correlation leads to volatility.   It won’t be a red siren until XLK and XLF are down the same % at the same time.  If one is up and the other is down, the water is fine, and probably a good day to look for stocks to buy.

Volatility Is always right around the Corner

I have always loved the story of Joseph from the bible.  A wise advisor gives sage advice to a leader.  It was natural for me, being named Joseph.   Joseph and I come from a large family.  Like Joseph, I am the second youngest son.  And finally, like Joseph, I had a younger brother named Benjamin.  Joseph left a land where nobody had prepared for a drought to come to Egypt which was experiencing a bountiful harvest.  The life changing moment for Joseph comes when he is asked to interpret the Pharaoh’s dream.

Joseph the fortune teller is the story we know.  However, he didn’t need to be Nostradamus to predict a drought or a food shortage.  Joseph told the Pharaoh that in this time of plenty, he should prepare for a time where there was no food.  Build granaries, save your resources.  Joseph knew that if a drought did come, it would be too late, and also knew that in fact eventually droughts will come.   The time to protect yourself is not when things look bad.  The time to protect yourself is when you have the resources to do so.