November 21st, 2021

The S&P and NASDAQ remained near all-time highs, but the strength in megacap tech names masked softness in the underlying stock market. The Dow and Russell tracked lower, weighed down by weakness in the energy complex. Also, ongoing worries about rising inflation and supply chain constraints were fanned when major U.S. retailers reported quarterly results that confirmed gross margin erosion. There were signs of hope, though, that supply side friction may have peaked. WTI crude declined for the fourth straight week helped by reports that President Biden has approached various Asian nations including China about a coordinated SPR release. The Baltic Dry Bulk Index touched a five month low while anecdotal reports suggested progress is being made toward alleviating bottlenecks at West Coast ports. As diverging central bank commentary worked through the forex market this week the Greenback moved to its strongest levels since mid-2020. ECB Chief Lagarde continued to push back on the notion they will begin raising rates next year, while many U.S. Fed officials voiced concerns that inflation expectations are rising and they may need to accelerate the taper to allow for additional policy space next year to react. The U.S. dollar was not only aided by diverging central bank views. Austria became the first EU economy to reimpose a full nationwide lockdown and mandate vaccines for everyone. Germany declared a state of emergency as well, and other EU states imposed new restrictions amid a new wave of Covid cases. U.S. manufacturing data was robust led by the November Philly Fed new orders surging to a five decade high. On Friday, the U.S. House passed a $1.75 trillion education, healthcare and climate package as Democrats corralled their slim majority to approve the centerpiece of President Biden’s economic agenda after months of wrangling. For the week, the S&P edged up 0.3%, the DJIA fell 1.4%, our 50/50 Nasdaq/Russell benchmark slipped 0.3%, Asia Pacific equity indices straddled the flat line (i.e. Japan gained 0.5% while the India markets fell 1.7%), European bourses were volatile but unchanged on the week, and your BSD Global Tech Hedge Fund retreated 1.5%. In corporate news this week, Applied Materials Q3 numbers and Q4 outlook disappointed on worsening supply issues. Nvidia posted a beat and guided Q4 above consensus as its data center sales grew 50% y/y. Cisco reported a miss on revenues and saw a drop in gross margins amid supplier cost pressure. Some workers staged a walkout at Activision Blizzard and shares slumped after its CEO was accused of mishandling sexual assault allegations at the company. Visa’s stock fell on reports that Amazon would move to refuse their credit cards in the UK due to high fees, but Visa’s CFO tried to allay concerns on Friday, saying he expects to come to a resolution with Amazon over the dispute.

Trading will be lighter this coming week due to the Thanksgiving holiday in the U.S. without a lot of investor events to track. The two most interesting earnings reports of the week could be from Zoom Video and Best Buy; both companies are looking to assure investors that they are set up well for the post-pandemic environment. The economic calendar includes updates on U.S. existing home sales, durable goods, GDP as well as a closely-watched release of FOMC minutes from the last central bank meeting. President Biden is expected to announce his choice for Federal Reserve Chairman – Powell or Brainard; the worry is Brainard would not be as aggressive fighting inflation with rate hikes if necessary. The end of the week sees the beginning of what is anticipated to be a record sales haul for the Black Friday to Cyber Monday shopping period.

Your BSD Global Tech Hedge Fund is 95% invested across a couple dozen tech vendors and tech end-users, thereby allowing the Fund to participate if this stock market continues to melt up, and We have a 73% short equity indice hedge on the notional value of the invested stock portfolio that will incrementally grow (from the laddered Nasdaq put options strategy) if the market deteriorates.