January 17, 2020

Global equity markets took a breather this week as a quick debate played out amongst the FOMC over whether asset purchases might be “tapered” this year. Bond markets got a peak of the big fiscal support they priced in last fall and after Democrats retook the Senate on January 6th via Georgia runoffs. If lawmakers need ammunition about the fragile U.S. economy, they only need to look at the December retail sales data, which posted a surprising 0.7% decline, and weekly jobless claims at the worst level since August. COVID prevalence looks to be peaking in the U.S. as vaccine distribution starts to scale up despite an uneven run. And the galaxy of aggressive retail investors continue to press their favorite plays despite a hiccup for renewable stocks this week. Put together, it feels like investors are starting to see the light, even if that light doesn’t necessarily mean good things for the market as a whole. Earnings season covering calendar Q4 will provide more insight as companies have started to report in earnest. Analysts polled by FactSet are expecting overall earnings for the S&P 500 to have declined 6.8% (on a year-over-year basis) in the final quarter, the fourth-worst showing over the past decade. For 2020 as a whole, analysts were anticipating that earnings fell 13%. For the week, the Dow retreated 0.9%, the S&P 500 fell 1.5%, and our 50/50 Nasdaq/Russell benchmark slipped 0.14%. Asia Pacific stock markets continued their 2021 rally; Japan and Hong Kong exchanges rose 1.4% and 2.5% respectively, while mainland Chinese stock markets were flat. European bourses and the London stock exchange lost 2.0%. Your BSD Global Tech Hedge Fund rose 0.25%. We have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the Fund is 94% invested across a couple dozen tech vendors and tech end-users, with a 65% short equity indice hedge that will incrementally grow if the market deteriorates. Our BSD Global Tech Hedge Fund will be protected from significant market drawdowns, but if global stock markets continue to defy the ‘actual economy’ and climb higher, we will marginally participate in those gains.

Earnings season is under way and will become an increasing focus in the coming weeks. Corporate America got a pass last year, but companies may be punished for failing to provide guidance. Big earnings results this week will come from Netflix, Intel, Goldman Sachs, Bank of America, Proctor & Gamble, Alcoa and IBM. The economic calendar brings reports on housing starts, manufacturing PMI and existing home sales, while the $1.9T stimulus package and vaccine distribution will be at the top of the agenda for Joe Biden after he is sworn in as U.S. president on Wednesday. Biden starts off his presidency with a roughly 13% post-election day market gain, the best S&P 500 performance between the election and the inauguration for any president going back at least to 1952. The most important overseas economic data will be released Monday with Chinese GDP, industrial production, retail sales and fixed asset investment; GDP should accelerate to 6.0% and retail sales to 5.5%. The PBOC is showing signs that it is becoming less tolerant of Yuan appreciation, based on this past week’s CNY fixes. A U.S. dollar rally due to higher U.S. yields could see a major squeeze of long CNY, long Asian currency positions continue into early February. Even with a shortened trading week, due to the U.S. Martin Luther King Jr. holiday on Monday, expect a volatile week in the markets.