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The Wall Street Debrief “Manic Monday” Followed By Strong Rally, DJIA, and S&P 500

The Wall Street Debrief “Manic Monday” Followed By Strong Rally, DJIA, Nasdaq and S&P 500 All Close at All- Time Highs

July 23

FSInsight Team

Summary

– S&P 500 closed at an ATH of 4,411.79 on the week. The DJIA closed above 35k for the frst time ever. Nasdaq is looking like it wants 15,000 bad

– The beginning of the week couldn’t have been more diferent from the end. Monday was the worst sell-of of 2021 for the DJIA

– The rising prevalence of the ominous Delta Variant and uncertainty around infation and the debt ceiling are all risks markets seem to be seeing through given the recovery.

– July and August tend to be poor months for returns in markets, and this is even more true after a strong frst half. Nonetheless, our analysis suggests that there is a lot of upside in 2H2021 ______

What a diference fve days can make right? It seemed as if the whole world was falling apart on Monday, particularly if you were in our favorite sectors that took a signifcant shellacking. Friday afternoon saw the culmination of a powerful rally in the wake of that sell-of that resulted in the three major indexes all closing at all-time highs. If you were looking strictly at health care outcomes, you might be confused. Isn’t the healthcare data getting scary again? Aren’t the unvaccinated at major risk? Yes, these things are all true. It is highly unfortunate that vaccine hesitation likely means it is virtually impossible to wipe out the virus as initially planned. This is because until immunity or level of previously efected reach very high levels, the virus continues to ‘ping pong’ around vulnerable cohorts and may evolve into more problematic strains.

One thing we want to impart to our subscribers is that you should be taking the Delta Variant very seriously from a personal health perspective. Vaccinations do largely protect people from the worst outcomes but several studies emerging are suggesting that protection against the new more contagious variant is less so than previously thought. So, take precautions even if it’s unfashionable to do so. Better safe than sorry we think. We are facing a genuine healthcare threat (as exhausting and unwelcome as this reality is) and while we don’t anticipate that policy responses will lead to signifcant 2020-style economic disruptions, it is still a tail risk that could occur.

My colleague, Tom Lee, adeptly identifed the most likely culprit in the diverging statistics between the highly vaccinated countries of Israel and the United Kingdom and the United States. While the prevalence and spread of the variant in these countries is much more widespread and severe (and we suspect the US will likely follow this path) the adverse outcomes in the US are higher. He will elaborate on how comorbidities are causing elevated adverse outcomes as compared with our Israeli and British friends.

Are you confused? It’s understandable. On the one hand, we’re telling you that Delta’s path is likely to get worse, but on the other hand markets certainly seem to have given the all-clear. We think both can be true. Markets have successful track records of predictive power and they have always bottomed before cases peaked. You disregard what the market is telling you with its one language, price, at your own hazard.

For example, did you know that the British market bottomed in June 1940, before the Battle of Britain began? That’s right. That means the British went up, albeit in jagged fashion, through the Battle of Britain, the Blitz and the humiliating Fall of Singapore. The German Bourse, which was a vestige of its democratic past, even climaxed in price almost exactly at the time when German troops were on the outskirts of Moscow, even though there was little reason at the time to doubt their continued military dominance.

Markets provide us valuable information and utilize the law of large numbers just like many of the exciting innovations and uses of data to better our lives do. Markets are like people voting on an outcome, and people take great eforts to make their best guess when fnancial reward is involved. If you would have sold everything on Monday and said to Hell with it, COVID is back, then you’d be kicking yourself today. We hope you did not do this.

There are certainly elevated risk factors approaching. Republicans appear to have an extreme dearth of willingness to raise the debt ceiling, which could cause the type of headline risk it did in earlier times when banks like JP Morgan even dumped some -dated US debt in anticipation of a potential technical default. Janet Yellen has chided Congress to raise the limit by August 2nd. So, maybe there’s more days like this recent manic Monday ahead. Part of this is certainly seasonal. Many in the fnancial industry are on , and well-deserved vacations (after-all who on this planet doesn’t deserve a vacation after these trying times?) as evidenced by the fact that people are trying to bribe their way into Hamptons restaurant reservations and ofering to pay way above-market prices for hotel rooms. The doldrums of summer are rarely a time when people make money hand over fst because of this efective “buyers strike.”

We highlighted a steady and stolid stock in this week’s Signal From Noise column. We detail some insights about investing that are worth the read. We want you to remember that the high risk, high reward opportunities that get you excited and giddy should always be complemented by safer companies that will give your portfolio some stability. We elaborate on some important investment advice that is generally common knowledge at the dog or horse track, but can elude many folks new to investing.

FSInsight Team

Disclosures (show)