The Independent Market Observer

Best Wishes for the New Year

December 31, 2021

As we close out the new year, it has been one to remember. Or, possibly, better to forget. In my own case, we had planned on having friends over for the evening. But, unfortunately, one was exposed to COVID, and then we found out late this morning that we had been exposed to COVID as well. This far, all the tests are negative—so wish us luck. But the risks are definitely on my mind at the moment.

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Reflections from the Massachusetts Conference for Women

December 30, 2021

For the third year in a row, Commonwealth sponsored the Massachusetts Conference for Women. Since 2005, this annual conference has been providing connection, motivation, inspiration, networking opportunities, and skills-building workshops for thousands of women. As we did in 2020 and 2019, my colleague Giovanna Zaffina and I are sharing our experiences and thoughts.

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Recessions: A Capitalist Perspective

December 29, 2021

Is it possible we can learn something about a healthy economy from the National Forest Service (NFS)? For decades, the forest service had a policy of extinguishing brush and wildfires at all costs. Its main goals were to prevent fires and to suppress them as quickly as possible if they started. Over time, however, the NFS came to realize that forest fires have a role in nature, one that is necessary for healthy ecosystems to take form. The same may be true for recessions and the long-term health of our economy.

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Target-Date Funds: What’s Under the Hood?

December 28, 2021

Target-date funds are a class of mutual fund or exchange-traded fund designed to accumulate assets to meet an investor’s needs at a future date—the “target date.” Typically, a target-date fund holds a diversified portfolio of stocks and bonds. As the fund approaches and passes the designated retirement date, it is periodically rebalanced to be less focused on accumulation and more focused on income preservation. 

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Monday Update: Consumer Confidence Improves to End the Year

December 27, 2021

Last week saw a number of important economic updates, with a focus on consumer confidence, existing home sales, durable goods orders, and personal income and spending. Consumer confidence improved by more than expected to finish out the year, which is a positive sign for year-end spending reports. There are no major economic data releases scheduled for this week, but we’ll see a number of updates in the first week of the new year.

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Record-Breaking Home Prices and Rent Growth

December 23, 2021

Rising home prices have been the focus of countless headlines throughout the past year. Accelerated demand in a tight real estate market has produced some captivating statistics. Recently, the National Association of Realtors (NAR) reported that the third-quarter median sale price for an existing single-family home was 16 percent higher year-over-year. That marks a record since the NAR began capturing the data in 1968. 

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Chinese Tech Stocks: What Does the Future Hold for U.S.-Based Investors?

December 22, 2021

China’s push for what is known as “common prosperity” has led to more of a crackdown on companies that don’t fit in with its longer-term goals. Harsh Chinese regulatory oversight is not new, yet recent changes in the country’s philosophy have led to more concerns about the future ramifications for Chinese companies listed on U.S. exchanges. Below, I’ll dive into the regulatory concerns and how they might affect any U.S.-based holders of U.S.-listed Chinese securities.

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So, You Want to Remove China from Your Portfolio?

December 21, 2021

In 2021, we have seen our fair share of requests from advisors and their clients to remove or reduce the exposure to China in their portfolios. This has happened for several reasons. In a previous post, I discussed both the strong foreign direct investment into China in 2020 and the stark contrast between the country and the rest of the world in 2020 nine months into the pandemic. Nearly a year later, we have seen the Chinese government take swift actions around foreign direct investment, including the planned delisting of Chinese ride-hailing company, Didi, from U.S. exchanges; fines on technology firms; and questions around the future of U.S. foreign direct investment.

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Monday Update: Retail Sales Growth Slows in November

December 20, 2021

There were a number of important economic data releases last week, with a look at producer inflation, retail sales, home builder confidence, new home construction, industrial production, and the results from the most recent Fed meeting. This will be another busy week of updates, with reports scheduled on consumer confidence, housing sales, durable goods orders, and personal income and spending.

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Is Omicron a Risk for Emerging Markets?

December 17, 2021

The recent resurgence in COVID-19 cases and the emergence of the highly mutated Omicron variant are reminders that the pandemic is still very much a part of our lives. It is unclear how serious the health implications of the Omicron variant will be, let alone how governments, households, and firms will respond to it. While the financial markets have been through a range of emotions in the past few weeks, there is little evidence on how the underlying global economies will react.

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When Assessing the Risk of Your Portfolio, It’s Personal

December 16, 2021

Throughout the pandemic, we’ve seen a large-scale exercise in risk assessment. Both governments and individuals have had to make a number of risk assessments, weighing the cost and benefits of different actions without definitive information. Investors are making investment decisions based on risk as well, as no one can be a perfect forecaster. So, to the extent we can, we must not only be conscious of the uncertainty of our investment returns but also of the risk that we will make poor choices when faced with different results, both good and bad.

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The Global Supply Chain and Its Impact on Earnings

December 15, 2021

Here at Commonwealth, we’ve spent a lot of time breaking down earnings results and commentary in the past few months and after the third quarter ended. For the most part, business for corporate America is strong, and the post-pandemic rebound continues with a few disruptions related to the spread of new variants. But the most common theme we’ve heard discussed in the calls we’ve participated in relates to the supply chain and the negative impact it is having on earnings and how it could continue well into 2022. And it’s not just us. According to FactSet, 342 of the S&P 500 companies made some sort of reference to the supply chain in their quarterly earnings calls. That is at a 10-year high, and it highlights how much of an issue this has become in creating bottlenecks for the economy and corporate earnings. The supply chain is critical, as it can result in demand destruction as consumers choose not to wait around to make a purchase. It can also result in higher costs. Both of these factors put and likely will continue to put downward pressure on earnings in the near term.

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Should Investors Channel Their Inner Scrooge This Holiday Season?

December 14, 2021

For many, the holiday season is the busiest time of the year. Undoubtedly, 2021 is no exception. The world is gradually returning to “normal,” and we’ve started to resume some of the festive traditions that were missed in 2020. Personally, one of the things I enjoy most about the holidays is watching Scrooge learn valuable life lessons in the movie A Christmas Carol.

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Monday Update: Consumer Prices Rise in November

December 13, 2021

There were only a few major economic data releases last week, with a focus on international trade, consumer prices, and consumer confidence. Consumer inflation came in slightly above economist expectations in November, while confidence increased by more than expected to start December. This will be a much busier week of updates, with reports scheduled on producer inflation, retail sales, home builder confidence, new home construction, and industrial production. Economists will also be closely monitoring the results from the Fed’s December meeting.

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Will Omicron Derail the Recovery?

December 10, 2021

It has been going on two months since we last took a detailed look at the pandemic. Of course, a lot has happened since then. Between the winter wave of Delta, the emergence of Omicron, and the rising hospitalizations putting regional health care systems at risk again, there is a concern as to whether we are entering a third pandemic. I don’t think so, at this point. But let’s take a detailed look at where we are now and at the real question going forward—how bad will this get?

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A Cynic’s Guide to ESG Investing

December 9, 2021

Over the past month, we have done a couple of posts about ESG investing, notably from my younger colleagues. I have gotten—not pushback, really—but comments to that effect both on the blog and elsewhere. The feeling seems to be, at least to some extent, that ESG is different from what prior generations, which is to say old people (which is to say me), have looked at and that somehow this represents a change.

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Monthly Market Risk Update: December 2021

December 8, 2021

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

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Economic Risk Factor Update: December 2021

December 7, 2021

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

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Monday Update: Job Growth Slows in November

December 6, 2021

Last week saw a number of important economic data releases, with a focus on consumer and business confidence and the November employment report. The jobs report showed a notable slowdown in headline job growth in November, although the month’s underlying data was more encouraging. This week will be relatively quiet, with only three major data releases scheduled. They will cover international trade, consumer inflation, and a first look at consumer sentiment in December.

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Turkey’s Unconventional Monetary Policy

December 3, 2021

Brad here. What is the next crisis? We get this question a lot. To keep up on such trends, we have to watch many things, such as countries getting into trouble. Turkey, which is currently struggling with the financial markets, is one of those countries we are watching—but not, as Anu Gaggar shows, all that worried about. This is a good case study of how we keep an eye on emerging risks. Thanks, Anu!

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Looking Back at the Markets in November and Ahead to December 2021

December 2, 2021

November was a solid month for the economy but difficult in terms of both the medical news and financial markets. After a strong October, the Fed announced plans to start tightening monetary policy. Then we heard about a new variant of COVID-19. By month-end, the combined news pulled the markets down from midmonth gains to much more mixed results.

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Market Thoughts for December 2021 [Video]

December 1, 2021

After a strong October, November saw generally weak performance in the markets. In the U.S., the Nasdaq showed a small gain, but the S&P and the Dow were down. These results were driven by the emergence of the Omicron variant and the Fed’s announcement that it would start to normalize monetary policy. Still, hiring for October was healthy, and layoffs dropped to pre-pandemic levels in November.

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