Equity-Treasuries - No, this isn't some brand new, harebrained NFT / blockchain trash, today we speak of a revolution in investor psychology. Well, maybe.
I think we can all agree that Microsoft and Apple have ascended to their very own category that surpasses anything by the simple label of growth, big tech, etc. These two companies are the elite of the elite, and the market knows it. Throughout the pandemic and all of 2021, Apple and Microsoft have almost singlehandedly carried the other 503 stocks in the S&P 500 to record after record. While tech names from Uber to Peloton capitulated and dropped +50% at times, the two titans stayed strong. Why is that?
Well, to put it simply, it is because they are the T-Bills of the equity market. Incredible cash flows, strong balance sheets, unmatched executive leadership, hella recurring revenue - these two companies are as safe as it gets.
Yesterday, both stocks sank like rocks, dragging down U.S. indices, particularly the Nasdaq. Rate hikes are the main driver here, but many more questions need to be answered. Is the market fully pricing rate hikes? When bonds come back to life, will AAPL and MSFT mean-revert? Did I pass my math final exa- sorry, off topic. Anyway, the dynamic created by the pandemic is nothing short of a marvel, but can it last?
Retail - I've said it before and I'll say it again - in any given year, consumers drive 60-70% of the U.S. GDP. Retail sales is a huge part of that, and with the Holiday season upon us, spending by consumers is ever more important. This is exactly why November's sales slowdown is a bit of a concern.
Still growing, retail sales in November increased by the seasonally adjusted figure of 0.3% in November. While an increase is good, 0.3% isn't great. Still, this is not cause for great concern just yet. Consumers are still largely wealthier than they ever have been and wage growth, particularly on the low end of the income spectrum, is gaining rapidly. Inflationary pressures and supply chain issues, the usual suspects of 2021, are the likely culprits holding back spending.