AJA Weekly Recap

2022 | November 14

John,

Here is your weekly market commentary. We hope you enjoy receiving our newsletters. If you have any questions about the following content, please let us know!

- The AJA Team

This Week….

  • The Markets
  • Schwab Money Market Fund
  • Difficult Week for Market Geniuses

The Weekly Focus


Think About It

“These are the times in which a genius would wish to live. It is not in the still calm of life, or the repose of a pacific station, that great characters are formed. The habits of a vigorous mind are formed in contending with difficulties. Great necessities call out great virtues. When a mind is raised, and animated by scenes that engage the heart, then those qualities which would otherwise lay dormant, wake into life and form the character of the hero and the statesman.”


—Abigail Adams, Founding Mother

The Markets

Stocks Rebound


The major U.S. stock indexes rebounded in a big way from the previous week’s declines, driven largely by a one-day rally on Thursday that was the largest in two and a half years. The NASDAQ posted the top result with a weekly gain of more than 8%; the S&P 500 added about 6% and the Dow rose around 4%.


Although U.S. inflation remains near its highest level since the early 1980s, the latest monthly Consumer Price Index report brought some relief. Inflation rose at an annual 7.7% rate in October—down from 8.2% in September—and 0.4% on a month-to-month basis. Both figures were below the levels that most economists had expected.


Thursday’s release of better-than-expected inflation data ignited a one-day stock market rally, sending the major U.S. indexes to their biggest daily gains since the spring of 2020. The NASDAQ surged 7.4%, the S&P 500 rose 5.5%, and the Dow added 3.7%.


The new inflation numbers fueled speculation that the U.S. Federal Reserve could begin to scale back the size of interest-rate increases starting in December, sending bond prices higher and yields lower. The yield of the 10-year U.S. Treasury bond tumbled from 4.16% at the end of the previous week to 3.82% on Thursday. (On Friday, U.S. bond markets were closed for the Veterans Day holiday.)


An index that measures investors’ expectations of short-term U.S. stock market volatility fell for the fourth week in a row. The CBOE Volatility Index (VIX) fell more than 8% for the latest week; on Friday it was down 33% from a recent high on October 12.


Financial setbacks for a major cryptocurrency trading platform and the company’s subsequent bankruptcy protection filing on Friday triggered a surge of volatility for virtual currencies. The price of Bitcoin, the most widely traded cryptocurrency, fell from around $21,000 on November 4 to less than $17,000 as of Friday afternoon. In November 2021, Bitcoin briefly traded above a record $68,000.


With the current quarterly earnings season nearly complete, analysts have recently been scaling back their expectations for fourth-quarter results that will be released starting in January. On average, analysts expect fourth-quarter earnings for S&P 500 companies to decline by around 1.0%, according to FactSet. At the end of September, analysts had forecast earnings to rise 3.9%.


A U.S. retail sales report scheduled to be released on Wednesday will show whether a recent sales slump extended into October. In September, retail sales posted a flat 0.0% result, down from the prior month’s 0.4% gain. Since retail sales figures aren’t adjusted for inflation, September’s result suggested that consumers cut their spending in response to rising prices.


Source: John Hancock Investment Management

Schwab Money Market Fund

With Charles Schwab’s acquisition of TD Ameritrade, we now have access to the Charles Schwab Money Market Fund. Rates have been increasing over the last several months and currently the fund is paying 3.70% annualized. If you are interested in having your cash in this fund, please contact our office and we can get an account set up for you.


Here are more details on what a money market fund is:


A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries). Money market funds are intended to offer investors high liquidity with a very low level of risk. Money market funds are also called money market mutual funds.


For more information on money market funds, please click here.

It Was a Difficult Week for Market Geniuses

Last week, there was extraordinary drama in financial markets. It made the ups and downs of stock and bond markets seem almost mundane. Here’s what happened:


Tales from cryptocurrency. The world’s third largest cryptocurrency exchange declared bankruptcy after suffering the 21st century equivalent of a bank run. It was similar to the townspeople crowding into the Bailey Building and Loan in Frank Capra’s It’s a Wonderful Life. In the film, George Bailey uses his honeymoon money to avoid a collapse. The founder of the cryptocurrency exchange had a shortfall of about $8 billion, reported Philip van Doorn of MarketWatch.


When asked about the bankruptcy, U.S. Treasury secretary Janet Yellen said that cryptocurrencies require careful regulation, reported Christopher Condon of Bloomberg. “In other regulated exchanges, you would have segregation of customer assets,” Yellen said. “The notion you could use the deposits of customers of an exchange and lend them to a separate enterprise that you control to do leveraged, risky investments – that wouldn’t be something that’s allowed.” 


It's not easy. Twitter was recently privatized, which means that all shares of its stock were purchased by a new owner (Elon Musk), and it no longer trades on a stock exchange. In this case, the purchaser was one of the world’s wealthiest individuals, who used his own money along with $13 billion in financing from large investors and private banks, reported Reuters.


The owners of privately held companies are not constrained by regulation or boards of directors, which can be advantageous, although that hasn’t proven out in this case, so far. The company’s new leader implemented a subscription service that produced undesirable results. “Once the option was available, users started creating accounts pretending to be major brands and politicians, fooling users and potentially jeopardizing [the social media company’s] now-shaky reputation with top advertisers,” reported Davey Alba and Kurt Wagner of Bloomberg.


“Companies led by lone geniuses need strong governance first and foremost,” said Yale School of Management’s Jeffrey Sonnenfeld in an interview with CNBC. “Having built-in checks and balances and a board that has field expertise as well as the ability to watch out for mission creep is critical to allowing these businesses to function with less risk of costly blunders.”

AJ Advisors
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John Stauffer, CFP®
Partner

Andrew Quinn, CFP®
Partner

Emily Triano
Operations Associate

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