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- What's Already Priced In?
Estimated read time: 2 minutes and 50 seconds
In this week’s newsletter:
Market recap
Skills & data used this week
Top holdings: what I am buying & selling
Market Recap
YTD returns:
S&P 500: +3.47%
Nasdaq: +6.44%
Russell 2000: +6.02%
US Dollar ($UUP): -1.33%
Gold ($GLD): +5.69%
A pretty quiet week for data but we do have the latest PPI reading to unpack:
PPI: Produce Price Index - a measure of prices paid for company's that manufacture goods
To no one's surprise, PPI is often thought of as a leading indicator for CPI - as the manufacturer's pay less for the materials used in their goods they are able to pass along the lower prices to the consumer.
We all know that the Fed is closely monitoring the inflation data to determine their needs for interest rate hikes (or at least we would all hope they are data-driven...).
So what has the market already priced in?
Key words on already priced in - often times a market is reacting to what is expected to happen in the future. Using the above chart, investors are expecting interest rate hikes to end mid-year and then start to decline.
Riddle me this: what if the Fed, uhm, doesn't stop? What if inflation doesn't fall fast enough?
Now I'm not suggesting we dump our life savings into a situation that "might" happen. We can't read the mind's of the Fed; but what we can do is read the data and use that to drive our investment decisions.
The data continues to speak; the economy continues to signal recessionary headwinds.
Buckle up, it's earning's season!
Skills & Data Used This Week
Ratioed \verb\
"Being revealed as an idiot on Twitter by having a high ratio of comments to likes and retweets" - Urban Dictionary
This is a great example of the wrong kind of ratio - instead, let's talk about the right kind of ratios...the ones you want to be looking at for your portfolio
Ratios, and more specifically stock ratios, are used to understand which side is larger than the other. Ya know, elementary school math - numerators and denominators. One goes on top and the other on the bottom (nice)
Let's take a look at a ratio that has worked well recently: long Gold ($GLD), short $QQQ
To create this chart I used stockcharts.com and entered the symbol GLD:QQQ
Think of this chart like a stonk - would you be happy if you BTDD (bought the damn dip) mid-August?
Being long something that goes up (Gold) and short something that goes down (Q's) is called ALPHA.
In times of market uncertainty (like being in a recession) creating alpha is money. Literally.
Here are some of the key pairings I'm looking to create alpha with in Q1:
Long Gold, Short $QQQ
Long Utilities, Short Energy (rate sensitive play)
Long Staples, Short Consumer Discretionary (consumer play)
Long China, Short Europe
In The Account | my top holdings
Gold & Gold Miners - $GLD, $GDX
Real rates are falling (10Y/30Y) which is bullish for Gold
Gold volatility ($GVZ) is sub-17; lower, trending volatility is bullish
$XLP (Staples), $XLV (Healthcare), $XLU (Utilities)
When the market hands you discount days for these names, you cover shorts and add to these longs.
US Dollar - $UUP
This one is hanging on by a thread as it's testing support levels. It's a head scratcher knowing it "should" work, but a "should" attitude never made me money.
On The Radar | positions I want to build / sizing up
CHINA
Oh yeah...this was is catching steam (but I don't chase!)
$FXI, $CHIQ, $BABA, $PDD
Off The Grid | removed positions / short selling opportunities
TECH - $XLK, $QQQ, $GOOGL, $META, $TSLA
RETAIL - $XRT
HIGH BETA - $SPHB
CRYPTO - $BITO, $MSTR
HIGH YIELD - $HYG
ENERGY - $XLE, $XOP
Until next week....
-BW
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.