The complete dominance of our vaccines has brought our economy to the front of the world’s economic race. The superior efficacy of our vaccines has given us the economic boost that other nations have yet to experience, and with that boost comes a strong currency, completely reversing the weak dollar trends of a few weeks ago. The prior weakness was in anticipation of Biden’s borrowing and taxing plans. It was also the result of runaway Federal Reserve accommodations. But now that the Fed is talking about interest rate hikes and our economy is opening up, every capitalist in the world wants to invest in America. Hence, the strong dollar and a strong market. Treasuries have also reversed to the upside with the rush into the dollar and an acceptance that our many price jumps are really just a short term “transitory” type of inflation…nothing to worry about.
The strong dollar has taken the steam out of the materials and precious metals sectors. Whether this is a correction or a more permanent trend change remains to be seen. We believe that the answer will become evident with the passage (or failure) of the Biden tax and spend plan. For now, the market is telling us that the Biden plan will not be passed. We’re not that confident—so there will be close watching as the legislative deadline looms.
We also believe that our economy will be good for the rest of the year, but perhaps not as good as many expect. There are supply chain shortages that could slow things a bit, and there is the never-ending push for regulation emanating from the White House. These rules and regulations cause investors to pause and reconsider investments and to wait to see the further outcome of the Biden tax plan, which is becoming the elephant in the room. Nevertheless, our call is for a continued strong economy through year end. Equities should benefit accordingly.
With this cautious attitude, earnings growth may not be equally robust across all economic sectors. The market seems to sense this and is rotating back to growth stocks. We, likewise, have sold cyclical industrial companies and added more growth companies to our weightings. Like other capitalists, we are cautiously watching the elephant in the room.
While the markets are ignoring the legislative overhang and telling us to ignore it as well…. that is easier said than done. In a recent presentation by the renowned investor, Mr. Lee Cooperman, he put it this way: “I am a fully invested bear.” My sentiments as well. I just can’t ignore all the social ills evident in America today.