Market Update + Q&A, March 2021

Market Update & Q&A Video Summary (March 2021):

• The volatility risk indicator, which is a measure of the implied move in markets over the next 30 days, has come down considerably since COVID. Right now, fixed income is trending higher than equities, which is something we are watching. The credit default swap spreads, which show the price of insurance on a company going bankrupt, are looking pretty good to us. The three different areas these spreads cover, from high yields to investment grade and emerging markets, have all pulled back considerably since March of last year. We will continue watching it, but this isn’t signaling anything that would raise our eyebrows at this point. Bond spreads, which shows true trades, are historically very tight which is signaling improving economic conditions, according to this metric.
• Consumer spending has been trending positive and it is only, according to this metric, down one percent from pre-COVID levels, which is a good sign for the consumer. COVID rates are continuing to drop. At the national level, it’s down to 19.2 cases per hundred thousand. Though Europe is seeing an uptick, as a whole it has been trending down. People are spending much more time outside of the home. The group that’s been moving the most since November/December has been airlines, hotels, the leisure space a whole.
• Manufacturing is back to where it was pre-COVID, we are continuing to watch to see if this trend holds. Though interest rates have been trending downwards for decades, we are starting to see yields back up. The Fed has not yet moved to raise interest rates, but the market is naturally going in that direction. After 40+ years of interest rates trending down, seeing a bounce from the bottom is not that surprising, but it is something to watch.
• In the markets, we are seeing small and medium sized companies outperforming larger companies over the last several months, which is a trend that we think is going to continue forward. We decided to start dipping our toe into global markets. After significantly underperforming the US market for at least a decade now, we finally think it’s time to gain exposure in that area. The market S&P500 looks good, it has broadened out which is a healthy sign. We are continuing to watch interest rates, but this broadening means there are more participants in the market, which is also a healthy sign.

Questions from Q&A

1. “How do we know if the interest rates rising recently is just a little bounce before the 40-year downfall continues or if it’s something different?”
2. “Are we vulnerable in the cryptocurrency space because of some of the countries that own bitcoin mining?”
3. “Can you explain more about the different stocks shown on the Markets – Sectors slide?”
4. “Which commodities could be invested in as a necessary staple given what’s happening now and, I imagine, a lot of the fear that’s going to continue?”
5. “Any idea when we’ll know if rates will continue to go up, and then in the meantime, is there a good place to put short-term cash while waiting for some transparency there or some resolution?”
6. “Do you believe the safe high-yielding bonds that have traditionally served as a portfolio shock absorber have become scarce?”
7. “Do you have concerns about rising inflation given the rising costs for things such as labor, freight, energy, commodities, corn, soybeans, etc. Economists are saying that they’re predicting 3.5-4%, do you have any predictions for consumer inflation by 2023?”
8. “How do you get exposure to global markets?”
9. “You said you were making a shift more toward the industrials and financials, what about utilities?”
10. “I’d like to find out, how do I contact you to have a private meeting and consultation?”
11. “Do you believe the administration’s tolerance of higher long-term interest rates is all but certain to arrest the stock market advance, and share prices lower?”
12. “What would your opinion be to consider a portfolio asset allocation that embraces the following, given the current economic environment and rising rates: would you select stocks that pay dividends consistently? Would you be looking at defensives like healthcare, telecom, utilities, and companies with pricing power? Hard assets like rental housing? Gold mining?”
13. “Do you think the value of the dollar going to stay somewhat stable? Are we still going to be strong?”

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Best regards,

The Willow Team
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