What we’re reading (12/26)
“Wall Street Bets S&P 500 Will Say Goodbye To Outsize Stock Gains In 2022” (Wall Street Journal). “U.S. stocks are on track to end 2021 with another year of outsize gains. Many investors aren’t expecting a repeat in 2022. The S&P 500 has climbed 26% so far in 2021, after rising 16% in 2020. Rip-roaring corporate profits and easy monetary policy have fueled the run. Earnings growth is expected to moderate next year, and the Federal Reserve is pursuing plans to raise interest rates, chipping away at key supports for the stock market’s rally.”
“Debranding Is The New Branding” (Bloomberg). “In recent years many major brands have taken a long, hard look in the mirror and hit reverse — discarding detail and depth to debrand. Burger King returned to a simpler, flatter identity…Rolling Stone shed its character stroke and drop shadow for a cleaner edge…[a]s much as brands aspire to be sui generis, branding has fashions that ebb and flow like skirt lengths or collar widths. This was as true of “jazz age” and “flower power” brands as of the recent effusion of “hipster” brands[.]”
“T Rowe Price Chief Warns Of ‘Free-Form Risk-Taking’ In Buoyant Markets” (Financial Times). “The outgoing head of one of the largest active US fund managers warned that investors should ‘step away from risk’ to avoid being burnt in an increasingly speculative market. Investors should not be overexposed to what has worked in the past year, or even three years, said Bill Stromberg, the chief executive of T Rowe Price, who will retire at the end of this year. ‘Even if they are a year too early. Because when the market unwinds, it will be areas of risk that unwind the most.’”
“Some Simple Game Theory Of Omicron” (Marginal Revolution). “Let’s say that everyone is totally reckless, and they go to Christmas Eve ‘Omicron parties.’ A week or two from now the virus has cleared their systems and I, who stay at home and blog, can then go out and frolic. Even if they stay sick, or if they die, they are removed as sources of potential infections for others (see below for new variants, possibly from the immunocompromised). If I know that is happening, I find it easy to stay at home for a week. I look forward to my pending freedom. In other words, right now my behavior becomes safer. I engage in intertemporal substitution.”
“Moving In Stereo: Churn And Rotations Causing Swings In Sentiment” (Charles Schwab). “This year has been a strong one for most major stock market averages; but with ample churn and sector volatility under the surface. Instead of trying to get ahead of these short-term swings, use them to your advantage via diversification, but also volatility/portfolio-based rebalancing in the interest of trimming into strength and adding into weakness. Keep a close eye on sentiment conditions, especially if they move back toward euphoria—and if not accompanied by breadth improvement.”
