After last week's strong rally into the close, there are a few competing issues to deal with this week.
The Election
There remains a chance that we won't get a divided government. That would likely send stocks and bonds lower. It isn't the base case, but this remains something to keep an eye on.
The Fed
The Fed is likely to try and sound tough on inflation. In fact, that happened overnight as Federal Reserve Governor Christopher Waller addressed the central bank's hawkishness and commented on stock valuations.
The only thing I have to say on this subject is there are four weeks of data, and everywhere I'm looking, I'm seeing weakness in the consumer products segment (sale after sale after sale). The rent is artificially inflated in CPI (check out Zillow or other "live" measures of rent and we are nowhere close to the 33-year highs the BLS comes up with).
Jobs are now the Fed's strongest reason to stay so hawkish, but we might (finally) see cracks there.
Crypto
There continues to be a shakeout in "altcoins" and tokens. The crypto community has been very "loose" with terms like "exchange," when they really mean custodian. It seems, from what I've read, that once again, go-mingling (or using customer funds) was an issue.
If you insist on holding crypto of any type:
- Ensure that if you hold it somewhere, they provide transparency and have a strong reputation (I'd lean towards being domiciled in the U.S.)
- I'd likely use more than one provider for any meaningful position.
- Unless you intend to trade actively, reduce cash balances to the minimum. There are, without a doubt, safer places to hold cash. There may be some transfer costs to weigh, but I'd be cautious here.
Finally, this wealth destruction, the spending that companies like FTX could do (tech, ads, etc.), are going to hit the economy. Disruptive stocks, great fuel for the economy, no longer have access to cash at what they consider attractive valuations, so there will be some serious headwinds to the economy.
Bottom Line
I like the "everything" rally to continue here as seasonality will give this a boost. My fear, however, is too much weak data spreads to stocks, but we think we can trade both stocks and bonds from the long side here.
I want no exposure to energy right now (for first time in a long time) and would mix long positions across tech (Invesco QQQ Trust (QQQ) ) large-caps (SPDR S&P 500 ETF Trust (SPY) ) and small-caps (iShares Russell 2000 ETF (IWM) ) just to catch some potential outperformance in one over the other, where I don't have a strong opinion.
I believe adding some muni closed-end funds makes sense here too.
