I am going to start by writing about the last year and my understanding of what is going on. Which in all honesty there is so much impacting the global markets there is only so much that you can absorb.
Unless you have been living under a rock since March 2020, you obviously know about Covid-19 and all of the restrictions and lock downs that persisted throughout the world for much of the year. This caused the market to have the floor ripped out from under it and dropped from a High on Feb. 20 with the S&P 500 at 3,373 down to 2,409 on Mar. 19. This wiped out a whopping 28.5% of the entire value of the market. Almost as quickly as the market dropped, the market came roaring back to life over the next few months hitting the high of 3,373 on Aug. 17 and screaming past that point. (currently at 4,387 up 82% from the low).
So how did we go from a market crash into one the biggest bull markets in history? There are many reasons why this happened. One of the biggest reasons is the fact that the government began spending more money than it has ever done before. We had multiple installments paid to businesses and families in the economic stimulus packages during the course of 2020. If you’d like to check out all the stimulus packages click this link: https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723.
Another way the government fought for an economic recovery was cutting interest rates dramatically. The Federal Reserve cut interest rates from almost 2% down to 0-0.25%. This allows business/banks to take out large scale loans with little interest payments allowing them to make investments in hopes that it will keep employees at work.
The last reason I’ll discuss is the government bond purchasing initiative. In essence, the government is buying bonds, and other long term securities such as mortgage backed securities. This means the Fed is taking ownership of these securities and in exchange they are putting more cash out into the economy.
So that brings us here… with all eyes on the Federal Reserves Jerome Powell. Currently most of these policies and initiatives are in effect to some extent. We still have near zero interest rates, the Fed still purchasing bonds, and some stimulus still being issued out while other programs such as the Eviction Moratorium are about to end. We have seen commodity prices such as Crude oil, and Copper make runs to highs since the pandemic. Lumber became the most talked about item earlier in the year due to the elevating prices, and real estate sales and prices have been ripping to all time highs in areas such as Nashville and Austin.
The concern with all of this is the most feared word to the dollar… Inflation. With an entire year of demand trying to be satisfied, along with large sums of money flowing through the economy, there is concern that inflation could run away from the grip of the Federal Reserve. Every week J-Pow gets up and claims that the inflation we are seeing is transitory (meaning it will slow down). There are many however, who are not so certain that this is a transitory impact and will continue until some of the Quantitative easing slows down, and the Fed begins to hike rates.
With the market soaring to all time highs what seems like everyday, it seems almost too good to be true. There have been a couple of market checks on the way up, pulling back 2-5% at a time, but nothing that has really stopped the market from buying up every dip. The interesting thing about this run as of late from about June-August, is it has been difficult to make money in this market. If you weren’t invested in the FAANG GANG (Facebook, Amazon, Apple, Netflix, Google) you were actually probably bleeding money, and caught in a washing mashing of choppy markets. Like many, I had to re-evaluate my portfolio and the market conditions. I ended up trading in some stocks for Apple, an S&P 500 index fund, a Nasdaq 100 fund, and few other diversified ETF’s. I actually pulled about 50% of my money out of the market as I was all in, and want some cash for the big dip that many feel is inevitable.
We recently just came out of the earnings season for most of the major tech stocks and banks. Some things to note is that stocks such as Apple beat their expected EPS but their stock went down due to micro chip concerns in the next quarter. Snapchat shot up almost 20% on the day of their earnings due to Revenue being up 16% and and EPS beat of 800ish%.
One stock that I have an absolute love/hate relationship with is Advanced Micro-Devices (AMD). I invested early into AMD back in 2017 and it had a fantastic run up into Covid hitting about $90. And then it hit a point of contraction, ranging between $75-$95 for almost a year. I got burned in the Q1 earnings when they beat their expected EPS and yet the market didn’t like the overall growth with supply concerns and it dropped from about 90-75. This time around I didn’t take any chances and wanted to hedge my bet on the stock. I decided to buy a put at a $91 strike and bought a call at a $91 strike. This meant as long as the stock moved enough down in price or up in price, I would cover the cost of the lost premium and cash out a profit. Thankfully AMD came through with a big earnings beat and the stock went up 5% the first day, then it went up another 3%, and I decided to cash out my options at about a 200% profit. Not bad for a bet with a limited risk.
Diary of a Retail Trader 