NESTEGG NEWS – February
Shiloh is getting excited for Mardi Gras, one of her favorite holidays of the year. Lilly on the other hand is still in quarantine because of her counter surfing.
The U.S. stock market rallied to new highs earlier this month based on optimism of a post Covid-19 economy later this year. We are seeing a softening in the stock market in the past week, especially with technology stocks. The recent selloff is in part related to rising interest rates on federal bonds.
Technology Markets & Vaccination Trends
Technology stocks have risen dramatically in the past 18 months due to increased consumer behavior in online purchases, zoom calls, etc. related to quarantine. We believe the ongoing selloff is a natural part of the technology stock market cycle and prices will stabilize. The pace of Covid-19 vaccinations has improved around the world as manufacturing and logistical issues are worked out. The road to herd immunity is long, although the total number of administered doses is now outpacing total infections and the trajectory of new cases, hospitalizations, and deaths is improving.
GameStop & Bitcoin
In one of the more bizarre trading events in recent memory, a tidal wave of retail investors bid up prices in a small subset of the market: unprofitable technology and retail companies. The ongoing battle pits Wall Street firms against quarantined millennial investors using an online trading application called Robin Hood. The most prominent stock includes GameStop, a brick-and-mortar video-game retailer. The frenzy also targeted movie-theater chain AMC Entertainment, mobile-device maker BlackBerry, and home goods store Bed Bath & Beyond. These stocks represent businesses who are likely headed towards bankruptcy. Some of these stocks are artificially inflated in a classic Ponzi Scheme manipulation of their stock prices. As with the Super Bowl, we believe the old guy (wall street) will eventually win this battle and some Robin Hood users will be left with significant losses. Prices of Bitcoin and other electronic currencies have also risen dramatically in the past 90 days. Cryptocurrencies (which include Bitcoin) are a digital currency used to buy goods via secure online transactions. Electronic currencies potentially create a global currency removing the complexities of current international currency exchanges. Bitcoin has increased in valuation nearly 50% in the past 4 weeks. We believe this increased price is indicative of another PONZI scheme similar to our earlier thoughts on GameStop and Bitcoin prices will decline over time.
The bond market is signaling concerns about rising inflation. After nearly a year of bouncing along in a 0.5% – 1% range, 10-year Treasury yields have moved up swiftly in recent weeks. Interest rates are rising in part because of the unprecedented Stimulus Packages passed last year and another expected package in the next several weeks.
Treasury yields reflect the price of ten-year bonds issued by our federal government to finance our national debt. Rising interest rates are resulting in higher mortgage rates as well.
If you have any questions or concerns, we would be happy to have a conversation with you.