This is why we hedge.
Last week, as we were doing the Portfolio Reviews for our Members, we noticed a pattern of poor performance from our Small Cap Stocks, so we adjusted our hedges from favoring the Nasdaq (which never goes down far) to the Russell and boy has that worked well over the past week! The Nasdaq is down too but only down 500 (3.3%) from the 15,000 top (where we shorted it, of course) while the Russell has now fallen 240 (10.25%) points from 2,340 at the start of the month.
I've been talking about the Delta Varient all month and here we are, on July 19th, and people are starting to pay attention. Surging cases of the coronavirus in many parts of the world, including highly-vaccinated countries such as the U.K., have prompted investors to dial down their expectations of economic growth in the coming months. Some also are concerned that a steep rise in prices will pinch consumption and prompt central banks to withdraw stimulus, creating an environment of lower growth and higher inflation in which stocks tend to struggle.
Consumer spending climbed 5% in March after Congress and the White House enacted a $1.9 Trillion pandemic relief package that sent $1,400 checks to many households. The money was reaching pocketbooks at the same time many people were getting vaccinated and venturing out more as service providers reopened their doors. Monthly spending increases have slowed since then as the initial stimulus effect fades. “You can’t eat out twice in a night,” said Steven Blitz, chief U.S. Economist at TS Lombard.
Los Angeles County on Sunday became the first major county to revert to requiring masks for all people indoors in public spaces. Coronavirus case counts have risen sharply under the less stringent guidelines, especially as the highly transmissible Delta variant continues to spread. The county’s daily average of new cases has more than doubled in each of the past two weeks, reaching almost 1,400 as of Saturday, and Covid hospitalizations are up 27 percent.
“When you look back at the last seven days, obviously a whole lot has changed,” Hilda L. Solis, the chairwoman of the Los Angeles County Board of Supervisors, said on ABC’s “This Week” on Sunday. Ms. Solis called the increase in Covid cases “very disturbing.”
55 Athletes and workers at the Olympics have tested positive already and are being sent home. 3 of the US NBA players had to stay home with Covid and the NBA in general has a Covid problem – now that they are playing outside of last year's bubble – which worked great (zero cases last year). The incubation period of up to 14 days for the virus means athletes could test negative repeatedly before suddenly producing a positive test result just before or during competition.
It's been a very long time since we've had a proper sell-off so we'll just have to wait and see what levels hold. 14,000 on the Nassdaq (/NQ), 33,000 on the Dow (/YM), 4,100 on the S&P (/ES) and the Russell (/RTY) is already failing 2,100 so that's what we'll be watching this week. There's very little data this week and no Fed speakers scheduled so it's going to be all about earnings – and there's plenty of those:
Let's be careful out there!
