FINANCIAL MARKET UPDATE 11.30.2021

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

STOCK PICKING IS HARD

Despite the recent uptick in volatility, the stock market remains on pace for a stellar year. The S&P 500 Index, a proxy for large US stocks, is up approximately 25% year-to-date as of this morning. Just because the market as a whole is up, however, doesn’t mean all of the underlying companies are performing well. 

The chart below has been featured across a handful of financial blogs over the past week. It illustrates a couple dozen stocks and the percentage drawdown from their respective highs. Clearly, there was some cherry-picking involved in creating this list. Additionally, the measurement period differs between the various companies and the broad index return I quoted previously. This could make the comparisons a little misleading. All caveats aside, though, I was still shocked when I saw this data.

Many of these companies have been extremely popular among day traders and the retail investor community more broadly. Among them were sexy high-growth companies, disruptive technologies, and hot initial public offerings (IPOs). These stocks sported seductive narratives and generally had a killer performance at some point. Perhaps if an investor got into one of these names early enough, they would still be at a gain. I would venture to guess, however, that there was a long line of traders that piled into these names late and rode them deeply into the red.

The chart serves as an excellent reminder that stock picking is an incredibly tough game to play. Even during a period that was very strong for the market as a whole, concentrating on a few popular stocks can lead to a devastating outcome. Some of these companies will likely rebound, but that is certainly not guaranteed. While investors can confidently wait out a drawdown in the broad market, individual stocks can and do fall to zero.

WEEK IN REVIEW

  • The top story moving markets is once again related to the pandemic. Last week the World Health Organization (WHO) classified a new variant of concern, which has been named Omicron. The announcement introduced new uncertainty into the market, and risk assets have mostly been in retreat since. There are many questions that need to be answered to understand if/how the new variant will impact the economy. This includes how contagious the new variant is and whether vaccines and/or antibodies from previous infections remain effective.
  • Data published last week showed a significant decline in the number of initial jobless claims from 270k to 199k, Q3 GDP was revised slightly higher, and Personal Consumption Expenditures (PCE), Fed’s preferred inflation gauge, increased by 4.1% YoY.
  • Data to be published this week includes an update on manufacturing activity on Wednesday, jobless claims on Thursday, and an update on services sector activity on Friday. The week will be headlined by the jobs report that will also be published on Friday. A handful of Fed officials will speak throughout the week, including testimony to Congress from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen on Tuesday and Wednesday.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Powell Says Fed Will Discuss Speeding Up Bond-Buying Taper at December Meeting (CNBC)
  • The Current Inflation Run is Similar to Other Episodes in History, But With Important Differences (CNBC)
  • Covid-19 Variant Omicron Threatens U.S., Global Economies (WSJ)

Investing

  • A Short Story About What Happened to the U.S. Economy Since the End of World War II (Morgan Housel)
  • Trimming Your Stocks Without Triggering the IRS (Jason Zweig)
  • This Will Not Last (Nick Maggiulli)

Other

  • Lincoln Riley Avoids SEC Mayhem, Forges His Own Path (SI)
  • Elon Musk Tells SpaceX Employees that Starship Engine Crisis is Creating a ‘risk of bankruptcy’ (CNBC)
  • Can a Digital Reality Be Jacked Directly Into Your Brain (Wired)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER

Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 12+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership as well as analytics and operational efficiency for the Firm's Financial division. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

FORM CRS RELATIONSHIP SUMMARY