Market Commentary: No Bears in Sight

by Gayl Mileszko


The Māori are the indigenous eastern Polynesian people of mainland New Zealand who came to the islands by canoe in a planned migration in the early 14th century. They developed a unique culture and language which evolved again in the late 18th century with the arrival of European settlers with written words, muskets, western agricultural methods, missionaries, smallpox and measles. Tensions between the cultures inevitably led to hostilities over time, most notably involving the sale of ancestral land. The ensuing social upheaval as well as the epidemics took a terrible toll on the Māori population; it took a century before protests for social justice and political activism stirred a significant revival movement, and it was not until 1987 that Māori was made an official language. Today, this ethnic group comprises about 17% of the country’s population but less than 200,000 still speak one of the three main dialects.

The word māori means “normal”, “natural” or “ordinary” and is said to distinguish us ordinary mortal human beings from the deities and spirits. In the Māori creation story, it was the forest god Tane who breathed life into the first woman. The story is kept alive to this day in the traditional Māori greeting which involves pressing noses together and touching foreheads in a practice called hongi. With this very personal connection, the ha (breath of life) is exchanged in a symbolic show of unity. COVID-19 has, of course, put an end to this centuries-old practice. From Auckland to Paris, Wuhan to Moscow, Toronto to Buenos Aires, non-verbal greetings from hongi to handshakes, and hugs to double cheek-kisses, once so common in our daily interactions with others are taboo under social distancing public health guidelines. What is left to us is only the awkward elbow bump, the tapping of feet, a wistful wave or spiritless salute from a distance or a two-dimensional smile on a flat screen.

We have lost a lot this past year – lives, jobs, businesses, homes, cars, freedoms, a sense of control, the sense of human touch. Neuroscientists agree that human contact is vital to health, wellness and happiness. There is a highly complex system of nerves, sensors and receptors that link our skin and brain to the people in our environment, and those deprived of a loving touch can develop severe psychological, intellectual and physical health issues. Some studies show that the pleasantness of touch is actually enhanced with age. That makes it all the more sad that senior citizens are among the most touch-deprived throughout this pandemic as so many outside of senior living communities have been self-isolating for nearly eleven months now.

The inability to shake hands, hold hands, slap backs, half hug, bear hug, huddle, and read full facial expressions has also clearly taken a toll on our politicians, elder and young alike, in Washington. While already strained by partisan divides that have been widening for 25 years, COVID guidelines have upended the tried and true methods for building coalitions, gathering for markups, conferring in cloakrooms, collecting intelligence over cocktails, commanding respect in committee hearings, enacting important legislation. Longstanding rules governing language and conduct have been waived; few leaders maintain the gold standard of civil discourse. Instead of mandates for change, recent elections have only made the extremes more apparent and inflexibility the charge. The latest Monmouth University poll finds that one-third of Americans and fully 72% of Republicans still believe that President Biden is in only office due to voter fraud. Gallup finds that 82% of Americans disapprove of the way Congress is handling its job, just off the 45-year low of 86% in 2011. The percentage of Americans citing national division and lack of unity as our top problem is the highest in Gallup’s seven decades of asking this question, dating back to 1939.

There are no bear hugs being given on the floors of any of the stock, futures, commodities, or other exchanges these days. It is not because of our civic polarization but because there are no bears. Few if any of the usual correlations between U.S. markets apply, and stocks and bonds market remains in rally mode for the twelfth consecutive year since the Great Recession, despite the Pandemic. With only a few more trading days left in this first month, the Dow at 30,960 is up nearly 10% from where it stood one year ago. The S&P at 3,855 has gained nearly 20%, the Russell 2000 at 2,163 is up more than 34% and the Nasdaq at 13,635 has increased a staggering 49%. Oil prices are up over 2% to $52.77 and gold nearly 17% to $1,858. Bitcoin at $33,770 is worth 264% more. Call-option buying on indices as well as single stocks has exploded with volumes reportedly running 20% higher than last summer. Treasury yields, despite one record auction after another to fund unprecedented stimulus, are down across the board year-over-year: the 2-year has plummeted 120 basis points year over year to 0.11%; the 10-year fell 48 basis points to 1.02% and the 30-year at 1.79% is 20 basis points lower. Tax-exempt AAA municipals have also rallied: the 2-year at 0.13% is down 70 basis points, the 10-year at 0.77% has fallen 38 basis points and the 30-year at 1.44% has decreased 36 basis points.

The Federal Open Market Committee met this week and markets once again expected reassuring words of long-term accommodation and growth on the horizon. Stock and bond investors continue to assume that COVID case counts and deaths decline with the increase in vaccinations, and we all watch and cheer the falling numbers along with the rest of the country. Economic data remains mixed, with housing strong, confidence holding, manufacturing up and some services down. With the change of party control in Washington, policies are already taking some new directions. Tax and spending measures and regulations always require more time than hoped for — or feared — but executive orders this first week will soon impact health care, energy, student loans, immigration, travel, collective bargaining, privately run prisons, certain international agreements and government procurement.

In the trade press and among the popular pundits, we are aware of some irrational exuberance and extreme fear, uncertainty and paralysis. There are indeed warning signs of bubbles in some sectors. We all know that some in the industry encourage senseless speculation based on stimulus continuing ad infinitum, many others seriously worry about inflation, and we are all frustrated by the lack of yield and difficulties in trying to hedge portfolios with all correlations so askew. For now, as one trader put it, “high yield is the paper du jour”. In bonds, high yield munis and corporate convertibles are the stars so far. We encourage our readers as always to connect and remain in close contact with your HJ Sim representatives for perspective, guidance and recommendations for your portfolio based upon your guidelines, needs, and risk tolerances.

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