Welcome to the latest edition of “Weekend Reading For Traders”. We kick off this week’s collection of notable reads with coverage of the FOMC’s latest rate hike and pair that up with an article highlighting recent comments from one of Wall Street’s most respected money managers around his expectations for the general market environment in the coming decade.
From there, we look at an article that digs down into recent upstream inflation data that might bode well for consumer prices in the coming months, as well as an article that offers a rare mainstream nod to (gasp!) trend-following. Lastly, we wrap things up with two interesting articles that take a fresh look at the long-term benefits of regular exercise.
And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.
Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting
(Nick Timiraos | The Wall Street Journal)
This past Wednesday, the FOMC announced another 75 basis point hike for their Fed Funds Rate, and while the increase was in line with expectations and Chairman Powell has been crystal clear about the Fed’s hawkishness, the market was surprised by the fact that they’ve apparently abandoned any pretense of the possibility of a “soft landing”. Notably, Powell emphasized that, “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.” The response through the back-half of the week has been decidedly negative, as more central banks around to world have followed suit with their own rate hikes. Interestingly, though, this week’s AAII Investor Sentiment poll saw a bearish reading of over 60% for only the 5th time in history, which, when combined with the seasonal tendencies during midterm election years, contrarians might have a reason to be hopeful after all.
Stanley Druckenmiller Warns The Stock Market May Be ‘Flat’ A Decade
(Will Daniel | Fortune)
Following the recent CPI reading, one of the most well-respected money managers over the past few decades, Stanley Druckenmiller, noted in an interview with Alex Karp from Palantir that he expects that, “There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period,” citing, among other things, the suddenly restrictive monetary policies from the world’s central banks. However, Druckenmiller also pointed out that, while the market as a whole moved sideways, there were several individual companies that did very well during that period. Ultimately, the key point here is that, after over a decade of index driven action that helped foster an (admittedly justified) “set-it-and-forget-it” mentality among investors, there’s good reason to expect that strong risk-management, sound stock-picking, and disciplined money management will become increasingly important as we move forward.
Five Reasons Inflation Isn’t So Sticky
(Ryan Detrick | Carson Group)
Many investors have had little experience with inflation, but those who were around in the 70s are all too familiar with how sticky inflation can be once it becomes entrenched in the broader economy. Unfortunately, inflation has been stubbornly high since it began to spike higher in April 2021, and we’ve seen since then how “sticky” it can be… even when the main narrative, as it was the case a few weeks ago, was that the market was bouncing because it was expecting a much-lower-than-expected August CPI reading. That said, in this article, Detrick takes a closer look at the recent drop in used car prices, the recent drops in the “prices-paid” components in the ISM services and manufacturing surveys as well as both the Philly Fed and Empire State surveys, the improvements in the supply chain, and the continued reversal from highs in the Producer Price Index, and concludes that all of this bodes well for consumer prices as the year starts to wind down. We’ll see how it goes, but better inflation data could act as a potential tailwind heading into what is often a seasonally strong period following midterm elections.
An Investing Playbook for These Uncertain Times
(Michael P. Regan | Bloomberg)
A common feature of bear markets is that everything tends to move in a correlated manner… even those assets that are supposed to act as a buffer when equities fall (we’re looking at you, bonds!). At the same time, the simple, but almost-always-unappreciated, fact is that trends exist across every timeframe in the market, and investors who fight those trends do so at their own peril. The reality is that reacting to the pricing action is a far better approach than trying to predict what the market may or may not do over any given time frame. When the action turns sour, though, investors start to notice that the results they enjoyed during a steady bull market came because of something other than astute Wall Street analysis. In this article, Regan considers trend-following, and while he boils it down to a managed futures approach that requires black box algorithms, the key takeaway is pricing action and prevailing trends trump predictions and fundamentals.
Lifelong Exercise Found To Preserve Stem Cell Counts In Aging Muscles
(Nick Lavars | New Atlas)
There have been countless studies over the years about the benefits of regular exercise for both the mind and body. However, one aspect of exercise that hasn’t been examined as rigorously is the effect that exercise has our muscles as we age. Specifically, a recent study out of the University of Copenhagen looked at how recreational activities like jogging, swimming, and cycling (among others) over the course of a lifetime helped to stave off the decline of muscle stem cells (which are self-renewable and turn into new muscle cells). It should come as no surprise that the older participants who exercised regularly at a recreational level performed better than those with a sedentary lifestyle, but what was notable was the fact that older participants outperformed the younger, sedentary participants as well. Ultimately, whether you join a recreational sports league or make a habit out of taking a break from the screens to go for a midday walk, the point is that it’s never too late (or too early!) to take steps towards promoting muscle function throughout our lives.
The Best Sport for a Longer Life? Try Tennis.
(Gretchen Reynolds | The New York Times)
Over the past few weeks, two sports legends, Serena Williams and Roger Federer, have announced their respective retirements from professional tennis, and today (9/24/22) Fed is teaming up with his long-time rival, Rafael Nadal, for his final competitive match at the Laver Cup in London. With that in mind, here’s an article that highlights a widely-circulated study from 2017, which examined the data from the Copenhagen City Heart Study in order to examine various sports and their association with a longer life. The first, and most obvious, takeaway was that participants who had reported little to no exercise had the shortest lifespans. However, what was far more interesting was that researchers found that, while activities like running, cycling, and soccer added an extra 3.2, 3.7, and nearly 5 years, respectively, the clear winner was tennis, which added a whopping 9.7 (not a typo!) years. While there were no clear conclusions about why tennis was so beneficial for participants’ longevity, the key point is that, if anyone ever needed a good reason to pick up a racket and hit the courts, the possibility of adding nearly a decade to your life is as good a one as any!
