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The Threecap
Three things to recap this past week.
1. Choppy Week for Tech
The romance that investors had been building with the tech sector since the beginning of the year hit its breaking point as investors realized how much it would cost to continue that relationship. Investors dumped tech stocks almost as hard as Mackenzie dumped Jeff (almost as hard, guys, almost). No more apparent was this than stocks like Tesla, which fell 11.48%, and Nvidia, which fell 9.14%. This breakup between the tech sector and investors led to a choppy week.
For the week, the Dow Jones rose 1.82%, the NASDAQ fell 2.06%, and the S&P 500 rose 0.81%. Investors who bet heavily on tech, such as ARK’s Cathie Wood, suffered large losses. The NASDAQ is now only up 0.25% for the year so far. Investors attribute this decline in stocks to the increase in the Treasury yield to a 13-month high of 1.60%. In comparison, in late September, the yield rate was around 0.66%, resulting in a startling rise of 142% since then, highlighting fears of higher interest rates and higher borrowing costs for companies. The big question is whether investors will get back into a loving and stable or a volatile relationship with tech or stay broken up.
Next week, the U.S. The Bureau of Labor Statistics will release a remarkably important measurement of inflation: the Consumer Price Index (CPI). This is a measure of inflation for consumer goods and services. The results of the CPI will allow investors to interpret numerous, significant topics including the US’s economic recovery from COVID and general inflation.
2. COVID-19 Update
Johnson and Johnsons’ vaccine is now being distributed. This version of the vaccine is ultra-efficient, as it not only requires one dose for full immunity, but it doesn’t have to be stored in industrial coolers, common refrigerators are fine. The fact that it only requires one dose is huge, especially in parts of the country where vaccine rollout has been restricted due to an ineffective supply. Overall, around 16.3% of the US population is now vaccinated with at least one done. This positive vaccine statistic, coupled with the fact that healthcare professionals are becoming better at preventing the spread (seen by an 80% decline in nursing facility cases), provides a promising outlook for what’s to come.
Bolstering what would have been a severe down week in the market was the jobs market numbers for February. The economy produced around 380,000 news jobs last month, almost twice the total number economists expected. Leisure, the sector that COVID hit the hardest, has now made significant progress in returning to normalcy. The majority of the new jobs were produced in this sector. That's a great sign for other sectors still hit hard by the pandemic nearly a whole year ago.
3. Market Peak?
As the market passes pre-COVID highs in a record time, after falling 25%, many investors question whether we are peaking. While most people peak in high school, the beginning of this year involved the market peaking every day. If it is peaking, then is a correction coming? Many factors have influenced market corrections in the past (correction = 10+% decline), but none more so than monetary policy. To limit inflation, the Federal Reserve often implements policies that temper the economy. Though no overly-restrictive policies have been implemented, the 10-year benchmark interest rates have risen, a sign that investors expect inflation to rise along with subsequent future Fed action.
Another possible Fed move that could induce a pullback might be a decrease in the economic stimulus. In 2013, the market fell 6% in response to a decrease in stimulus, this was called the "taper tantrum". Another factor impacting the future market is its inherent value, which is presently overvalued by many measures. Though this doesn’t mean the market will come down anytime soon, in the past, market overvaluation combined with stricter monetary policy has resulted in market crashes. Regardless of a market pullback, or bullish continuation, one simple investing rule must always be paramount: don’t invest money you can’t afford to lose.
Featured Articles
Inside Tesla’s Crazy AI Manufacturing Revolution
Tesla’s Gigafactory in Fremont, California is probably one of the most popular car factories in the world. About a decade ago, Tesla was a struggling startup in the automotive industry. It had just narrowly escaped the clutches of bankruptcy. In a stroke of good fortune which, ironically, was caused by an economic crisis that hit the automotive industry hard, Tesla was able to buy a massive factory – which was valued at $1 billion – for just $42 million, a fraction of the original price.
With a factory secured, Tesla set out on a mission to build the most advanced automotive plants in the world. They remodeled the factory extensively, fitting it with state-of-the-art equipment including lots and lots of robots
Intro To Day Trading
Day trading is the practice of buying and selling stocks on the same day. The goal of day trading is to earn small profits with each trade, and eventually these trades compound over time. Essentially, day traders attempt to predict the market in order to buy in at a low price and sell at a high price.
This is a very hard skill to master and takes a lot of research and knowledge to be able to not only be able to do this accurately but also consistently. Day trading and investing are often mixed up. However, these are very different from each other. Investors rely on the market to improve over to make long-term profits. On the other hand, day traders aren’t generally interested in the way the market is moving. Instead, day traders focus on which stocks offer the most potential increase and the least potential for downside, on the day of course. Investors mainly follow the simple rule of “buy and hold” while day traders preach “buy low, sell high”. Day trading is very appealing to people because it offers a way to quickly make money from the comfort of your home.
Recent Podcast
In this episode, our hosts Alex Patel and Rohan Gupta talk to Dana Goldman, a professor of healthcare economics and policy at the University of Southern California and the Interim Dean at the USC Sol Price School of Public Policy, about healthcare economics. They delve into topics like the basics of healthcare economics, the different entities in the healthcare system and the roles they play, the most important laws and regulations in healthcare, and much more!
Finance Tip
“You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready. You won't do well in the markets. If you go to Minnesota in January, you should know it's gonna be cold. You don't panic when the thermometer falls below zero.”— Peter Lynch