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The Threecap
Three things to recap this past week.
1. Growth and Tech Stocks Back on Solid Ground
Tech investors were able to finally catch their breath during this week as the Nasdaq outperformed other indexes and finished the week 3% higher. From the outside, it appears as if the feud between the rising Treasury Yields and high-growth stocks has settled. Volatility in the market has been at a 14-month low while large-cap growth stocks outperformed value stocks for the first time in 9 weeks. The Dow Jones and S&P 500 finished in the positive as well, marking a solid recovery week for the market in a trading week shortened by holidays. The S&P 500 also eclipsed the 4,000 point mark for the first time on Friday.
In other pleasant news, women have put the economy and schools on their backs like Steph Curry for the Warriors, as 492,000 women reentered the workforce (mostly in education). The strong recovery in the labor market is symbolic of the rising efforts to reopen the country and the efficacy of the vaccine distribution which makes it safer to return.
2. A Favorable, Unfavorable Possible Future
After two months of a steep decline in COVID cases, infections, hospitalizations, and death, all statistics are back up on the rise again. The number of cases per day in this past week was 20% higher than two weeks ago. Many epidemiologists warn that another surge could happen, but they do believe that this next surge will pale in comparison to the past spikes in cases. The primary causes behind this spike are likely states loosening restrictions, while fatigue related to the pandemic about precautions leads to a less safe environment.
Some polls report that the number of people that take mask-wearing, hand-washing, social-distancing, and quarantining seriously have decreased significantly in the past month. As politicians try to reopen their state to increase revenue and bring prosperity, they might end up doing the opposite. Additionally, the extremely contagious COVID variant B.1.1.7 is 50% more infectious than previous cases, and this could produce more cases in the future.
3. Biden: Man with an Infrastructure Plan
The headliner for the show that is political news this week was Biden’s infrastructure proposal and its effects. The plan, named the “American Jobs Plan” proposes the spending of $2.25 trillion over 8 years on R&D, clean energy, infrastructure, and other sectors that will bring many jobs to Americans. The plan is split up in 6 main ways:
$620 Billion for transportation infrastructure
$400 Billion for workforce development
$400 Billion for the care of disabled, elderly, and sick
$300 Billion for housing infrastructure
$200 Billion to modernize the electrical grid and provide broadband access
$180 Billion for research into clean energy
One question looms over the mind of all Americans: who is going to be paying for all this? For the team wanting higher taxes on big corporations, Biden hit a home run as he plans on increasing corporate tax rates to 28% from 21% to fund the proposal. In the short-term, corporations on the stock market will take a one-time hit as their earnings will fall in a fiscal quarter. However, after this first quarter, investors will adjust estimates accordingly and everything should remain the same.
In the long-term, if the money is allocated where it’s needed and split between the 8 years, it could encourage economic growth and prosperity for the near future. One important thing to remember in all situations is inflation. Like a nagging younger sibling, inflation always presents itself when the economy is growing quickly. The influx of this $2.25 trillion dollar package into the economy could cause the dollar to decrease in value even more than it already has in this past year.
Featured Articles
The Pareto Principle: Pea Pods’ Important Contribution To Business Theory
Back in the pre-Netflix days, video rental shops faced a problem they called the “Gone With The Wind Syndrome”. Although video rental shops made the majority of their revenue from a handful of movies (usually the newest, hottest flicks), every store had to have older movies like Gone With The Wind in stock. As one executive explained: “I’ll bet that the average store doesn’t rent Gone With The Wind two times a year. But if a customer comes to a store and doesn’t see Gone With The Wind or Casablanca or African Queen, they feel you don’t have a good selection.”
Starlink: How SpaceX’s Global Internet Is Changing The Game
Aerospace company, SpaceX is at the center of the Starlink project. According to the company’s CEO Elon Musk, there is a considerable unmet demand for low-cost global broadband capabilities. And in truth, Elon was completely right. There may be high-speed Wi-Fi in practically every home, restaurant and café, and urban area. But that’s not the case everywhere. In some remote or rural areas and maybe some locations that have been hit by natural disasters such as hurricanes or wildfires, internet connection is at best slow and unreliable. But sometimes, it’s completely unavailable. To solve this problem for those living in such underserved areas, SpaceX launched the Starlink project. In addition to rescuing people living in internet-deprived areas, Starlink also aims to provide internet service at competitive prices even to those in urban areas.
Recent Podcast
In this episode, our hosts Alex Patel and Rohan Gupta talk to Aaron Brown, the former Chief Risk Manager at AQR Capital Management, about quantitative finance. They delve into topics like the basics of quantitative finance, the history of quantitative finance, common misconceptions, how quantitative finance approaches risk management, and much more!
Student Showcase
Eshani Mehta
Senior at Ravenwood High School
How did you become interested in finance?: This year on Christmas, my parents gave me a choice to either get a present or money to invest. I chose money to invest, and I’m so glad I did that! I plan to continue investing my money in the future and learning about finance!
What does financial literacy mean to you?: Financial literacy is having the skills to manage one’s money confidently. It’s about not being afraid to tackle personal finances. Financial literacy allows individuals to play an active role in creating a bright future for themselves.
Finance Tip
“Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic.” and “The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.”— Benjamin Graham