Super Bowl weekend. Yesterday’s event has evolved into a spectacle beyond the two teams. Halftime show, LA celebrities, etc. One of the biggest changes in recent years has been the huge increase in sports gambling. Since the landmark Supreme Court ruling in 2018, over 30 states have now legalized gambling. To this effect the WSJ estimated that bettors will place around $7.6 billion in wagers on yesterday’s big game, a 78% jump from last year.

Americans aren’t just betting on sports. Wall Street traders have been placing their bets on what America’s central bankers will be doing at next month’s meeting. Pressure has been mounting for them to start raising interest rates. Recent economic data continues to register a hot economy. With the recent hot data, traders are now betting on whether the Fed will hike interest rates more quickly than initially anticipated. A 0.50% rate increase, or two rate hikes, is on the table for next month compared to the 0.25% increase estimated at the start of the year.

Betting is always tough. Especially in binary bets with black and white outcomes. I can see how gamblers crave the endorphin high that it can bring, but short term betting often equals short term highs. Investing is much more boring. While the day to day swings can resemble a casino, that is only in the short term. Historically it is almost a coin flip (56%) on if the market will be higher on any particular day. But unlike a casino, the longer you stick around in the stock market, the better your odds of success. History shows that the odds are stacked in your favor that the market will be higher if you hold on for 5 year (88%) or longer (>95%).

This transitory inflation is sticking around longer than expected and the employment market continues to be red hot. Both are signs of a robust American economy. I doubt higher interest rates will fix the numerous job openings and all those container ships off the Long Beach coast. There are numerous, persistent issues with the economy that higher rates won’t be able to fix. It is no surprise that the uncertainty of the near term has led to this recent pull back in the market. It is going to be a long few weeks until the Federal Reserve’s mid-March meeting. A quarter of a point hike or a half point hike? I think it’ll be a coin flip. What’s not a coin flip is the continued strength in America’s economy. While high quality companies with strong cash flows and earnings will not be immune to the markets’ day to day swings, they will be more resilient in the long run. And I’d rather invest in such types of companies than in companies whose future is more dependent on Lady Luck.

– Ben

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