A year into this pandemic and I thought I might have dodged the new puppy bullet. After seeing almost every one of our family friends slowly getting new puppies, my family finally relented. Personally, I wasn’t in a huge rush to get puppy. We already had a dog, a great one. We adopted Daisy over ten years ago and she has grown into a well behaved, very mild-mannered adult. Perfect for my house and my kids.

But my wife couldn’t resist. After seeing all of our friends get new puppies, she couldn’t resist the cuteness. She contracted canine-21, more commonly known as puppy fever. Thankfully, a local organization called CARMA, was able to help us out. Our new puppy, Lily, is about nine weeks old and showing all the typical crazy signs of a nine-week-old.

My wife and I knew what we were getting into. We have two young kids, and Daisy wasn’t even our first dog. We know that babies (human and canine) rarely fall into the nice and neat sleep-eat-play routine we read about in textbooks. We were nervous about disturbing our nice routine with the chaos of a puppy. We were right to be nervous. In the past few days, Lily has spent her time vacillating between running around at a chaotic speed or sleeping for hours. Chewing on furniture and grass or sleeping on my chest.

These seemingly unconnected and random acts of craziness remind me of the recent craziness in the markets. On the surface, things appear quite calm. The broad-based S&P 500 is spitting distance from it’s all time high and the Dow Jones Industrial Average has chugged higher all year. But underneath is a chaotic and sudden reversal of some high-flying technology and biotech names. Hot technology names like Apple (AAPL), Tesla (TSLA), Roku (ROKU), and Square (SQ) have seen a huge turn for the worse, many of them are suddenly down 25-45%!

How can this be? The economy is coming back to life. These companies are still expecting stellar growth. The conditions have not changed. Market commentators have blamed the decline on the sudden jump in interest rates. That doesn’t make sense to me. It also doesn’t make sense why the technology sector would get hit so hard due to rising interest rates. Tech companies generally have very low amounts of debt. Many have more cash than debt so rising interest rates would be a good thing for them. Tesla has $13 billion in debt but almost $20 billion in cash. Apple has $112 billion in debt but almost $200 billion in cash. Since most of Tesla and Apple’s debt is locked in ultra-low rates, when interest rates rise, it’ll be a positive thing for them since they’ll make more on their cash. I doubt that the real reason for the current sell off in technology is rising interest rates. It seems like it is a good old fashion profit taking cycle. Maybe after a chaotic environment in the past few months, these hot trades needed a breather. A nap.

Of course, I don’t want to dismiss the underlying concerns. Inflation expectations have been rising. It’s hard to imagine inflation not rising after last year’s COVID stimulus and today’s move towards another $1.9 trillion in stimulus. The government has pushed more cash out to Americans than ever before. Rising inflation rarely signals the end for the economy nor does it for stocks. In general, stocks tend to do better than average when inflation is falling, and a little lower than average when inflation is rising. But even when inflation is rising, stocks have still tended to move higher. That could be what we are setting ourselves up for the rest of the year. As the new stimulus gets its way to the American people and the economy reawakens from COVID, inflation may rise throughout the year. Unless inflation mysteriously hits double digits, a modest increase will be healthy for a broad-based economic recovery. If anything, it makes paying for all that debt a little easier.

Ignore the chaotic movements of the markets. Not every movement can be explained by any single factor. And in many cases, markets won’t move just because of one thing. Like the actions of a newborn puppy, sometimes it’s just random.

/ben