I hope that everyone had an amazing Mother’s Day weekend. To celebrate the amazing women in our lives, my family got together centered on making a traditional Mexican dish called barbacoa. It is beef that is slow roasted in a pit. First, a wood fire is used to heat a brick-lined oven for nearly 12 hours. Then, before the meat is placed inside the pit, meat is wrapped in maguey leaves (a member of the agave genus and close cousin of the blue agave used to make tequila) to protect the meat from the intense heat of the oven. The maguey leaves also provide additional flavor to the meat. The process to roast the beef is long, but if followed correctly, one will be rewarded with a fantastic meal for your family and friends. Still, controlling the heat, and making sure the food stays in long enough to cook fully is difficult. Luckily, our extended family has been using a tested process that consistently makes for great roasted meat.
This week many investors may have found resonance in the saying, what you think you might know might not turn out as you expected. During the week we heard a flip in comments made by Treasury secretary Janet Yellen, followed a few days later by a missed jobs report. Then, over the weekend, cryptocurrency investors experienced losses after Elon Musk commented that dogecoin was a “hustle”.
On Tuesday, U.S. Treasury Secretary Janet Yellen commented that the Fed might need to increase interest rates earlier than market participants expect – currently around 2022-2023. Then, in another interview later in the afternoon, Janet Yellen said that she expects any near-term increases in inflation to be temporary. Yellen stated, “I don’t think there is going to be an inflationary problem, but if there is, the Fed can be counted on to address it.” Given that markets have seemed sensitive to talks about increased rates and the fear of another bond tapering, it might have been expected that yields could have increased. So, it was a surprise to see that short-term rates, which are sensitive to monetary policy changes, did not move much throughout the week; all the while longer-term rates fell in a similar fashion.
At the end of the week, the jobs report data release did not come close to analyst expectations. Consensus estimates were for one million jobs added in April, but the data release indicated an increase of only a quarter of analyst estimates at only 266K jobs added. Anyone thinking that such a large deviation in economic data might make for some impact on equity market performance would not be wrong. But that was not the case. Instead, equity markets continued to post gains for the day, leading to the S&P 500 posting gains of over 1.2% for the week.
Many may know that returns have varied for those involved in cryptocurrencies. By now, the expectation is that returns are not consistent. Still, investors of currencies such as Dogecoin and Ethereum were likely happy to see the upwards moves in price day after day into May. What is unexpected, however, is when those currencies may move in the opposite direction. The weeks’ moves in those currencies likely came from the upcoming Saturday Night Live segment from one of the cryptos claimed supporters, Elon Musk. During his appearance, Elon Musk made a comment stating that the Dogecoin currency was a hustle. As a result, the currency fell by nearly 30% at one point on Saturday. Perhaps investors of those currencies expected continued upward moves like those that happened other times Elon made comments backing a cryptocurrency. However, who could have expected a large backer of crypto to go against the grain when all eyes or on them.
Managing investment portfolios follows a process just like cooking barbacoa. A tested process is used to ensure the best outcome. An investment portfolio that begins with the meat of the portfolio – the portfolio holdings. Then, those holdings are supported by characteristics that give it its unique profile, whether it is the overall allocation, specific classes of securities, or how often the portfolio is rebalanced. Time and time again, sticking to the process instead of making sudden moves based on news or trends will be worth the wait in the long run.
– Jose Rendon