This article was penned by CAPIS
Last week CAPIS held its September research call, featuring Nicholas Colas and Jessica Rabe, Co-Founders of DataTrek Research. DataTrek is a New York-based independent research advisory service providing unbiased data analysis, helping investors make the investment process more profitable, robust, and efficient.
Click here for a video of the research call
Colas and Rabe’s presentation addressed the following topics:
Millennial Investors Resemble Day Traders and Are Here to Stay (3:11)
Colas opened with a statistic from Robinhood: the favored trading app for younger investors has reached 18 million funded user accounts but has not grown further since its peak in January 2021. (4:06)
The retail trader nowadays buys market dips — rather than a more traditional buy-and-hold strategy. (6:05)
These newer investors’ trading behavior isn’t novel as it resembles the day traders of yore – buying at the open and selling at the close. On the macro level, these types of traders will not disrupt the capital markets. (6:22)
These nascent market participants favor environmental, social, and governance (ESG) investing, causing firms like BlackRock to ramp up product offerings to address the shift in investor priorities. (7:37)
They also favor companies they can understand and identify with. And lastly, this new investor class believes trading should be technology-driven (via apps) and “free.” (8:27)
Supply Constraints Can Actually Help Recovery (12:00)
Colas said the COVID-produced recession was atypical as evidenced by several unique characteristics including a “wealth effect” and unprecedented migration from cities. (12:27)
COVID-related consumer product shortages stem in part from China’s “zero-COVID” tolerance policies which shut entire production lines at the very first sign of worker infection. (13:20)
But shortages now can translate into longer-term economic growth and recovery as corporate earnings will be sustainable and can move higher. Demand, he said, can now be deferred into the future and be a boost to the recovery long-term. (15:20)
Given this current demand and future expected demand, the market only expects one interest rate hike in 2022, according to Fed Funds futures. The odds of no interest rate hike in 2022 are nearly 50-50. The only indicators or potential inflation hotspots are food and home prices – both showing more “transitory” price increases rather than long-term inflation pressure. Lastly, the aging of the US population doesn’t support an inflationary outlook as this demographic favors savings and more circumspect spending. (16:12)
Increased Government Spending Debate Will Not Take Center Stage (20:40)
Colas said that despite the increase in government-funded programs and the need for funding, the debt ceiling will only be modestly tested and lead to Congressional debate within historical norms. While at times debate between the parties could be contentious, he added Congress and the Senate unilaterally will be more focused on staying in power, getting tax policy in place (i.e. new increases), and the mid-term elections. (22:21)
Colas concluded the Democrats cannot afford too many losses as their existing margins over Republicans remain slim. Maintaining a majority in the US Senate is a top priority for the Democrats. (23:00)
Volatility is forecasted throughout year-end based on tax policy proposals and mid-term elections. (24:15)
Chinese Regulatory Crackdown Will Continue (24:30)
Given the rapid and unbridled growth in Chinese tech companies, especially during the pandemic, Rabe said the Chinese government will continue its attempts to rein in this “Western” sector of its economy. This extended attempt to control technology and its export to the West will remain a top priority until the government can find some balance between growth and governance. There are many moving parts and forces at work in China, Rabe added, so she expected more regulatory uncertainty.
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