(Please enjoy this updated version of my weekly commentary published March 31st, 2022 from the POWR Stocks Under $10 newsletter).
First, let’s review the past week…
Over the last week, the market is basically flat. As of Tuesday’s close, we were up about 2%. However, these gains were quickly given up over the last 2 trading sessions.
Notably, this happened as the S&P 500 got above 4,600 and the first breakout attempt was rejected. The next major catalyst for the market will be tomorrow’s jobs report.
But, this does slightly add conviction that the market remains range-bound as it’s clear that a V-shaped melt-up to new highs is not in the cards.
If we take a step back, it’s clear that the issues that caused this correction are still intact which are inflation, the Fed, and Russia.
I, honestly, don’t have a strong opinion on which way it will resolve. But, I think we are in good shape with a mix of long positions, defensive ones, and above-average cash holding.
And, we are ready to take action once the market’s direction becomes clear. If it proves to be range-bound, then we can focus on managing risk. If it does breakout, then we will adjust and get more aggressive.
1 More Trend
So, last week, we discussed the interesting situation with auto loans. This is a very micro issue that is unlikely to have major spillover effects but could have major consequences for parties with large amounts of exposure.
Today’s topic is of a much different nature. A major economic trend that I see brewing is the reorganization of supply chains to become more resilient and less reliant on hostile nations. Essentially, it will be a reversal of globalization of sorts.
Not a total reversal but of some degrees.
In some ways, this process had started even before recent events. The pandemic showed that our supply chains were great at certain tasks but not very resilient. Higher transportation costs also change the economics of relying on overseas partners.
Further, there is an increasingly nationalist tone and rhetoric in countries all over the world. Economic nationalism is probably the most benign expression of nationalism anyways.
In some ways, it reminds me of energy which was already trending higher but then exploded higher following Russia’s invasion of Ukraine. I believe this issue is similar in that we were trending in this direction but Russia’s invasion of Ukraine and the subsequent fallout is an accelerant.
And, while at one time, the benefits of nationalization were more localized. Now, it can be supported from a national security lens in addition to the task of making supply chains more resilient to shocks or disruptions.
We do have some inadvertent exposure to this theme with companies that provide services to North American energy companies like DNOW or industrial companies like AP.
I think this is a massive but slow-moving theme that will play out over decades and have implications beyond just the stock market.
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SPY shares were trading at $452.05 per share on Friday morning, up $0.41 (+0.09%). Year-to-date, SPY has declined -4.53%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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