Barron’s Weekend Summary: Investors wanting to hedge against inflation, which makes stocks more volatile, have long turned to commodities
Cover Story:
-Investors wanting to hedge against inflation, which makes stocks more volatile, have long turned to commodities. If inflation is rising, the prices of commodities are typically rising, as well, so part of your portfolio will benefit even as some investment returns are muted. Energy futures have the best correlation with U.S. inflation, but over the long term, agriculture, livestock, and industrial metals are all positively correlated.
Tech Trader:
-This year, one of the most influential moments actually happened months before the show started. It was last October, when Facebook CEO Mark Zuckerberg changed the name of his company to Meta Platforms, and announced plans to invest $10 billion over the next year to help create the metaverse. From a practical point of view, Zuckerberg is betting that he can create a new platform on which to sell advertising, while also selling a lot more Oculus virtual reality headsets. But, so far, Zuckerberg’s biggest achievement has been to kick off an industry wide scramble to figure out just what the metaverse is —and how to profit from it.
The Trader:
-The biotech sector had a terrible 2021. The iShares Biotechnology exchange-traded fund, which weights its holdings by market capitalization, rose 1%, its worst year since 2018, while the equal-weighted SPDR S&P Biotech ETF (XBI) fell 25%, its worst year since at least 2007. This year was supposed to be better, but so far it’s been anything but, with the iShares ETF down 7.9% through Friday’s close and the SPDR ETF off 8%—their worst starts to a year since 2016.
-The post-pandemic world hasn’t been easy for Coca Cola. While the S&P 500 long ago regained its pre-Covid highs, Coca-Cola finished 2021 up 8% at $59.21, still a touch below its all-time high of $60.13 reached on Feb. 21, 2021 (although above its dividend-adjusted high of $56.36). Adding to the disappointment, shares of PepsiCo soared above their 2020 highs and finished 2021 up 17%.
-The Federal Reserve released the minutes of its December meeting last Wednesday, and apparently took the market by surprise. Observers pointed to the fact that the Fed discussed winding down its balance sheet—something Chairman Jerome Powell failed to mention at his press conference last month—and its perception of the job market, which appears to be close to full employment. Investors took the news badly. High-priced tech stocks tumbled, as did most stocks that could be labeled growth, including Tesla, Salesforce.com, and Moderna.
Features:
-There’s hardly been a better time to get hired with almost 11 million job openings in the U.S., a near-record high level. In November 4.5 million Americans quit their jobs—pushing the country’s quit rate to a 3% record high. Since the U.S. economy began recovering from the Great Recession, Americans have almost always achieved higher wages from switching jobs as opposed to staying at their current ones, according to the Atlanta Federal Reserve Bank’s Wage Growth Tracker, which uses data from the US Bureau of Labor Statistics.
-Since Covid first grabbed headlines, the combination of a market rally, an increase in savings, and a decrease in borrowing has boosted retirement account balances past pre-Covid highs. Fidelity Investments, for one, reported a record 760,300 401(k) and individual retirement accounts with seven-figure sums in the third quarter of 2021.
European Trader:
-Google and Facebook have been hit
with combined fines of EUR 210M ($237M) over their use of ‘cookies,’ France’s data privacy watchdog said on Thursday. France’s National Commission for Information Technology and Freedom fined Alphabet‘s Google €150M for making it difficult for internet users to refuse the data used to track users online. The breaches refer to google.fr and Youtube.com, both owned by Alphabet.
Emerging Markets:
Russia and its military allies Wednesday sent troops to Kazakhstan to help the country’s government suppress protests that have resulted in dozens of casualties among the demonstrators since the beginning of the week. Kazakhstan is a major oil producer, with output currently at about 1.6 million barrels a day, but the country’s three major oil operations seemed to be working Thursday. Tengizchevroil, a Chevron-led consortium operating the country’s highest-producing oil field in Tengiz, said that operations had not been “impacted” by the fact that workers had gathered in support of the demonstrations. Kazakhstan had also become in recent months a favored destination of Bitcoin miners who chose to leave China after Beijing’s recent crackdown on crypto assets.
Commodities:
There is pent-up demand for household items, corporate endeavors, municipal projects, and, of course, for the commodities that are needed in all kinds of production. Meanwhile, many of those commodities are in short supply. Add in supply-chain problems in getting those commodities into production and the produced goods to the end user, and it’s no wonder that prices are rising. Investors wanting to hedge against inflation, which makes stocks more volatile, have long turned to commodities: If inflation is rising, the prices of commodities are typically rising, as well, so part of your portfolio will benefit even as some investment returns are muted.
Streetwise:
Jack Hough asks: “Who needs parody cryptocurrency when car stocks are this exciting? Ford Motor, General Motors, Tesla, and Rivian Automotive each had price swings of more than 10% during the first trading week of the year. This, after some heady gains for the group last year. Predicting performance from here won’t be easy. I recently spoke with one analyst who says Tesla is headed to $1,400, and another who says $67. You know what they say: Sometimes you have to agree to disagree by a factor of 20.”