March 17, 2021
Not to bore you too much with Quantitative Theories and the US 10-year Treasury Markets and Correlation Factors, but it would be good to understand:
- Why the Technology Sector seems to be struggling while the DOW 30 is booming, and
- Why the US 10-year Treasury Bond yield is so volatile with most Bond Funds going down in value this first quarter 2021.
Remember that most money chases the best returns rather than being in front of them. This is the reason why most investors in the US lag their respective indexes while a small percentage of investors just “kill it” year over year.
Our Investment Philosophy
There’s an old quote by Retired Hall of Fame Hockey Player Wayne Gretsky that I love: “I skate to where the puck is going to be, not to where it has been.”
This is how we invest as well. At Prosperity Financial Group, we aim to be in front of the changes and not chase anything.
In the first quarter of 2021 to date, the DOW is up 9% or so.
The Nasdaq, which is heavier in the Technology Sector, is up by 4%.
The US 10-year Treasury is down by 7.6% and now is yielding 1.64%. (At the start of the year it yielded .91%.)
All of this was spurred by inflation with gasoline rising almost $1 per gallon already, which will drive all commodity costs higher, thereby putting new indirect taxes on the consumer… that’s us.
So, there will be less consumer money available to invest as the cost of going anywhere and feeding our families will become much more expensive. But on March 8th, the Nasdaq was lower than it was on January 1st and I began to receive worrisome phone calls. Thank goodness we did not sell anything.
We believe that this year will be a good year in the equity markets, but not such a great year in the bond markets. So, the most conservative of investors will be squeezed to look for a better way to invest—and may have to take on a bit more risk.
However, we continue to expect 3 declines in the equity markets of 10% or so this year, which on a graph will make 2021 look very choppy. These will be buying opportunities, as the beaten-up sectors begin to bounce back after COVID-19.
The Technology Sector isn’t going anywhere. Some pundits will argue that it’s time to get out of technology. We don’t buy into this theory. We believe that at the end of 2021, you will be happy that you didn’t sell out of this extraordinary sector.
Further, we are broadening our approach to include the companies and sectors that will profit with this re-opening.
Please feel welcome to share this and call me anytime at 925-314-8503.