• It was a very wintry weekend this past weekend, with the first snowfall and lots of holiday shopping completed.  A busy week ahead, including the rush of holiday get-togethers.   All good.  
  • Speaking of good, last week was another great week for risk assets.  The overall US stock market was up nearly 4%.  The S&P closed at a new high and the Dow Jones Industrials broke a four-week losing streak with its best weekly performance since March 2021. The S&P 500 and the Nasdaq Composite posted their best weekly performance since early February 2021. 
  • All major equity segments had nice gains, though Growth outperformed Value, Large outperformed Small, and Domestic outperformed International.   Among Diversifiers, commodities were up over 1% and the overall bond market was down nearly 1%. 
  • The YTD return is now about 24% for the overall US stock market, though the S&P 500 (using ticker SPY) is up over 27%.  At this point, I’ll take the view that a Santa rally into year-end might challenge the best year for the S&P (due to seasonals, sentiment, and technicals) since the late ‘90s.   Calendar year returns for S&P 500. 
  • We might see something by year-end that doesn’t happen very often, and that is the overall US bond market having a loss for the year.  At this point, the overall bond market is down less than 2%.  For more on historical bond market returns (and much, much more), please check out the OPS Quarterly Reference Guide.  
  • Last week, I talked about the incredible difference between the fund returns and the investor returns in the ARK Funds (it wasn’t good).  Here’s some more data on ARK in this week’s The BeSpoke Report: In the ten months leading up to February 12th (which turned out to be the peak for ARKK and various SPAC indices), the Russell 2,000 more than doubled the gain of the S&P 500 (which was up 41% itself), while ARKK was up a whopping 231%. In the ten months since February 12th, the S&P 500 has continued to rally with a gain of 19%, but the Russell 2,000 has fallen 3.6% while ARKK is down 38.4%.  
  • Last week’s big economic data was that the Labor Department's Consumer Price Index (CPI) showed yet another multi-decade high rate of inflation for November. The CPI climbed by 6.8% in November compared to last year, marking the fastest annual increase since June 1982. This compares to the 6.2% year-over-year rate from the prior month. Core CPI (ex-food and energy) rose by 4.9% over last year for the fastest increase in about three decades.   If you want to go deeper into the inflation data, check out former Weighing Machine podcast guest The Inflation Guy’s latest write-up.  In short, he does his work, and the outlook doesn’t look great for 2022 (unless you like inflation!)  
  • Another interesting economic data point from last week was applications for unemployment benefits domestically fell to the lowest level since the 1960s. 
  • The latest weekly First Trust COVID Tracker. The FT one-pager also had some fascinating data on “Injection Rates by Type of Immunity.” 
  • Something to keep in mind for this week is that it’s another options expiration (OpEx) week.  According to the aforementioned Bespoke Report, over the last year, equities have not only been volatile during OpEx weeks, but they have also been weak. 
  • Last week Ten Year Treasury Yields completely retraced the drop in yields from the week before and then some and rose back to 1.49%. Yields hit a high of nearly 1.54% last week. 
  • This week’s economic schedule has a handful of key economic reports, including Retail Sales, but Wednesday is the important day.  That is the day of the FOMC Meeting Announcement. (where it is expected to announce a faster taper pace for asset purchases), FOMC forecasts, and Fed Chair Jerome Powell holds a press briefing following the FOMC announcement. 
  • “The move to passive is a mistake,” said the former Fidelity Magellan fund manager and legend Peter Lynch in a recent interview. “Our active guys have beat the market for 10, 20, 30 years, and I think they’ll keep on doing it."  Lynch, a former colleague and neighbor (though he had a much bigger job and house), was referring to those investors who were “all-in” on passive.  Lynch believes in using both and then diversifying to manage risk. I agree.  Investors should use an appropriate combination of Beta, Active, and Diversifying Strategies.
  • Speaking of the power of diversified portfolios.   A recent article called Market Cap Rules Everything Around Us, showed that while the market is up over 20% over the last year, one-third of all stocks have negative returns in that time.   This table (data as of Dec 3) is worth looking at – and shows the power of broadly diversified portfolios.
  • The Wall Street Journal had a recent article on the pros and cons of direct indexing, which included a mention of Orion’s direct indexing capabilities.   Bottom line, for the taxable investor, here was the juicy quote IMO: Terry Burnham, a finance professor at Chapman University, co-wrote a paper that studied the effectiveness of tax-loss harvesting on a portfolio of the 500 largest U.S. common stocks by market capitalization from 1926 to 2018. It calculated that a person who continued to invest in the portfolio each month using a tactic akin to direct indexing would have improved after-tax returns by 1.08 percentage points annually compared with just owning the portfolio and not tax-loss harvesting. The calculation assumed a long-term capital-gains tax rate of 15% and a short-term rate of 35%. 
  • New Section – Digital Assets Update from Grant Engelbart, CFA, CAIA
    • Prices. Cryptocurrency prices mostly rebounded last week, after a rough go the week prior. Bitcoin is nearing a 2% weekly gain, breaking above $50,000 again after dropping to near $47,000 – a 30% or so correction from all-time highs reached in early November. Ethereum is still slightly negative on the week but recovered well on Sunday. Ethereum broke through the $4,000 level Friday after being as high as $4,500 just two days before. Other major cryptocurrency movers include Tron (+9.7%), Chainlink (+7.5%), and Polkadot (+5%). Solana – now the 5th largest cryptocurrency by market cap – fell over 8% on the week.
    • News. Digital asset news for the week featured a few notable stories. The White House proposed a “National Cryptocurrency Enforcement Team” to deal with the misuse of crypto. CEOs from the largest cryptocurrency companies chatted with congress about the importance of the industry and the need for proper regulation. OpenSea, the largest Non-Fungible Token (NFT) marketplace, hired Lyft’s former CFO and he quickly indicated a willingness to go public – good news for digital asset equity investors. Finally, White Castle joined Nike, Budweiser, and Taco Bell on the list of major companies endorsing or offering NFTs.
    • ETFs. In digital asset ETF news, there were no new Bitcoin or related ETF launches last week. However, the Defiance Digital Revolution ETF (NFTZ) launched December 2nd, securing a solid ticker and no doubt preparing for the future IPOs of various companies in the industry. There are now 5 different ETFs that hold Bitcoin futures contracts (including GCC), totaling ~$1.5 Billion in assets. 
3104-OPS-12/14/2021

The CFA is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. To learn more about the CFA charter, visit www.cfainstitute.org.

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