The Macro: Sales, Closings, and Signals

Friday, Mar 4th 2022


The below content and projections are the opinion of the authors. Any conclusions or takeaways are their own. This should not be considered as investment advice. Investing involves the risk of loss and returns are not guaranteed.

Three Things this week —

1/ Corporations shutting down in Russia. Companies ranging from Apple to Uber to BP and Shell this week announced plans to either stop selling products in Russia, divest from joint-ventures in the country, or sell stakes in Russian businesses. Russia’s invasion of Ukraine began just over a week ago, but in that week we’ve seen the Moscow Stock Exchange go offline, Russia’s international assets frozen, and yacht-tracking become a part of the national news cycle. With a quickly-evolving situation, it seems that just about every day has brought a new round of announced or planned actions to undercut Russia’s economy. And the force and speed with which many Western corporations have sought to distance themselves from Russian ties suggests we may only be at the beginning of a newly isolated era for the Russian economy.

2/ Amazon bookstores closing down. The world’s biggest bookseller is getting out of the bookselling business. At least the physical bookstore business. This week, Amazon announced it would close 68 stores in the US and UK that were operating under its Books, Pop Up, and 4-Star brands. It’s not difficult to frame the closure of stores as a “retreat” from retail. And the bibliophiles out there can interpret this development as a point in their favor, a silver lining in which Amazon’s dominance over bulk book sales heightens the desire to shop in unique, carefully curated physical spaces. But given Amazon’s ownership of Whole Foods, its testing with cashierless grocery and convenience stores, and its expanding warehouse footprint, there is little about the company that suggests a lack of enthusiasm for real estate.

3/ America’s Pastime passed by. This week, the commissioner of Major League Baseball canceled the start of the season which had been set for March 31. The league’s players have been locked out since December 2021, and how, exactly, the league’s players and owners will resolve their differences to play any games this year is beyond the scope of this note. But this turmoil in baseball brings to mind for us a report from Gallup that, while a few years old, reminds us of the decline in interest the sport is facing. In 2018, just 9% of Americans said baseball was their favorite sport to watch, the lowest percentage since Gallup began asking this question in 1937. Not surprisingly, football tops the list. In markets, culture, and elsewhere, the dominant and entrenched symbols of power and influence can at times feel everlasting. But things that feel forever never are.

Two statements by the Federal Reserve —

In financial markets and the business media, a cottage industry exists around parsing the “true” meaning of what Fed officials say in testimony, press conferences, speeches, and other appearances. In an industry full of jargon and insidery knowledge, deciphering what’s known as “Fed speak” might be one of the most crowded fields on Wall Street.

But after spending much of 2021 arguing about the definition of “transitory,” Fed chair Jay Powell has in recent months tried to tell investors what the central bank is going to do, and then gone and done it.

The Federal Reserve’s next policy meeting will take place on March 15-16. On the afternoon of the 16th, the central bank will announce its latest monetary policy decision. And this week, we got near-confirmation of the two key pieces of this announcement.

In prepared remarks before the House Financial Services on Wednesday morning, Powell said, “we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”

So there’s part one — rate hikes are definitely happening.

And, yes, this is what markets have been preparing for over the last several months. Sell-offs in high-growth tech stocks, rising mortgage rates, and a rally in bank stocks are part of trades that involve investors anticipating these moves. Rate hikes happening in two weeks isn’t exactly new information, but just in case there was any drama regarding that outcome, the drama exists no more.

Part two is what the magnitude of this rate hike will be, and in response to a question on Wednesday the Fed chair made his preference clear — the Fed will raise its benchmark interest rate by 0.25%, or 25 basis points next week.

In recent weeks, some Fed officials and market watchers have suggested a more aggressive 0.50%, or 50 basis point, rate increase could be warranted. But as Powell said Wednesday, he is “inclined to propose and support a 25 basis-point rate hike.” And while the Fed chair is just one member of the FOMC, or the Federal Open Market Committee, which votes on and sets monetary policy, as the head of the table, his vote holds the most sway.

And so the buck will stop there.

One thought for the weekend —

Financial markets in 2022 have been nothing if not volatile. But is this volatility historic? Well, yes and no.

The team at Bespoke Investment Group this week explored recent stock market volatility through the lens of the QQQ exchange-traded fund, the most popular fund that tracks the performance of the Nasdaq 100 index. Through Monday’s trading session, the QQQ ETF — or if you want to use market slang, just say “the Qs” — had traded in a daily range of more than 1% every trading day in 2022. This action was again repeated on Tuesday, Wednesday, and Thursday.

And so through 42 trading days in 2022, the QQQ ETF has had a daily trading range larger than 1% each day. The only streak longer in the last decade was a period of 46 such days that ended on April 24, 2020.


In the context of the last decade, then, we can say that markets have been notably volatile.

But we must, as the crypto crowd so often says, zoom out.

And when we do, we’ll find this market environment barely registers when compared to the original tech bubble. From 1999-2003, for a period of 1,166 trading days – or a stretch of more than four and a half years – the QQQ had a daily trading range of more than 1%.

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