Stocks Jump Sharply on Stimulus Hopes

Catch Up Quick

• President Trump is set to be released from the hospital this evening

• U.S. States reportedly overpaid thousands of workers who filed for unemployment during the summer

• Bristol Myers Squibb said it will buy biotech firm MyoKardia for $13.1B

• Ransomware attacks are delaying numerous COVID-19 vaccine efforts

• Trump's Press Secretary Kayleigh McEnany and 2 deputies test positive for virus

• The Justice Department appealed a court ruling halting the Trump administration's WeChat ban

• The WHO says 10% of global population may have been infected with virus

Monday Insight

• A longer term ramification of the pandemic will be effects on public transportation amid the eventual opening of office spaces— if the aversion against unsanitary public spaces persists, services such as Uber or Lyft may seem an increase in usage as urban dwellers will likely prefer ride sharing services over buses or trains, especially if employers will help cover costs

Thought of the Day

• Since the beginning of 2020, yields on the 10-year treasury have fallen to historical lows

• This is interesting, given that stocks and government bonds have typically shared a strong negative correlation

• When stocks fall, the value of bonds tends to rise as investors turn to lower, less cyclical fixed income returns to outperform simple cash positions

• Throughout the Spring and Fall equity selloffs, exuberant levels of federal stimulus have dampened the bond market’s recovery

• Such action have ruptured one of the most reliable investment strategies to date (hedging equity risk via bond exposure) utilized by countless passive fund managers

• This isn’t to say this risk reducing mechanism is no longer feasible, just that it's not as as safe nor lucrative as it once was

• With bond yields on track to under-pace inflation, investors are more likely than ever to keep their money in equity markets, despite record levels of volatility

• This could in turn add to market chaos, potentially making volatility investing a more viable short term hedging strategy (i.e. $VIX)

The Bottom Line

• Looking long term, I opine less traditional hedging mechanisms (such as crypto) are more likely to gain traction given investors are now incentivized to look beyond the status quo to achieve an appropriate risk profile

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