As we move into the final weeks of the year, some typical seasonal dynamics are likely to begin coming into play. After a tumultuous year, tax-loss harvesting may cause significant volatility. Some names that have performed very poorly over the year may come in for additional volatile selling, and the right ones can present bargains — if you believe the theme is intact and the valuation becomes compelling.
However, one factor that might prompt selling into year-end seems less likely to be a factor: major investor anxiety about rising taxes in 2022. Recent political events and public opinion trends suggest that moderates are winning the argument when it comes to fiscal policy, and at this juncture, 2022 looks like it may create a significant political realignment. This is dampening tax fears.
However, volatility into year-end is likely to be elevated. Of course, the prices we see in red and green on the screen on a daily basis are generated by the relatively small proportion of investment dollars that move tactically. 2020 and 2021 witnessed an unprecedented explosion in retail options trading, which reflects the “gamification” of retail trading activity in venues such as Reddit’s r/wallstreetbets forum and through apps such as Robinhood [RH]. That options trading and gambling mentality is certainly contributing to volatility — which careful stock pickers should be able to use to their advantage. The broad indexes will likely conceal some wild movements of components underneath.
Our portfolio selection for clients continues to focus on a dumbbell with real-world assets on one side (primarily precious metals and tech-adjacent materials) and thematic, long-term growth companies with strong management on the other. The thematic areas on which we’re focused remain largely tech-centric, including disruptive entrants in healthcare, business digitization, automation and robotics, cybersecurity, artificial intelligence. We also like some reopening themes, including retailers who will be able to deliver consumers a desired shopping experience for Christmas thanks to effective supply-chain management. Although currently suffering a bout of volatility due to resurgent covid fears in Europe, and comments from Best Buy [BBY] management about the rising activities of organized retail crime and its impact on margins, we think some retailers will benefit from the ongoing normalization of holiday shopping activities.
Dollar strength, originating from resurgent covid lockdown fears in Europe and the collapse of the Turkish lira, is giving gold some near-term headwinds.
Thanks for listening; we welcome your calls and questions.
