Stocks rallied last week. The S&P 500 surged 4.7% in what was the biggest weekly gain since June. The index is now up 4.9% from its October 12 closing low of 3,577.03. However, it\u2019s still down 21.8% from its January 3 closing high of 4,796.56.<\/p>\n\n\n\n
When markets are as volatile as they have been<\/a>, it\u2019s easy to get caught up in all the things that are going right or wrong at the moment.https:\/\/d-39189650221789106324.ampproject.net\/2210272257000\/frame.html<\/p>\n\n\n\n And while there\u2019s nothing wrong with keeping current on the present, this is not the right mindset for long-term investors in stocks.<\/p>\n\n\n\n “Do not invest in the present,\u201d Stanley Druckenmiller, the legendary hedge fund manager currently running Duquesne Family Office, said<\/a>. \u201cThe present is not what moves stock prices.”<\/p>\n\n\n\n Druckenmiller noted that this is his No. 1 piece of advice for new investors.https:\/\/d-39189650221789106324.ampproject.net\/2210272257000\/frame.html<\/p>\n\n\n\n In a Sept. 22 episode of the \u201cHow Leaders Lead<\/a>\u201d podcast, Druckenmiller expanded on this (via The Transcript<\/a>):<\/p>\n\n\n\n \u201cI learned this way back in the 70s from my mentor [Speros] Drelles. I was a chemical analyst. When should you buy chemical companies? Traditional Wall Street is when earnings are great. Well, you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they\u2019ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. <\/em>So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.<\/em><\/strong>\u201d<\/em><\/p><\/blockquote>\n\n\n\n This is theoretically sound as theory says the value of a stock should reflect the present value of a company\u2019s future<\/em> cash flows.<\/p>\n\n\n\n Druckenmiller is talking about picking stocks. But I think his still serves as a good framework for broadly diversified investors processing macro information coming from economic data and earnings announcements.<\/p>\n\n\n\n One big theme of late has been the strength of the labor market. Specifically, the elevated level of job openings<\/a> signals the need to hire, and the depressed level of layoff activity<\/a> signals the desire to hang on to employees<\/a>.<\/p>\n\n\n\n Consider these quotes from recent earnings calls (via The Transcript<\/a> and RBC Capital Markets):<\/p>\n\n\n\n Bloomberg reported<\/a> that Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase, and Bank of America all increased their headcounts in Q3.<\/p>\n\n\n\n Similarly, the past week\u2019s high-level economic reports broadly confirmed these anecdotes. Initial claims for unemployment insurance benefits fell last week<\/a> and continue to trend at low levels. The Federal Reserve\u2019s October Beige Book<\/a> said that employment \u201ccontinued to rise at a modest to moderate pace in most Districts.\u201c Manufacturing business surveys from the NY Fed<\/a> and Philly Fed<\/a> each indicated employment was up in their respective regions in October.<\/p>\n\n\n\n The resilient labor market suggests that demand in the economy continues to be robust.<\/p>\n\n\n\n But that\u2019s the present.<\/p>\n\n\n\n What about the future? What does this mean 18 to 24 months down the road?\u00b9<\/p>\n\n\n\n I think there are at least two basic scenarios to consider.<\/p>\n\n\n\n What actually happens depends on where the economy heads, which itself is not an easy thing to predict.<\/p>\n\n\n\n But I can\u2019t help but think that given the current state of things, the outlook favors the more bullish scenario. Why? Because the message from the economic data and corporate America is that demand continues to outpace the capacity to supply. Consider this quote from the Fed\u2019s October Beige Book<\/a>: \u201cOverall labor market conditions remained tight, though half of Districts noted some easing of hiring and\/or retention difficulties. Competition for workers has led to some labor poaching by competitors or competing industries able to offer higher pay.\u201c<\/p>\n\n\n\n And consider this from Domino\u2019s<\/a>: \u201cStaffing remains a constraint, but my confidence in our ability to solve many of our delivery labor challenges ourselves has grown over the past few quarters.\u201d<\/p>\n\n\n\n So demand would have to fall considerably before companies find themselves with too much costly idle labor.<\/p>\n\n\n\n Let\u2019s check back in 18 to 24 months.<\/p>\n\n\n\n The bottom line<\/strong>: Stocks are a\u00a0discounting mechanism<\/a>, pricing in what\u2019s expected to happen and not what\u2019s currently happening. Whether it\u2019s 18-24 months out or\u00a020 years out<\/a>, being in the stock market is about betting on a better future that has yet to be realized and priced in. Now, it\u2019s not particularly clear what\u2019s to come in 18-24 months. (The lesson of the past 18-24 months is that things can certainly go wrong<\/a>.) But\u00a0long-term history<\/a>\u00a0is very consistent in teaching us that the\u00a0long-term future always turns out to be better<\/a>than what we are experiencing today.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Stocks rallied last week. The S&P 500 surged 4.7% in what was the biggest weekly gain since June. The index<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421],"tags":[3452,888,3764],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11062"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11062"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11062\/revisions"}],"predecessor-version":[{"id":11063,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11062\/revisions\/11063"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11062"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11062"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11062"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The labor market is strong \ud83d\udcaa<\/h2>\n\n\n\n
What all this staffing means for the future \ud83e\udd14<\/strong><\/h2>\n\n\n\n