Market In A Snap! October 25th – October 29th, 2021

By: Jeff Anderson, CFA

This Week: The S&P 500 gained 1.3% for the week, closing at all-time high of 4,605.  For the month, gains were just shy of 6%, clawing back the losses sustained in September.  Year-to-date, the S&P is up nearly 23%.

The yield on the 10-year US Treasury Note finished the week at 1.55% down slightly from the prior week despite consumer prices rising at the fastest pace in 30 years and increases in employment compensation not seen in at least 20 years. Crude Oil closed at $83.26 per barrel, down a little under 21% on the week. 

This Issue:

  • Market Update
  • Market News
  • The US Economy
  • Electric Vehicles vs the Gasoline Tax

Market News:

Google and Microsoft reported strong 3rd quarter earnings this week, showing investors the strength of their businesses.  Shares for both companies gained roughly 7% for the week and are up significanty for the year.

Tesla and Hertz made news Monday.  Hertz agreed to purchase 100,000 vehicles from Tesla, which carries a $4 billion price tag.  Deliveries to take place towards the end of next year and early 2023.   Typically, rental car companies are able to make large fleet purchases at a discount.  Not so with Tesla.  Demand is strong. Hetz paid retail like the rest of us.   50,000 of those Teslas will be rented to Uber drivers, where Hertz will charge as much as $337 per week.  Tesla and Hertz will also invest in installing charging stations at Hertz Locations.  When the vehicles are ready to be replaced, Hertz will partner with Carvana to sell the used vehicles.  The entire agreement is fascinating. Four companies all with skin in the game moving towards a new era of transportation.  If you have paid any attention to General Motors, you’ll know that the Auto Industry is moving towards autonomous, electric vehicles that will be aviable to consumers on a subscription model, where consumers can pay a monthly fee to access a fleet of cars instead of having to own their own.  Cars sit idle the majority of the time.  Adding in the cost of insurance, repairs, and gasoline, the car is an awfully inefficient and costly thing to own.  Transportation as a Service, or “TaaS” is the future.  It may be hard to get or heads around this concept, but rest-assured, the auto manufacturers, rental fleet providers, and Fleet managers (like Uber and Lyft) are all betting on it.  Tecnology is moving rapidly.  The world will be vastly different in 10 years.  Strap on your seatbelt and enjoy the ride.

The US Economy:

The economy grew at the slowest pace since the pandemic recovery in the third quarter, ending September 30th.  The economy grew at a 2% annualized rate, down from nearly 6.7% rate in the second quarter.

The economy could not continue at its previous torrid pace.  The Delta variant, supply-bottlenecks for goods, and the end of major unemployment benefits all weighed in.  Despite this slowing, US consumers still increased their spending and drew down their elevated savings to do so.  Services saw the largest increase in spending, as consumers spent more of their discretionary income dining out and going to movies.  It will be at least another year until the major supply shortages are alleviated.

Electric Vehicles vs the Gasoline Tax:

Many of you have watched the movie, “Finding Nemo” with your children or grandchildren.  In one scene, Nemo’s father and Dory are drawn to a light in the dark. At first it captivates them. Nemo’s father says, “I feel happy”.  Soon enough they discover it is an Angler Fish out hunting prey.  We can draw a parallel to California’s push for clean energy and its need for tax dollars.  We highlighted in a previous weekly update the taxes levied on gasoline.  California was one of the first, if not the first, states to offer sizeable tax rebates on Electric Vehicle (“EV”) purchases.  EV owners enjoy low (& sometimes no) cost charging designed to help adoption of EVs.  If/when California highways are dominated by EVs how will the state recoup the lost gas-tax revenues?  EV owners currently pay an annual fee as part of their annual vehicle registration, but this will not be enough to recoup the potential lost gas tax revenues.  Californians could be subject to a “Road Charge”, that charges drivers a fee for miles driven on California roads (“fee-for-use”).  Whatever legislation is enacted, it will be intended to make up the shortfall in lost gasoline taxes.


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