In just one week, the major averages have had a 3 percent swing from lows to highs. These gyrations go hand in hand with the high level of indecision investors are feeling right now. Can you blame them?

 

Last week, and into the end of the day on Monday, the S&P 500 Index registered a 3 percent decline. In the next few days, all of those losses were recouped and then some. While investors breathed a sigh of relief, I don't think we are out of the woods just yet.

 

Most strategists blame the decline in stocks on the free fall in yields. The U.S Treasury Ten-Year Bond (the "Tens") fell to 1.13 percent at its lowest point on Monday. At the same time, the U.S. dollar spiked higher and broke through several technical resistance levels. Wall Street traders worried that something "big and bad" might be about to happen.

 

Equity investors decided to sell first and ask questions later. The fact that we are in the middle of summer vacations didn't help. On low volume days like we have now, traders can push the prices of stocks much higher (or lower) than normal. The one thing I can say for sure is that the actions in the financial markets over the last week were not normal.

 

Bond yields rarely move in such a wide range in such a short period of time. This week, we have seen yields on the "Tens" move from 1.13 percent to 1.30 percent, and back down to 1.25 percent. Those are massive moods for the bond market.

 

The price of oil dropped to $65.56 a barrel on Monday, which was more than a 7 percent decline in a single day, but now, just a few days later, that same barrel of oil fetches $71.75. Heck, the price of Bitcoin suddenly appears to be a model of stability compared to some of the moves in stocks, bonds and commodities this week.

 

Fed policy, interest rates, deflation, inflation, stagflation, and now the upcoming battle over the debt ceiling fills out the list of worries that have investors on edge.

 

Monday's stock market swoon may have also had something to do with the Coronavirus Delta variant. As I warned readers, the new cases of the Coronavirus Delta variant are surging and should be taken seriously. I'm guessing the fear of the Delta impact on economic growth is finally dawning on investors. But the event I fear most is a vaccine-resistant, coronavirus mutation, spawned from within the huge population of unvaccinated.

 

We have already witnessed a number of new virus strains that are assaulting the efficacy of our present vaccines. Take, for instance, the recent findings from a team of New York University researchers that the one-shot, Johnson & Johnson vaccine is far less effective at preventing coronavirus infections from the Delta variant and other mutated forms of the virus than from earlier strains. An Israeli study found that the Pfizer vaccine is less effective against the Delta variant than we thought.

 

What would happen if a future mutation proves to be resistant to any or all of our vaccines? I fear that as long as the majority of the world's population (including 40 percent of the U.S. population) remains unvaccinated, the probability of such an occurrence is increasing every day.

 

The actions of the market this week make me believe we will see more volatility in the weeks ahead. The main averages may not fall out of bed, altogether, but they could. It's been a long time (last October), since we have had even a 5 percent pullback in the broader market.

 

So far, we have avoided a general market decline. Instead, we have experienced a series of rolling corrections throughout various sectors. The transportation index, for example, was down as much as 12 percent since May. Some basic material and commodity stocks have also had similar big corrections.

 

My advice is to get ready for some more weeks like this last one. They may not all end up in favor of the bulls, either, because July into August is usually a weaker period for equities. You might want to consider a vacation in the weeks ahead, and let the markets work out some of their issues.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Imagine opening your laptop or cell phone and catching a whiff of your favorite perfume. Scroll back to last summer's Maine vacation photos and smell the pine forest at your campsite. Digital scent technology can make that happen sooner than you think.

 

Digital scent technology, also called olfactory technology, is an engineering discipline that enables media, such as video games, movies, music and Web pages, to sense, transmit, and receive scent-enabled content. Simply put, the day when you can smell through the internet is almost upon us.

 

The market is tiny right now, with less than $20 million in sales, but it is expected to grow substantially by the end of the decade. Surveys conducting by research firms such as Ericsson ConsumerLab, indicate that consumers are expecting that by 2030, internet devices will be able to interact with their sense of smell. 

 

One big reason for the growth of digital scent is the fact that retailers, manufacturers, and advertisers already know that smell sells. That knowledge dates back centuries. Street peddlers in bazaars all over the world have used open-air grills to arouse hunger and entice consumers to sample their wares.

 

Today, companies as diverse as Burger King, Disney, Rolls Royce, and Nike have successfully used various scents and aromas in their brick-and-mortar stores and restaurants to improve traffic and generate additional sales. We remember that new car smell, for example, but may fail to realize how central that smell was in our decision to purchase a new car. But auto dealers understand that, as do supermarkets that spread the aroma of freshly baked bread through its aisles every day.

 

Credit for marrying our sense of smell to entertainment goes to a system called Smell-O-Vision back in the late 1950s. Aromas were released through hissing tanks or air condition vents in the movie theater. It quickly flopped quickly due to technology failures, but entrepreneurs kept trying and some were successful.

 

"Electronic noses," developed in 1982, could detect and recognize odors and flavors. In 2013, a wireless system was developed with the object of incorporating scents into movies, as well as other audiovisual experiences, but rarely used. Digital technology borrowed from these wireless systems. Over the last decade, two branches of digital technology, one focused on the digital detection and analysis of different odors, and the other on the digital transmission and re-creation of smells, have melded together. We were now ready to begin interacting between our human senses and the internet.

 

How does it work? The technology uses hardware devices consisting of gas sensors, which aid in sensing and generating different types of smells. That in turn enables the transmission of odor over the internet. There are other technologies that are pursuing touch, sight, taste and sound. It has been dubbed the Internet of Senses. To me, it's just more examples of how new data applications are changing our lives, now and in the future.

 

For now, sectors such as health care and military/defense are on the cutting edge of the digital scent scene. Clinical diagnosis, aromatherapy, and even the ability to detect cancer, are all areas where this technology is being employed by the medical community. The military and defense sectors are also using digital scent to detect and identify explosives in public areas, as well as in combat areas.

 

There are a number of innovative startup companies worldwide that are using a variety of scientific disciplines to mimic, recreate and/or identify smells and scents. Organic chemistry, silicon engineering, machine learning, photonics, as well as data science and software engineering, are creating ever more sophisticated ways to interact with this internet of the senses. Imagine, for example, if food companies could detect pathogens in their food supply networks before they could endanger human health, or lead to food spoilage. Some of this technology is already being used, for example, to screen for salmonella in packaged meat products.

 

Smell is important. It shapes many of our physical sensations that impact us deeply and directly. Companies are working diligently to further your sense of smell directly to the internet. And while your online experience today does not involve digital scents, it will in the next few years. You can bank on it.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

There were plenty of reasons why the stock market was a bit jumpy this week. Let's go through them.

 

Two weeks ago, I wrote that I was worried "that we could suddenly see a spike in new Delta variant cases that impacts economic growth. Remember that less than half of all Americans are fully vaccinated. President Biden, his chief medical advisor Anthony Fauci, and the Fed are all sounding warnings over this risk, yet the markets are ignoring it."

 

Investors finally caught on this week and began to realize the risk presented by the Delta variant and its impact on the re-opening of the U.S. economy. It is impossible, in my opinion, to maintain the economic pace of recovery in the U.S. and achieve full employment without herd immunity. Herd immunity would require a vaccination total of 70 percent of the population, according to medical experts at the Center for Disease Control.

 

The radical right, and their elected officials, which represents roughly 40 percent of the population, refuse to get vaccinated, or even follow the most rudimentary medical safeguards. It is partisan politics at its worse. And as a result, in my opinion, the economy will have an extremely difficult time realizing its potential, nor will the United Sates truly recover from COVID-19.

 

The next news item roiling investors involves the minutes of the last FOMC meeting, released on Wednesday. We already know that the Fed is planning to begin tapering, so it is really a question of when. Fed members were quoted as saying that "they might need to pull back their support for the economy sooner than they anticipated because of stronger than expected growth … ."

 

Despite Chairman Jerome Powell's assurances otherwise (that tapering would happen later, not sooner), we read that "various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of the incoming data … ."

 

Investors simply took that to mean that sooner, rather than later, was now the Fed's timetable for tightening. When markets are at record highs, those are the kind of words that can (and did) ignite a decline.

 

And then we have the worrying yield trend of the U.S. Ten-Year Bond. The yield on the "Tens" fell to 1.25 percent this week. Less than a month ago, the worry was that yields would rise to 2 percent before the end of the year. What happened? It could be that fears of the new Delta variant have forced bond investors to seek safety in bonds, while adjusting the growth rate of the economy downward.

 

Another concern is that the OPEC-plus members have yet to come to any kind of production agreement. Traders expected that lack of compromise to put even more pressure on prices, but the opposite occurred. Some energy bears say that the United Arab Emirates' (UAE) refusal to back an increase in production has created a potential crack in the solidarity of the oil cartel. In which case, anything could happen.

 

Finally, the debacle involving the $4.4 billion, initial public offering of Didi, the Chinese ride-share company, has thrown global investors for a loop. Last weekend, a day after the IPO, the Chinese government ordered the company to cease accepting new users and to close down its app. Chinese regulatory authorities are probing whether Didi, as well as other companies, illegally collected and utilized personal data.

 

In the past year or two, these regulatory probes of Chinese companies have been increasing. Chinese, global growth companies like Alibaba, and its wholly owned subsidiary, financial credit giant, Ant Group, have been ham-strung by the Chinese government's initiative to exert control over social media and how they handle, collect and share data. Regulators in November of 2020, for example, simply halted Ant Group's multi-billion-dollar dual listing in Hong Kong and Shanghai at the last minute.

 

Didi's share price was down more than 20 percent since its IPO and other large Chinese companies, especially those in social media and e-commerce, have dropped more than 30 percent in the past few months. That has put even more pressure on the markets.

 

Readers should expect more volatility in the days ahead. There are fewer traders, less volume and more opportunity for algos to move markets up and down at the drop of a hat. It is a good time to take some time off and enjoy the summer weather. Stay invested.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Over the past several decades, investors, investing in China, have gotten used to the dichotomy of China's Communist-run, centralized government and its free-for-all stock market. That situation appears to be ending.

 

The latest (and most controversial) sign of China's increased interest in regulating and extending control of its largest companies came over the weekend. Fresh off the heels of a global $4.4 billion initial public offering, Didi, China's ride-hailing giant, was ordered to cease accepting new users, and to close down its app by China's internet regulators.

 

By midweek, the newly, U.S.-listed share price of Didi fell by well over 20 percent. But Didi wasn't the only Chinese-based tech company to feel the red hand of regulation this week. Two additional tech companies, Full Truck Alliance, and online recruiting company, Kanzhun, were also targeted. Regulators are probing whether these companies illegally collected and utilized personal data.

 

In the past year or two, these regulatory probes have been increasing. Chinese, megaglobal growth companies like Alibaba, and its wholly-owned subsidiary, financial credit giant, Ant Group, have been ham-strung by the Chinese government's initiative to exert control over social media and how they handle, collect and share data. Regulators in November 2020, for example, simply halted Ant Group's multibillion-dollar dual listing in Hong Kong and Shanghai at the last minute.

 

Behind this new regulatory crackdown is the realization by China's Communist Party (CCP) that these big technology firms could be a potential threat to their own autocratic control. Based on their vast collective ability to gather and harness data, someday (possibly soon?), these corporations could become a competitive, or even an alternative center of power in China.

 

This was made abundantly clear to President Xi Jinping and the Communist party during the coronavirus pandemic. The government discovered how truly immense these tech companies' databases are in their effort to control the spread of COVD-19 and its mutations. Officials found they had to depend on these tech companies' databases in order to introduce health-monitoring, and a variety of software-based quarantine applications.

 

Up until that time, these corporations (like their overseas counterparts) had a fairly clear path in developing their businesses. They had free reign to cut deals, cripple competitors and collect all sorts of user data (both personal and otherwise), from customers worldwide. That same business model is now the subject of litigation, regulation, and various fines within dozens of countries. In that respect, China is just one more country waking up to the so-called danger of social media companies. But with China, there is a difference.

 

The CCP, unlike most other governments, believes, and therefore demands, that all the data collected from its social media giants, e-commerce, and other businesses (including those foreign companies doing business in China), is the property of the state.

 

This data can and will be used in any way the party and its leaders decide, now and in the future. It is considered part of the nation's assets. To bring that point home, China watchers have identified a virtual blizzard of new antitrust and financial regulation brought by the State Council and Cybersecurity Administration, including the passing of a new data security law in June (that goes into effect in September). In essence, almost all data-related activities by whatever means will now be subject to government oversight and control.

 

In the future, data will ultimately control just about every aspect of human life. Food, medicine, weather, security, finance, etc. Who gets it and how, will all come down to who has the most data and how it is used. President Xi is reported to have said privately that "whoever controls data will have the initiative." I believe he is correct.

 

It seems clear to me that while investors decry the short-term stock losses caused by the heavy-handed actions of the Chinese government on publicly listed Chinese companies, they may be missing the forest for the trees. There are all the signs that these new regulatory risks are here to stay. In which case, we can expect more of them and as a result, a re-rating of Chinese securities (downward) would certainly be in order.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

 

The S&P 500 Index is up 14 percent so far this year. Most other averages have similar double-digit gains. July is normally a fairly positive month (in general) for equities.  Does that mean we can expect equities to continue their bull run through the summer?

 

It certainly looks that way. Any pullbacks in stocks will likely be met by dip buyers. That could limit declines to a manageable level. A sustained rise in interest rates will likely wait until investors know with certainty the Fed's next move. The thinking is that there will be an announcement on tapering bond purchases, which may not happen until August, or September, if then.

 

Inflation has receded as a topic of concern for many on Wall Street. The decline in commodity prices has calmed nervous investors worried about runaway inflation. The U.S. dollar has also gained ground versus most other currencies. As a result, we appear to be in a sweet spot for equities.

 

This week, the NASDAQ, which had been lagging behind both the S&P 500 and the Dow Jones Industrial Average, finally broke to new highs led by the semiconductor index.

 

The PHLX Semiconductor Sector Index (SOX) is a capitalization-weighted Index of 30 semiconductor companies.  The SOX is an important telltale index. It has led the stock market higher throughout the year. I would advise readers who want to know where the markets are going to keep an eye on the SOX as a leading indicator for the markets' direction overall.

 

But the big story for investors is the continued rise in oil prices. The OPEC-plus producers meeting that was held on Thursday of this week carried over until Friday. One member, the United Arab Emirates (UAE) is objecting to any increase in production and supply because they are not convinced that there will be a strong global recovery, OPEC had planned to increase output in the coming months, but at a slower rate than anticipated. Monthly output increases by OPEC and its allies (including Russia) would amount to less than 500,000 barrels/day between August and December, if the UAE can be convinced to go along.

 

OPEC members are anticipating that demand for oil will increase by 5 million barrels in the second half of 2021, which could create a further supply and demand imbalance. Oil prices, under that scenario, could rise (some say to as high as $100 a barrel). That would put price pressure on consuming nations, while adding to the risk of higher inflation.

 

Cynics believe the organization (led by Saudi Arabia) is deliberately engineering this squeeze play to gain back some of the losses incurred by oil producers last year.

 

Of course, OPEC's consumption forecast of 5 million barrels could fail to materialize and that is what the UAE is worried about. The COVID-19 Delta variant, they believe, is a wild card. A surge in the virus variant could impact global energy consumption far more than expected. In the U.S., gasoline consumption might not be as high as anticipated. And if U.S. and Iran come to a nuclear agreement and embargos are lifted, increased Iranian supply could come back on stream in the months ahead.

 

As readers are aware, oil was one of my top picks to outperform this year. I still believe energy and energy shares are a good investment, despite the outsized gains of the first half. But buyers beware. Commodities can be great investments, but they also carry great risks. I would wait for a pullback before venturing into the oil patch. Depending on what happens over the weekend at OPEC, you may get your chance.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.