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Why student athletes need a new playbook to stay safe in the COVID-19 era

Kids want to play sports again, and who can blame them? An exercise scientist and physiologist explains why adhering to safety protocols is imperative.



High school water polo player Cami Rowan gets to work out in the home pool in Corona, Calif. on Feb. 18, 2021. Frederic J. Brown/AFP/Getty images

Kids are eager to play ball, and parents are eager to be back on the sidelines supporting them. But COVID-19 cases have risen in places where kids have been playing sports, complicating the issue.

Michigan, where I live, is now the epicenter of COVID-19 cases in the U.S. The resumption of youth sports activities has been widely implicated in Michigan’s latest COVID-19 surge, with 40% of new outbreaks occurring in K-12 schools or youth programs.

Experts also blame Michigan’s unprecedented rise to the top on an unfortunate mixture of reopening, virus variants and COVID-19 fatigue.

As an exercise scientist and clinician, I believe that sports participation – and even watching sports – has health and social benefits which far exceed winning and losing. My physiologist brain, however, argues that at this very moment, people should be focusing their energy not against each other, but rather toward defeating the world’s deadliest team: SARS-CoV-2, or, if you will, Team Coronavirus.

Two teenagers practicing volleyball.
Teens practiced volleyball in Gilbert, Ariz. on March 25, 2020, shortly after schools shut down there. Matt York/AP

Humans as the underdog

Parents in Michigan have started a group called Let Them Play Michigan to press the issue. Specifically, the group opposes mandatory weekly testing of student athletes, which the state requires, and quarantining of young athletes who test positive.

Recently, Let Them Play Michigan filed a lawsuit against the state of Michigan to ease mandatory testing restrictions in high school athletes, arguing that the state health department does not have the authority to issue these restrictions.

I still consider myself an athlete, even though jogging three miles a day is a low performance bar. That’s why at an emotional level, the Let Them Play youth sports movement touches my heart, since athletes resent anything that keeps them off the field, court or pitch.

So I suggest public health experts, parents and other stakeholders consider the issue through the lens of sports – Team People against Team Coronavirus. Team Coronavirus is focused solely on winning (survival) and will seize upon any mammal with properly fitting ACE2 (angiotensin converting enzyme 2), liver heparin or other receptors high in sialic acid. Once Team Coronavirus invades a cell’s nucleus, the virus delivers instructions to replicate, particularly within lung and upper airway cells.

Once a person is infected, millions of coronavirus particles can spew out of an infected host’s nose and mouth with every breath, cough, sneeze or word spoken. It can even exit through the rectum. The SARS-CoV-2 virus can also enter our bodies through the mucous membranes of our eyes, as fast as cutting an onion can make us cry.

A particularly daunting skill set of Team Coronavirus is its ability to change shape and evade the Team People’s defense, or immune, system. So think of it like a new team taking the court after half-time. Not only have the players never seen this team, but the coaches haven’t seen the films.

The possibility that Team Coronavirus can hide undetected within tissue reservoirs, such as in the brain, nervous system, eyes, heart or lungs, is another under-recognized skill of SARS-CoV-2. Scientists hypothesize that this ability may contribute to its persistence in both acute and chronic disease states, such as long haulers’ COVID-19.

Given our current understanding of Team Coronavirus’ expanding playbook, is it possible to safely let kids play sports during a pandemic, without some restrictions?

The NBA did it, but at a high cost

The success of the NBA Bubble demonstrates that competitive sports can be performed safely – and without vaccines – by adhering to strict safety protocols. That includes rigorous – meaning daily – testing, isolation and quarantine measures.

The financial cost of allowing 22 NBA teams to compete over about 100 days was about US$190 million, with additional, intangible mental health and emotional costs experienced by players and coaches.

However, the bubble clearly showed that Team Coronavirus can be defeated, but with significant personal and financial sacrifice.

The irony of the youth sports movement, as detailed in the current Let Them Play Michigan lawsuit, is the unsportsmanlike intention to cut corners on the evidenced-based safety measures in order for the kids to play. Adults filing the lawsuit on kids’ behalf are suggesting that weekly testing is too much, or that quarantining if an infection is found is too onerous. This parental response may be because kids are complaining.

Adults cannot let kids make these decisions. Despite the best of intentions, adolescents are poor judges of health risks. Sure, they may not want to accept weekly COVID-19 testing, but adults need to make sure they follow the rules. The NBA’s experience shows that testing should be an essential part of the rules.

One of Team Coronavirus’ most devastating offensive plays is its invisibility, or asymptomatic spread. Regular COVID-10 testing, as a major defensive strategy, identifies genetic material from Team Coronavirus so that any infected players can promptly be removed from play, limiting the spread of COVID-19 by removing their best players – superspreaders with high viral loads. This is why quarantining is so important.

Another highly effective defensive strategy against Team Coronavirus is covering both mouths and noses with masks to limit the airborne transfer of viral particles between players. The argument that masks are ineffective is true when face masks are not worn correctly (as widely seen around the chin).

If regular testing and wearing masks during games could save the life of a beloved football player, fellow basketball-playing exercise science student or collegiate March Madness superfan, how can parents and coaches not consider such minor inconveniences to save a coach’s, parent’s or teammate’s life?

Every COVID-19 death is preventable. Every loss, unconscionable.

CDC Director Rochelle Walensky discusses youth sports and coronavirus spread.

Going into overtime

One scary consequence of COVID-19 is the potential for long-lasting disability in those infected with SARS-CoV-2. While people itching for normalcy may think of an attack by Team Coronavirus as a “one-and-done” affair, post-infective fatigue, mental debility, neuralgia and psychoses are just getting started in patients with long-haul cases.

A growing body of evidence suggests that recovery from asymptomatic or mildly symptomatic COVID-19 may be associated with residual inflammation around the heart, impairment of blood flow, multi-organ impairment (brain, lungs, kidney, liver, pancreas and spleen), sustained fatigue and exercise intolerance.

This post-COVID-19 syndrome is recognized as “long-haulers” syndrome worldwide and causes neurologic dysfunction and debilitating fatigue in both young adults and children.

The SARS epidemic from 2003 provides a cautionary tale. In fact, 40.3% of patients who were diagnosed with SARS-CoV-1 faced chronic fatigue, and 42.5% experienced psychiatric illness up to four years later.

Let them play, but with firm rules in place

The question for parents, public health officials and school officials is: How do we let kids play and keep them safe? I believe there are ways to do this.

  • Get tested regularly.

  • Wear masks properly – block virus transmission by covering both the mouth and nose.

  • Embrace shared sacrifice.

  • Support one another – sustained sacrifice is hard, so work together and check in regularly with teammates.

  • Play outside – or have adequate ventilation inside to disperse viral particles.

  • Get vaccinated.

As current underdogs, athletes, coaches, parents and fans need to dig deep, embrace discomfort and beat this virus once and for all.

[Get facts about coronavirus and the latest research. Sign up for The Conversation’s newsletter.]

Tamara Hew-Butler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Mobile phone use may affect semen quality

Does electromagnetic radiation emitted by mobile phones affect semen quality? While various environmental and lifestyle factors have been proposed to explain…



Does electromagnetic radiation emitted by mobile phones affect semen quality? While various environmental and lifestyle factors have been proposed to explain the decline in semen quality observed over the last fifty years, the role of mobile phones has yet to be demonstrated. A team from the University of Geneva (UNIGE), in collaboration with the Swiss Tropical and Public Health Institute (Swiss TPH), has published a major cross-sectional study on the subject. It shows that frequent use of mobile phones is associated with a lower sperm concentration and total sperm count. However, researchers did not find any association between mobile phone use and low sperm motility and morphology. Read the results in Fertility & Sterility.

Credit: © Rita Rahban

Does electromagnetic radiation emitted by mobile phones affect semen quality? While various environmental and lifestyle factors have been proposed to explain the decline in semen quality observed over the last fifty years, the role of mobile phones has yet to be demonstrated. A team from the University of Geneva (UNIGE), in collaboration with the Swiss Tropical and Public Health Institute (Swiss TPH), has published a major cross-sectional study on the subject. It shows that frequent use of mobile phones is associated with a lower sperm concentration and total sperm count. However, researchers did not find any association between mobile phone use and low sperm motility and morphology. Read the results in Fertility & Sterility.

Semen quality is determined by the assessment of parameters such as sperm concentration, total sperm count, sperm motility and sperm morphology. According to the values established by the World Health Organization (WHO), a man will most probably take more than one year to conceive a child if his sperm concentration is below 15 million per milliliter. In addition, the percentage chance of pregnancy will decrease if the sperm concentration is below 40 million per milliliter.

Many studies have shown that semen quality has decreased over the last fifty years. Sperm count is reported to have dropped from an average of 99 million sperm per millilitre to 47 million per millilitre. This phenomenon is thought to be the result of a combination of environmental factors (endocrine disruptors, pesticides, radiation) and lifestyle habits (diet, alcohol, stress, smoking).

Assessing the impact of mobile phones

Is the mobile phone also to blame? After conducting the first national study (2019) on the semen quality of young men in Switzerland, a team from the University of Geneva (UNIGE) has published the largest cross-sectional study on this topic. It is based on data from 2886 Swiss men aged 18 to 22, recruited between 2005 and 2018 at six military conscription centres.

In collaboration with the Swiss Tropical and Public Health Institute (Swiss TPH), scientists studied the association between semen parameters of 2886 men and their use of mobile phones. ‘‘Men completed a detailed questionnaire related to their lifestyle habits, their general health status and more specifically the frequency at which they used their phones, as well as where they placed it when  not in use,’’ explains Serge Nef, full professor in the Department of Genetic Medicine and Development at the UNIGE Faculty of Medicine and at the SCAHT – Swiss Centre for Applied Human Toxicology, who co-directed the study.

These data revealed an association between frequent use and lower sperm concentration. The median sperm concentration was significantly higher in the group of men who did not use their phone more than once a week (56.5 million/mL) compared with men who used their phone more than 20 times a day (44.5 million/mL). This difference corresponds to a 21% decrease in sperm concentration for frequent users (>20 times/day) compared to rare users (

Is 4G less harmful than 2G? 

This inverse association was found to be more pronounced in the first study period (2005-2007) and gradually decreased with time (2008-2011 and 2012-2018). ‘‘This trend corresponds to the transition from 2G to 3G, and then from 3G to 4G, that has led to a reduction in the transmitting power of phones,’’ explains Martin RÖÖsli, associate professor at Swiss TPH.

‘‘Previous studies evaluating the relationship between the use of mobile phones and semen quality were performed on a relatively small number of individuals, rarely considering lifestyle information, and have been subject to selection bias, as they were recruited in fertility clinics. This has led to inconclusive results,’’ explains Rita Rahban, senior researcher and teaching assistant in the Department of Genetic Medicine and Development in the Faculty of Medicine at the UNIGE and at the SCAHT, first author and co-leader of the study.

It doesn’t matter where you put your phone

Data analysis also seems to show that the position of the phone – for example, in a trouser pocket – was not associated with lower semen parameters. ‘‘However, the number of people in this cohort indicating that they did not carry their phone close to their body was too small to draw a really robust conclusion on this specific point,’’ adds Rita Rahban.

This study, like most epidemiologic studies investigating the effects of mobile phone use on semen quality, relied on self-reported data, which is a limitation. By doing so, the frequency of use reported by the individual was assumed to be an accurate estimate of exposure to electromagnetic radiation. To address this limitation, a study funded by the Federal Office for the Environment (FOEN) was launched in 2023. Its aim is to directly and accurately measure exposure to electromagnetic waves, as well as the types of use – calls, web navigation, sending messages – and to assess their impact on male reproductive health and fertility potential. The data will be collected using an application that each future participant will download to their mobile phone. The research team is actively recruiting participants for this study.

The aim is also to better describe the mechanism of action behind these observations. ‘‘Do the microwaves emitted by mobile phones have a direct or indirect effect? Do they cause a significant increase in temperature in the testes? Do they affect the hormonal regulation of sperm production? This all remains to be discovered,’’ concludes Rita Rahban.

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Three Technology Investments to Buy Despite New White House Policy on AI

Three technology funds to buy offer long-term potential for potent upside despite the Biden administration’s newly announced policy aimed at regulating…



Three technology funds to buy offer long-term potential for potent upside despite the Biden administration’s newly announced policy aimed at regulating use of artificial intelligence.

Even though the three technology investments to buy rebounded in the first part of 2023 after the sector slid more than 30% in 2022, they have pulled back along with the market in recent months but do not appear to be in danger of a meltdown. If investors can withstand headwinds of higher-for-longer interest rates, runaway federal deficits and rising political risk with Russia’s unrelenting war in Ukraine amid escalating attacks in the Middle East following the murderous Oct. 7 rampage by Hamas inside Israel.

I cautioned in a column earlier this year that governments may start to regulate artificial intelligence and affect the independence of companies to pursue the plans of their choice. President Biden did not wait long before announcing on Oct. 30 that he would begin federal oversight of the technology advances.

“To realize the promise of AI and avoid the risks, we need to govern this technology,” President Biden said during his Oct. 30 press briefing.

Three Technology Investments to Buy: Reasoning for Executive Order

The president described the executive order he signed on Oct. 30 as the “most significant action” any government anywhere in the world has ever taken on AI safety, security and trust. The order builds on previous steps to ensure the “AI Bill of Rights” by bringing together AI companies that agreed to voluntarily make sure the technology is safe and secure, he added.

“I am invoking what’s called the Defense Production Act that federal government uses in the most urgent of moments, like mobilizing the nation during… a time of war or developing COVID vaccines during the pandemic,” President Biden said. “This executive order will use the same authority to make companies prove that their most powerful systems are safe before allowing them to be used.”

That means companies must tell the government about the large-scale AI systems they’re developing and share rigorous independent test results to prove they pose no national security or safety risk to the American people, President Biden said. At the same time, President Biden said he would direct the Department of Energy to ensure AI systems don’t pose chemical, biological, or nuclear risks.

In the wrong hands, AI can make it easier for hackers to “exploit vulnerabilities” in the software that makes society run, President Biden said.

For that reason, President Biden said he was directing the Department of Defense and the Department of Homeland Security to develop “game-changing cyber protections” that will make computers and critical infrastructure more secure than it is today. As part of that response, President Biden said his administration would take “decisive steps” to prevent the use of cutting-edge AI chips to undermine U.S. national security, he added.

Three Technology Investments to Buy: XLK

The first of the three income-technology investments to buy that will use artificial intelligence is Technology Select Sector SPDR Fund (NYSE: XLK), featured in the Forecasts & Strategies investment newsletter led by Mark Skousen, PhD. That fund had jumped 33.04% in 2023 through June 8, but it has dipped a bit since then. The fund still is up 32.65% on a total return basis through Oct. 30.


Investors who can stomach volatility may want to tap these technology equities in pursuit of potent performance.

“Bear in mind that governments may start to regulate artificial intelligence and affect the independence of companies to do what their management teams want,” I wrote in my June 20 dividend column.

Technology entrepreneur Elon Musk, the owner and CEO of Twitter, Inc. (NYSE: TWTR), CEO of Tesla Inc. (NASDAQ: TSLA) and founder and CEO of privately held SpaceX, said on a recent podcast with presidential candidate Robert F. Kennedy Jr. that China is planning to initiate the regulation of artificial intelligence.

Skousen, a strong advocate of XLK, serves as a Presidential Fellow at Chapman University, as well as the head the Forecasts & Strategies investment newsletter. Skousen, who is a descendant of founding father, diplomat and inventor Benjamin Franklin, also is a seasoned stock market forecaster.

Mark Skousen, head of Five Star Trader and scion of Ben Franklin, talks to Paul Dykewicz.

In a presentation Skousen gave last Sunday, Oct. 29, at the MoneyShow in Orlando, he spoke about “The Fed Disaster Plan.” Skousen told attendees how the Federal Reserve has aggressively raised interest rates and created an inverted yield curve. The U.S. central bank leaders have raised rates faster than any other time in the past 30 years, taking its toll on Wall Street, Skousen added.

“When you can get a 5.4% return on safe money market funds or government securities, it’s hard to stay invested in risky growth stocks,” Skousen opined.

So far, the economy has resisted recession; the federal government announced last week that real GDP in the third quarter rose 4.9%, due to strong consumer and government spending. But business continues to slump, which is the real key to the growing possibility of an all-out recession in 2024, an election year, Skousen counseled.

Three Technology Investments to Buy: Sell-off Reduces Price of Shares

Given that the stock market has suffered its worst two weeks of the year, falling into correction territory, those looking to purchase shares of good stocks now can do so at reduced prices. Last week, the S&P 500 fell 2.5%. Despite a strong start to 2023, that index now is up just 8.5% through the first 10 months of the year, seasoned stock picker Jim Woods wrote in the just-completed November edition of his monthly Intelligence Report investment newsletter.

Paul Dykewicz meets with Jim Woods, head of Intelligence Report.

Since August, investors have reduced their interest in technology, Woods wrote. The S&P 500 recently fell to fresh five-month lows as earnings lagged, with many companies falling short of projected earnings per share (EPS), revenue or margins, he added.

“The selling was disproportionately centered on the tech names, and it’s fair to say that tech weakness and earnings disappointment has been the main driver of the declines in the S&P 500 in the final weeks of October,” Woods told his Intelligence Report subscribers.

While earnings season has been somewhat disappointing, it hasn’t been outright bad, Woods wrote. He described it as an expectation problem.

“Tech companies are not producing the kinds of growth that was assumed when the AI craze hit markets in May,” Woods explained. “As such, we are seeing those AI-driven gains given back.”

AI mania is not the sole reason for the 2023 gains, since falling inflation and resilient growth have contributed, too, Woods wrote. But the AI-driven rise in stocks during May and early June was based on very aggressive growth assumptions, so disappointment in that space is now another headwind for markets to face, he added.

Three Technology Investments to Buy: TDIV

A broad technology fund that also offers a dividend yield and some exposure to artificial intelligence is First Trust NASDAQ Technology Dividend Index (TDIV). The ETF seeks to track the Nasdaq Technology Dividend Index, which is composed of technology and telecommunications companies, said Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter.

Bob Carlson, head of Retirement Watch, gives an interview to Paul Dykewicz.

TDIV recently had 84 holdings, and its 10 largest positions accounted for 53.7% of its assets. The biggest weightings recently were Microsoft (NASDAQ:MSFT), IBM (NYSE: IBM) and Broadcom (NASDAQ: AGVO).


The fund with $1.9 billion in assets has produced a total return of 15.1% through Oct. 31 this year. It also offers a current dividend yield of 2.1%.

Three Technology Investments to Buy: Napco Security Technologies

Napco Security Technologies (NASDAQ: NSSC) is an Amityville, New York-based manufacturer of security products that offer advanced technologies for intrusion, fire, video, wireless, access control and door-locking systems. The company’s products are sold and installed by tens of thousands of security professionals worldwide to serve commercial, industrial, institutional, residential and government applications.

In addition, the company has a heritage of developing innovative technology and reliable security solutions for the professional security community, including StarLink Universal Wireless Intrusion & Commercial Fire Communicators and new StarLink Connect Radios with Universal Full Up/Download for major brands. Napco Security also offers Gemini Security & Fire Systems and the NAPCO Commercial Platform of 24V Addressable/Conventional/Wireless Systems and Firewolf Fire Panels & Devices.


When the Federal Reserve stops ratcheting up interest rates, expect strong growth stories to profit, said Michell Connell, who heads the Dallas-based Portia Capital Management. The company’s five-year revenue growth has been 10.45% per year and its five-year earnings growth rate has averaged 28% or more annually, Connell added.

“EPS growth rate is expected to increase exponentially more than 100% this year,” Connell commented. “That’s well ahead of the industry average expected growth rate of 22%.”

The company is a “strong cash generator” and initiated a dividend when it reported results on May 8. Connell told me. While the dividend yield for NSSC is just 0.78%, it is a start, Connell counseled.

Three Technology Investments to Buy: Beware of Regulation

The Biden administration’s regulatory reach into artificial intelligence innovation drew concerned comments from Richard Vigilante, a senior analyst of Gilder’s Technology Report, a monthly investment newsletter featuring technology futurist George Gilder. Subscribers are kept abreast of what Gilder and his senior analysts describe as top AI stocks.

George Gilder discusses the latest AI stocks in his trading services.

“What strikes me most is the breadth and generality of the order and the lack of evidence that the government knows what it is doing,” Vigilante opined. “What it says is sufficiently predictable that it could be a Chat GPT document, which does not encourage confidence in the analysis behind the order.”

Particularly mischievous are the non-discrimination provisions, Vigilante cautioned. As often is the case with the Biden administration, “disparate outcomes” are interpreted as evidence of discrimination, leading to an outbreak of lawsuits, he added.

Also scary is that AI could be a great tool for screening out potential frauds, bad actors, destructive tenants and more, but not if users are threatened with criminal prosecution for protecting themselves, Vigilante warned.

Similarly worrisome is mention of sentencing, parole and probation. AI could introduce some objectivity into these murky areas, but the likelihood of disparate outcomes could derail that effort, Vigilante counseled.

Three Technology Investments to Buy: Political Risk Rises

Russia’s invasion of Ukraine remains a big worry, as well as the outbreak of war in the Middle East following the brual sneak attack of Hamas inside Israel. To help fund its sustained invasion of Ukraine, Russia has committed to limiting production of oil to keep prices up. OPEC leader Saudi Arabia also has curtailed production to help draw down global inventories.

Political risk could rise further after the Russian Defense Ministry released documents recently indicting its military spending could rise by more than 68% in 2024 to reach $111.15 billion. That amounts to about 6% of Russia’s gross domestic product (GDP), more than the country’s spending on social programs, according to Moscow Times. Russia’s military spending is set to total about three times more than education, environmental protection and health care spending combined.

The three technology investments to buy can be purchased at reduced prices following their recent pullbacks. Investors need to be able to accept rising political risk as wars rage.

Paul Dykewicz,, is an award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at and He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.

The post Three Technology Investments to Buy Despite New White House Policy on AI appeared first on Stock Investor.

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Rally in the offing? Canaccord’s market strategist weighs in

In a recent briefing, Canaccord’s seasoned stock market strategist outlined his perspective on the current market environment. Amidst concerns of an…



In a recent briefing, Canaccord’s seasoned stock market strategist outlined his perspective on the current market environment. Amidst concerns of an impending recession and financial stress, there’s a silver lining that might lead to a market rally.

The dominant view, if not the consensus view, is that until now, the U.S. economy has remained resilient, reinforced by robust job gains and consumer spending. Amid a faltering recovery in China however, the lagged impact of the U.S. Federal Reserve bank’s aggressive rate hikes is expected to slow the U.S. economy from here in. The U.S. consumer is expected to taper their spending now that excess savings are depleted and as job growth becomes more subdued.

Consensus cannot, it seems, be reached on how the equity market will respond.

It would seem appropriate and logical to adopt a more defensive or cautious posture, given the above. However, Canaccord’s strategist believes the environment sets the stage for a rally in equities. This is partly because, in the strategist’s view, the U.S. economy will slow down very rapidly due to the lagged impact of higher interest rates and tight financial conditions. In fact, they see a U.S. recession as highly likely but argue that it’s too late to take a negative view on markets when the bad news is possibly already priced in. (Note the U.S. bank equity index has already been smashed by 50 per cent.)

The environment also seems primed for a rally based on a fixed income view the strategist called “higher for shorter.” While hopes abound for a ‘soft landing’ scenario, such an outcome would actually be problematic for equity markets because the Federal Reserve would need to maintain elevated rates for a prolonged period. But a soft landing is unlikely, and this is due to the lack of buyers for treasuries and a consequent outflow of capital at banks, restricting their ability to lend.

Meanwhile, America’s consumer debt is mounting. Spelling trouble for the economy, default rates in U.S. auto loans have risen above pre-pandemic levels to over two per cent, and more Americans are falling behind on their credit card payments than at any time in more than a decade.  

For these reasons, it is anticipated that the U.S. economy will decelerate rapidly, with a recession on the horizon. And lest investors become sanguine, relying upon the fact Treasury bond rates have been at five per cent before, it’s worth remembering when they were at five per cent previously, debt-to-GDP was not at 131 per cent as it is now!

Figure 1. U.S. delinquencies by type of debt, 2006-2023

Figure 1 US delinquencies by type of debt, 2006-2023

Each recession begins with a spike in the unemployment rate from a low level. Unemployment tends to go down an escalator and up on an elevator. Economically sensitive stocks have cratered already, reflecting a recessionary scenario.

In fact, that’s a major part of the set-up for investors who subscribe to the pending rally scenario. 

Amid all of the above concerns, investors have been pulling money from equities. Recently, here in Australia, listed funds manager Pinnacle noted in the three months to September 2023, it received $200 million of net fund inflows with “Notable inflows in Private Credit, Private Equity and Fixed Income”. In other words, investors were steering clear of equities.   

But the advent of a sharply slowing economy is expected to bring bond yields down. As they fall, investors should expect a major bounce in small caps and economically sensitive stocks at the expense of the mega caps and energy.

Hidden undercurrents reflect doom and gloom

Interestingly, except for NASDAQ and S&P500, which are market cap-weighted, every other index has already seen a sharp decline. The top 10 stocks in the S&P500 now account for over one-third of the index’s value. This means that while these stocks have held strong, 65 per cent of other stocks have plummeted more than 20 per cent from their 52-week highs. That’s a correction by traditional definitions.

It’s also noteworthy that we’ve experienced the fastest rate hike cycle in history, with the treasury pumping significant paper into the market. Government spending continues its upward trajectory, exerting pressure on mortgage rates.

Canaccord has maintained a cautious stance over the past two years, given the unprecedented speed of interest rate hikes since World War II and the rapid tightening of the balance sheet in an already indebted system. This has placed the likelihood of the U.S. entering a recession at a near certainty.

The silver lining

Despite the gloom, there’s potential for a rally. As yields decrease, all that money avoiding equities may surge back, resulting in a robust bounce in small caps and economically sensitive stocks, which have been underperforming in contrast to mega caps and energy.

While economies, geopolitics and the market all seem to be in a precarious position, it seems most equities have already factored the worst in. If that conclusion is correct, a rapidly slowing economy, followed by declining rates, sets the stage for a bounce, particularly in sectors most affected by higher rates. As always, investors should keep an eye on the horizon and make informed decisions.

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