The September's sell off is appearing to dampen a little, as we got a relief rally yesterday and today the pre-market futures indicate an up-opening. We are still in the camp that this choppy period is far from over, so investors cannot be complacent and have to expect more pain ahead. Yesterday we heard from the Federal Reserves, and something that the market didn't talk about so much was the pace of asset tapering and the soon-coming of rate hikes. You can read about the decision here. It appears more likely that tapering will begin about December, ending in June 2022, and more members now see the first rate hike happening in 2022. We think in the next few days this will be a major point of discussion for the market, and we certainly have different strategists saying different outcomes (see Jamie Dimon of JP Morgan here, see Mike Wilson of Morgan Stanley here).

While we're in the camp that September - mid October is a tough period, we are also in the camp that into year's end the market will have a nice rally, predicated on a remaining-strong economic outlook for 2022. Especially we're looking at the Covid-recovery, which looked so certain in early Spring this year as vaccination efforts were rolling, but got train-wrecked by the Delta variant. However, the Delta variant is peaking and will come under control. We think because of this Delta variant that has been slowing the recovery and certainly hurting recovery-stocks, the market will see a mini or second recovery period (much like what we had from the trough of Covid in 2020).

DISNEY

We're using weakness in the market to initiate 2 positions in our portfolio. First is Disney, which currently represents about 5% of our portfolio. We pulled the trigger on Tuesday, Sep 21 when the stock pulled back in reaction to comments made by CEO Bob Chapek at the Goldman Sachs 30th Annual Communacopia conference.

After reading through the transcript of the event, yes the market may not like some of the noise coming from Disney+ subscriber numbers, or the fact that the return of dividends and share repurchases are still in the "distant future" as management continues to prioritize its cash flow towards funding new areas of growth. But despite the headlines impacting the share price today, we see no reason to feel any less bullish about the long-term prospects at Disney. For starters, we continue to forecast a robust recovery at the theme parks. After reading Chapek's update, we are encouraged by how he said that attendance has recovered "quite nicely" after experiencing a delta-related slowdown shortly after the company's last earnings call.

Additionally, one thing that we have come to accept with Disney is that the quarter-to-quarter subscriber growth numbers for Disney+ will be noisy and lumpy at times. But most importantly, Chapek gave zero indication that he is any less confident in the company's long-term sub growth forecast and the timeline of when the streaming business will reach profitability. We feel this makes today's pullback a short-term blip and not a thesis changer.

We are starting relatively small in DIS as we want to leave plenty of room to scale into the position up to 8% over time. 

ELI LILLY

We held a position in Eli Lilly earlier in the spring, and exited when the stock went up so high due to good news from the Alzheimer's drug. The stock since then has pulled back to right about when the good news was announced, a nearly 18% decline from recent high to the current price. The stock is also coming towards the 100 day Moving Average. We think this is an opportunity to leg into this position. 

Do realize the importance of Lilly’s Alzheimer’s pipeline and how they planned to file an accelerated approval for Donanemab before the end of the year. We see the potential of a 2022 approval and a second half 2022 launch as a major catalyst event for Eli Lilly because of how big a market Alzheimer’s treatments can be. We also think Donanemab will prove to be superior to Aduhelm (Biogen's Alzheimer's drug) as a treatment after more data is collected. A phase 3 trial readout is expected in the first half of 2023.