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Market Edge

Market Update for the Week of February 26th, 2024

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Wall Street – 1923

There is an old saying you may be familiar with: “A rising tide lifts all boats”. This certainly can be applied to the current stock market. Thanks to one (in particular) company’s earnings report, the market reacted this week as if on steroids.

Headquartered in Santa Clara, California, Nvidia (NVDA) saw its earnings up 4% on Thursday. Although a firm that produces software, designs graphic processing units and high-performance computing among other services, it is now the dominant supplier of artificial Intelligence hardware and software. The market during the week was in a bit of a stupor until Thursday when the big boards lit up due to Nvidia’s earnings announcement.

Both the S&P 500 and Dow Jones saw record highs this week, while the Nasdaq flirted with 16,000. Combined with more companies participating in the advance upward (@ 66% of them – a very good sign) as well as the semiconductor stocks, what’s known as ‘Market Breadth’ (the number of stocks participating in a particular sector, index or stock exchange) has shown strong improvement these last weeks. This is an important gauge on the health of the market. Lets take a look at the week just passed……………….

S&P 500 (stockcharts.com)

This week saw the S&P 500 achieve a new record with Friday’s closing at 5,088, up 1.66% for the week. It is trading significantly higher than it’s 50-day Moving Average (MA) as well as its 200-day MA.

Dow Jones Industrial Average (stockcharts.com)

Closing on Friday at 39,131, the Dow rose up for the week 1.30%. 40,000 is not far off it seems.

NASDAQ (stockcharts.com)

The Nasdaq currently stands at 15,996 and for the week up 1.40%

Russell 2000 (stockcharts.com)

Although we saw a significant show of strength from the Small Cap market the previous two week (up a combined  (+3.54%) when this week’s numbers came in, the Russell 2000 was down 0.79%, closing trading Friday at 2,016. Due to issues between Stock Charts and the reporting service, we use the Rydex Russell 2000 chart as noted above. As you can see on this chart, the Russell 2000 is trading above it’s 50-day Moving Average (MA) and way above it’s 200-Day MA. I always refer to the Small Caps as the canary in the coal mine due to its propensity to signal the market over upcoming weeks but as long as we see the index continue trading above the 50 and 200 MA, we’ll continue to feel a bit of comfort.  

2-Year Treasury (stockcharts.com)

The Inverted Yield Curve has stayed intact for nearly 24 months. Although the markets have been powering ahead, the continuous inversion causes us concern. Friday the 2-year Treasury closed at 4.67%. The 5-year Treasury at 4.28% and the 10-year Treasury at 4.25%.

Volatility Index (stockcharts.com)

The Volatility Index closed out the week sitting at 13.76. Our readers know that this number places the VIX at a level illustrating investor confidence in the market. 20 and above shows concern in the market. 30 + indicates serious concern and a number in the VIX of 40+ has investors running for cover. We are nowhere near that stage.

30-Year Mortgage (stockcharts.com)

Combined with Baby Boomers not wanting to leave the home they’ve been living in forever, interest rates continue to dissuade buyers. And sellers as well. The national mortgage rate this week closed at 6.90%. As Treasury bond yields continue to increase so too will mortgage rates due to their reliance on those yields.

West Texas Intermediate Crude Oil (stockcharts.com)

Friday saw a barrel of West Texas Intermediate Crude land at $79.49 per. This week should see prices hover between $73.50 and $77.00. Oil prices are among the earliest announcements of global stability or instability.

Commentary

Incredible. Just incredible.

The day I began my career in the financial field the Dow Jones stood at 577. That’s Five Hundred Seventy-Seven! In my many years as a stockbroker, Registered Investment Advisor and now as the editor of a market newsletter I have never seen a market behave like this. As a technical analyst, I study historical market prices, trading volume, stock prices, market patterns, trade rates, market breadth, market trends and much more. My book ‘Managed Money: An Avenue to Wealth’ outlines the methods I used not only as an RIA but when making market predictions through GaneWisdom/Market Edge allowing financial professionals - as well as an investor who wants to get a handle on their portfolio - to offer knowledge and advice to invest and trade with facts and not emotions. All that has happened in the past 3 ½ plus months have been fascinating to watch.

The S&P 500 has risen over 7% so far in 2024 and although market breadth is showing strength, resiliency and signaling an upward market trend, I keep glancing at the bond markets. They are upside down. The Inverted Yield Curve (IYC) that I’ve spoken about at length in these pages concerns me. More than a little. The IYC happens when short-term Treasury yields are higher than long-term Treasury yields. As you read on the above 2-year Treasury chart, the current yield stands at 4.67% and the ten-year rate 4.25%. The current Inversion began in March 2022 with the deepest inversion occurring since 1981 this past July. Inverted Yield Curves are usually harbingers of a recession, yet the talk of a recession has largely subsided.

Except I keep thinking about it. More importantly, how a downturn in the market will affect those with no-one to turn to.

Without a guide to help you navigate, regardless of whether you’re a financial advisor or an investor, the profits you’ve made (or your clients made) since the market has trended upwards could be gone quickly with a plethora of negative economic news. I invite you to read an excerpt from our Market Update on January 1st below. It is eye opening to say the least.

So many investors have jumped back into the stock market now that even that is worrisome to me. Based on past history the more investors entering the markets, even at (or if) at a later stage of a rally or upward move, the closer to a market top we are. Conversely the more investors leaving the market, the closer to a market bottom. You’ve no doubt heard the adage “When everyone is buying, sell. When everyone is selling, buy.” From my experience if you aren’t using the services of a trusted financial advisor that’s not bad advice.

Now as earnings-reporting season is winding down there will be a brief respite until the end of the quarter (March 31st). Investors will have an opportunity to assess their portfolios and position them for the spring. The bond market will, in my opinion, enter center stage.

The Commerce Dept will issue its 4th quarter report on Gross Domestic Product (GDP) on Wednesday (2/28/24) and its Personal Income and Outlay (PIO) for January on Thursday (2/29/24). These reports will affect the markets I assure you.

The economy has certainly outperformed most of the forecasts for its early demise, however it has come with a cost. The Consumer Price Index (CPI) broadcast an annual rate of 2.9% last month which surprised the Gurus in the brokerage back offices. These folks and many on Wall Street as well, had been of the (loud) opinion that the first cut of interest rates by the Federal Reserve was certain to happen in March. As our readers know, we never bought into that line of thinking and in fact cautioned against investing on this premise (see our Archives). In analyzing the data, we felt that June or (possibly, but not probably) May would see the beginning of these reductions. Depending on what the major Treasury Bond investors, who own what is considered the most sensitive to inflation, see in the coming few months could lead to higher Treasury yields. Bond sales will increase due to their attractive interest rate and government guarantee should the CPI and Personal Consumption Expenditure (CPE) produce unwelcome news. That, if it happens, will oblige the Federal Reserve to hold rates steady at the current levels longer (past the June date) due to their stated goal of reaching 2% inflation. Should that possibility become fact the stock market will take a nosedive and probably (in my opinion) not rebound as quickly as it did recently when it was finally accepted that rates were not coming down in March.

The question we face now is whether the current economic good news and the upward market trend is based on productivity – which would mean that the growth we’re seeing at present will not cause inflation to spike or if this growth is based on the record U.S. fiscal spending and deficits – which would NOT be good news for the markets.

Investors (and analysts like me) always look for forward-looking signals in which to base market activity. A bit of concern is that 80% of the S&P 500’s one-year return is due to just 20 stocks! Additionally, what’s known as ‘The Magnificent 7’ that I’ve referred to in the past on these pages (Amazon, Apple, Microsoft, Meta, Tesla, Alphabet and Nvidia) have propelled nearly two-thirds of the gains in the S&P 500. Please reread (then memorize) this paragraph again.

In closing, please keep in mind that even as things cannot always continue to go down, they cannot continue to go up either. Our projections at GaneWisdom/Market Edge have been fairly accurate these past months and for now I see the markets taking a bit of a breather. Hopefully soon and hopefully broadly across the board. This should be looked at as a positive and should be welcomed as well. Frankly a bit of profit-taking, say 2-4% from where the Dow and S&P 500 currently stand, would give the markets more room for upward movement. The challenge will be to not base your investment decisions based on the emotion-packed news the media will spew out. Using all the barometers we incorporate into our projections and investment positions will be reflected thorough analysis and not hyperbolic emotional sentiments.

I encourage you to refer back to this site periodically. As a subscriber you know that when (not if) things change, as they often do quickly, we issue Mid-Week Market Alerts for you to consider and take action on.

I’ll discuss the global, as well as the current domestic position and their effect on the stock market at present in next week’s Market Update.

Have a blessed and prosperous week……….

Guy W. Gane, Jr.

From Market Update for January 1st, 2024 -

“…….As you know, our investment philosophy follows the guidelines used by Guy Gane when he managed many millions of dollars for many thousands of clients. His results placed him among the premier Registered Investment Advisors in the United States for many years.

Periodically we are asked “How are subscribers to GaneWisdom/Market Edge able to enjoy profits without losing money?” The answer is – they don’t! No-one can accurately know when a market top happens, nor when a market bottom will occur. Our philosophy is to take small losses in order to avoid big losses.

Let’s analyze the stock market for the last two years – 2022 and 2023.

2023 has witnessed an extraordinary runup in the S&P 500 (+24%), the Dow Jones (+13%), the Russell 2000 (+17%) and the most impressive – the Nasdaq (+43%).

If you are participating in your company’s 401k or 403b, you most likely have no one giving you guidance as to what to buy, when to transfer or when to sell. Consequently, you probably just leave the money, and continue to deposit into whatever funds you originally started with. Most Financial professionals advise their clients to ‘Buy and Hold’ their investments because ‘the market always comes back, then goes up!’ Sounds logical as well as sounds good! It’s hard to argue that logic, especially this year when the market did indeed ‘Come back’. But is that the end of the story? Not by a country mile……

Had your portfolio been invested in tech stocks, the Nasdaq let’s say, and you just kept the money there because your advisor said that’s the ‘smart move’, 2022 saw your investment lose 33% of its value (the Nasdaq’s performance in 2022). Your $10,000 investment by December 2022 was now worth $6,700.00. But the market came back – up 43% as we’ve seen. Despite this – YOU STILL LOST MONEY!

Why? Let’s look……

$6,700  x 43% = $2,881

$6,700 + $2,881 = $9,581 !

In order to break even – JUST TO BREAK EVEN – the Nasdaq would have had to increase 49.3% !! You still lost money 2023!

As you can read in our Archive section, we have given sound financial guidance throughout the last 16 months which could have minimized these losses and maximized gains.

This dear reader, is the visual result of Buying and Holding……”

Upon Reflection

When we began publishing GaneWisdom/Market Watch on August 21st, 2022, the Dow on the previous business day (8/19/22) stood at 33,706. The S&P 500 ended trading on the same day at 4,228. As we wrote above, Friday’s close for the Dow Jones was 39,131. The S&P 500 at 5,088.

Having to give back profits, then having to make them back up instead of profiting by building on profits is not the way to win on Wall Street. This is the ‘Buy and Hold’ strategy. Realistically this is the ‘Buy and Hope’ theory.                                                                                                     

Our subscribers have averaged meaningful positive returns and by following our column exited the markets and re-entered them when appropriate – while the Buy and Hold crowd hung on with white knuckles hoping the market would come back and make up what they lost. The current market has offered significant trading opportunities which we’ve taken advantage of throughout the past eighteen months (please refer to the “Archive” Section of our site). We are listing our current positions below. Our market strategy has been taking advantage of upward trends, the advantage being not having to make up for the large losses that can (often) occur in the Buy and Hold strategy. When (not if) the market shifts again, we will issue our analysis, guidance and suggestions at that time.

Our Commitment

When GaneWisdom/Market Edge went live in August 2022, the goal was to provide our subscribers top-tier market analysis and outlook to those with qualified accounts such as: IRAs, ROTH IRAs, 401Ks, and 403Bs. Our desire was to make this service affordable to anyone. Instead of paying thousands of dollars, or a percentage based on investment assets (which is how Guy managed his client’s money as a Registered Investment Advisor) GaneWisdom/Market Edge charges a very affordable $200 per year. Our subscribers now include those with non-qualified accounts as well as financial professionals.                 

Our market analysis consists of market indicators, trends and strategies which allow our followers to avoid large losses usually associated with the traditional ‘Buy and Hold’ method. Our results speak for themselves and each of our Posts since our inauguration are available under the site’s heading: ‘Archive’.

In Conclusion

As a subscriber to GaneWisdom/Market Edge you are being given unequalled access to the latest and most comprehensive market analysis available. Please note the following and move accordingly. We strongly caution moving into an equity position in the middle of a market rally, as we are in right now. This could lead to severe losses – ‘Buying high, selling low’ – is not wise. This is especially true for this current rally – this past week notwithstanding -  where the S&P 500 has increased 21.34% + since late October. Please watch for our Mid-Week Market Alerts in the event of shifting market conditions.

Wishing, hoping, If only’s and what if’s are based on emotion and you know that we follow the numbers, the indexes, the trend, the fundamentals - not emotions.

Our current positions:

We currently are/or were positioned in the following:Entered
A portfolio consisting primarily of Consumer Products11/6/23
A portfolio consisting primarily of NASDAQ – dominated stocks11/9/23
A portfolio consisting primarily of S&P 500 (Large Cap) stocks11/9/23
A portfolio consisting primarily of Financial stocks11/9/23
A portfolio consisting primarily of Telecom stocks11/9/23
A portfolio consisting primarily of Small Cap stocks11/14/23
A portfolio consisting primarily of Biotech stocks11/16/23
A portfolio consisting primarily of Health care stocks11/16/23
A portfolio consisting primarily of Technology stocks1/22/24
A portfolio consisting primarily of electronic stocks1/23/24
A portfolio consisting primarily of Banking stocks2/2/24
A portfolio consisting primarily of Retailing stocks2/2/24

Your particular Mutual Funds and/or Variable Annuities may or may not offer all or any of the positions we recommend from time to time. You MUST do your homework. Doing so and finding the portfolio in accordance with the our analysis may position you to take advantage of what we believe to be the next market rally.

* As is the case with any investment, use your discretion and judgement before purchasing and/or transferring. Diversification is always prudent; therefore, our suggestion is using a portion of your portfolio and not the total in any one fund or subaccount. A portion should remain in Cash (Money Markets)

Please watch for our Mid-week Market Alerts should there be any