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Market Edge

Market Update for the Week of July 15th, 2024

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The Curb Market - 1908

Located outside of the New York Stock Exchange, what were known as ‘Curb Brokers’ due to their selling speculative stocks on the curb 18 Broad St. New York, New York

Wow! What a week!

Just a few months ago, May 17th to be precise, the Dow Jones Industrial Average closed at 40,003 points. At the close of trading Friday, the Dow, which had exceeded this number during the day, ended at 40,000.

Since mid – May, the DJIA has struggled to find its way back to that magic number. Until Friday. What spurred the resurgence was the positive (and long-anticipated) news coming out of the Federal Reserve. After the data concerning the Consumer Price Index (CPI) hit the news on Thursday, San Francisco Fed President Mary Daly told reporters that the Federal Reserve now has enough evidence showing that inflation is definitely slowing, and she expects the Fed to move forward with rate reductions before much longer. Chicago Fed President Austan Goolsbee meanwhile said Thursday “I think this is what the path to 2% looks like.” Most analysts are expecting that reduction in September.

Because of this much-hoped-for news, there may be another long-neglected sector of the market that holds some tremendous potential for investors.

Thursday’s release of the CPI revealed that the inflation lowered 0.1% in June which is the first drop since May 2020. Gas prices fell 3.8% and as such the 12-month inflation rate remains at 3%. But, as we’ve seen, there is growing optimism (and confidence) that lower interest rates may be realized after long last, in the fall.

Let’s review this past week’s results………….

S&P 500 (stockcharts.com)

Friday close saw the S&P 500 at 5,615 up 3.58% for the past month. The S&P 500 had surged to an all-time high Friday before giving up much of the gains by the time the market closed.

Dow Jones Industrial Average (stockcharts.com)

The Dow also gave up much of its intraday gains by the time the market closed however it was still able to close at 40,000 for the week. This DJIA is up 3.33% for the past month.

NASDAQ (stockcharts.com)

The NASDA closed at 18,398 on Friday with a gain of 4.49% for the past month.

Russell 2000 (stockcharts.com)

The Russell 2000 surged during the last three trading days of the week, ending its run up at 2,148, up 6.1% for the week and while making up lost ground rose 4.43% for the past month. As noted above, we use the chart for the Rydex Russell 2000 in place of the actual Small Cap chart due to the ongoing situation between Stock Charts and the reporting agency.

2 – Year Treasury (stockcharts.com)

Friday the 2-year Treasury Bond closed at 4.45% down a bit from 4.60% the previous week. The 5-year Treasury stood at 4.10% Friday while the 10-year Treasury clocked in at 4.18%

Volatility Index (stockcharts.com)

Investors continue to show little concern with the current market. This week the Volatility Index closed at 12.46. A number below 20 shows little anxiety on the part of investors. 20 and above a growing awareness of a problem. 30 and above fear and a reading of 40 and above an outright panic. Obviously we are not anywhere near that number currently.

30 – Year Mortgages (stockcharts.com)

The 30-year fixed rate national average closed Friday at 6.89%, down slightly from the previous week’s close of 6.95%

West Texas Intermediate Crude Oil (stockcharts.com)

The price of a barrel of West Texas Intermediate Crude Oil closed Friday at $82.21/barrel. Look for prices between $83.00 and $85.00 this upcoming week. Still no relief in summertime gas prices.

Federal Reserve Chairman Jerome Powell

Commentary

Although there is growing confidence that the Federal Reserve may begin lowering interest rates beginning in September, the current rate (5 – 5 1/4/%) is causing a headache for multi-family homebuilders who are finding current interest rates too high to borrow and build.

I, at times, advise various businesses regarding their operations, acting as a Business Consultant for them. One of these companies, a mid-level construction company located in Providence, Rhode Island, was looking for a construction loan. In speaking with various banks in the state, it was remarkable to learn that there was no money available for construction loans! From any of them! Many builders have decided that instead of converting their construction loans (which were by then a few years old with a much lower interest rate) into a 30-year mortgage at the current rates, it would be wise to just continue paying the construction loan which, having been taken out prior to the interest rate hikes, hold much lower percentage rates. The Construction Loan managers that I spoke with are frustrated that their construction loan coffers are empty as they know that the dearth of available construction money is costing their bank significant revenue which would be realized with the current rate environment.

Inflation will always remain with a growing economy. The goal, of course, is to keep that increase within a manageable level. The current goal of the Federal Reserve is an annually adjusted rate of 2%. Regardless of who wins the next election inflation will remain, however should Trump win, the tariffs that he has called for on foreign goods will, according to Oxford Economics, cause inflation to go higher and for longer. If mortgage rates remain above 6.5%, the likelihood of an imminent recovery in the housing market is slim.

As noted above, the Dow Jones Industrial Average closed trading Friday at 40,000. This is the second time in its history (the DJIA closed at 40,003 previously on May 17th, 2024). All three indexes – The Dow, the S&P 500 and the Nasdaq logged weekly gains. The superstar of the week, however, was the Russell 2000, which is made up of Small Cap stocks. The Russell 2000 shot up 6.1% for the week, its best performance since November.

Our subscribers have read over and over our observation that the Russell 2000 is akin to the ‘Canary in the Coal Mine’. This comparison is apt considering that miners had routinely placed a Canary in the mine as they worked due to the bird’s ability to smell gas – which has no odor  in its natural state - leaking into the area. Seeing the Canary belly up in its cage was a signal to clear out of the mine quickly.  The Small Cap markets usually signal a direction of the market in advance (sometimes well in advance) of a longer-term trajectory. That the Russell 2000 sprang to life in such dramatic fashion this week is a message that should not be ignored.

Another indicator that I’ve addressed these past weeks is what’s known as “Market Breadth”. For any sustained rally, market breadth must be positive. After weeks of a noticeable (and disturbing) absence, this indicator roared back by week’s end. Please refer to the chart below where you’ll notice the breakout from its 50-day Moving Average.

The S&P 500 has gained 18% for the year so far and 10 of its 11 sectors (Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate and Utilities) now are in the money, Real Estate being the obvious underperforming sector. It could be expected that as earnings season is now upon us (for the 2nd qtr.) a fourth straight quarter of earnings growth, with profits projected to have climbed up 8.8% from last year’s second quarter, this according to FactSet. This is shaping up to be the largest increase since the first quarter of 2022.

The November election has, without a doubt, become of major concern. Whether you lean Republican, or Democratic, both candidates have their own ‘special’ issues that the American public must wrestle with. Trump’s prevalence of misleading (or worse) and Biden’s age are front and center as we head into midsummer. Last week I wrote:

“…. It will be shocking if Biden does not step aside soon. Although he has seemingly dug in his heels about not leaving the stage, the powers behind the throne know where things are headed if he doesn’t. Donors seem to be very concerned as do members of Congress, the Senate, the nation’s governors and the public at large…..”

Things have not quieted down for the President and in fact calls have grown louder from various sectors of the public for him to step aside. Biden has shouted from the mountaintops that he is not leaving the race.

A few months ago, I wrote that toward the summer, the economy would begin to clearly show positive signs of growth. I also wrote that when voters enter the polling stations it would be the economy that would be utmost on their minds. The economy is now moving in a forward direction, and it has now been verified through multiple polls that it is the primary concern of a majority of voters. This should, and under ordinary circumstances would, be great news for the incumbent. As we know many Americans are more than a little concerned about Biden’s age. His most recent missteps occurred during the press conference held this past Thursday at the conclusion of the NATO summit.

In 1944, Franklin Roosevelt was seeking a fourth term as president. WW II was entering its final months with a clear observation that the Allies were winning. Roosevelt was obviously sick to anyone who saw him. Although only 62 years of age at that point, FDR appeared to be in his mid - 80’s. Many believed that he was not destined to live through a fourth term, so the Democrats picked a fairly unknown senator from Missouri, Harry Truman to run as Roosevelt’s vice president. As we know from history, FDR died five months later, and Truman did indeed become president.

It would be safe to say that many people who are predisposed to vote for Biden (should he stay in the race) are of the opinion that they are probably voting for Vice President Kamala Harris (as they voted for Truman in 1944) should the Democrats win. Because each candidate has a stated objective regarding the economy, most voters are unaware of Harris’ position on it. Likely it would be the same as Biden’s positions. The stock market, as I wrote last week, had Biden as the winner until his debate debacle on June 27th which then threw that assumption up in smoke. Now, in my opinion, this is Trump’s election to lose.

I write this to strongly encourage you to study the positions of each candidate. This may be the last election we may have to a completely unfettered access of information.  

Have a blessed and prosperous week………

Guy W. Gane, Jr.

* AS I completed the Commentary, there was, as you know by now, an assassination attempt on Donald Trump. It remains to be seen how the markets react on Monday. Please follow our publication for any Market Alerts.

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 40,000. The S&P 500 at 5,615.

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 twenty-three 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 22% + 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:
(As of 7/12/24)

We currently are/or were positioned in the following:EnteredExitProfit/Loss
A portfolio consisting primarily of Nasdaq traded stocks5/8/24open+12.4%
A portfolio consisting primarily of Large Cap (S&P 500) stocks    5/8/24open+12.3%
A portfolio consisting primarily of Small Cap (Russell 2000) stocks7/12/24open-

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 or opportunity.

* 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

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