Please Note: The Bond Market will close at 2pm EST on Friday, December 22nd, 2023
Please watch for our Mid-week Market Alerts should there be any.
We are offering this Week’s Market Update for free
The man who holds the key to the U.S. economy:
Federal Reserve Chairman Jerome Powell
The Federal Reserve’s meeting this week signaled that interest rates are due to come down next year. As you’ve seen, the market has been responding to the news in a very positive way. Since the end of October the S&P 500 has increased 15.1%. The perception now is that the Fed has done all the right things concerning a recession. Over and over, we’ve written that the Treasury yields (see below) have pointed towards a recession. However, what we may see now is the much hoped for ‘soft-landing’ type of recession.
Since March of 2022 we’ve seen interest rates climb from zero to the current 5.25%. Inflation has fallen since that time from 9% to 3.1% currently. The Fed target rate for inflation has been, and remains, 2% however the Federal Reserve decided to keep the current rate steady and as mentioned above is contemplating a ¾% cut in interest rates next year.
When interest rates are lowered, the meaning is that the economy is headed in the right direction. As interest rates decrease, borrowing becomes less expensive both for corporate America as well as for the consumer. Companies will be more inclined to begin new projects and consumers tend to make larger purchases. As the spending and corporate investments increase stocks tend to move in a higher direction.
Although this is all positive news, bear in mind that once the market adjusts to these expectations – which we are near to right now – there will be less reason for the unparalleled market increase that we’re now experiencing. The hope is that as inflation stays controllable, and employment remains potent, companies will flourish, and stock valuations will climb. If these goals do come about, this will be a truly amazing event.
S&P 500 (stockcharts.com)
This past week saw the S&P 500 close at 4,219, up 2.49%
Dow Jones Industrial Average (stockcharts.com)
The DJIA ended the week up 2.92% closing at 37,305 points. This week saw the Dow Jones close to an all-time high a remarkable three days in a row.
NASDAQ Composite (stockcharts.com)
Friday the NASDAQ closed at 14,813, up 2.85% for the week.
Russell 2000 (stockcharts.com)
Using the Rydex Russell 2000 chart (due to a glitch between Stock Charts and the Russell 2000 reporting agency), we see the Russell 2000 performing amazingly. As we’ve written, for the broader markets to experience an upturn (or a continuance of one) the Small Cap markets would need to lead the charge. Last week saw the Russell 2000 increase 5.55% while closing the week at 1,985.
2-Year Treasury Bond (stockcharts.com)
The Treasury yields are now correcting toward the ‘Normal’ Yield Curve. We are not there yet; however, we are seeing these rates beginning the adjustment toward that goal.
The 2-year Treasury Bond yield stands now at 4.44% (last week we were at 4.71%). The 5-year T-Bond is currently yielding 3.91% as is the 10-year T-Bond. Last week’s 5-year Bond was paying 4.38% and the 10-year at 4.50%
Volatility Index (VIX) (stockcharts.com)
The VIX fell again this week from 12.36 the previous week to 12.28 on Friday. As we’ve pointed out a number of times 20 and above shows investor concern. 30 and above would reflect a beginning of dread and a number of 40 and above (for want of a better word) – hysteria. We are not seeing that scenario play out currently.
30-Year Mortgages (stockcharts.com)
For the week ending December 8th mortgage applications rose by 7.4% which are now at their highest level in four months. As the Fed continues to signal a rate decline, we may see a continued uptick in home mortgage applications. Refis were also among the winners, up over 19% from the week before. The current 30-year mortgage is at 6.95% nationally.
According to Zillow this week, home prices are dropping dramatically. This is due to a recent surge in inventory. “Price cuts are more common than normal – chances are good that prices are negotiable," Zillow said.
Many economists attribute this trend due to the Fed’s high interest rates. Many would-be buyers were yearning for the days of 2021 when mortgage rates hovered between 2 – 3%. Listings jumped 3.1% year-per-year in November despite the high mortgage rates. Real Estate experts are feeling optimistic that the trend in housing affordability will continue into 2024. It seems that homeowners, who were reluctant to list their homes due to the higher mortgage rates needed to buy another home, are now adjusting their thinking. The feeling is that mortgage rates will fall at least 1% in the coming year as well, this according to a recent Redfin report.
West Texas Intermediate Crude Oil (stockcharts.com)
This week saw the price of oil drop a bit with the price of a barrel of West Texas crude selling for $71.78 at the close of business on Friday. Look for the prices this week to remain relatively stable, hovering between $72.00 and $75.00.
“If the Federal Reserve is through raising interest rates, and the inflation rate is coming down, why is everything so expensive?” A recent Gallup poll disclosed that most Americans feel the economy is not doing well, yet the numbers above don’t lie. We are still paying more for many things, especially food, as compared to life before COVID unfortunately. What we are now witnessing however, is something called ‘Disinflation’.
In 2022 grocery prices increased 12% on average, however since January those same prices have risen less than 2%. Federal Reserve Governor Lisa Cook, in a speech at Duke University was quoted, “Most Americans are not looking for disinflation. They’re looking for deflation. They want these prices to be back where they were before the pandemic.”
Although a most unpleasant memory for most of us, the pandemic exposed much. For instance, the U.S. experienced deflation in those first months of COVID. Being stuck at home, not allowed to go anywhere, prices of most goods and services plunged. Gas was cheap, but really – so what? No-one was allowed to go anywhere! The positive news now is that in the past seven months average wages have risen faster than price increases. While most of us look at wage increases as a right for doing a good job, we tend to view price increases as something that is forced on us. This is known as ‘human nature’. As I’ve written a few times here, when voters close the curtain behind them on Tuesday, November 5th, 2024 - Election Day - they may very well decide on who they elect based on the economy first and foremost.
When making investment prognostications, one of the bellwethers that needs to be considered is Geo-Political developments. I think you’ll agree that that consideration is extremely important in these decisions. As I’ve written over the past few weeks, energy costs are relatively stable. A gallon of gas nationally stands at $3.10. Gas prices directly affect most every American and the pleasant surprise for most of us in the U.S. is the stabilization of energy costs especially given the turmoil in the Middle East. The United States is, as most Americans are aware, flexing some serious muscle overseas. Whether in the Middle East, where two carrier groups are currently stationed, or in the Far East where another carrier group remains stationed, things can turn upside down dramatically and quickly.
When conditions are looking hopeful, as the current state of the economy might be signaling at present, it is easy to become complacent. Even careless. With busy lives – especially at this time of the year – we can be somewhat excused for taking our eye off the ball. As you’ve read above, the S&P 500, which is the best indicator of the Equity market, has skyrocketed since October. 15% in a few short weeks - an amazing feat. To consider that these gains will hold steady would not only be an emotional response (and you know how decisions made by emotions work out), but wrong thinking. The stock market is showing strength at this time, no question. There are some market Gurus who feel the market is overbought. You know what? Maybe they’re right! But who is to say that the market can’t stay overbought for a while? There WILL BE profit taking and probably soon. This is not to say that a market nosedive is in the offing. The irony will be that these same folks who think the market is overbought will be rushing to participate in the current run-up! This dear reader, can be dangerous. For them. That’s the ‘Buy high, sell low’ way. As you’ll read below, we take a very dim view of buying in the middle of a rally. Especially one that has been ongoing for weeks and has increased by 15%!
Your subscription, if you’ve been following our guidance, has paid for itself many times over. I know this could sound corny but – Merry Christmas!!!
Guy W. Gane, Jr.
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 37,305. The S&P 500 at 4,719. Any profit you made in the market runup of 2023 – the past seven weeks notwithstanding - has perhaps not been as great due to ‘giving back’ profits, then having to make them back up instead of profiting by building on profits that were saved from market downturns. So much for the ‘Buy and Hold’ 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 trading opportunities which we’ve taken advantage of (please refer to the “Archive” Section of our site) and we are listing them below. Our market strategy has been taking advantage of this upward trend, the advantage being not having to make up for the large losses of several months ago. When (not if) the market shifts, we will issue our analysis, guidance and suggestions at that time.
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’.
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 (as of this writing) where the S&P 500 has increased 15% +. 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.
Wishing you and your family a Merry Christmas!
Please Note: The Bond Market will close at 2pm EST on Friday, December 22nd, 2023
Our current positions:
We are positioned in the following:
A portfolio consisting primarily of Utilities
A portfolio consisting primarily of Construction Material and Products
A portfolio consisting primarily of Consumer Products
A portfolio consisting primarily of NASDAQ – dominated stocks
A portfolio consisting primarily of Leisure stocks
A portfolio consisting primarily of S&P 500 (Large Cap) stocks
A portfolio consisting primarily of Financial stocks
A portfolio consisting primarily of Banking stocks
A portfolio consisting primarily of Retailing stocks
A portfolio consisting primarily of Telecom stocks
A portfolio consisting primarily of Small Cap stocks
A portfolio consisting primarily of Biotech stocks
A portfolio consisting primarily of Health care stocks
A portfolio consisting primarily of Transportation stocks
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.