Market Update
Market Edge

Market Update for the Week of February 5th, 2024

Mid – Week Market Alert for Wednesday, February 7th, 2024

A portfolio consisting primarily of Leisure stocks

Stocks ended this week on a high note with the S&P 500 closing at another record high. Strong earnings and positive employment reports for January were responsible. Wednesday turned sharply lower due to the Fed’s signal that interest rate cuts are not likely in March. This news, coming after weeks, months even, of high expectations by analysts and investors that Fed Chairman would begin lowering interest rates in March, saw Powel dash those assumptions late Wednesday.

Meta, Facebooks parent company (up 20%) and Amazon (up 7.9%) both combined to set the bullish tone by weeks end. Earnings for the fourth quarter have been coming in steadily and with 230 of the companies that make up the S&P 500 having already reported an impressive 80% have been higher that Wall Street’s expectations.

Friday, the U.S. Labor Department issued their January Jobs report showing the strongest employment numbers in a year. Employers added a seasonally adjusted 353,000 last month. Good news/bad news we always talk about and will discuss in more detail below.

The banking sector began causing concern again this week. Disappointing earnings from New York Community Bancorp caused a sharp selloff for two straight days however by week’s end the KBW Regional Banking Index rose 0.2%. Modest but good news, nonetheless. Note the Golden Cross pattern (when the 50-day Moving Average passes above the 200-day MA) in mid-December and the expected positive follow up.

Of the 11 sectors that make up the S&P 500, six rose with communication services leading the way up 4.69%. Consumer discretionary also rose, up 2.49% by the close of trading on Friday.

S&P 500 (stockcharts.com)

The S&P 500 closed Friday at 4,958, up 1.38% for the week.

Dow Jones Industrial Average (stockcharts.com)

The Dow ended the week up 1.43% ending the week at 38,654

NASDAQ (stockcharts.com)

Friday saw the Nasdaq close at 15,628, up 1.12% for the week.

Russell 2000 (stockcharts.com)

The Russell 2000 closed Friday at 1,962, down 0.99% for the week. The Small cap market has continued to underperform, which in the long run could have a negative effect on the market as a whole. When Small caps take off, the market generally follows. The markets are powering forward for the most part DESITE Small caps’ breather. This chart shows near-term strength however be assured that we have the Russell 2000 under the microscope. Please note our use of the Rydex Russell 2000 in place of the Index’s chart, this is due to complications between Stock Charts and the reporting agency.

2 - Year Treasury (stockcharts.com)

The 2-year US Treasury ended Friday at 4.37%. The 5-year at 3.98% and the 10-year at 4.02%

Volatility Index (stockcharts.com)

Ending trading Friday at 13.85. We are treading in safe territory despite Wednesday’s downturn. Any number below 20 signals investor composure and tranquility.

30 – Year Mortgage (stockcharts.com)

The national 30-year Mortgage ended Friday at 6.63%. Until we see a downtrend in rates, the mortgage rates will likely stay near their present levels.

West Texas Intermediate Crude (stockcharts.com)

West Texas Intermediate Crude Oil ended Friday’s session at $72.28 per barrel. Last week we saw, despite the Death Cross above, oil prices for the WTIC hovering between $79.00 and $83.50. Fortunately, we were wrong as you can surmise by Friday’s closing price. This week we are forecasting WTIC oil prices between $69.00 - $72.50.

Commentary

The U.S. labor markets have been red hot for weeks now. This news is what most job-seeking Americans want to hear and the White House can rightfully celebrate as well. It can now be safely said that the economy is booming. What is becoming more and more evident is that the recession (economists are still arguing if there was one, if we’re in one or we’re about to enter one) will be of the soft-landing type. It appears that President Biden’s message on the upswing of the economy may be starting to resonate with the country. Wall Street however is not quite as excited. For many months I’ve written that when it comes to the stock market, good news is not always ‘good news’ to it. The job report for January surpassed estimates by a country mile. While the Federal Reserve continues to pursue it’s soft-landing approach in its fight against inflation, the employment numbers show that thousands of jobs continue to be filled. As more people are working there is a likelihood of increased consumer spending and the vicious cycle of keeping the cost of living down (aka inflation) is a challenge when more people have money in their pocket and have a need to update things like appliances, cars and homes, to name a few.

As I’ve stressed here, when this (very contentious) presidential election is decided, voters will have determined whether they were able to see if the Biden administration’s victories on climate, infrastructure and technology were able to affect them positively or not. The Fed is hoping that the strength of the job market will remain strong while pay raises become more moderate so as to reach their 2% inflation goal.

As if to validate the feel-good attitude among the American public, people are becoming more positive on the economy. Below is the chart for the University of Michigan’s Consumer sentiment. As you can see, the jump from November until January 31st is nothing less than dramatic.

University of Michigan Consumer Sentiment (stockcharts.com)

I personally received a lot of push back due to my (unpopular) forecasts over these past two months on the Federal Reserve’s decision to begin interest rate rollbacks. Being a technical analyst, I study and evaluate stock prices, market trends, geo-political considerations and historical investment data among many other considerations. As such, the employment numbers gave me considerable pause. Actually, they still do. As more people have more money to spend, spend they will. Credit card debt in this country is at an all-time high as you may know. However, when there is earned money floating around in the economy, people are more likely to make large purchases. This spending usually contributes to inflation. Based on this knowledge as well as other indicators I have never (please see our past posts) been of the opinion that the Feds were lowering interest rates in March.

Last week I wrote:

“……Although the markets continue to rise, I believe that there are some serious risks in the weeks ahead. Too much emphasis has been placed on the Feds lowering rates in March for one. As I’ve continued to believe, the first interest rate reduction won’t happen until late spring. Maybe a bit sooner. As you know, the Federal Reserve has maintained a goal of 2% inflation (in March 2022 it hit 9%) and the number for December’s inflation came in at 2.9% - the first time since early 2021 that the inflation number has crossed 3%. It is difficult to mount an argument against the government’s method of reducing inflation………We may get a bit of clarification this week at the FOMC (Federal Open Market Committee) meeting January 30th/31st at which time the market will move in one direction or another based on the perceived outlook. When Fed Chairman Jerome Powell holds his press conference Wednesday afternoon what he says – or doesn’t say – will be of critical importance. Again - stay vigilant as the market will react…….”

Wednesday, after it became apparent that rates were likely not to be cut in March, the markets tanked. The back-office gurus at the major brokerage houses had been touting the probability of a rate reduction. My belief, after working at large brokerage offices years ago, was their attempts to encourage sales, but that’s my opinion. A great many economists also forecast this belief as did many investors. A month ago financial markets priced a 25 basis point rate cut at 69.6% likely (according to CME’s FedWatch tool). Now (just as ridiculous in my opinion) it stands at a 20.5% likelihood of a March rate reduction. Again – my view is the first rate reduction of the year will occur in June, possible May.

A point of concern I have as I analyze the data is the number of declining stocks this week that outnumbered those rising with the S&P 500. The S&P 500 saw 68 new highs but posted 4 new lows. The Nasdaq saw 75 new highs but recorded 144 new lows. This bears watching so rest assured we will be doing so.

The situation in the Middle East is becoming more inflammatory. The U.S. launched airstrikes in Iraq and Syria against the facilities located there that are linked to Iran’s Revolutionary Guard as well as the militias it backs. Over 85 sites were targeted and there are more sorties expected in the coming days. Word out of Washington was that President Biden had to be talked down from striking Iran itself. This response is due to the three U.S. servicemen killed a few weeks ago in Jordan. Dozens more U.S. military personnel were injured by the unmanned drone attack on January 28th. Should any more U.S. personnel become injured or killed the military response could perhaps include Iran if the government finds direct Iranian involvement.

As we head into the week, there are some analysists postulating the S&P 500 heading - and surpassing - 5,000. At Friday’s close the S&P 500 stood at 4,958 so this could become a reality. Maybe soon. Given that the Dow reached a new record as well as the Nasdaq 100, this is more than a ‘hope’. Only the Small cap market is bringing up the rear however I’ve seen renewed reason for optimism in the Russell 2000 this past week.

Guy W. Gane, Jr.

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 38,654. The S&P 500 at 4,958.

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 (as of this writing) where the S&P 500 has increased 18% + 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:

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.

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

Mid – Week Market Alert for Wednesday, February 7th, 2024

Market Alert: Transfer a portion of your portfolio into the following:

  1. A portfolio consisting primarily of Leisure stocks   

before the close of business on Wednesday, February 7th, 2024

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 modest portion of your portfolio and not the total.

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