Market Update
Market Edge

Market Update for the Week of January 8th, 2024

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.

The first few trading days of 2024 began with a sour start. As we expected, there were more potential for a pullback in the markets as many traders felt the market was oversold. There were certainly logical reasons for this thought. Nine weeks of nothing less than a Bull run will do that. The selloff in tech winners including Apple and Nvidia began the downturn. Friday the S&P 500 rose 0.2% closing the stock market’s worst week since late October.

There is an old-wives tale that says that the first week of January forecasts the performance of the market for the coming year. Although this holds true 69% of the time, this is still a bit unfounded fear yet, traders – much like sailors - are a superstitious lot.

Thomas Barkin, the Richmond (Va.) Federal Reserve President (see below) observed that since the labor market is moving in a predictable and ‘soft’ pattern the Fed’s confidence in the downward pattern of inflation continues to grow. Although Friday’s strong job reports hurt the market (You recall the good news is bad news at times?) data showing the service sector slowed down in December but still remained above a key level that would indicate expansion. It would seem that the U.S. economy is strong enough to absorb the Fed’s high interest rates currently.

As we’ve noted here frequently, there is much (too much in our opinion) anticipation of interest rate cuts beginning in March. The markets in fact are factoring this into its pricing. This (again in our opinion) is very dangerous. Why? Because should this rate cut not take place, or signals in the coming weeks that it won’t, the markets will take a hit. Perhaps a nasty one. Of course, this is another reason why subscribing to GaneWisdom/Market Edge makes sense as we are continually watch over these trends and movements in order to give you first-rate guidance. The inflation rate continues to hover at 3% (3.2% currently) which we believe will cause a rate cut delay in the first quarter.

What and Who Exactly is the Federal Reserve?

There can never be any intelligent discussion concerning the economy of the United States without including the Federal Reserve Board. But what and who are these people and what role do they play in the economy?

First, the Federal Reserve Board of Governors is the group responsible for guiding the U.S. Central bank. Consisting of seven members, who are all nominated by the President and confirmed by the Senate, each of these members are appointed to a 14-year term, each appointment staggered and done every two years. The Federal Reserve System has an additional two components. There are 12 regional Federal Reserve Banks spread across the United States which provide services to the country’s commercial banking sector. The Federal Open Market Committee (FOMC), which is what we usually hear about most, conducts monetary policy – employment, prices, and interest rates. Each of the seven Board of Governors sit on the FOMC as well as four of the 12 regional bank presidents. With nearly 3,000 employees, the Federal Reserve is located in Washington D.C.

The Board was created with the intention that no president or congressional party majority would ever control it, thus the reason for the staggered nominating schedule. None of the governors can be removed due to their policy views and as a result they base all their decisions solely on economic indicators and consequently be pressured to raise or lower interest rates.

The current Chairman of the Federal Reserve is Jerome Powell who, also as a Governor, serves for a four-year term and can be reappointed by the president for another four-year term. The Chairman of the Federal Reserve is a member of the International Monetary Fund as well as the Bank for International Settlements. The Chairman is also a finance minister of the G-7 and G-20.

The following functions are the responsibility of the Board of Governors:

Guide Monetary Policy

Supervise and Regulate Banks

Manage Financial Payments System

Analyze Economic Developments

Monitors risk through the interagency Financial Stability Oversight Council

The Federal Reserve Board meets twice a month. Regulatory and monetary policies are addressed at this time and the public is allowed in any open session however sessions are closed to the public when individual bank supervisory issues are discussed.

In closing, the Board of Governors of the Federal Reserve holds immense influence over not only the monetary system in the United States but in the global economy as well.

Trading Days in 2024

Investors know that trading days are impacted by holidays. In the United States there are three different types of weekdays found on the American exchanges:

Regular session days

Shortened trading days

Market holidays

In 2024 there will be 252 trading days. In 2023 we had 250 of them.

S&P 500 (stockcharts.com)

The S&P 500 started off the first week of January with a loss of 1.52%, closing at 4,697.

Dow Jones Industrial Average (stockcharts.com)

The DJIA closed trading Friday at 37,466, off 0.59% for the week.

NASDAQ (stockcharts.com)

The NASDAQ saw its worst week since the fall, down 3.25% for the week closing Friday at 14,524.

Russell 2000 (stockcharts.com)

The Russell 2000, which as we’ve frequently pointed out, is the proverbial ‘Canary in the Coal mine’. When the market closed on December 29th, the Russell 2000 was off 0.34% for that week. Usually an accurate precursor for the markets, the Small Cap market continued its downward trend this week.

2-year Treasury Bond (stockcharts.com)

Friday saw the 2-year Treasury close at 4.40% up a bit from the previous week (4.25%). 5-year Treasuries – 4.01% and 10-year Treasuries at 4.05%. Again up a bit from the week before.

Volatility Index (VIX) (stockcharts.com)

This week saw the VIX xtay on the low side, indicating little concern from investors closing Friday at 13.35. As we’ve pointed out, a number of 20 and above signal investors’ concern. 30 and above the beginning of makor concern and 40 and above is where investors run for the nearest fire exit. This is not happening at the present time.

30-year Mortgage (stockcharts.com)

On a national level, 30-year mortgages stand at 6.62%. Last week saw the same rate at 6.61%. Relatively no change in rate.

West Texas Intermediate Crude Oil (stockcharts.com)

Last week we pointed out the Death Cross that appeared on the chart for a barrel of West Texas Intermediate Crude Oil. Instead of lower prices (and as if to confound us!) the price of WIC jumped to $73.81 by the close of business Friday. Look for prices this week in the range of $75.00 - $78.00. Based on the above chart, we should see oil drop, perhaps significantly in the coming weeks.

Commentary

Over and over we’ve written that good news is sometimes bad news for the markets. And vice-versa. There are 8.790 million job openings in the U.S. currently. There was a decrease of 62,000 from the previous month. This marks the third consecutive month of declines in job openings. 202,000 people were unemployed in the last week of 2023, which economists expected to be 216,000. Jobless claims in total fell by 31,000 to 1,885,000. This confirms that people are finding it easier to become employed.

As more people become employed, the Fed is usually reluctant to lower rates quickly (if at all) and this is the reason we continue to say – good news can sometimes be bad news on Wall Street. This, to me, is one of the reasons I do not expect the Federal Reserve to begin lowering interest rates in the first quarter.

Last week I spoke about the effect the economy of China is affecting its foreign policy behavior. The giant bank Zhongzhi Enterprise Group Co. filed for bankruptcy this week. This is one of China’s biggest-ever corporate collapses. Consumer and investor sentiment in China was already fragile and this massive collapse adds to fears of a Chinese economic collapse. Corruption in the military, especially China’s Rocket Force has caused Xi to remove nine generals in the past few weeks. Many high-ranking Chinese have been ‘removed’ over the past year as well. China continues to saber-rattle over Taiwan however with major concerns in the military it remains to be seen in the coming weeks if China will in fact take military action against its island neighbor.

We always hear about the government being broke, or some such thing, BUT Friday afternoon the national debt – that which the U.S. owes its creditors - hit $34 Trillion! Forty years ago the national debt was $907 Billion. The sad news is that over the next three decades this debt is expected to nearly double according to the Congressional Budget Office. Of course, each political party is blaming the other. As the interest rates increased however the governments borrowing costs increased.

Last week we posted an interesting observation concerning the great year-end the market had and compared the returns achieved by subscribers had they followed our guidance. We took a look at the Buy and Hold Theorem for the previous two years – 2022 and 2023. I am including last week’s notice once again, this time in my Commentary section.

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 keept 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.

Have a great 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 37,466. The S&P 500 at 4,697. Any profit you made in the market runup of 2023 – the previous nine weeks notwithstanding - has perhaps not been as great as it would have otherwise. Please see above. 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’ theory. 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 year (please refer to the “Archive” Section of our site). We are listing our current positions 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 once more, 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 15% + 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 are positioned in the following:Entered
A portfolio consisting primarily of Utilities11/3/23
A portfolio consisting primarily of Construction Material and Products11/3/23
A portfolio consisting primarily of Consumer Products11/6/23
A portfolio consisting primarily of NASDAQ – dominated stocks11/9/23
A portfolio consisting primarily of Leisure 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 Banking stocks11/9/23
A portfolio consisting primarily of Retailing 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 Transportation stocks11/16/23

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.

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