Heading into Mid-Month of May
When GaneWisdom/Market Edge went live in August 2022, our objective was – and is - to make our subscription not only (very) affordable but extremely understandable. With that thought in mind we will continue to condense the financial conditions that are currently affecting the economy and stock market.
Over these months we have expressed how contradictory indicators can be when viewing investments and this week is an example of that. The number of workers in the United States decreased this past week by 22,000. Currently 264 thousand Americans have filed for unemployment which is the most since October 2021. Significantly the market expected this number to be 245 thousand so consequently the data recently submitted is now confirming the US labor market is softening which can be, and probably is, due to the constant rate hikes initiated by the Federal Reserve these past many months. You’ll recall the many times we’ve expressed the conundrum that good news (rising job numbers) was actually bad? Here we see the bad news (the loss of jobs) being good news! Go figure. Regardless these numbers indicate that the Fed has, so far, achieved their short-term objectives.
Where this leads us
The largest stated objective of the Federal Reserve has been to reduce inflation and this goal continues to be realized. The annual inflation rate currently stands at 4.9% which is the lowest since April 2021. A year ago, inflation stood at 8.6%. The market had been expecting this current rate to be 5% and with that thought one might expect the stock market to react in a mostly positive way. We’ll discuss market conditions more closely in a minute but let’s, just for the moment, say this has not been the case.
Applications for mortgages increased by 6.3% this past week, the largest increase in nearly two months and refi applications increased by 10%. Home purchase applications rose 4.8% while the national 30-year fixed-rate dropped to 6.48%.
The markets ended the week mixed. The Dow Jones decreased by 1.1% closing the week at 33,300. The Nasdaq saw a slight increase of +0.40% to close at 12,284 and the S&P 500 lost 0.29% to close at 4,124. What is a bit humorous (in our opinion anyway) is to hear the market gurus sounding a bit gleeful concerning the market outlook. Of course, this is (again in our opinion) based on the premise that a self-fulfilling prophecy could result in a market upswing, but the indicators and data don’t appear that way to us. Not in the foreseeable future anyway.
Alarm bells and poor market results are not conducive to increasing sales and production numbers, which is the proverbial bottom line in brokerage firms across the country. Here at GaneWisdom/Market Edge wegive you the results of our research in an unbiased manner. No sales objectives, quotas, or production numbers – just current conditions and outlooks as our past posts (which are found in the Archive section) will attest. Let’s move on…………..
Gazing at our Crystal Ball
If you’ve been a subscriber these many months, you know that we put an emphasis on Small-Cap stocks. They can be a bell-weather for the equity markets. This past week, indeed, these past months, the small-cap stock sector has hovered at its market lows. This continues to be the case therefore we are not putting much faith in the “markets are poised to skyrocket’ theory. Actually, due to these continually weak small-cap numbers we see a red flag in the middle of the large-cap, big board stock market.
As you are by now aware, the United States is expected to run out of money sometime in early June. Should Congress fail to increase the country’s borrowing limit (which currently stands at $31.381 trillion) the country will go into default. Although we do not see this happening it is not beyond the realm of possibility that it could. Should this occur an economic collapse of unprecedented proportions will occur. Needless to say, a resulting stock market drop would be historic and unlike any ever witnessed in this country. Again, we don’t predict this happening but, Congress’ continued penchant for ‘Playing Chicken’ is dangerous as well as foolhardy.
In closing, it is becoming more and more likely (as well as has been apparent for quite some time) that the US will be experiencing a recession. Probably very soon. As corporate America begins to feel the total effect of higher borrowing, tighter budgets and hiring freezes as well, layoffs are more than possible. They are now probable. This scenario will result in consumers delaying major purchases and making do with what they currently have. Hopefully the time frame for such an event will be short-lived and relatively painless but we’ll see. What we do know however, is that over half of the consumers in the US are relying on credit as well as whatever savings they have left, to pay bills and make ends meet. This is obviously not a healthy sign.
Over these months we have continued to believe that a ‘Panic Bottom’ would be the signal that the current Bear Market would be over. We feel a Panic Bottom would occur when the S&P 500 fell from its current position (4,124 on 5/12/23) to 3,300 +/-, a drop of over 18%. Such an event will wash away the beach so to speak and favorable buying opportunities would present themselves. The results – for our subscribers – will be that by not suffering a stagnant return (as has been the case for those of the ‘Buy and Hold’ theory) or a significant capital loss due to bad investment advice, an opportunity to capitalize on such a market condition will be extremely favorable.
Putting things into perspective – an investor could hire a personal money manager to oversee, advise and reposition their portfolios. The current management fees average between 1% and 2.25% per year on the dollar amount managed. For an account – be it retirement or a brokerage account – of $50,000 for example, a fee of $875 yearly would be the cost (@ 1 ¾% fee). GaneWisdom/Market Edge allows you to manage your own money while receiving regular Weekly Market updates, Mid-Week market alerts as well as the ability to reposition your own assets for $200 per year! Since August 2022, our subscribers have realized an approximate return of 4% - in a stagnant market!
Our current market synopsis and opinion is to transfer to, or remain in, Cash (Money Markets).