If you’ve been following our weekly posts here on GaneWisdom/Market Edge, you know that nuances are common when it comes to reporting by the Feds. Actually, it is sometimes just as important what they don’t say as it is with what they do say. We had one of these instances this week.
The Federal Reserve raised the Federal Funds rate by ¼ point this week, bringing that rate to 5% - 5 ½%. This is the 10th increase by the Fed and is the highest interest rate since September 2007. It’s what they didn’t say that has the markets abuzz – they took the statement that points out the need for additional rate increase.
As you know, we have been of the opinion that a Fed Fund rate would likely top out at 5% - 5 ½% - where we are now. We also have stated that in our estimation we may possibly see interest rates begin to come down in the 4th quarter. Maybe even the 3rd. We still hold to that position. There are, however, some ominous signs that are beginning to flash.
You’ll recall that we talk about good news being bad? This week we read the data concerning employment for the month of April. 253,000 jobs were added, well above the 180,000 that the market had forecast. March had an employment increase of 165,000. Hourly earnings also increased by 16 cents and is the fastest hourly earnings increase in nine months.
Investors seem to be throwing caution out the door as the Volatility Index (VIX) closed the week at just 17.19. When this number reaches 30 – which it did during the banking crises in mid-March – it indicates that investors are fearful of where the economy and the market as well, are headed. A reading of 40 signals real fear. So, for now, investors are still swaying in the hammock.
Small Cap stocks can signal market direction and they continue to hover near their lows. This is a big difference from the Large Cap market which has been leading the recent market run upward. This could be a red flag and we will continue to monitor this part of the market. Stay tuned.
Although we are still very concerned with the banking sector, many regional banks increased their gains this week. PacWest (based in LA) was up 81.7% while Western Alliance (based in Phoenix) saw an increase of 49.3% in their share prices. Personally we believe that the banking sector is in more trouble then the public is being told. Reading through the data, we are seeing too many bad loans on commercial property and this is not very comforting news to us. Commercial property is, without a doubt, being reevaluated since the pandemic. Too many people became used to attending meetings, if not in their PJs then in their sweatsuits, from home without affecting productivity. As corporate America continues to rebound, paying nearly $47.00 per sq ft (Manhattan stands at $82.00) is not only unappealing but unpopular.
The S&P 500 closed the week at 4,136, the Dow 33,674 and the Nasdaq 12,142.
Talks concerning the Federal Debt continue to make headlines and you’ll likely hear much about this topic over the coming weeks. Treasury Secretary Janet Yellin on Monday warned that the U.S. could blow through debt ceiling by June 1st putting government employees, servicemen and women and social security recipients at risk for their income. We don’ t see this happening, just a lot of political posturing.
Although we seem to be in the midst of another rally, we continue to maintain that there Is a potential for a major reversal in the markets. We have, for many months now, been of the opinion that the S&P 500 - the best indicator for the market as a whole due to its inclusion of 500 large cap stocks – falling to @3,300. The S&P 500 is very near its February high (@4,200) and our readers know that we have said that should the S&P 500 surpass 4,300 the current Bear Market will end. We think this is a hard stretch, but we will continue to watch and will issue directions as needed.
For those who have followed GaneWisdom/Market Watch since our inaugural publication on August 21st, 2022, you know that at that time the Dow stood at 33,702 and the S&P 500 at 4,228. Once again, Friday’s DJIA closed at 33,674 while the S&P 500 closed at 4.136.
For those who have followed our guidance through these past 9 months you’ve realized an approximate 4% gain. If you are of the opinion that ‘Buy and Hold’ makes sense, you’ve lost a bit of money. For those who are not yet subscribers we invite you to consider becoming one.
For now, our position is Cash (Money Market). Please watch for our Mid-week Market Alerts should there be any.
