We are making this week’s Market Update free
Over these past months, as the economy seems (appears) to be recovering, we have stated that good news can sometimes be not-so-good news to Wall Street. This continues to play out in investor’s minds. For weeks the markets have been agitated due to the resiliency of the economy. Ironically stocks usually react to good news by increasing their prices but due to the inflation concerns investors see positive news as a harbinger of not only a continuance of high interest rates but increases of them as well. Bond rates, which we’ll discuss in a moment, have not been this high since before 2008 when the economy nearly collapsed in the worst spasm since 1929.
Friday saw the Labor Department issue data that the economy added 336,000 jobs during the month of September. This was a stunning discovery given that many forecasters had anticipated ‘only’ 170,000 added jobs were in the cards. This announcement has provoked further concern that the Federal Reserve will indeed keep rates high – another one of those conundrums where good news is actually bad news.
Every week for months we’ve been talking about the Inverted Yield Curve in the Government Treasury market. This has been a troubling sign for us as we’ve mentioned so many times. Currently we see a climate that is pushing these bond rates up to levels not seen in over a decade. 2-year Treasuries (above chart) are at 5.08%. 5-year Treasuries at 4.76% and 10-year Treasuries at 4.80%. The problem we’re seeing now is that as rates continue to go up, older lower-yielding bonds are worth less. Bond investors are demanding (and getting) higher rates in exchange for tying up their money for years. Until there is an easing, be it actual or expected, of inflation concerns there will likely continue to be this kind of upside-down environment. Perhaps even a continuation of a self-fulfilling prophecy.
The Volatility Index (VIX) has begun to show a bit of concern in investors’ minds. A number above 20 on this index is an indication that these folks are becoming somewhat uneasy and for a brief time this number appeared during the week (20.88) however by weeks’ end the VIX closed at 17.45. You will notice from our past posts that the VIX has slowly – but steadily – increasing these past weeks. Should we see an increase to 30 or above – something we are not forecasting presently – it would mean that investors are beginning to run for cover. 40 and above is an all-out fire-sale if not a panic. Again, we are not forecasting this scenario at the present time.
Sadly most ‘average’ (read: an investor with no-one to guide them) buy at market-tops and sell at market-bottoms. An argument could – could – be made that we may be nearing a current market bottom.
This week the S&P 500 closed at 4,308, up slightly 0.48% for the week. The Dow Jones ended down slightly for the week -0.30% closing at 33,407. The NASDAQ closed Friday at 13,431 up 1.60% for the week and the Russell 2000 closed Friday at 1,748, down 2.22% for the week.
You will notice on the chart above that the S&P hit just above it’s 200-day Moving Average (MA) reversing its downward slide. This has the hallmark of a bottom and a possible beginning of a new trend of the market beginning on the upside. We’ll be following this closely. Since we write a lot about ‘Moving-day Averages’ let’s take a look at what they are.
The term Moving-day Average is used to describe the average closing price of a stock, a mutual fund, an ETF, an Index, etc., As what’s known as a Technical Analyst (as opposed to a Fundamental Analyst) we follow the MA over a specified time period. Although we refer to the 50-day Moving Average as well as the 200-day Moving Average, these averages can use 20,30, and 100 days as well as the 50-, and 200-day MA. We use these MAs to identify if a trend, whether up or down, is forming.
As interest rates continue to worry investors, they are having an effect on home buyers as well. Speaking with realtors across the country, it has become painfully obvious that not only are not homes for sale in abundance, but buyers are reluctant to lock in a mortgage rate that just last year were 3.22% (January 2022). As the chart above shows, these rates have climbed steadily since the spring. This week the 30-year rate is now at a national average of 7.49%. The week prior saw that rate at 7.41%. With the signals the Federal Reserve has been making (as we outlined in the text earlier) mortgage rates will continue to rise. As we’ve stated in previous posts, 8% (and above) are a definite possibility. The concern is now becoming as to how long the Housing Market can continue to hold up under this type of pressure.
Credit card rates have skyrocketed to the level usually reserved for those with severely damaged credit. One in three cards now carry an annual Percentage rate of 29.99% (APR) or higher according to Lending Tree. More and more Americans have been using credit cards to make ends meet and this trend seems to be on the rise. The average rate stands at 24.45% the highest levels in some time.
The price of a barrel of oil has taken a good turn for consumers. Last week’s closing price for a barrel of oil was $90.79. We had been eyeing a barrel of oil at or above $100. On September 27th, global crude prices peaked close to $100-a-barrel. Since that day prices have come down dramatically. Friday’s WTI (West Texas Intermediate chart above) hit $82.79. There are reasons for this decline now. First is the demand for oil in China is off due to its economy spiraling downward. U.S. oil producers have turned on the spigots as well. Domestic production rose to between 5% - 6% in just a few weeks. According to AAA Americans are driving less which is another reason for lower gas prices. Demand for gas in the U.S. is actually at a multi-year low. Since COVID many people are working from home and because of the growing popularity of electric vehicles, the country is seeing the average price of a gallon of gas fall. Last week the nation-wide average was $3.74/gallon. There are even some analysts now calling for $3.30/gallon by Christmas.
This is a topic that we’ve been frequently asked about. It is one that we feel needs to be explained in a few paragraps. This is a product that has gotten a terrible rap. Many of our subscribers have them and yet you will hear a lot of money managers (especially one ‘brand-name’ national money manager that spends millions per year on advertisements) rip annuities apart. Herewith is an excerpt from my soon-to-be-released e-Book (Amazon) titled ‘Managed Money: An Avenue to Wealth’ that explains Annuities as well as the ulterior motive as to why many financial professionals dislike them……..
From ‘Managed Money: An Avenue to Wealth’
Annuities are an insurance product that has got a bad reputation - primarily from stockbrokers and money managers! The reason for this is due to their illiquidity.
Annuities are long-term investments and when your income is derived from moving money around (such as stock trades or transfers by a money manager) there are no fees or commissions to be had. There are two types of annuities – Fixed and Variable.
A Fixed Annuity is one in which your money is guaranteed. The principle is insured through the insurance company that issues it, and it can provide an income that you cannot outlive. This income is derived by a combination of principal and interest earned. It can be paid out monthly, quarterly, semi-annually, or yearly.
A Variable Annuity is one in which the value will fluctuate due to the underlying investments within the account. Unlike a fixed annuity where the principal and interest are guaranteed, variable annuities are invested in the market. Many retirement accounts such as 401Ks and 403Bs are invested with these products. The investments available are generally achieved through what are known as ‘Sub Accounts’. These sub accounts are with a mutual fund and many if not most variable annuities hold different families of mutual funds. One of the benefits of a variable annuity is the ability to transfer from sub account to sub account with no fee. Each variable annuity is different, so it is important to know the rules and regulations prior to your participation. They also may have a guaranteed death benefit.
One of the hallmarks of annuities is the favorable tax status they possess. During the accumulation years (where the money is left to grow, and nothing withdrawn) no taxes are paid. This is called ‘Tax-deferred’ and being that the accumulated dollars are growing unmolested by taxes, there is more money left to work for you. For non-retirement accounts I often utilized the tax deferred status of variable annuities when I managed my clients’ investments as a Registered Investment Advisor. When a transfer (due to market fluctuation) within the sub accounts was called for, the profits (capital gains) were not taxed as ordinary income due to the tax-deferred status. The tax on annuities – both fixed and variable – are paid at the time of withdrawal. Should money be withdrawn prior to age 59 ½, a 10% federal penalty is assessed along with any taxes owed.
If you currently own, or are considering purchasing an Annuity, I hope this explanation helps. As well, it is important to take the time to analyze and consider if this (or any investment product) is the right one to help achieve your particular goal and is one that you are comfortable with.
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 33,407. The S&P 500 at 4,308. Any profit you made in this market runup of 2023 has either been negligible or has likely disappeared. So much for the ‘Buy and Hold’ theory. Our subscribers have averaged positive returns and by following our column has exited the market weeks ago – while the Buy and Hold crowd hangs on with white knuckles…………
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. 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.
Bearish
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.
