We are making this week’s Market Update available for free
The stock market ended an ugly week on Friday after the Federal Reserve signaled what we at GaneWisdom/Market Edge have been cautioning for weeks about: They may not be done hiking interest rates. The philosopher Jonathan Sacks once said to buy when everyone is selling and to sell when everyone is buying. In our many years in the investment field, that is not unfounded advice!
For weeks we have heard that the market hit bottom last fall (October 2022) and that we are now in the midst of an ‘unprecedented rally’. While that may indeed be transpiring, the stock market NEVER goes up or down in a straight line. This is the advantage we offer at GaneWisdom/Market Edge – avoiding large losses by taking small losses if need be. Those types of losses are easier to make up when they happen. The (so-called) Gurus have been ringing the Dinner Bell for so long this year that this was the only sound most investors had heard. While we are not throwing our hands up in defeat here, we are – as we’ve continued to advise – suggesting investing with caution and intelligence. Throughout these weeks and months, we have been very concerned about the Inverted Yield Curve. A ‘normal’ Yield Curve happens when long-term Treasury interest rates are higher than short-term Treasury interest rates. An Inverted Yield Curve occurs when the opposite happens – short-term Treasuries pay higher rates than long-term Treasuries.
Although the Federal Reserve held rates steady this week (5.25% - 5.50%), they confirmed that they intend to hold rates higher for longer. This TOTALLY spooked the stock market this week. Fed Chairman Jerome Powell emphasized that they are going to proceed cautiously which means that it’s likely that interest rates will increase again before the year end, probably landing at 5.60%. We are forecasting a half-point reduction by the end of 2024 with increments of a quarter-point reduction at a time, likely bringing that rate to 5.1% by the end of the third quarter of 2024. We invite you to visit our ‘Archive’ section for more on this topic.
Last week we wrote:
Although there is a lot of speculation over the possibility (or not) of a recession, we are still VERY concerned with the Yield Curve. The Inverted Yield Curve to be more precise. Over these past months subscribers to GaneWisdom/Market Edge have consistently read our caveats about Treasury interest rates and they are not going away. In fact, we are seeing these rates continually increase. 2-year Treasuries are now at 5.03%. 5-year Treasuries 4.46% and 10-year Treasuries currently stand at 4.33%. Some economists believe that the Fed can achieve what’s known as a ‘soft-landing’ by bringing down the inflation rate by raising rates just enough without causing a recession. If this does happen, it will only be the second or third time in history this has happened. We’ll see.
Currently the 2-year Treasury stands at 5.11%. 5-year Treasuries: 4.5% and 10-year Treasuries are currently 4.43%
As if the Federal Reserve sentiments weren’t enough, the United States Congress seems to be hell-bent on turning the government halls into an empty shell. We seriously wonder how much more political turmoil the American public will put up with before they collectively say, “Enough is enough!” Although we must (and do) consider political and geo-political events when making forecasts, we avoid pointing fingers, always respecting anyone’s and everyone’s political views. However, we would be remiss if we didn’t inform our subscribers that the infighting among Congressional Republicans over the short-term funding proposals is having a detrimental effect on the markets. This turmoil is pointing to a possible (likely in our view) partial government shutdown that could easily drag on into the holidays.
None of this news is something Wall Street wants to hear. The major indexes advertised this so. The S&P 500 ended the week down 4,320, losing 2.93% for the week. The Dow Jones ended at 33,963, down 1.89%. The NASDAQ lost 3.62% for the week closing at 13,211 and the Small Cap market’s Russell 2000 ended trading on Friday at 1,776 down 3.82% for the week.
Last week, concerning the VIX, we wrote:
The CBOE Volatility Index (VIX) remains unchanged from last week at 13.79% which is a signal the investors are not that concerned about the downturn in the markets. Yet.
Investors showed some concern with the movements of the markets this week. Last week the CBOE Volatility Index (VIX) stood at 13.79. This week, however, it jumped to 17.20, a 25% increase. When this index is below 20, as has been the case for some time now, investors show little fear of a downward trending market. With this precipitous jump investors are becoming anxious. Nothing to panic about certainly (at this point), but this is an index that broadcasts the sentiment of those who follow the market closely.
As mortgage rates remain above 7%, this seems to be scaring off home buyers and creating a shortage of home sellers. With their current mortgage interest rates anywhere from 3% - 5 ½%, many homeowners are reluctant to move into a new home that will add hundreds of dollars to their budget. Homebuilders are experiencing a downturn in new construction for the same reason. Expect to see this segment of the economy little changed over the next 12-18 months.
Last week, concerning the price of oil, we wrote:
This uptrend in oil prices comes at a critical time due to the country’s strategic petroleum reserve sitting at a 40-year low due to the White House’s use of this reserve earlier in the year in order to help lower prices to in an effort to tame inflation. Ironically (or not) this price increase puts upside pressure on inflation which in turn may cause the Federal Reserve to stay tight with interest rates. We take a more sobering view on the loud clanging about ‘No recession’ as well as ‘a soft-landing’ recession hoopla.
We remain at the $90/barrel ($90.36) for oil, however investors are keeping a close eye on the price of this commodity. Oil prices threaten to push inflation higher. Some analysts are calling for oil prices in excess of $100.00. We’ll wait for more signals before we make a judgement on this.
Small Capitalized Stocks
Small Cap stocks are derived from those companies that have a market capitalization of less than $2 billion. These are small, growth-oriented companies and are usually the first to warn of problems coming up in the broader market. They also can lead the way in an up-trending market. Unfortunately, Small Cap stocks have lost nearly 11% in one month and as we highlighted above, lost 3.82% last week alone.
For those who would like to have a more concise understanding of market terms and definitions, we would invite you to view our Glossary located under the heading ‘About’.
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.
Our current position:
Money should be in or transferred into Cash (Money Market).
Your particular Mutual Funds and/or Variable Annuities may or may not offer all or any of some of the above. You MUST do your homework. Doing so and finding the portfolio in accordance with the above 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.