If you’ve been an investor the last 15 years or more, you’ll recall what the 2008 financial meltdown entailed. The Federal Reserve opened the money spigot full throttle with the expectation that by doing so, banks would allow the average consumer the ability to borrow money for goods and services. Instead, the big national banks went on a buying spree, gobbling up small regional banks. The worst part was that the Feds allowed it!! As the meltdown continued in ’08, banks were bleeding money as depositors withdrew billions of dollars per month, never however, exceeding $100 billion in a month.
Fast forward to March 2023. According to the Federal Reserve, $360 billion was withdrawn from the nation’s banks in the past month!
As our subscribers have read in our recent posts, it seemed that Wall Street averted their eyes from inflation concerns, which was/is the primary focus by the Federal Reserve, to the recent upheaval in the banking industry. As the scenario began to instill fear in the public’s view of the banking system (see above) and government officials began to reassure the public without 100% success (see above) inflation fears as well as recession concerns took a back seat. We addressed this narrow view of thinking and our concern as to the effect this assumption would have when the banking concerns fell back to the back burner.
Breathing a naïve sigh of relief, equity investors began buying stocks like a ‘crises’ (take your pick) was over.
Until this week.
This week the S&P 500 maintained a sideways cha-cha but by week’s end had lost 0.10% for the shortened holiday trading week. Now we are observing more definitive signs that a recession may still be ahead. Tuesday’s data revealed that the labor market is finally loosening with job openings falling to a 21-month low to 9.9 million in February, against the revised 10.6 million for the month prior.
Another report followed right after that revealed factory orders declined a third time within the last four months. You’ll recall how we’ve postulated that good news (job openings) is actually bad news. Crazy but true. Where the pain will be felt most is in the small and medium-sized businesses. And in the stock market.
Higher interest rates are compelling companies to cut costs, as the data suggested this week, with over 89,000 job cuts in March, where a year earlier 21,000 were cut. This, folks, is another indicator of a looming recession.
What the smoke signals are signaling
Another indicator of concern is the ‘flight to safety’. This means that there is a rising preponderance of investors going into the relative safety of bonds, which is yet another indicator of a looming recession in the future. The Federal Reserve is in no way indicating that they will cut interest rates this year and the betting, although still too early to confirm, seems to be that the equity market could falter soon.
Over and over, we discuss the Yield Curve in these pages. The reason for this being that much information can be gathered from observing it. When the Yield Curve is ‘normal’ we see long-term rates higher than short-term rates. This is usually an accurate gauge of the current economy. However, when an ‘Inverted Yield Curve’ makes its appearance, this is considered a harbinger of a recession. We have been witnessing an Inverted Yield Curve for months. Yet again, another indicator that we watch. The 2-year Treasury is yielding 3.99% while the longer-term government obligation – the 10-year Treasury – is currently yielding 3.41%
A question often asked is “Why am I losing money when the stock market is going up?” The answer is not that simple, nor is it that complicated. The Quarterly Statements (1st Quarter) will be arriving within the next few weeks, and they likely will be showing a pleasant increase in your portfolio – the S&P 500 increased an average of 7% in the quarter. However, as we always say – “It’s not what you make, it’s what you keep that counts!” Making up losses just to get even (at the prior worth of a person’s account) is not very wise.
When we began publishing GaneWisdom/Market Edge on August 21st, 2022, the Dow Jones Industrial Average stood at 33,702 and the S&P 500 at 4,228. Friday’s market closed at 33,485 for the Dow and 4,105 for the S&P. So based on actual numbers from these past 7 1/2months a ‘buy and hold’ strategy favored by most financial advisors, negated the great run-up this past quarter.
A ‘Panic Bottom’ usually completes the Bear Market Cycle. This is where investors throw everything out the window and head for the safety of cash. We would expect this occurrence at around 3,300+/- in the S&P 500. However, we could also see an end to this Bear Market (make no mistake that this is a Bear-Market Rally occurring presently) should the S&P 500 close above 4,300. Stay tuned.
By reviewing our market outlook over these months, you’ll see how our subscribers could have made by following our weekly outlooks. About 4%. How? By following the positions we set forth. Please – check this for yourself by going to our Archives.
Until we are able to ascertain additional data, we recommend that our new subscribers not move money into our previously stated positions. This is due to the increase in prices and could negate any advantage, although possibly short-term, an investor could realize. For our subscribers who have positioned money into the following:
S&P 500 Index Funds
International Growth Fund
Cash (Money Markets)
We advise remaining. Please watch for our Mid-week Market Alerts should there be any. 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 modest portion of your portfolio and not the total. The larger portion should remain in Cash (Money Markets)