Are you able to stand on your own yet? With the dizzying turnaround on the major exchanges since mid-March no-on would fault you for grabbing the nearest chair and collapsing into it!
For months we have been of the opinion that in order for this long-running Bear Market to end, a Panic Bottom – where investors throw in the towel yelling ‘No Mas’ – needed to take place. This bottom we estimated to happen around the 3,300 mark in the S&P 500. The S&P closed at 4,109 on Friday, up a healthy 58 ½ points. These rallies over the past quarter have been impressive, if not completely understandable considering the plethora of bad news lying in wait off stage. We saw an upward trend develop in mid-January (when we advised going into the market) then completely fizzle by the end of February (when we advocated transferring back to Cash/Money Markets). Now it seems we are off to the races once more.
The S&P 500 closed above both it’s 200-day and 50-day averages – a very bullish sign. On Thursday we advised going back into the S&P 500. The next level we will be looking at is 4,200 in the S&P 500 and see where it lands. Should this index hit the 4,300 we would consider this Bear Market to be over. That alone is a bit confounding. More on that later.
The Nasdaq 100 (NDX) has been the most impressive leader this past quarter but, given the current unrest in the banking sector (regardless of the ‘all-clear’ from the government) we are still weary about offering a strong buy. If you do jump back in to the Nasdaq 100 do so at your own risk. Again, as we’ve written over the past weeks, a whipsaw, where the numbers just reverse quickly, could happen. If that were to happen it could be unpleasant. The NDX closed on Friday at the highest level since August, adding 3.25%
The Yield Curve of which we continually write about is still inverted, meaning that short term yields on Treasury Bonds are higher than the long-term rates. This is a VERY big indicator that a recession could (read – likely) happen. Most economists agree that a recession is inevitable but they disagree on the severity. Although the market seems to be adjusting for a breakout, the looming business slowdown (recession) makes this rally seem preposterous to us.
Home mortgages are moving within an on-again, off-again range. The current 30-year mortgage nationally stands at 6.54% but a recent survey by Mortgage News Daily shows that consumers expect the rates to rise to 8.4% in a year. The quandary in obtaining a mortgage, or any loan for that matter, from a traditional bank is becoming much harder to get. With the current (yes-current) instability in the banking industry, they are limiting loans to customers with above average credit and making loans harder to come by. Cash-on-hand is the motto in the Banking sector at present. The ripple effect however is noticeable.
When credit is harder to come by, a slow down of consumer spending becomes inevitable, hence another indication that a recession is in the future.
The Federal Reserve continues to indicate higher interest rates to bring down inflation, yet Wall Street, very much like Dorothy in the Wizard of Oz repeating “there’s no place like home”, continues to click its collective ruby shoes while repeating over and over ‘the Feds are done with rate hikes”. Most realists believe otherwise. Even IF rate hikes were over (which we certainly don’t adhere to that line of thinking) we know that every rate hike cycle over the past 7 decades has ended in either a recession or a full-out financial panic.
Once again, we see the fog swirling ahead as we enter uncharted waters once more. On Thursday we issued a buy for the S&P 500 Index Fund and Friday a buy for the International Growth Funds. We will monitor these so continue to watch for our mid-week alerts for changes in these or any other fund movements we observe. We will continue to trust our analysis and strategies.
Our current order of investment portfolio placements are as follows:
S&P 500 Index Funds
International Growth Fund
Cash (Money Markets)
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)
