Commentary for March, 2024

Hello all - we hope you had a nice March.  

The month was another solid one for stocks, with all major markets closing at or near record highs.  For the month, the Dow rose 2.1%, the S&P 500 gained 3.2%, and the Nasdaq, which has a higher concentration of tech stocks, added 1.8%.  

This also marked the end of the first quarter in 2024, which was the best start to the year since 2019.

Here’s a look at how the markets moved this month:

The market has seen a steady rise since November of 2023.  Interestingly, it has traded in a narrow, upward sloping range as you can see in the image below. 

We’ve seen the markets trade in a range like this often in recent years as investors focus on the central banks and their stimulus program.  The chart below shows the steady rise of the markets from 2020-2022.  It feels like we are in that same environment right now.   

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FED

The Fed was a big topic this month as Fed chief Powell appeared before Congress and the Fed held another policy meeting.  There wasn’t a lot new discussed, but the market saw that as a good sign and rallied on the lack of bad news.  

Late in the month, though, several regional Fed presidents discussed how economic data like inflation was still high, and they were hesitant to cut interest rates too soon.  The markets didn’t really react on the news, but we think this is something to pay attention to.  From everything we’ve seen and heard, we don’t think the cuts will be as soon or as big as investors think.  The eventual realization could set the market up for a disappointment and send stocks lower.

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INFLATION

Inflation is a key economic metric the Fed follows, which is why we discuss it first.  Inflation has been trending lower over the last two years, which is why investors believe the Fed will start lowering rates soon.  

However, the inflation level seems to have stalled over the last several months.  

While you can see a decline in inflation in the chart above, that’s looking at it from an annual perspective.  If you were to look at inflation month-by-month, prices continue to rise every month. 

Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.

The PPI, which is the inflation at the business level before they pass on the price increases to us, showed a strong increase last month.

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OTHER ECONOMIC DATA

Economic data released this month was mixed.  Overall, the economy still looks healthy, but there are pockets of concern.  

First, we’ll look at the leading economic indicators, which we’ve talked about for months.  This index combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index had been lower for 22-straight months now, but it finally turned higher this month!  It had never gone this low for this long without a recession following, but it’s possible this will be the first time.  Only time will tell.  

Here are the various indicators used in the leading indicator index:

The manufacturing sector of our economy still appears to be contracting (a number below 50 indicates contraction), and took a turn lower last month.  The services sector is expanding, but it also took a turn lower last month.

Retail sales saw a nice improvement last month:

Durable goods (these are items with a longer life, like a phone or refrigerator) also turned higher.

Consumer confidence dipped slightly last month:

Small business optimism was slightly lower, too:

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Where does the market go from here?

Our indicators show that the market remains very expensive here.  But it remains resilient, too.  We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either. 

This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.

Commentary for February, 2024

Hello all - we hope you had a great February.  

The month was another good one for stocks, with both the S&P and Nasdaq closing at record highs.  For February, the Dow rose 2.2%, the S&P 500 gained 5.1%, and the Nasdaq, which has a higher concentration of tech stocks, added a solid 6.1%. 

Here’s a look at how the markets moved this month:

Here’s a look at how the different sectors performed this month.

The market has seen a steady rise since November of 2023.  Interestingly, it has traded in a narrow, upward sloping range as you can see in the image below.

We’ve seen the markets trade in a range like this often in recent years as investors focus on the central banks and their stimulus program.  We’re seeing a calm, positive market again now as investors bet on the Fed lowering interest rates again in the coming months.  

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NVIDIA

We don’t usually talk much about individual stocks in these commentaries, but this month was all about one stock.  Nvidia.

Nvidia is a tech company that makes special computer chips for AI programs.  The AI hype has given new legs to this market and Nvidia is by far the leader in this field.  They are so good at what they do that Microsoft spends one-third of their capex (“capital expenditures” are costs that will be used to improve a company's performance in the future) on Nvidia products.  

Anyway, investors have been looking for reassurance that the AI-driven rally would continue.  Earnings reported by Nvidia this month were extremely strong and that gave investors the reassurance they were looking for.  Stocks continued their rise.  

Here’s a look at the remarkable rise of Nvidia stock over the past five years:

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FED

There wasn’t a lot of news out of the Fed this month (which was nice).  Early in the month they released the minutes from their latest meeting, which suggested that while they may lower rates this year.  However, it probably won’t be as much as investors expect.  

Investors continue to expect a big cut in rates from the Fed in the coming months.  From everything we’ve seen and heard, we don’t think the cuts will be as soon or as big as investors think.  This could set the market up for more disappointment as rate cuts never materialize.

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INFLATION

Inflation is a key economic metric the Fed follows.  It has been trending lower over the last two years, which is why investors believe the Fed will start lowering rates soon.  

However, the inflation level seems to have stalled over the last several months.  

While you can see a decline in inflation in the chart above, that’s looking at it from an annual perspective.  If you were to look at inflation month-by-month, prices continue to rise every month.

Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.

The PPI, which is the inflation at the business level before they pass on the price increases to us, showed a strong increase last month.   

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OTHER ECONOMIC DATA

Economic data released this month was mixed.  Overall, the economy still looks healthy, but there are pockets of concern.  

First, we’ll look at the leading economic indicators, which we’ve talked about for months.  This index combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index has been lower for 22-straight months now.  It has never gone this low without a recession following, although this is something we’ve been saying for many months and a recession still hasn’t come.

Here are the various indicators used in the leading indicator index:

The manufacturing sector of our economy still appears to be contracting (a number below 50 indicates contraction), though it is improving.  The services sector showed an improvement, as well. 

Retail sales turned lower last month:

Durable goods (these are items with a longer life, like a phone or refrigerator) turned lower, but this was mostly due to large aircraft orders skewing the data.

Consumer confidence dipped last month:

Small business optimism was slightly lower, too:

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Where does the market go from here?

Our indicators show that the market remains very expensive here.  But it remains resilient, too.  We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either. 

This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.

Commentary for January, 2024

Hello all - we hope your first month of 2024 was a good one.  

January was a good one for stocks.  For the month, the Dow rose 1.2%, the S&P 500 gained 1.6%, and for a change, the Nasdaq, which has a higher concentration of tech stocks, was the laggard with a 1.0% gain. 

 

Here’s a look at how the markets moved this month:

“As goes January, so goes the year.”

This is an old Wall Street saying that basically means if the market is up in January, it will be up for the year, too.  How accurate is this?  Going back 100 years, it’s been true just about 65% of the time.  While it’s better than 50/50, we still wouldn’t put much faith in it!

Here’s a look at how the different sectors performed this month.

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FED

A big reason for the market rise last year was the Fed.  They indicated they would begin lowering interest rates after years of record rate hikes.  That means borrowing costs would be lower, which is something stocks like.  

However, this month the central banks intimated to not get too excited.  While they may lower rates this year, it probably won’t be as much as investors expect.  

Here’s a few headlines we saw this month:

A Fed meeting at the end of the month gave little indication of when lower rates can be expected and the market saw some weakness on this.

 

We aren’t so sure a rate cut is coming in the next few months as many investors expect.  This could set the market up for more disappointment as rate cuts never materialize.

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EARNINGS

We’re about halfway through the earnings reports of companies in the S&P 500.  The earnings haven’t been bad, but there are some pockets of weakness.  

The big story last year was tech stocks, which saw massive gains based on the hype around AI.  That has raised expectations for these stocks.  So far, the AI hype isn’t paying off for these tech companies as their earnings underwhelm.  Since these stocks led the market up, be careful that disappointments in this sector can lead the market down, too. 

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INFLATION

Inflation has been trending lower over the last roughly two years, which is a key economic metric the Fed looks at.  However, the inflation level seems to have stalled over the last several months.   This is not something the Fed likes to see.  

 

Inflation continues to rise every month, too.  Its not rising as fast as it did immediately post-Covid, but prices ARE still rising.

Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.

One bright spot for inflation is the PPI, which is the inflation at the business level.  The PPI has been lower for three-straight months now. This is a good sign – first prices come down for businesses, then eventually for consumers.  This suggests that lower inflation should be in our future.  Hopefully.

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OTHER ECONOMIC DATA

Economic data released this month was mixed.  Overall, the economy still looks healthy, but there are pockets of concern.  We’re also seeing a lot of ‘bottoming’ patterns in the charts, where it suggests a change in trends.

First is the GDP report for the fourth quarter, which shows the strength of the overall economy.  The report was a nice surprise, showing a decent gain.

Its worth noting that a lot of the gains came from government spending, which is usually due to increased debt and is also usually not productive. 

Next, we’ll look at the leading economic indicators, which we’ve talked about for months.  This index combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index has been lower for 21-straight months now.  It has never gone this low without a recession following, although this is something we’ve been saying for many months and a recession still hasn’t come.

Here are the various indicators used in the leading indicator index:

The manufacturing sector of our economy still appears to be contracting, though it is improving, while the services sector showed weakening.

Retail sales ticked higher last month:

Durable goods (these are items with a longer life, like a phone or refrigerator) showed another gain, too.

Consumer confidence moved sharply higher:

Small business optimism was slightly higher, too:

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Where does the market go from here?

Our indicators show that the market remains very expensive here.  But it remains resilient, too.  We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either. 

 

This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.