WEEKLY MARKET RECAP WEEK ENDING APRIL 28, 2023

Dennis
&
Aaron
  • Stocks rose this past week as earnings this quarter have been adequate and interest rates have remained tame.  We noted last week that “after a difficult 2022 during which technology stocks lagged the S&P 500 considerably as the trajectory at which the Fed hiked rates challenged secular growth investors, they have been the leaders thus far in 2023 as inflation has waned resulting in lower interest rates.”  These stocks did not relinquish their hold on the market as the tech heavy NASDAQ Composite, buoyed by good earnings and a relatively positive outlook, rose by 1.28% this past week, far outpacing the 0.87% increase in the broader S&P 500.
  • Thus far this year gains have been mostly confined to the large cap issuances as the Russell 2000 fell by 1.26% this past week and has risen a mere 0.44% year-to-date.  This compares to last week’s gain in the S&P noted above as well as the fact that this same index has risen 8.59% thus far this year.  However, the NASDAQ Composite outpaces all as it has gained 16.82% in 2023.
  • Regardless of what transpires on a weekly basis, we believe the financial markets are more or less fairly valued.  However, over the intermediate- to long-term stock price follows earnings and we believe the trajectory to be up.  We also believe that the returns achieved by investors in the stock market will be higher than those invested elsewhere, including bonds and cash.  However, we will also state that bonds and cash do offer attractive alternatives for some percentage of one’s assets as we have gone from a TINA (There Is Not Alternative) environment in regard to equities to TARA (There Are Real Alternatives).  Generally speaking, those real alternatives (bonds and cash) should comprise a minority position in one’s portfolio as they tend to lag the pace of inflation.
  • Evidence of investor concern over the debt ceiling is being reflected in the widening spread between the 1- and 3-month U.S. Treasury bills.  At the beginning of April that spread stood at 20 basis points (20/100 of a percent) with the 1-month bill yielding 4.70% and the 3-month at 4.90%.  Currently that spread is 75 basis points as demand for the 1-month, which will expire prior to the date we are expected to reach the debt ceiling, has pushed its yield down to 4.35% while the 3-month has risen to 5.10%.  It appears as if investors are concerned that our elected officials will be unable to compromise on an increase to the ceiling.  We are as well, but would use any meaningful pullback in the stock market as a result of a stalemate to increase positions as, should this occur, those same folks will come to an agreement quite quickly if they believe their chance to be reelected could suffer.
  • Expect a final 0.25% hike in interest rates after the Fed concludes its regularly scheduled two-day meeting this Wednesday.  We believe their rhetoric will remain hawkish, but a little less so.  However, we don’t anticipate much of a rally in stocks as the S&P 500 has risen more than 15% from its October 12, 2022 closing low.
  • According to data obtained by Bob Pisani of CNBC, “with 260 companies in the S&P 500 reporting, 79% are beating [earnings] expectations, according to Earnings Scout.  The average surprise was 6.1% above the estimate, slightly above the typical beat of roughly 6%, seen prior to Covid.”
  • This is the “old new normal” and we all just have to get used to it.  In regard to interest rates, Post Great Recession through the end of 2021 was a historic anomaly and the sooner you realize this and begin to function in this world you’ll be better off. In fact, except for a brief period post 9/11, the yield on the 10-Year U.S. Treasury Note spent the entirety of the 50-plus year period beginning 1964 and culminating with the Great Recession above 4.00%.
  • The objective of all media is to pump your anxiety level up to “DEFCON 5.”  Don’t fall for it and ask yourself this simple question – “will you be more or less apt to make a substantial mistake in regard to your portfolio should you buy into the ‘end of America/dollar’ or you name it hype?”
  • Johnson & Johnson expects their consumer-health spinoff later this year, Kenvue, to price at between $20 and $30 per share thereby valuing the maker of Band-Aids, Tylenol and Neutrogena at approximately $40 billion.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Monday, March Construction Spending; on Tuesday, March Factory Orders and the April Job Openings and Labor Turnover Survey (JOLTS); on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and the March U.S. Trade Deficit; and, on Friday the April Non-Farm Payroll Report; April Unemployment Rate and March Consumer Credit.
  • The quarter deluge of earnings reports continues.  This week expect data from the following -- Stryker (SYK), Vertex Pharmaceuticals (VRTX), BP (BP), Pfizer (PFE), Advanced Micro Devices (AMD), Starbucks (SBUX), Qualcomm (QCOM), Airbus (EADSY), CVS Health (CVS), Regeneron (RGEN), Zoetis (ZTS), Booking Holdings (BKNG), ConocoPhillips (COP), Anheuser-Busch (BUD), Shell (SHEL) and Apple (AAPL).

This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”

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