- The scenario that we outlined within last Sunday’s Snapshot of a “buy the rumor, sell the news” regarding the agreement to lifting the debt ceiling had been playing out until Friday’s goldilocks jobs report, one in which job growth exceeded expectations by a wide margin, but year-over-year wage growth moderated. Stocks rallied on this news as it plays into a soft landing scenario, one in which corporate earnings stay relatively strong amongst slowing inflation. At this point, after the 19% run-up in the S&P 500 and the 28% jump in the NASDAQ Composite off the October 14, 2022 closing lows, we believe that a minor pullback is in order and in fact would be healthy for long-term investors.
- Friday’s two-plus percent jump in the Dow Jones Industrial Average (DJIA) pushed that index into positive territory year-to-date, up 1.86%. This compares to the S&P 500 and NASDAQ Composite which have risen 11.53% and 26.51% over the same timeframe. The Dow dropped 8.78% during 2022, less than half of the S&P which fell 19.44% and the NASDAQ which plummeted 33.10%. During 2023, amidst slowing inflation and the buzz surrounding Artificial Intelligence (AI), investors have focused more on growth as compared to value which in turn favors the S&P and NASDAQ over the Dow. We believe this divergence will moderate in the coming months.
- Mortgage rates rise as lenders are now factoring in a twenty-five basis rate hike at the upcoming meeting of the Open Market Committee of the Federal Reserve June 13-14. According to data from the Chicago Mercantile Exchange (CME) there is a 74.7% chance the Fed will hike 0.25% and 25.3% that it will stand pat. We believe the Fed will hike.
- Have AI stocks run too far? Probably for the short-term, but we wouldn’t recommend selling them en masse as the long-term potential is enormous.
- The S&P 500 has risen 11.53% and the NASDAQ Composite up 26.51% thus far in 2023, and yet investor sentiment remains very bearish. What gives? There is an old saying that the market climbs a wall of worry. Anecdotally, given our conversations with clients as well as others, we think there is quite a wall out there! The “debt ceiling brick” was removed this week. However, rest assured the media is busy at work looking to replace it.
- Bruce Springsteen and Joe Biden both take tumbles. Will the impact from President Biden’s be longer-lasting or will he get a bounce in the polls as a result of how he and House Speaker Kevin McCarthy handled the negotiations over the debt ceiling?
- Amazon is reportedly exploring the offering of free mobile services to its Prime customers. This would be a blow to Verizon, AT&T and T-Mobile.
- Baker Hughes Rig Count drops by 15 to 696, its lowest level since April 2022. This will most likely put a floor under oil prices and the stock price of energy companies.
- When investing would you rather be the early bird (that gets the worm) or the second mouse (that gets the cheese)? Sometimes it pays to be both, but definitely not the late bird or first mouse!
- Given the resilience of the economy, especially the service sector as well as the persistently high inflation, at this time we believe the Fed may view their upcoming June meeting as a “skip” rather than a “pause.” In the future, they truly will be data dependent. Time will tell.
- Ever play sports? The weakest player has always been a concern. They can relatively help or kill a team. The bond market which has perennially been the weakest player has gotten much better as interest rates have moved higher! They are not hurting the team as much anymore.
- The average individual cannot handle the information overload that is being disseminated. In our opinion that answer is to stay within the asset allocation model that suits your long term objective.
- Does the potential of AI make tech a buy on any substantive weakness? Despite the valuation noted above, we believe it does as the applications of Artificial Intelligence will cut across a multitude of industries.
- The financial markets VERY RARELY work in lockstep with the economy which is why that when you add in human behavioral responses, they are difficult if not impossible to predict over the short-term.
- Some investments all in the “too hard pile.” Perhaps this is where PayPal (PYPL) and Boeing (BA) belong. Quite often it pays to wait to reduce some of the ‘direction risk’ prior to investing even if it means getting in at a higher price.
- 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%.
- Upcoming Economic Reports scheduled to be released this week include the following, on Monday, April Orders for Durable Goods, April Factory Orders and the Institute for Supply Management’s (ISM) Report on the Services Sector; on Wednesday, the April Trade Report and Consumer Credit; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and April Report on Wholesale Inventories.
- The earnings season has begun to wind down. However, some companies reporting of note, include – Ciena (CIEN), HealthEquity (HQY), JM Smucker (SJM), Casey’s General Stores (CASY), GameStop (GME), Campbell Soup (CPB), DocuSign (DOCU), Toro (TTC) and Vail Resorts (MTN).
“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.”
