- Stocks sold off this week as what we believe is profit taking after a significant rally from the October 12, 2022 closing lows. This belief is supported by surging inflows into equity ETFs along with rising investor sentiment, both contrarian indicators (see below). We wouldn’t make too much of the pullback and will reiterate that “at this point, after the run-up in the S&P 500 and the NASDAQ Composite off the October 2022 closing lows, we believe that a minor pullback is in order and in fact would be healthy for long-term investors.”
- Fed Chair Jerome Powell Testified before the U.S. House of Representatives Committee on Financial Services this past week. Prior to fielding questions, he provided a four page statement, within which on the first three pages he mentioned four times that the Fed “remains strongly committed to bringing inflation back down to our 2 percent goal;” “Inflation remains well above our longer-run goal of 2 percent;” “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go” and “We remain committed to bringing inflation down to our 2 percent goal and to keeping longer-term inflation expectations well anchored.” We get it, you’re concerned about inflation. However, despite the harsh rhetoric, the Fed will remain data dependent as…
- The economy is at the stage of its cycle where the Fed will be moving in smaller increments over longer periods of time. This, working at the periphery, will in turn have less of an impact on the economy..
- Investor sentiment has stayed relatively strong for three consecutive weeks, this according to data from the American Association of Individual Investors. It is not lost on us that June also saw the biggest inflows into equity ETFs thus far this year. Both, contrarian indicators, are most likely more a sign of a pending pause in the rally rather than a continuation.
- This coming Thursday, athletic/athleisure company Nike will report earnings. The consensus estimate is for $0.68 per share, a decline from $0.90 one year ago on a 3% drop in revenue. These earnings are especially important as the economy slows because it will provide a snapshot regarding the health of the consumer. At this time, we believe substantial weakness would be a buying opportunity.
- A Cage Match Between Elon Musk and Mark Zuckerberg? Believe it or not, it is more likely to happen than not. The long standing business rivalry spilled over when Meta CEO Mark Zuckerberg announced that Meta may launch a potential rival to Twitter. To us, its what happens when you have too much money!
- Many believe that the relationship between the 2 year Treasury Note and 3-month Treasury Bill is more reflective of the economy rather than the traditional 10-Year / 2-Year as rates on the long end has been distorted by Fed interference.
- “There Were Fewer Homes for Sale in May Than Any Other Month on Record,” this according to Real Estate Company, Redfin. This, should it continue will keep housing prices and residential rents elevated, which will, in turn keep shelter costs high. (Link: https://www.redfin.com/news/housing-market-tracker-may-2023/)
- It’s easy to be “afraid” when doing so (waiting) pays you ~5%. However, over the long haul there is a huge opportunity cost in the forms of slower portfolio appreciation along with renewal risk.
- We recently read an informative blog from Ben Carlson entitled, “This is Why You Stay the Course.” Amidst other data Carlson referred to a chart posted within an article written by Sam Ro, CFA (“Wall Street’s 2023 Outlook for Stocks”). Ro lists the year-end price targets for the S&P 500 going into 2023 from sixteen of the largest Wall Street Firms. Barclays had the lowest target at 3,675 while Deustche Bank had the highest, 4,500. The S&P 500 closed Friday at 4,409.59. The bottom line is that nobody can accurately predict the direction of the financial markets over the short haul as it is a random one more often than not. However, over the long haul, say five-plus years, stocks rise more than 90% of the time -- which is “Why You Stay the Course.”
- Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, April Orders for Durable Goods, June Consumer Confidence and M2 Money Supply; on Wednesday, May Wholesale Inventories; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and Q1 Gross Domestic Product; and on Friday, May Personal Income and Consumer Sentiment as reported by the University of Michigan.
- The earnings season has begun for Q1 will come to an end this week before shortly ramping back up. However, some companies reporting of note, to include – Carnival (CCL), Walgreens Boots Alliance (WBA), Worthington Industries (WOR), Korn Ferry (WOR), National Beverage (FIZZ), Micron Technology (MU), General Mills (GIS), Nike (NKE), Paychex (PAYX), McCormick (MKC) and Constellation Brands (STZ).
“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.”
