· Stocks built momentum following the two-day meeting of the Open Market Committee (FOMC) of the Federal Reserve which concluded Wednesday at 2:00p and then put the pedal to the metal Friday as the April Payroll Report came in below the consensus estimate. In fact, the gain registered by the four large-cap indexes that we track within the Weekly Market Update all posted gains Friday that entirely erased the week to date losses. The reasons for the reversal include an already oversold market, a more dovish tone from Fed Chair Jerome Powell post-FOMC meeting, a rally in the bond market and as noted above a weaker than expected April Payroll Report which once again opens the door to an interest rate cut before the election. At the present, we expect that the market will tread water, biding its time as investors digest the rally off the late October 2023 lows. That said, we don’t see a lot of downside as the recent earnings season has provided enough strength to support valuations at or around these levels. The bottom line, we think the market will trade within a relatively narrow range, but with a bias to the upside.
· A little more on sentiment – the proverbial “wall of worry.” Historically, the market tends to have the most potential for gain when investor worry is pervasive as they have most likely already built up cash (dry powder) on the sidelines, having previously sold. We picked the following up from Raymond James, “This is one of the most famous Wall Street truisms. I am not sure who originally said this, but it rings true through the decades. What does it mean? Simply put, it means every bull market in stocks is doubted by a cadre of naysayers. There is always a vocal group of skeptics who point out a myriad of very rational and quite possible potential events which could derail the market’s ascent. In this sense, during a bull market, stocks are said to “climb a wall of worry”. Bull markets end when the last holdout doubters finally throw in the towel, when FOMO—Fear Of Missing Out—gives in to greed and the last dollar is invested in the market. The constant drip, drip, drip of daily negative news is another brick in this massive wall of worry, which the optimists of the world try to overcome. This is an oversimplification of a very complicated process, but it holds true.”
· During an interview with the Financial Times, Borje Ekholm, President and CEO of the Swedish telecommunications company Ericsson Group, observed that the focus on regulation by the European Union (EU) is “driving Europe to last place [and] is driving Europe to irrelevance.” Ekholm added that he believed Europe is “on the way to becoming a museum – great food, great architecture, great scenery [and] great wine but no industry left.” Food for thought.
· Despite its fiscal second-quarter earnings falling slightly below Wall Street expectations, shares of Apple rallied sharply on Friday as the board announced that it had authorized $110 billion in share repurchases, the largest in the history of the company. After 2023, during which shares of the stock rose approximately fifty-percent, it has been a laggard thus far this year in part over fears that sales in China, Apple’s third largest market, were slowing precipitously. The numbers told a different story as revenue there came in at $16.37 billion, above the consensus estimate of $15.25 billion. Shareholders were also encouraged by CEO Tim Cook’s seemingly general enthusiasm surrounding the future of the company as well as its upcoming Worldwide Developers Conference next month.
· According to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage increased for the fifth consecutive week as we enter the heart of Spring Homebuying Season. On average, more than one-third of home sales for the entire year occur between March and June. With two months left of this historically busy period, potential homebuyers will likely not see relief from rising rates anytime soon. However, many seem to have acclimated to these higher rates, as demonstrated by the recent released pending home sales data coming in at the highest level in a year.”
· The FOMC concluded its two-day policy making meeting on Wednesday, deciding to leave its target range for the Federal Funds Rate at 5.25% to 5.50%. The policy statement noted that “In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
A regularly scheduled press conference followed the meeting during which the following was of particular interest:
- In response to whether or not politics would be a factor in Fed decisions Powell stated that “it’s hard enough to get the economics right here. These are difficult things, and if we were to take on a whole other set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right.”
- In response to the question of whether or not the United State Economy was entering a period of stagflation, Powell stated that “I really don’t see where that’s coming from. I don’t see the ‘stag’ or the ‘-flation.’”
- In response to whether or not the Fed is gaining greater confidence that they are closer to a rate cut than it had been toward the beginning of the year, Powell stated that “so far this year, the data have not given us that greater confidence.” He added that “it is likely that gaining such greater confidence will take longer than previously expected.”
- And finally as some are concerned that perhaps the next move from the Fed will be a rate hike rather than a cut, Powell stated that “I think it’s unlikely that the next policy rate move will be a hike. I’d say it’s unlikely.”
· We believe that we are in the early innings of an industrial super cycle, as a result of on-shoring and near-shoring. Investors can benefit by investing in technology, companies that utilize technologies to increase efficiencies, industrials, materials and infrastructure plays.
· There’s a big difference between a top and a consolidation. If it stalls here, we think that the overall market, including technology, will do so as part of a consolidation and not a long-term top. From the performance of the SPDR Select Sector ETFs that looks like exactly what we are getting. We are very content with this.
· Corporate news –Profits at Amazon (AMZN) more than tripled, bolstered by a 24% rise in advertising revenue along with sharp rise in revenue at Amazon Web Services. Shares of Starbucks (SBUX) slumped as same-store sales fell amidst a decline in traffic. In our opinion, CEO Laxman Narsimhan did not engender confidence during his interview on CNBC regarding his plans as to how to turn the coffee giant around. As shareholders, we will keep a close eye on SBUX and make a decision. Shares of Johnson & Johnson (JNJ) rose after the company said it will be $6.5 billion to settle lawsuits brought in the U.S. surrounding its talc-based products causing ovarian cancer. The settlement must be approved by claimants.
· Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, March Consumer Credit; on Wednesday, March Wholesale Inventories; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance; and on Friday, a Preliminary Report on May Consumer Sentiment.
· The Q1 Earnings beat goes on. Companies of note scheduled to report this week, include – Berkshire Hathaway (BRKB), Vertex Pharmaceuticals (VRTX), Duke Energy (DUK), McKesson (MCK) Disney (DIS), BP (BP), Arm Holdings (ARM), Airbnb (ABNB), Anheuser-Busch (BUD), Uber (UBER), Toyota (TM), Shopify (SHOP) and Enbridge Energy (ENB).
General Disclosure:“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.”
