On June 15, 2022, the Federal Reserve’s Open Market Committee (FOMC) raised the federal funds rate to 1.65 percent. They vowed to “undertake open market operations as necessary to maintain the federal funds rate in a target range of 1.5-to-1.75 percent.” Let’s call it 1.75 percent for today’s discussion, which is in line with the usual commentary. According to Bloomberg data, the bond market is pricing in that short-term interest rates will hit 3.6 percent. How might short-term interest rates reach 3.6%? Let’s plot how the Fed could drive short-term interest rates to 3.6 percent. As of June 15, 2022,…
Insights & Advice
Tag: stock market
Midterms Create Market Volatility | Will Elections Cause A Market Dip?
The stock market does not perform well in the year leading up to midterm elections. This year’s election may just add to the overall woes besetting equities. Historically, the average annual return of the benchmark S&P 500 Index in the 12 months before the November 5 election is 0.3%, versus the historical average of 8.1%. in non-mid-term years. In 2022, of course, with the S&P 500 down more than 20%, those historical numbers look fairly good. Unfortunately, volatility also tends to rise before and after midterm elections. Will midterm elections cause a market dip in 2022? But this year is…
Want to predict tomorrow’s stock market? Watch corporate insiders today.
It’s a fool’s errand to try and stick the landing and call the end of a bear market down to the exact day. Nonetheless, on February 7, 2022, this fool argued that there was a six-in-10 chance the stock market would bottom on May 22, 2022. I’m dying to find out if I’m right (or close to being right). If I am wrong, the stock market is in for a world of hurt. I assigned a two-in-10 chance that the stock market would drop 20% by September 2022. If the downdraft continues, in part, it will be because investors expect…
Make up your mind, already!
Hey, stock market. Are you going up, or are you going down? Pick one side of the 200-day moving average and stick with it, would ya? What is the 200-day moving average? The 200-day moving average (DMA) is a key indicator that investors (traders?) use to gauge whether an investment is in an uptrend or a downtrend. The 200-DMA is typically represented by a line chart and represents the average price of the past 200 days. When the price of an investment is above the 200-DMA, it’s considered in an uptrend. And, when it’s below the 200-DMA, it’s considered…
Can the Federal Reserve engineer a soft landing?
Can we talk about how crazy the first quarter of 2022 was? From Volodymyr Zelensky to Will Smith. The so-called “Don’t say gay” bill and the woefully mislabeled “Billionaires’ tax.” From the vetting of Ketanji Brown Jackson to the Olympics (well, maybe not the Olympics), the world was buzzing about serious news and outright nutso news. Perhaps that’s why many people didn’t realize that the S&P 500 fell more than 10% from a closing high during that quarter. Later, the index traded 10% higher than its intra-quarter closing low. But it did. Since World War II, there have only been…
Beware an inverted yield curve
An inverted yield curve is one of Wall Street’s most closely watched recession indicators, because it works. The inversion of the 2-year/10-year Treasuries has been a reliable predictor of recessions. Since 1976, there have been 10 such inversions that preceded four slowdowns and six recessions. It’s getting scary, people, because it is getting closer to an inversion. The yield curve is a graph that plots a line depicting the yield of bonds against their time to maturity. Typically, the longer the maturity, the higher the yield. But when a shorter maturity bond, like the 2-year note, yields more than a…
Markets liked the Fed’s message
The first interest rate rise in years was officially triggered in this week’s Federal Open Market Committee Meeting. Since then, stocks gained more than 5 % on the news, which was contrary to many investors’ expectations. The reaction was even more confusing when you consider how hawkish Chair Jerome Powell and his FOMC members were, both in the minute meetings and in Powell’s Q&A session after the meeting. The Fed is officially planning for seven rate rises this year after the 25-basis point move on Wednesday. The next hike could come as early as the central bank’s next meeting in…
ABCDEFU
“I was into you, but I’m over it now. And I was tryin’ to be nice, but nothing’s getting through, so let me spell it out.” —Gayle (to her ex) and fixed-income experts (to Allen Harris) Before I get into it, they say never bury the lead: There’s an increasing chance that the losses we’ve seen in the stock market will double. On February 23, 2022, I opened the discussion of the 2022 Massachusetts RIA (Registered Investment Adviser) Summit in Boston. I didn’t make any friends in the fixed income world. In this column, I write about politics (sometimes), the…
I feel lousy
I feel lousy. That’s probably good news for the stock market. I am what the financial industry calls a “contrarian,” which is to say that when everyone is buying, I look to sell. And when everyone is selling, I try to find things to buy. That’s oversimplifying it, but you get the picture. But what does it mean when everyone is buying? Again, oversimplifying it, peak buying reflects optimism. Everyone who wants to buy has done so because they’re confident prices will rise. And when everyone is selling, people believe prices will drop further, so they feel as if…
Fed’s meeting notes throw markets a curve
Investors were set back on their heels this week (January 3-7) after reading the latest member comments from the Federal Open Market Committee’s December 2021 meeting. It suggests that the Fed is prepared to tighten far sooner than most expected. Members seemed to say that the Federal reserve bank central bank was prepared to shrink its $9 trillion balance sheet “much sooner and faster” than anyone expected. This is in addition to the already-announced plan to reduce its asset purchases faster than they first planned. Couple that with expectations that we could see three interest rate hikes this year and…
Has inflation hit its peak?
The Consumer Price Index (CPI) is an often-used gauge of inflation in the U.S. economy. On December 10, 2021, the CPI rate was a blistering 6.8 percent year-over-year (YoY), more than triple the Federal Reserve’s 2 percent target and its highest level since 1982. Even though energy takes up less than 8 percent of the typical household expenses, it accounted for 30 percent of the YoY gain. Vehicles, shelter, and food were the next biggest contributors to the CPI. Along with energy, those four inputs represent almost 61 percent of consumer purchases but account for 81 percent of the YoY…
The sun shines on the stock market
“There are three kinds of lies: lies, damned lies, and statistics.” —Unknown Mark Twain popularized the above quote, but proper attribution is unknown. I used it last week when my colleague, Scott Little, and I were trying to figure out what it meant for stock prices now that the S&P 500 stock index had gone 200 days without a 5% correction. That’s a long stretch. Typically, there are 3-5 5% pullbacks in a year. The phrase came to mind because it describes how persuasive numbers can bolster or weaken an argument. Scott and I each looked at this data separately,…
Flashing lights for the stock market
I made some trades last week. I did different things in different portfolios. I believe that readers will be best served with a summation rather than a specific list of what I did in each. The result is that I got more conservative. I shifted about 4-8 percentage points from position to position. I did not raise cash. I reduced (but didn’t eliminate) my small-cap and homebuilder stock positions and shifted back toward large-cap stocks and high-yield corporate bonds. In last week’s column, I teased out this consideration in the “You’re Too Happy” sub-heading. I cited there, “I have some holdings…
Race to the bottom
Before the weekend of June 5–6, 2021, I enjoyed a fully vaccinated (literal) water cooler chat with Nate and Scott, two of the advisors at Berkshire Money Management. The shop-talk topics were various: the economy, investment selection, politics. Our conversation veered to the recent chatter about global tax reform. Specifically, the Friday, June 4 meeting in London where U.S. Treasury Secretary Janet Yellen planned to propose a minimum corporate tax on multinational companies to the Group of Seven nations, or G-7, (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) I scoffed at it, noting that there’s no way…
More people expecting a correction
“Oh, there’s my phone … What’s that? Then SELL, SELL SELL. They’re all selling? Then BUY, BUY, BUY!”—Al Czervik I fancy myself a contrarian investor. Famed investor Warren Buffett would advise a contrarian investor to “be fearful when others are greedy. Be greedy when others are fearful.” Today, I am a conflicted contrarian. There is a lot of optimism around the stock market. Per the contrarian textbook (if there were such a thing), I should be reducing a lot of my equity allocation. But I’m not doing so in a significant way. Yet. It’s always hard to pull the proverbial…
The Ides of March and the Market
It was a rough week in the markets. Investors were whipsawed throughout the week and finished down once again. I expect more of the same for investors this month. However, I don’t expect stocks to go straight down, find a bottom and then rebound. This downdraft is occurring at about the same time that markets sold off last year, but I do not expect the kind of severe correction we suffered through then. Overall, I am anticipating a 10-15% decline as I mentioned last week. Actually, as of Friday (March 5, 2021) morning, we have suffered a 6.3% decline from…