Thus far, the markets in June seem poised for a further bounce higher. That does not mean we are in the clear throughout the summer, but let’s take it one month at a time. Here is what I see: Between now and June 17, 2022, I am betting for another move up in the equity indexes. We could see a rally that takes us up to the 4,300-4,400 level on the S&P 500 Index. It will likely be the kind of surge that floats all boats higher as it rises. The stocks that have been hurt the most this year…
Insights & Advice
Tag: the Fed
Earnings matter, but the Fed trumps everything
The first quarter 2022 earnings season kicked off this week with mixed results. Thus far, the standouts were Netflix and Tesla. The two companies’ results could not have been more different, but in the end it didn’t matter. Netflix disappointed, reporting its first loss in subscribers in recent memory, while investors were expecting a gain in subscriber growth. There were many reasons for this including the loss of 700,000 Russian customers as a result of the Ukraine War. At last count, the stock lost 37% of its worth in three days and took the NASDAQ index down along with it….
The U.S. dollar hits two-year highs
The Federal Reserve Bank’s tightening of monetary policy has driven up interest rates, while causing investors to sell stocks. It has had another impact—a steep rise in the U.S. dollar. The U.S. bond market has already priced in a 96% chance of a 50-basis-point rise in the Federal funds rate at the next FOMC meeting in May 2022. The fixed income markets are expecting a cumulative 2.15% rise in interest rates by the end of 2022. In the meantime, the U.S. 10-year Treasury yield hit 2.90% this week on its way to 3%. As interest rates continue to rise, so…
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…
The Fed tightens further
It is called “Quantitative Tightening,” or QT, a term used to describe how momentary authorities are planning to shrink an $8.9 trillion balance sheet. The U.S. Federal Reserve is the only central bank in the world (and in history) that has attempted to implement a reduction in assets. The first time they tried, things did not go so well. “Quantitative Easing,” or QE, may be a more familiar concept to readers since we have been experiencing some form of QE (monetary stimulus) since the Financial Crisis of 2008. QT is the opposite. The Fed first tried to reduce its balance…
Housing headwinds
The red-hot housing market is cooling off. A combination of higher interest rates and supply chain shortages are squeezing homebuyers. If these trends continue, the spring selling season may find buyers between a rock and a hard place. The total value of the private residential real estate in the U.S. increased by a record $6.9 trillion to $43.4 trillion in 2021. Since the lows of the post-recession market, the value of housing has more than doubled. By this time in 2023, Zillow expects the typical U.S. home will be worth more than $400,000. This year, demand for housing will remain…
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…
A whiff of stagflation
The economy is slowing. Inflation is climbing. Investors are worried that these trends appear to be a recipe for the “S” word. The economic concept of stagflation where the witches’ brew of a faltering economy, aided and abetted by skyrocketing inflation, harkens back to the malaise of the late 1970s. At that time, interest rates rose to nearly 20%. Inflation, as measured by the Consumer Price Index (CPI), reached an annual average of 13.5% by 1980. Oil prices (like today) surpassed $100/barrel. Blame for this period of stagflation fell squarely on OPEC, a newly formed energy cartel of oil producers,…
Do not chase stocks
Commodities are soaring. Interest rates are falling. Stocks can’t get out of their own way. All of this is occurring while the first war in decades continues to rage in Ukraine. Seems to me that any gains in the market averages next week will remain dead cat bounces in this bear market. Yes, I hate to be a squeaky wheel, but I’ve got to call it like I see it. We have a much greater chance of sliding lower from here than higher. Here’s why. Investors received a new lease on life this week when Fed Chairman Jerome Powell, testifying…
You’ll pay more, and you’ll like it!
Usually, when inflation creeps up, consumers switch buying habits. If beef prices go up, consumers buy more chicken. Or, if the kids’ shoes are too costly at Macy’s, parents might go to Target or Walmart. Generally, that’s not occurring in this cycle. I present those specific names as conceptual examples. Walmart is doing quite well. However, Walmart’s performance is not necessarily because consumers are looking for lower prices. Walmart is a behemoth and has had the power to keep its shelves and in-store restaurants stocked while its competition suffers inventory shortages. That’s not a hypothesis. Walmart Chief Executive Doug McMillon…
When will the stock market bottom?
On May 22, 2022, the stock market will bottom after declining 15.1 percent from its high. Or, maybe the bottom is already behind us after the decline of the S&P 500 stock market index cracked double digits during intraday trading. A completed correction looks similar to the start of a new bear market. The problem with guessing when the stock market will bottom is that fundamentals don’t come into play. When selling picks up momentum, many investors don’t raise cash because they calculated a valuation adjustment. Many investors sell declining stocks because it hurts them, which I totally understand. I…
Markets get smacked
Most investors blame the discovery of a new, possibly more virulent mutation of the coronavirus for the decline in stocks this week. No doubt there is some truth to that, but equally as important was the change in monetary policy enunciated by Jerome Powell, the chairperson of the Federal Reserve Bank, this week. Readers have seen the S&P 500 Index decline by about 4% since the Thanksgiving week. The announcement that a new COVID 19 variant, dubbed Omicron, had been discovered in Africa surprised the investment world. Friday, November 26, we saw a substantial 2% downdraft in the financial markets….
Market’s week of indecision
Stocks and bonds traded in a tight range for most of the week. Some stocks were rewarded, while others punished, based on their earnings results. The U.S. dollar hit a series of new yearly highs, and just about everyone is waiting for President Biden’s pick to head the Federal Reserve Bank. That announcement could come as early as this weekend. Chairman Jerome Powell’s term will end in February 2022. He is a Republican, picked by former President Donald Trump. He had a somewhat rocky relationship with the ex-president but did manage to maintain the independence of the central bank despite…
The Fed’s key inflation gauge
Inflation is worrying investors. Every new data point seems to be heightening their anxiety. Oil and other commodities are raging higher. The rate of wage increases is also climbing, but the most important variable the Fed is watching is about to move higher. Housing and/or home ownership is one of the most important components of the U.S. economy. However, housing prices per se are not included in the Consumer Price Index (CPI). Instead, the CPI measures the cost of shelter, which is broken down between actual rents paid and the Owners’ Equivalent Rent or OER. OER is the amount of…
Don’t rain on my stock market parade
Folks in New England are sick of the last month of weather. It’s been a rainy season, for sure. But a new season is about to start for the stock market. When it comes to stock market seasonality, the worst few months are ahead of us. “Seasonality” refers to the tendency of the stock market to perform certain ways throughout the year. Ever hear the phrase, “Sell in May and go away?” That saying is attributed to seasonality. According to Renaissance Macro Research, since 1928, the return of the S&P 500 from July 27 until October 27 has averaged a…
High risk, high reward?
Inflation has been high, based on the Consumer Price Index, or CPI. The Bureau of Labor Statistics reported that the CPI was up 0.6 percent in May 2021 and rose 5 percent over the previous 12 months. Both are big numbers and well above historical trends. The Federal Reserve has repeatedly said that the high inflation is “transitory.” Others expect high inflation to continue unabated. I don’t understand why people argue either/or. I suspect some forces will push inflation consistently higher but not to a ruinous level. (I do believe that continuing at a 5 percent rate would be ruinous.) Let’s…