1st Quarter Financial Markets Strong Indeed

 

Financial Markets Update

The powerful rally in stock prices that started last November, continues into 2024. It was really hard not to make some serious money during the first three months.

Stock prices rose all three months, with February’s +5% gain being the best and March adding another +3%. That was good enough for a +10.1% gain on the S&P 500 Index. In hindsight, that was the best quarterly tally since 2019’s first quarter (+11.1%).

Since stock prices average a positive +10% gain over long time-frames, that’s a lot of moolah in a short time. The steady march upward is shown by my 3-month chart here of the S&P 500 Index.

Apparently, investors like what the outlook holds for the economy, inflation and company profits. Three sectors outperformed the general market: Energy, Communication Services and Financial Services; up 12% to 14% each.

Interest rates edged up a bit during the quarter. The 10-year US Treasury Note interest rate gained about 1/3 of 1% in the quarter. This seems small, but it did result in about a 2% loss in your principle. A better idea for fixed income (a fancy word for debt investments / bonds, is to own the short-term Treasury Bills, maturing in 3 and 6 months. Those interest rates are above 5% this year. Year-end 2023 the three-month T-bill paid 5.18% for a year, so that’s 1.3% interest in 3 months. Bond interest rates and bond prices more in opposite directions, higher rates mean lower prices and vice-versa.

Seems that the stubborn inflation and tight money (interest rates) are not hampering the optimism on Wall Street. Much of the talk the economic gurus is focused on when the Fed will start to cut interest rates. That will be a huge decision and will indicate confidence that inflation is finally under control.

While year-over-year inflation is ahead +3.1%, there are deep areas for concern I say. Energy prices, gas and oil are up sharply this year; oil’s at its highest since last October near $85, and gas prices are stubbornly stuck at $3.50 or so at the pump.

The other areas under siege in a bad way are housing costs (shelter), up 5.7% over the past 12 months. Add to that insurance costs; homeowner’s, windstorm, automobile – all up, up and away folks. It’s like you need to win the PowerBall to afford a place to call home these days. It’s close to $400,000 for the average American Home, and 30-year mortgage rates are near 7% now.

          Five Year Chart of the Average 30 Year Fixed Mortgage Interest Rate, Source Fannie Mae

Back to investments. Our favored commodity – Gold, added $170 an ounce for the quarter, good enough for a +8% gain, as it continued to notch record high prices above $2,200.  As I write this, its knocking moved above $2,300 to $2,320 this Friday..

Silver prices have gained about 20% in a month to $27.00! Silver needs a $50/ounce price to take out its old all-time high in 2011. Does all this positive price action in the precious metals portend heated inflation reports ahead? FIND OUT. Watch the next inflation release slated for April 10^th; 8:30 AM EDT.

The markets mentioned above have increased a LOT in 6 months, so expect a pull-back at some point. Not IF but WHEN. That’s why I advocate a balanced approach; owning Stocks, shorter term Treasury Bills and Notes, Gold, and some CASH for peace of mind.

Thanks for reading. Pass my blog address on to others who may benefit.

Have a safe weekend!

~Barry

 

 

 

 

 

 

 

 

 

 

2024 Off to a Great Start; Are you Diversified?

 2024 Financial Markets Update                                                                               3/1/2024

The powerful rally in stock prices that started last November, continues into 2024. Seems that the stubborn inflation and tight money (interest rates) are not hampering the optimism on Wall Street.

Just one day into March’s market action, stocks gained about 1% Friday (on the S&P 500 and Nasdaq indexes) closing at all-time highs. The Dow sits just 44 points from its all-time high achieved in late February.  Our favored commodity – Gold, added $40 an ounce Friday, good enough for a 2% gain on the day, registering a new ALL-time high near $2,080. So it’s darn hard to find a displeased investor now-a-days.

Adding January and February together, stocks are ahead +7% on the S&P 500 index, quite a run.

Similar to the last half of 2023, the main drivers of higher stock prices remain the large technology stocks: Apple, Google, Microsoft, Amazon, Nvidea, Meta (formerly Facebook), and Tesla. Their moniker is “The Magnificent 7”*. They are widely owned by money managers and no doubt you own them too if you have a retirement plan or 401(k) plan or own a large stock mutual fund. It’s virtually impossible to NOT own these stocks unless you intentionally want to.

Back in the 1970’s the name “Nifty 50” was given to a list (of 50), stocks that were very important and also exhibited fast growing sales and earnings. If you managed money** or your own portfolio back then, you no doubt owned shares of IBM, Proctor & Gamble, Coca-Cola, Avon Products (remember Avon-calling), General Electric, Xerox, Sears Roebuck & Co., and Eastman Kodak. Some of these you no doubt recognize as they are still operating today. Some merged or went out of business. The oil embargo induced high inflation and recession of 1973-1975 sent stock prices down about 35% combined in 1973-74. The Nifty 50 fell 50% !

I see investing this way as a self-fulfilling advantage or a curse. As these companies do well and their prices rise, they represent more of the index that they’re in. Then they ‘crowd out’ other market sectors that you under-own. It becomes top-heavy – good or bad – with your performance and your dollars invested. Here’s the sector breakdown today for the S&P 500 Index.

I realize that most of us recognize the value and safety of NOT putting all your money into the stock market. But the money in stocks should be diversified also. Would you invest over 40% of your stock market money in just 2 areas of our economy, Technology and Financial Services? You can't escape this technology bias with the Dow Industrials (30 stocks) either; it's also about 40% technology; think names like IBM, Intel, and Cisco Systems; also Amazon, Apple and Microsoft.

In my mind, a more prudent idea is to own some other sectors too; health-care and energy for instance. You’ll most likely experience a smoother ride with your stock market holdings than just blindly owning the S&P 500 Index or a look-a-like. Beware: often your retirement plan will offer a mutual fund(s) named something like “Large Cap Growth Fund” or “Capital Appreciation Fund”. Look on-line to see what they own. Use Yahoo Finance to find out also. https://finance.yahoo.com, input your fund symbol, then select ‘holdings’ from the tabs, then ‘Sector Weightings’. If no luck, call your retirement plan, or the investment company who offers the fund choices. 

Let's see if the early March gains can continue with stocks and Gold. Bonds are sitting this rally out; as market-based interest rates are backing up again after the steep fall in the fourth quarter. Shorter term Treasury Bills are paying 5.1% to 5.2% a year for 3 and 6 month maturities; a safe place for your cash. Read my prior post on the 2023 recap which explains the markets in more detail.

Keep safe out there!

~Barry

 * Apple, Google and Tesla are down in price thru 2/29/24, but the Magnificent 7 are up +14% collectively year-to-date.

** My father started managing pension fund money on 3/31/73, right near the start of the bear market. He did quite well avoiding most of the losses.

 

 

 

 

 

 

2023 Financial Market Results; Ahead into 2024

The financial markets turned in a good year, about a reversal of the 2022 performance. Most of the price action up came in the last 3 months, as investors concluded in aggregate that the high interest rates were coming to an end, and that the economy could weather the storm to avert a recession. The Federal Reserve sets monetary policy, mainly through borrowing costs (interest rates). After the July interest rate hike, the Fed left interest rates unchanged in the last 3 meetings of 2023. This excited investors - thinking that rate cuts could be in-store for this year. Often forward-looking expectations carry more weight and are more motivating than the actual results.

The December inflation report showed prices up 3.4% last year. The Fed is predicting that inflation will end 2024 at 2.4%, declining to 2% in 2026. That’s a long-time to await their 2% target. A lot can happen to change their forecasts, I say with prices, employment, etc. January inflation will be released on Feb. 13^th, so that’ll tell us the first report on prices this year.

The stock and bond markets responded very favorably in the fourth quarter, much of the full-year gains were logged in the last 3 months! Stocks rose a combined +13% during November and December. Likewise, bond prices rose also as interest rates fell precipitously. The 10-year U.S. Treasury Note, which is the poster child for all types of borrowing, briefly rose to 5% in late October. It sits near 4% today, heading in the right direction. Your money not invested is earning 5% now-a-days in short term Treasury bills or money market mutual funds.

Bonds in 2023 were not the party-poopers like they were in 2022. When interest rates FALL, bond prices RISE. Bonds of all stripes rallied a lot after the Fed kept interest rates unchanged at their Nov. 1^st meeting. Similar to the price action of stocks, roughly 2/3 to ¾ of the total yearly gain in stocks and bonds occurred in the last three months. The bond price rally turned losses into final 2023 gains of between 3-5% in Treasury debt, and upwards to +10% in riskier debt like high yield (junk) bonds. I chose to not hold bonds last year, and just use idle cash to buy Treasury bills near 5% interest payments.

My favored commodity – to offset some of the risks of owning stocks and bonds - is Gold. Gold prices were down 3% in 2022, while stocks and bonds got clobbered. Last year Gold rallied $235 per ounce or +13% to close the year at $2,062, its first year-end close above $2,000 ever. It often does not follow any pattern of pricing, but the higher inflation and recent wars can be catalysts for price rises. I advocate to store Gold bullion in safekeeping, or own Gold Exchange Traded funds like GLD and SGOL that directly track the Gold price and have very low expenses in your brokerage account.

In 2024, January delivered decent returns as stocks gained about 1.5% on the Dow Jones and S&P 500 Indexes, Gold lost that much, and bonds were a small loss after interest rates rose into the New Year.

It looks like market's could in store for choppiness after the big run into year end. Besides political news, the corporate earnings and the Fed's decision-making could result in some 'backing-and-filling' on prices this Spring.

Stay Tuned!