Presidential Debate Week; Political Considerations

 

We are entering the "spin zone" leading up to the Presidential Election.

With the first Presidential debate on Thursday this week, in my opinion, we've already entered the 'spin zone' of political truths, lies and misrepresentations this election season. While I try to stay politically neutral with my posts the past 18 years doing this, I'll focus on four areas of our economy that are super-important to our lifestyles, investing, home buying, inflation, and gasoline prices. You decide if this information is important to you.

What prompted this was a post on Facebook from a connection there that stated the stock market had done extremely well under the Biden administration. Generally, most market watchers would look at this and say, SURE, stock prices are trading at record highs, so we're doing rather well here the past 3-1/2 years. That begs the question then, RATHER WELL vs. what?

Reading between the lines, this Facebook post was comparing Biden's stock market to Donald Trump's stock market performance. No stats were offered by the author that I could fact check.

I offered a short reply comparison using the inauguration dates of the two President's; That would be fair, right? Under your reign, you're responsible - good or bad - for the results.

Here's my analysis. Biden Admistration: Dow Jones 30,930 to 40,000 now (I'm using the high close on 5/17/24 as the post author alluded to). So next we calculate the average annual compound growth rate, since 4 years of Trump's reign can't compare accurately to the shorter time that Biden's logged in office thus far.

Trump's stock market (Dow Jones Industrial Average) started at 19,732 to 30,930, ending at Biden's inauguration. Biden's market was from Dow 30,930 to 40,000.

The Results:  Biden, average compound annual growth rate:    +8.03%
                      Trump, average compound annual growth rate: +11.90%

That's quite a difference, and a lot of ground to make up for Biden in the next 7 months! The Dow would need a 48,480 level to achieve parity with Trump.

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HOME BUYING

Mortgage rates have soared the past 2-1/2 years, after the Federal Reserve started raising interest rates in early 2022 to curb inflation; 11 hikes in total. The mortgage rate tally:

30 Year Fixed Mortgage Rate at end of Trump's presidency:  2.95%

30 Year Fixed Mortgage Rate today under President Biden:   6.94%

Source: Mortgage Bankers Association, data as of 6/14/24.

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 INFLATION (Consumer Prices)

This really afffects all American's hard. Inflation totaled +7.72% under Trump's 4 years in office. As you can see by the graph of inflation below, inflation almost immediately rocketed up starting in early 2021. 

 

 

 

 

The starting inflation under the Biden administration ramped up higher than all four years under Trump in the 13th month of Biden's Presidency.

Total inflation thus far under Pres. Biden: +19.86% (through the 40 months reported thus far; using May '24 reporting data).

Source: U.S. Bureau of Labor Statistics; www.bls.gov

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GASOLINE

One commentator on the cable news channel stated that one indicator that would resonate with voters would be the price of gas on Memorial Day, the un-official start to the Summer travel season. So I looked it up over the 8 Memorial Day's under both Presidents.

TRUMP'S Memorial Day gas prices (futures market prices, without taxes).
2017 - 2020;  $1.57,  $2.14,  $1.80,  $1.03

BIDEN'S
2021 - 2024; $2.21,  $4.02,  $2.43,  $2.49

Of note: Under Trump, the 2020 Covid-19 Pandemic caused gas prices to plummet; $1.03 wholesale. Likewise, when demand picked up, and Biden's U.S. energy policy became restrictive, prices soared, $2.21 and $4.02 on Memorial Day's 2021-2022. Biden's Memorial Day gas prices were never lower than Trump's, and overall the Biden-era prices were +60-70% more under Biden.

I realize this is not entirely statistically scientific using just 8 data points, but I think you get the idea here on the general trend in gas prices.

Whether conservative or liberal, Democrat of Republican, there's certainly other factors and stats that would favor one side over the other. Let me know of others that I have missed. Watch the first Presidential Debate on Thursday, June 27th.

Have a safe Summer!

~Barry

 

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.