• Stocks finished lower for the week, ending nine consecutive weeks of gains.  As we have been noting, given the intensity and magnitude of the rally in both stocks and bonds during the fourth quarter, a sideways to slightly move lower in equities as well as a retracement of part of the move lower in interest rates would be welcome as at least to us, it would imply a bit of rationality was making its way back into the market.
  • We would not make too much of the direction of the financial markets during this holiday shortened week as many Americans were still on vacation.  Although volume on the New York Stock Exchange rebounded from Christmas week, volume on the NASDAQ remained anemic.  This week will provide more insight as to the short-term direction of the financial markets as in addition to it being a full week, inflation data at both the Retail and Wholesale level will be released in the form of the Consumer and Producer Prices Indexes.
  • According to December Payroll Data released from the Labor Department on Friday (see below), the job market remains robust as 216,000 jobs were created, outpacing the consensus estimate of 150,000.  That said, numbers for the prior two months were revised lower by 71,000.  The strength of the labor market coupled with the pace of inflation will go a long way in determining the direction of equities as well as interest rates as presently the futures market is pricing in six interest rate cuts during 2024 while the Fed “dot plot” is predicting only three.
  • Insight into the thinking of the Fed was released this past week in the form of the Minutes from the meeting of the Open Market Committee during December.  Of note were the statements that Fed officials believed that “clear progress had been made in 2023 toward the 2 percent inflation objective” and that they saw “growing signs of demand and supply coming into better balance in labor markets.”
  • A round trip for the 10-Year U.S. Treasury Note as it ended 2023 at a yield of 3.88%, the same exact rate that it closed at on December 31, 2022.  However, the 10-Year did notch an intraday high just above 5.00% and a closing high of 4.98% on October 19.
  • According to the Federal Home Loan Mortgage Corporation (FreddieMac), “between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point.  However, since then rates have moved sideways as the market digests incoming economic data. Given the expectation of rate cuts from the Federal Reserve, as well as receding inflationary pressures, mortgage rates will likely continue to drift downward as the year unfolds.  While lower mortgage rates are welcome news, potential buyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise.”
  • The title of one of the main articles on Bloomberg is “‘Everyone Got Burned’: Wall Street Missed the Great Stock Rally of 2023,” the first three words of which is a quote from Andrew Pease, the Chief Investment Strategist at Russell Investments, a firm that manages around $290 billion in assets.  Couple this with an article dated December 23, 2022 from CNBC entitled, “Why everyone thinks a recession is coming in 2023” and you can see why we do not pay much heed to market pundits.
  • The lagging sectors of 2023, namely Health Care, Utilities and Energy led during the first week of 2024 while the leaders of 2023, Technology, Consumer Discretionary and Industrials brought up the rear.  Although this change in leadership may very well selectively continue, other than trimming positions, we would not be too quick to throw out last year’s winners.  We will remain vigilant, but patient.
  • The robust jobs data pushed the entire U.S. Treasury yield curve back above four percent.  Further retracement is most likely in the cards as prior to this week the yield on the 10-year note had move from just around 5.00% to well below 4.00%.  The bond market will keep a close on the CPI and PPI this week.
  • The overwhelming consensus for 2024 is for mid- and small-caps to outperform the broader averages and the “Magnificent 7” (Amazon, Microsoft, Apple, Tesla, Alphabet and Nvidia) to lag.  Although the latter were relatively weak this past week so were the former.  Once again, time will tell.  Just something to watch.
  • After dropping double digits during 2022, the 60/40 Portfolio has righted itself.  After dropping 16.90% during 2022, a proxy for this asset allocation, the Vanguard Balanced Index Admiral Shares (VBIAX) rallied to close up 17.57% in 2023 and looks poised to provide more consistent relative performance in the future as interest rates appear to have at least stabilized.
  • Corporate news – The much aligned subscription exercise equipment company Peleton (PTON) rose Friday on news of a partnership with TikTok.  The share price of Constellation Brands (STZ), the brewer of Corona as well as a host of other beers and wines rose Friday on better than expected earnings, despite disappointing revenue.  Costco (COST) posted year-over-year revenue growth of 9.9% during December, exceeding estimates.  Shares rose.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, November Trade Balance; on Wednesday, November Wholesale Inventories; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and December Retail Inflation as measured by the Consumer Price Index (CPI); and on Friday, December Wholesale Inflation as measured by the Producer Price Index (PPI).
  • The current earnings cycle is about to heat up.  However, several companies of note are reporting this week.  These include – Helen of Troy (HELE), Albertson’s (ACI), KB Home (KBH), Delta Air Lines (DAL), Bank of NY Mellon (BNY), JP Morgan Chase (JPM), United Health (UNH), Bank of America (BAC), Wells Fargo (WFC), BlackRock (BLK) and Citigroup (C).

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.”

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