• Stocks rallied on Friday to finish the week solidly in the green.  This despite a much stronger than expected January Non-Farm Payroll Report (see below) which pushed interest rates higher and quieted most calls for a rate cut following the meeting of the Fed’s Open Market Committee during March.  Earlier in the week, on the heels of hawkish Fed comments, just the opposite was true as equities sank while bonds rallied.  With many of the market leaders having reported earnings for the prior quarter over the last three weeks, it seems likely that they might want to digest their recent gains during February, as historically it is a relatively weak period anyway.  That said, given the underlying strength of most of them, we would use that weakness to accumulate shares.
  • We remain comfortable with the summarization of our sentiment in recent weeks and will once again note that “despite the fact that the S&P 500 has risen more than 34% off its October 2022 low, the average bull market historically tacks on more than 100% and lasts more than four years.  Although we believe this bull will be weak by historical standards, investors should not ignore the fact that record closes generally beget more record closes.
  • Regardless, given the intensity and magnitude of the rally in both stocks and bonds during the fourth quarter and into the early stages of 2024, a sideways to slightly lower move 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.
  • Noting that “the risks to achieving its employment and inflation goals are moving into better balance,” following the conclusion of their meeting on Wednesday, the Open Market Committee of the Federal Reserve (FOMC), maintained their current target range for the Federal Funds Rate at 5.25% to 5.50%.  Following the meeting, during the press Conference Fed Chair Jerome Powell had some notable comments, including the following:

o    “We’ve had inflation come down without a slow economy and without important increases in unemployment.  There’s no reason why we should want to get in the way of that process if it is to continue.”

o    “Continued declines inflation are really the main thing we are looking at.  Of course, we want the labor market to remain strong, too.  We don’t have a growth mandate.  We have a maximum employment mandate and a price stability mandate.”

o    “It’s been interesting that confidence surveys have been weak at a time when unemployment has been historically low for a couple of years.   We don’t pretend to have perfect wisdom on this, but one obvious answer is that prices went up more than 2% a year for a couple of years.”

o    And finally, Powell stated that “Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March [19-20] meeting to identify March is the time to do that [cut rates].”

  • Running on a treadmill.  After the bear market during 2022, the Dow Jones Industrial Average, S&P 500 and U.S. Total Market Index closed Friday at record highs.  The first two have been setting record highs since late 2023.  However, this past week the U.S. Total Market Index set its first since the early days of 2022, more than two years ago.  We view this as a positive sign as the choppy trading witnessed over the past two years has occurred while the economy has been adjusting to a post-COVID environment and has now begun to look forward to a world increasingly influenced by Artificial Intelligence (AI).  After a potential breather this “AI World” should help the NASDAQ Composite join the aforementioned indexes in setting record highs some time during 2024 as it sits less than three percentage points away at the close of trading this past Friday.
  • After a furious rally off the October 2022 lows, interest rates have been trading within a range indicating to us that, at least for now, perhaps the easy money has already been made in the bond market.  Those looking to get in on the long end of the yield curve should wait for more data to see if inflation is indeed cooling to the extent to warrant such an investment.
  • Shares of regional banks stumbled this past week after New York Community Bancorp (NYCB) reported earnings that reflected substantial stress on its commercial real estate portfolio.  This ignited fears that perhaps the problem is not confined solely to NYCB, but perhaps industrywide.  As a result, shares of the SPDR S&P Regional Bank ETF (KRE) slipped 8.74%.
  • According to the Federal Home Loan Mortgage Corporation (FreddieMac), “Although affordability continues to impact homeownership, the combination of a solid economy, strong demographics and lower mortgage rates are setting the stage for a more robust housing market.  Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation, rates are expected to decline further.  The economy continues to outperform due to solid job and income growth, while household formation is increasing at rates above pre-pandemic levels.  These favorable factors should provide strong fundamental support to the market in the months ahead.”
  • Meta Platforms (META) shares surged Friday on the heels of much better than expected earnings as well as the announcement of their first ever dividend, $0.50 per quarter to be paid on March 26.  Certainly of note are the earnings.  However, what may have a longer-lasting positive impact on the larger, more mature technology companies is the dividend, as it may spur other secular growers to initiate one of their own.  Historically, they tend to plow earnings back into company operations to maintain growth.  Paying a dividend opens the purchase of shares of these companies to a wider range of investors, both retail and professional.
  • Corporate newsWalmart (WMT) announced a 3-for-1 stock split, their first since 1999.  Although such a split provides no economic benefit to shareholders, it is an indication that WMT is confident in their business prospects for the foreseeable future.  Tesla (TSLA) CEO Elon Musk announced that his privately held company, Neuralink successfully implanted one of its wireless brain chips in a human.  That’s scary although we do believe our wives planted one in ours – and has the controls!  JK.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Monday, January ISM Non-Manufacturing Index; on Wednesday, December Balance of Trade and December Consumer Credit; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and December Wholesale Inventories.
  • The current earnings cycle is in full swing.  Several companies of note are reporting this week, to include – McDonalds (MCD), Caterpillar (CAT), Amgen (AMGN), Eli Lilly (LLY), Toyota Motor (TM), Alibaba (BABA), Disney (DIS), Total (TTE), Uber (UBER), ConocoPhillips (COP), Philip Morris (PM), AstraZeneca (AZN) and PepsiCo (PEP).

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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