· Stocks continued their relentless move higher as the S&P 500 closed above the 5,000 mark for the first time ever this past Friday (see below). Although historically record highs bode well for returns over the following year, 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% [40%] 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.
· The S&P500 finished the week at a record high, 5,026.51 and in so doing marked the first ever close for this index above 5,000. This prompted two questions, 1) when did the index first close above 1,000? and 2) is the S&P500, fueled by technology stocks (AI) in the midst of a bubble, akin to the late 1990s?
- The S&P500 first closed above 1,000 on February 2, 1998, twenty-six years ago. It continued to rise throughout 1999 and then in early 2000, as the technology bubble imploded, the S&P500 began a multi-year selloff, exacerbated by the terrorist attacks on September 11, 2001. In fact, the S&P hung around the 1,000 mark for quite a while as evidenced by its closing value on August 3, 2009 of 1,002. For the record, it wasn’t until October 13, 2014 that the index first closed above 2,000, sixteen-plus years after initially surpassing the 1,000 mark.
- In order to answer the second question, it is more appropriate to examine the gains made by the technology-laden NASDAQ Composite rather than the S&P. Considering the fact that the NASDAQ has risen by a total of 2.21% since the close of 2021 and although by an impressive average of 18.79% per year (6,635 to 15,991) since the end of 2018, five-plus years, it pales in comparison to the move over the five year period culminating on March 9, 2000, during which the NASDAQ rose by an average of 45% per year, quintupling in value from 1,000 to 5,000.
- Although we are concerned with the current euphoria in regard to certain areas of the stock market and although like most other bull markets, there are similarities with those of the past, we do not believe we are in a bubble. We will reiterate what we have been stating within the Snapshot for several months, that a retracement of part of the move upward would be healthy for the market over the longer-term.
· “Super Flu” Pandemic to hit Americans. According to the Independent, “A survey from UKG, a provider of human resources, payroll, and workforce management solutions, estimated that 16.1m U.S. employees plan to miss work the day after the 11 February Super Bowl in Las Vegas. The survey also found that 22.5m employees, or 14 per cent of the work force, expect they will miss at least some work on Monday while 45m say they’ll be less productive than usual.”
· Given the pace of economic activity along with the strength of the stock market, there is a good chance that when the Fed cuts interest rates they will not do so in a linear fashion, but more in a cut and then wait-and-see pattern. Despite the fact that many believe the Fed will cut over several consecutive meetings, we do not consider it a fait accompli nor do we consider it a prerequisite for continued market gains.
· For short-term thinkers, the stock market is like a pick-pocket, continually trying to separate the investor from their money. Short-term thinkers tend to listen to market hype and pile in at the top or conversely, selling when fear is running rampant, near the bottom. Don’t fall for the intimidation. Don’t fall for the FOMO. Steady as she goes whether there is a headwind or tailwind. Keep your predesigned, objective asset allocation model intact. Think long-term. This is not a competition. This is your money. This is your life.
· 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.
· Corporate news –The actual much ballyhooed cage fight between Tesla (TSLA) CEO Elon Musk and Meta (META) CEO Mark Zuckerberg has never taken place. However, we couldn’t agree more with the title of a Bloomberg Article, “Elon’s Cage Fight With Zuckerberg Just Happened. He lost” as shares of Tesla are flat over the past year while those of Meta have risen 168%. Shares of Disney (DIS) rose sharply this past week as both revenue and earnings surpassed estimates this past quarter. The company also announced that it is forming a joint venture for ESPN and take a $1.5 billion stake in Epic Games. We believe investors will let the stock settle around these levels and wait to see if CEO Bob Iger can once again work his magic.
· Upcoming Economic Reports scheduled to be released this week include the following, on Monday, January Retail Inflation as measured by the Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, December Business Inventories, January Industrial Production and Capacity Utilization; on Friday, January Housing Starts, January Wholesale Inflation as measured by the Producer Price Index (PPI) and a preliminary look at February Consumer Sentiment as reported by the University of Michigan.
· The current earnings cycle has peaked and begun to wind down. Nevertheless, several companies of note are reporting this week, to include – Arista Networks (ANET), Waste Management (WM), Moody’s (MCO), Ecolab (ECL), Coca-Cola (KO), Shopify (SHOP), Airbnb (ABNB), Zoetis (ZTS), Cisco Systems (CSCO), Occidental Petroleum (OXY), Southern (SO), Stellantis (STLA), Airbus (EADSY) and Deere (DE).
“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.”