· Stocks drifted higher this past week as the much awaited inflation data gave both bulls and bears fodder for their respective points of view. On Thursday, inflation at the retail level as measured by the Consumer Price Index (CPI) was released and showed overall as well as core costs (excluding food and energy) both rising by 0.3%. In addition, y/y inflation remained stubbornly above the Fed’s 2.0% target. That data was followed by the release by the Producer Price Index (PPI), a measure of inflation at the wholesale level on Friday which showed overall as well as core inflation basically unchanged.

Last week, we cautioned investors not to make too much of the direction of the stock market during what was a holiday-shortened week as many Americans were still on vacation and that the upcoming week would provide better insight as to the short-term direction of the financial markets. Although not short-term traders, we do believe that it will be hard to unseat the sectors that exceled during 2023, namely, Technology, Communication Services and Consumer Discretionary and this past week, at least temporarily, confirmed that view.

Regardless, we will once again note that 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.

· According to Creditnews Research, 30.8% of American homeowners are “house poor,” spending at least 30% of their monthly income on housing related expenses. The data revealed that 37.2% of homeowners with a mortgage were considered to be house poor while 20.8% of those homeowners without a mortgage were also considered so. In New York 39.3% of householders were considered house poor. Not surprisingly, homeowners of many of the higher “house poor” ranking states had high state personal as well as property taxes. However, what the survey also found was that states with the lowest percentage of house poor residents were also states with incomes below the national average.

· This past Wednesday, the Securities and Exchange Commission (SEC) gave regulatory approval for the establishment of Bitcoin ETFs, highlighting the tight correlation between spot bitcoin prices and those on the Chicago Mercantile Exchange. The SEC also noted that by giving approval they would be better able to identify manipulation of bitcoin prices. Our take is that cryptocurrency is speculative and as such should represent a minor percentage of one’s portfolio.

· Banking giant, Citigroup (C) announced Friday that it was laying off 20,000 employees over the next two years in an effort to realign its workforce with its core businesses. This follows layoffs from many others, including Nike, Intel, General Motors and Amazon. During November’s job cut Amazon’s Vice-President of Alexa and Fire TV, David Rausch stated that “as the company continues to invent, we’re shifting some of our efforts to better align with our business priorities, and what we know matters most to customers – which includes maximizing our resources and efforts focused on generative AI.” We bet we will be hearing a lot more references to AI in the future.

· The U.S. Budget deficit totaled $1.7 trillion during its’ 2023 Fiscal Year which ended September 30. For its fiscal first quarter of 2024, that deficit totaled $510 billion. Pretty soon we will be talking about real money (JK)! The increased deficit can be pinned mostly on higher Social Security Payments as well as higher interest payments on the accumulated debt, both as a result of inflation. Nonetheless, this shouldn’t come as a surprise to our esteemed leaders (again JK). There’s enough blame to go around on both sides of the political aisle. Let’s get it together ladies and gentlemen.

· 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), “mortgage rates have not moved materially over the last three weeks and remain in the mid-six percent range, which has marginally increased homeowner demand. Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers.” In our opinion, this is what we have termed “the normal.” Homeowners ages 45-plus are quite familiar with these rates and we believe that younger potential homebuyers will be as well, as they will most likely remain range bound.

· 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. (For the benefit of our readers we decided to leave this bullet from last week’s Snapshot and will encourage them to take this into consideration along with the second paragraph within the first bullet above.)

· 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 Microsoft (MSFT) surpassed Apple (AAPL) as the most valuable publicly traded company in the world as of the close of business Friday as MSFT has ridden the wave of Artificial Intelligence (AI) while many have criticized Apple for being slow on the AI uptake. Shares of Boeing (BA) fell 12.57% this past week as the Federal Aviation Administration (FAA) grounded their Max 9 after an aircraft lost a cabin door exit plug while in flight.

· Upcoming Economic Reports scheduled to be released this week include the following, on Wednesday, December Retail Sales and November Business Inventories; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and December Housing Starts; and on Friday, December Existing Homes Sales and the Preliminary January Report on Consumer Sentiment from the University of Michigan.

· The current earnings cycle is in full swing. Several companies of note are reporting this week, to include – Morgan Stanley (MS), Goldman Sachs (GS), PNC Financial (PNC), US Bancorp (USB), Charles Schwab (SCHW), Kinder Morgan (KMI), Discover Financial (DFS), M&T Bank (MTB), Fastenal (FAST), JB Hunt Transport (JBHT), Travelers (TRV), Taiwan Semiconductor (TSM), Schlumberger (SLB) and State Street (STT).

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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