March 3, 2024


  • What can we say?  Stocks once again moved higher this past week, fueled by better than expected earnings, inline inflation data (see below) and by Newton’s First Law of Motion (a body in motion stays in motion in a straight line unless acted upon by an outside force).
  • After a bear market like the one investors experienced during 2022, the market eventually turns and stocks begin to climb a “wall of worry.”  As we have noted many times previously, historically bull markets last a lot longer than bears by a ratio of approximately 3:1.  However, during each bull market there are corrections, ones that quite often come when that “wall of worry” has been chipped away at by short-term FOMO (Fear of Missing Out) investors, those that are now clearly riding the momentum train.
  • Presently, we would welcome a market that bides time by moving sideways or perhaps drifts somewhat lower as it would work off the excesses created as a result of the more than 20% move from the October 27, 2023 bottom, allowing bullish sentiment to cool a bit.
  • 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 strength.
  • The longer this narrow trade in Artificial Intelligence (AI) continues, the more likely retail investors will end with a portfolio of momentum stocks only to lose their gains once the music stops.
  • This past Thursday, the NASDAQ Composite notched its first record high on since Nov 19, 2021.  It followed thru with more gains on Friday, rising more than one percent.  The tech heavy weighted index has been led higher by surging share prices stocks that benefit from AI.
  • Illustrating the bullet immediately above, quarterly earnings of Dell Technologies (DELL) were positively impacted as a result of “strong AI-optimized server momentum,” according to Chief Operating Officer Jeff Clarke while those of Hewlett Packard Enterprise (HPE) were negatively impacted by “softening in the networking market and GPU deal timing,” according to their CFO Marie Myers.
  • You earned your stripes during 2022, when the S&P fell more than 25% from its prior record high set January 3, 2022 as you retained the appropriate level of risk in accordance with your objectives, which together we designed.  Keep in mind that it won’t always be as easy as it is now.  According to the Hartford Funds, “from 1984 to 2023, the S&P 500 Index returned an average of 11.33% per year, and investors may have expected similar 11% returns in any individual year.  However, there were only three years in which the Index returned between 9% and 12% during this period.  Volatility is much easier to tolerate when you expect it.”
  • Historically, the direction of the financial markets over a full economic cycle is somewhat predictable as over the last 85 years, stocks have risen 90% of the time over a five-year rolling period and 97% over a ten.  However, the media tends to ignore this fact, choosing to focus on the short-term which is entirely unpredictable.  As an example, should you flip a coin once, the ability to predict either heads or tails is reduced to luck.  However, if you flip it 1000 times, it is quite predictable that you will get heads approximately 50% of the time and tails the other.  Beware of being sucked in to reacting to “news” that may compromise your financial health.  Nobody knows the short-term direction of the financial markets.  However, from the coverage in the media, you would think everybody does.  We choose to focus on something much more predictable – full economic cycles.
  • The recovery of the classic retirement 60/40 Portfolio continues in 2024.  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.  However, many still wonder if this model of 60% equities and 40% fixed income/cash was poised to continue to rally or would be left on the sidelines once again.  Thus far the answer is yes, as year-to-date VBIAX has risen 4.02%.  Although it has predictably lagged the S&P 500 which has risen more than seven percent, its weighting in bonds should provide less volatility going forward and perhaps even some appreciation should interest rates decline from here.
  • According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates continued their ascent this week, reaching a two-month high and flirting with seven percent yet again.  The recent boomerang in rates has dampened already tentative homebuyer momentum approaching the spring, a historically busy season for homebuying.  While sales of newly built homes are trending in a positive direction, higher rates and elevated prices continue to pose affordability challenges that may leave potential homebuyers on the sidelines.”
  • 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 newsWendy’s (WEN) is considering a test of “dynamic” or surge pricing beginning as early as 2025.  They may think twice as when it was announced the burger chain suffered some online backlash which will only intensify as the details become more widely known.  Shares of regional bank New York Community Bancorp (NYCB) plunged more than 25% on Friday after it announced an amendment to its fourth-quarter results, citing internal risk management, particularly in respect to its internal controls related to internal loan review.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, January Factory Orders; on Wednesday, the January Job Openings and Labor Turnover Survey (JOLTS) and January Wholesale Inventories; on Thursday, Weekly Report of Initial Claims for Unemployment Insurance, the January Balance of Trade and January Consumer Credit; and on Friday, the February Non-Farm Payroll Report along with February Unemployment Data.
  • The current earnings cycle has peaked and begun to wind down.  Nevertheless, several companies of note are reporting this week, to include – CrowdStrike (CRWD), Target (TGT), Ross Stores (ROST), (JD) Campbell Soup (CPB), Burlington Stores (BURL), Marvell Technology (MRVL), Kroger (KR), Broadcom (AVGO), Costco (COST) and Oracle (ORCL).

General Disclosure:“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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