Stocks edged slightly higher this week, most likely resulting from a lack of selling as opposed to enthusiastic buying. On a positive note, that is how it should go, as after a selloff, shallow as this one has been, investors tend to tip-toe rather than jump back into the equity pool. We tend to think this churning still has quite a way to go as the markets try to find their footing amidst a dramatic change in domestic economic policy as well as a realignment of our relationships with our traditional trading partners. For now, we will view the meager gains as a “Fed might have our back” bounce off oversold conditions. With that in mind, we continue to be selective, remaining patient to see what unfolds.
· Within the first paragraph of our Q1-2025 Newsletter written on January 11, we wrote that “a Trump Administration brings with it a much wider range of potential economic outcomes than that of a traditional executive branch. Even though his agenda may ultimately prove successful, the unorthodox nature of his approach may be accompanied by uncertainty as he bucks the system.” The markets are currently responding to this uncertainty.
· The Open Market Committee of the Federal Reserve (FOMC) concluded a regularly scheduled two-day meeting this past week and decided to leave interest rates unchanged. However, within its post-meeting policy statement members concluded that “uncertainty around the economic outlook has increased.” At the post-meeting press conference, Federal Reserve Chair Jerome Powell made the following comments, which found of interest.
· “Some near-term measures of inflation expectations have recently moved up. We see this in both market and survey based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.”
· “Looking ahead, the new administration is in the process of implementing significant policy change in four distinct areas: trade, immigration, fiscal policy and deregulation. It is the net effect of these policies that will matter for the economy and for the path of monetary policy.”
· Oh no, not the “T” word. “It can be the case that it’s appropriate sometimes to look through inflation, if it’s going to go away quickly, without action by us, if it’s transitory. That can be the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.”
· Assets Within Money Market Funds Continue to Climb. According to data from the Federal Reserve, assets within money market funds have risen by 5.91% over the past quarter and 13.93% over the past year to more than $7 trillion. To us, the rise in assets within money markets are fueled by their liquidity, relatively high interest rates and the uncertainty within the financial markets, the latter of which can provide fuel to push markets higher should the uncertainty subside.
It’s The Economy…”
· Sales of Existing Homes rose 4.2% to a Seasonally Adjusted Annualized Rate (SAAR) of 4.26 million units during February from 4.08 million during January (-1.2% y/y). According to the National Association of Realtors (NAR) “the number of existing homes for sale (NSA) rose 5.1% (17.0% y/y) to 1.24 million units in February following a 3.5% January increase. The supply of homes on the market at the current selling rate (NSA) held steady at 3.5 months.” The report also noted that “the median price averaged by all existing homes (NSA) rose 1.3% (3.8% y/y) to $398,400 in February after a 2.6% January decline. Prices remained below of high of $426,900 in June 2024.” (Source, National Association of Realtors)
· Housing Starts jumped 11.2% or by 151,000 to a seasonally adjusted annualized rate (SAAR) of 1,501,000 during February as compared to 1,350,000 in January (-2.9% y/y). Single family housing starts rose 11 4% or 113,000 to 1,108,000 from 995,000 (-2.3% y/y). Meanwhile Multifamily housing starts rose 10.7% to 370,000 in February (-4.6% y/y) from 330,000 during December. Building Permits, a key barometer of future starts, fell 17,000 to 1,456,000 in February as compared to January (-6.8% y/y). (Source, U.S. Census Bureau)
· Industrial Production, a measure of strength of the manufacturing, factory and utility sectors, rose 0.7% during February (1.4% y/y), after rising 0.3% during January. Capacity Utilization rose to 78.2% during February from 77.7% during January and versus 78.1% one year ago. Manufacturing Capacity rose to 77.0% during February from 76.4% one month prior and as compared to 77.5% one year ago. (Source, U.S. Federal Reserve)
· Retail Sales increased 0.2% during February (3.1% y/y), after falling 1.2% in January. Spending on Motor Vehicles & Parts fell 0.4% during February (3.1% y/y) after plunging 3.7% in January. Retail Sales Excluding Motor Vehicles & Parts rose 0.3% (3.1% y/y). Two key components of this report, Sales at Gasoline Stations fell 1.0% during February (-0.3% y/y) whereas Restaurant and Drinking Place Sales fell 1.5% during February (1.5% y/y) after remaining unchanged in December. (Source, U.S. Census Bureau)
Upcoming Economic Reports scheduled to be released this week include the following; on Tuesday, February New Home Sales and March Consumer Confidence (Conference Board); on Wednesday, February Orders for Durable Goods; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits, a Third Look Report on Q4 GDP and February Wholesale Inventories; and, on Friday, February Personal Income and Spending along with March Consumer Sentiment from the University of Michigan.
Q4-2024 Earnings Season Has Begin To Wind Down. Nonetheless, several companies of note are scheduled to report, to include – KB Home (KBH), Oklo (OKLO), MkCormick (MKC), Dollar Tree (DLTR), Chewy (CHWY), Cintas (CTAS), Paychex (PAYX), Walgreen Boots Alliance (WBA), lululemon (LULU).
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.”
