· Except for the NASDAQ Composite, stocks closed the week, month and quarter higher during this holiday shortened week, led by Utilities, Real Estate and Energy. In fact, Energy was the best performing sector during the entire quarter (see below), one which we continue to like as we begin Q2. After a very calm start to 2024, investors should expect volatility to pick up during the second quarter as the rhetoric surrounding the upcoming Presidential Election heats up. 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.
· Speaking at an event at the San Francisco Fed, Federal Reserve Chair Jerome Powell stated that “the fact that the us economy is growing at such a solid pace, the fact that the labor market is still very, very strong, gives us the chance to be a little more confident about inflation coming down before we take the important step of cutting rates.” Powell went on to say that he still expects “inflation to come down on a sometimes bumpy path to 2%.”
As we previously noted within several recent weekly postings, “the Fed’s efforts to get inflation back to two percent, one-half of its congressionally mandated objectives (the other being maximum employment), from its current level of around three percent, aka the ‘last mile’ may take more time and effort than the move to here from its highs during 2022 as some inflation data will most likely remain sticky. At this time, given the above as well as the approaching U.S. Presidential Election, we believe at the earliest any cut in interest rates would occur following the June meeting. Finally in regard to this matter, the Fed may cut and wait rather than provide a series of cuts.”
· According to the Intercontinental Exchange, Inc. along with Bloomberg, “cocoa prices have surged more than 250% over the last year, surging to $10,000 per metric ton – nearly double the record high set 46 years ago.” Bloomberg titled this piece, “It’s An Expensive Year To Be The Easter Bunny.” Despite the fact that inflation is subsiding to a great extent, a topic we have beaten to a pulp, there remains that last mile down the Fed’s two percent target. We believe that achieving this goal will take some time and that this along with stubbornly low unemployment will keep them on the sidelines longer than is currently anticipated.
· Mortgage Rates Dip Slightly, this according to FreddieMac. The government agency also noted that “additionally, encouraging data out on existing home sales reflects improving inventory. Regardless, rates remain elevated near seven percent as markets watch for signs of cooling inflation, hoping that rates will come down further.”
· After rising more than 10% during the first quarter, if history is any guide the S&P 500 may be poised for additional gains during the second quarter and indeed for the balance of 2024. Of the eleven times the S&P 500 posted gains of ten percent or more during the first quarter, it went on to post additional gains for the balance of the year. Although one known hurdle may prove a stumbling block for the S&P 500 to repeat this feat, namely the upcoming Presidential Election, we believe that after a normal pullback, we along with history are on the side of the bulls.
· The economic repercussions of the collapse of the Francis Scott Key Bridge in Baltimore after being struck by a cargo ship will most likely last well through the remainder of the year. The challenge will be to divert cargo from the nation’s eleventh largest port and the largest port of imported cars to others along either the East or West coast. After a period of adjustment, we believe the impact to the broader economy will be minimal. However, the majority of the costs will most likely be borne by the consumer in the form of slightly higher prices, something the Fed will watch closely.
· General Electric (GE) will spin off its gas power clean energy businesses, GE Vernova (GEV) this coming Monday, April 2. Shareholders of GE will receive one share of GE Vernova for every four shares of GE they hold as of March 19, 2024. GE previously spun of GE HealthCare Technologies (GEHC) in January 2023.
· 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.
· We believe that we are in the early innings of an industrial super cycle, as a result of on-shoring and near-shoring. Investors can benefit by investing in technology, companies that utilize technologies to increase efficiencies, industrials, materials and infrastructure plays.
· There’s a big difference between a top and a consolidation. If it stalls here, we think that the overall market, including technology, will do so as part of a consolidation and not a long-term top. From the performance of the SPDR Select Sector ETFs that looks like exactly what we are getting. We are very content with this.
· It’s been four years since the S&P 500 marked its COVID low on March 23, 2020, dropping more than thirty percent in a little over a month, and if you were wise enough to either hold on or add to positions you earned an average of more than twenty percent per year. Keep in mind that this period also included a more than 25% drop from peak to trough during 2022.
· 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 SPAC Digital World Acquisition Corp was successful in taking Trump Media & Technology Group (DJT) public at a valuation of $6.8 billion, 58% of which is owned by former President Donald Trump, placing his worth within DJT at approximately nearly $4 billion. Boeing (BA) CEO David Calhoun will step down at the end of this year amidst production troubles at one of the nation’s premiere manufacturers. We would recommend taking a wait and see attitude before boarding this stock.
· Upcoming Economic Reports scheduled to be released this week include the following, on Monday, February Construction Spending and the Report on Manufacturing from the Institute for Supply Management (ISM); on Tuesday, February Factory Orders, the Job Openings and Labor Turnover Survey (JOLTS) for January; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and the February U.S. Trade Balance; and on Friday, the March Non-Farm Payroll Report, the March Unemployment Rate; the ISM Report on Services and March Consumer Credit.
· The current earnings cycle has peaked and begun to wind down. Nevertheless, several companies of note are reporting this week, to include – PVH Corp (PVH), Paychex (PAYX), Levi Strauss (LEVI), Conagra (CAG) and Greenbrier (GBX).
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.”
