• Who knows if the fractional selloff this past week is the beginning of a pause to refresh or just another head-fake as investors merrily ride along this bull market train.  At this point we are selectively dollar cost averaging in and will become more aggressive should the bull take a breather that lasts more than a week or two.                                                                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.
  • Bullish sentiment remains unusually high, according to the American Association of Individual Investors (AAII) Sentiment Survey.  The survey noted that “optimism among individual investors about the short-term outlook for stocks increased in the latest AAII Sentiment Survey.  Meanwhile, pessimism slightly increased and neutral sentiment decreased.”  Many investors use the results of the survey as a component to deciding whether or not to add risk to their portfolios.  The AAII Sentiment Survey is a contrarian indicator as the prevailing sentiment (aka the herd mentality) is often wrong.  According to the most recent release “bullish sentiment is unusually high and is above its historical average of 35.7% for the 18th consecutive week,” a period during which the S&P 500 has climbed more than twenty percent.  For this reason along with others, it should not be used as the only criteria.
  • 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.
  • All eleven of the Select Sector SPDR ETFs are in the black year-to-date, illustrating the broadening of the rally.  Furthermore, cumulative market breadth, measured by the number of stocks advancing as those that are declining, has moved in lockstep with the S&P 500, confirming the rally.
  • In remarks before the Senate Banking Committee this past Thursday, Federal Chairman Jerome Powell stated that “we’re waiting to become more confident that inflation is moving sustainably at 2%.  When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction.”
  • 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.
  • Betting that the Fed will cut interest rates during 2024, the price of both gold and bitcoin closed at record highs at some point during the week.  However, others (us included) also think the price of both are rallying as according to data from the U.S. Treasury the nation’s debt is rising by about $1 trillion every 100 days.
  • 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.
  • 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 European Commission levied a $1.95 billion antitrust fine on Apple (AAPL) for abusing its dominant position in the distribution of music market.  The EC, part of the European Union’s executive arm said it found Apple had applied restrictions on app developers, preventing them from informing iOS users of alternative subscription services.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, February Retail Inflation as measured by the Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, February Wholesale Inflation as measured by the Producer Price Index (PPI), February Retail Sales and February Business Inventories; and on Friday, February Industrial Production and Capacity Utilization; February Import & Export Pricing along with the Preliminary March Report on Consumer Sentiment from 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 – Calavo Growers (GVGW), Oracle (ORCL), Kohl’s (KSS), Dollar Tree (DLTR), Dick’s Sporting Goods (DKS), Dollar General (DG), Ulta Beauty (ULTA) and Adobe (ADBE).

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.”

Similar Posts