· The rally continued to broaden this past week as all eleven sectors contained within the SPDR Select Sector ETFs posted gains, led by Utilities, Financials, Materials and Industrials which were somewhat laggards during the Technology and Consumer Discretionary led rally of 2023. We will hold off on becoming too enthusiastic and watch whether this rotation spells a wholesale change in leadership or just some profit-taking in those former leaders mentioned above. Despite historical data suggesting otherwise, we are somewhat cautious as the Presidential Election Season heats up.
· The above also begs the question as to what inning we are in in respect to the rally in growth stocks as compared to value. Over the past twelve months the Schwab U.S. Large Cap Growth ETF (SCHG) has risen by 39.90%, more than double the return of the Schwab U.S. Large Cap Value ETF (SCHV) is up 18.02% over that same time frame. However, over the past three months, SCHV has outperformed SCHG 5.70% to 2.83%. Again, nothing conclusive but of note and something to keep an eye on.
· On a broader note but along the same theme as outlined above, it will be important to see if the recent outperformance of the Dow Jones Industrial Average, an historically cyclically price-weighted index as compared to the S&P 500, a price-weighted index where technology is dominant, continues as it has for the past month or two.
· According to the Federal Home Loan Mortgage Corporation (FreddieMac), “after a five week climb, mortgage rates ticked down following a weaker than expected jobs report. An environment where rates continue to hover above seven percent impacts both sellers and buyers. Many potential sellers remain hesitant to list their home and part with lower mortgage rates from years prior, adversely impacting supply and keeping house prices elevated. These elevated prices add to their overall affordability challenges that potential buyers face in this high rate environment.”
· According to data collected by Bespoke Investment Group, “on a strictly price-weighted basis, the Philadelphia Semiconductor Index (SOX) has been making a run of lower highs since its peak in early March, and on a relative strength basis the downtrend has been even more pronounced. For a sector that has typically been a leading indicator for the market and the broader economy, the weakness in semis is a concern.”
· 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.
· Corporate news – Berkshire Hathaway (BRKB), the Warren Buffett led conglomerate, trimmed its stake in Apple (AAPL) over the past quarter, citing tax planning as the rationale. Nonetheless, Apple remains Berkshire’s largest holding by far. The Utility Sector as represented by the Utilities Select Sector SPDR ETF (XLU) has risen 10.17% over the past month, nearly ten times that of the S&P 500. It remains to be seen if this represents an investment in value or a bet on a slowing economy.
· Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, April inflation at the Wholesale Level as measured by the Producer Price Index (PPI); on Wednesday, April inflation at the Retail Level as measured by the Consumer Price Index (CPI), April Retail Sales, March Business Inventories; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, April Housing Starts, April Industrial Production and Capacity Utilization; and on Friday, the April Index of Leading Economic Indicators (LEI).
· The Q1 Earnings has begun to slow. However, companies of note scheduled to report this week, include – Alcon (ALC) Home Depot (HD), Alibaba Group (BABA), Cisco Systems (CSCO), Walmart (WMT), Deere (DE) and Applied Materials (AMAT).
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.”