July 12th, 2024

Over the past few weeks, we have learned economic data is showing signs of consumer spending declines, and corporate profit outlooks coming down.

Fast Food chains now offering meals around $5, Walmart announcing they see consumers spending less on items over $10, and corporations taking down revenue expectations for 2024.  In addition, we are hearing late payments for cars, homes, and credit cards are all Increasing.

Home sale listings are increasing too, even with 3% mortgage rates many owners enjoy.  Why is this happening, it all leads to consumers have simply lost the battle from high inflation over the past 2 years.

We recently learned Lamborghini waiting list has gone from 18 months, to ZERO months, as interested buyers can grab a car off the lot right now.  You may be thinking, who cares about people who can afford Lamborghinis, but it shows consumers spending less at Walmart, late payments on essentials, and high-end buyers all showing signs of spending exhaustion.

This does not mean a recession is around the corner, it simply means a Stock Market at All-Time Highs may need to take a break for a few months.  Money will move out of Top Tech stocks, find a short-term home with Value stocks, and come back to Top Tech stocks after a brief pull-back.

Money rotates from sector to sector because most Mutual Fund companies and many Asset Management firms are not allowed to move out of Stocks and into Money Market Funds, more than 5% of the fund asset level.

Many Financial Advisors managing Discretionary client accounts generally won’t move client assets to Money Market Funds because they can’t justify charging clients management fees to sit in Money Market Funds, therefore, they find Large Cap safe companies to invest in for a short period.

It’s not unusual to see the market cool down in the Summer and Decline from August to Mid-October.  As the slow period of the year for many publicly traded companies is third quarter, and those earnings are released early to Mid-October.  History shows the best returns from the Stock Market happen between Mid-October to Mid-April.

Technology sector has allowed the S&P 500 Index to perform very well in 2024, and we should see a short Tech sell-off in the next couple months.  Even as a Tech sell-off is likely, AI related companies, Semis, Software, and Hardware stocks should see a very strong recovery to the end of 2024.

As job layoffs will increase, corporations will take those payroll savings and increase spending to automate their processes, leading to relying less on humans and more on Technology moving forward.

Over my 28+ year career, we have seen this happen during every economic downturn, and we are starting another downturn right now.  Remember, 18 months after the Fed Funds Rate goes above 5%, we have seen the economic storm clouds move in much faster over the past three decades.  We can never predict the severity of the storm, but a storm is coming.

November 2024, is the 18th month since the Fed Funds Rate went above 5%.

Individual Stock Selection becomes much more important during these economic slowdowns, rather than own Index Funds or Mutual Funds with hundreds of stocks within the fund.  These type of investments contain stocks which represent a wide range of sectors, and when that is the case, it becomes much more challenging to grow your portfolio.

Contact me if you are interested in a portfolio review.  Fees depend on size of your portfolio, time it will take to review your holdings, and whether you want a detailed plan for future growth or income.

J.Wigen@IFManagers.com

Best of luck to all of you!

What is Causing Markets to Decline Lately?

April 18th, 2024

We are noticing a recent decline in the stock market, and there are several reasons for it.

The most recent decline is a reaction to the 10-Year Treasury Yield moving closer to 5%, the exact same scenario we experienced in October 2023, pushing markets lower around 8%.

The stock market has been on a tremendous run since October 27th, 2023, however, we are now seeing some of those gains decline.  At this time, there doesn't seem to be any reason to be worried, a healthy pull-back from a tired market is to be expected.

Economic data is strong, which is part of the reason the market is moving lower.  Investors are concerned the strong economic data will prevent the Federal Reserve from starting to cut the Federal Funds rate until much later this year.  Most predictions were the Fed would start cutting Spring 2024, and now with recent data that will not happen.

As I stated on my blog late December 2023, the market will go through periods of volatility in 2024, as investors continues to digest economic data, corporate earnings, and forward looking projections from CEOs during earnings announcements.

If we look back to 2007, the market experienced a healthy rise most of the year, even though the Fed actually cut the Federal Funds rate, which means economic data started showing signs of weakness, primarily coming from Consumers falling behind in their credit card, housing and car loan payments.  

All seemed fine in 2007, until middle part of October, when the market started crashing, and by December economists were using the Recession word.

As of last Friday, earnings are starting to be announced for the 1st quarter of 2024.  We will quickly learn where the market could be headed based on forward looking statements made during these earnings announcements, and not earnings results alone.

A few important comparisons with 2007 investors should keep an eye on, Consumer Spending & Consumer Debt management.  We are already seeing consumers falling behind on debt payments, maxing out credit cards, and once Buy Now Pay Later payments start showing increasing delinquencies, we may see the market pull-back 10%-20%.  As usual, it's not if it will happen, it's always when it will happen that is tough to predict.

As investors, all we can do is stay focused on the data, and stay objective, not allowing a bull or bear bias to impact investing strategies.  Money Market yields are currently offering around 5%, for many of you, that yield puts you very close to the annual return your financial plan indicated you need, to get into and through retirement.  This data should allow you to lower your risk profile within your investment allocations.

Keep up with pre-tax contributions to retirement accounts, because the tax bracket most of you are in, is higher than what you will experience from the market the rest of 2024, especially since the market has had a fantastic run year to date.  Inside your 401k you have a Money Market type investment option, this investment option should be yielding close to 5% right now, and with your pre-tax contributions lowering your taxable income, this combination may be your best strategy the rest of 2024.

Part of the reason the market is down the past few weeks in expectations the Fed can't cut Fed Funds rate, which means Money Market yields should continue to be around 5% for the coming months.  As the Federal Reserve cuts the Fed Funds rate, the yield on Money Market funds will decline as well.

The jobs report is showing a strong labor force, however, the jobs report and the way the data is collected does not properly showcase GIG workers.  In years past, if I lost my job I would collect $1,200 a month in unemployment, not anymore.  In today's world, if I lost my job, I would not file for unemployment and collect $1,200 dollars, I would start driving for companies such as Uber, Lyft, DoorDash, Shipt or Amazon.

Once I start driving with all of those companies as an Independent Contractor, each of them report a new hire, even though it's one person driving for multiple companies, and they report multiple new hires.  One person could be collecting income from 4-5 of the companies I listed, at the same time they may be looking for 1 new job that pays them wages similar to what they were earning before they lost their job.

Once they find a new job, many will not contact the companies they drove for and "quit", they will simply stop driving, and those jobs don't immediately get taken out of the jobs report.

If you have tens of thousands of people doing this, imagine how the jobs data becomes very skewed very quickly, and gives people a sense of a stronger labor market than what is reality.  Most people think the Covid-19 Pandemic is years behind us, however, how people are living, how data is collected and reported is still a work in progress.

I will update my blogs as the economic and earnings data is released.

If you need a second opinion from your current investment allocations or are looking to work with a new financial professional, please contact me and I will be happy to setup a meeting for us to discuss your current situation.

Investing involves serious risks and past performance is no guarantee of future performance or success.  This is not an offer to buy or sell securities and nothing contained herein should be interpreted as a recommendation regarding any investment or investment strategy.  Before making any decision to invest, first read the relevant disclosures and important information provided to you.

Please take the proper risk for your current situation and get the advice from a financial professional who clearly understands your current & future goals and objectives.

Investments are NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE