Market In A Snap! January 30th – February 3rd, 2023

By: Dave Chenet, CFA, CAIA®

 CloseWeekly returnYTD return
    
S&P 5004,136.481.62%7.73%
Nasdaq Composite12,006.953.31%14.72%
Russell 2,0002,001.226.13%13.63%
Crude Oil73.19-8.20%-8.56%
US Treasury 10yr Yield3.40%  

Source: YCharts, Yahoo! Finance, WSJ

Market Recap

Despite finishing the week on a softer note, markets continued their very strong start to the year.  Despite trailing their tech counterparts in the NASDAQ, small-cap stocks (as measured by the Russell 2,000) posted their strongest start to the year since 1987.  The optimism was driven by global central bankers, led by Jay Powell, delivering confidence that inflation had peaked.  Markets, in turn, interpreted the message to mean that an end to the rate-hike cycle (and maybe a reversal) is in-sight.   In addition, employment and wage data showed a still strong labor market with the pace of wage growth moderating.  ISM Services data corroborated the employment data narrative that price pressures are moderating without economic fundamentals pointing to an inevitable recession.  On the corporate front, Meta (formerly Facebook) was rewarded by investors after delivering an earnings report which highlighted a focus on cutting costs and delivering value to shareholders in the form of a stock buyback program.

Outside of the U.S., European and Emerging Market indices are broadly positive with gains of 9.83% and 9.82%, respectively (stated in US dollar terms).  The combination of dampening concern around Europe’s energy situation, a peak in the pace of inflation and continued signs about a buoyant Chinese economy undergoing reopening have boosted asset prices.

Fixed Income markets have also partially recovered losses from last year, with bond prices higher as yields fall.  The U.S. 10-year treasury bond yield fell from a peak of 4.25% last fall to 3.4% on Friday. 

With fewer economic data points next week, markets are likely to focus on the ongoing 4th quarter earnings announcements, with 50% of companies having already reported, earnings are broadly in-line with expectations.


What We’re Reading:

WSJ: Stock, Bond and Crypto Investors Bet Fed Is Bluffing on Interest Rates

Economic Policy Institute: Unionization increased by 200,000 in 2022

FT: EU agrees price caps on Russian oil products

Chart of the Week:

Economic activity has picked up meaningfully over the last few months after government officials began loosening economic lockdown measures.  Chinese consumers, similar to US consumers coming out of the COVID-related lockdowns, have significant savings, which may drive consumption and benefit global growth (and potentially keep inflation relatively high).

Market In A Snap! January 23rd – January 27th, 2023

By: Dave Chenet

 CloseWeekly returnYTD return
    
S&P 5004,070.562.47%6.02%
Nasdaq Composite11,621.714.32%11.04%
Russell 2,0001,903.060.65%8.05%
Crude Oil79.39-2.22%-1.00%
US Treasury 10yr Yield3.49%  

Source: YCharts, Yahoo! finance

Market Recap

US Markets rallied this week with all three major indices posting gains on the back of a better-than-expected Q4 ’22 GDP report and corporate earnings.  On the economic data front, the initial estimate of 2022 Q4 growth was 2.9%, beating estimates and the PCE price index reported a 5% gain from December ’21 – slightly below expectations and the lowest reading since September 2021.  Notable earnings beats on the week included Tesla and American Express.  Intel and Chevron missed their respective estimates.

Looking forward, all eyes will be on the Federal Reserve’s meeting next week.  It is widely expected that it will announce an increase in the Federal Funds rate of 0.25% to 4.5%-4.75%.  The market is currently pricing just a 1.9% chance that the Federal Reserve will increase by 0.5% and a 0% likelihood that the Fed won’t hike at all.  This is down from a 40% likelihood of a 0.50% hike at the start of the year, reflecting the broadly lower inflation readings that have been reported in January. 

Looking more broadly, the yield on the U.S. 10-year bond peaked on October 24th at 4.25% and has retreated to 3.5%.  This decrease in yields has boosted the price of both bonds and stocks with cyclical assets, such as Emerging Market stocks, European Stocks and US Small-Cap/Mid-Cap and Value outperforming the broad market.  Markets will pay close attention to the Federal Reserve next week for their cue on whether this rally can continue with a more acquiescent Fed, or if Jerome Powell & co will maintain the position that rates will remain high for some time.


What We’re Reading:

EY: US GDP (Q4): Economy caps 2022 on a strong note, but enters 2023 with doubts

FT: Why passive investing makes less sense in the current environment – Mohamed El-Erian

NPR: Justin Bieber sells the rights to his entire catalog for over $200 million.

Chart of the Week:

A strong January (5%+ return) after a negative year has historically been positive for full-year S&P 500 performance, with the market positive in each of the last five instances and an average return of almost 30% for the year.

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! January 16th – January 20th

By: Dave Chenet

 Close Weekly return YTD return 
    
S&P 500 3,972.61 -0.27% 3.47% 
Nasdaq Composite 11,140.43 1.27% 6.44% 
Russell 2,000  1,836.35 -0.43% 6.09% 
Crude Oil 81.31 2.91% 1.42% 
US Treasury 10yr Yield 3.39%   

Source: YCharts, Yahoo! finance 

Market Recap 

The broad stock market rallied on Friday to finish the week roughly unchanged.  A strong end-of-week Initial Jobless Claims report combined with a declining Purchaser Price Index report offset the weak report in U.S. retail sales.  Market participants increased their bets of a “soft landing” with expectations for the Federal Reserve to increase short-term borrowing costs by 0.25% on February 1st, vs the 0.5% median expectation previously held.  Notably, Goldman Sachs issued a report in which their analysts are not expecting a U.S. recession or a European recession in 2023. 

Non-US markets gained on the week, with Europe continuing its strong recent run and posting a 2.37% gain on the week with broad Emerging Markets gaining 1.71%, their respective year-to-date gains are 8.03% and 10.11% (in US dollar terms).  Non-US stocks have benefitted from a reprieve of dollar strength, which is down -10.55% from its September 2022 peak relative to a basket of currencies. 

Politically, the debate around raising the debt ceiling took center stage this week, with Treasury Secretary Janet Yellen urging congress to act.  Should the debt ceiling not be raised, the government is expected to be unable to pay its bills within months, after having depleted the Treasury General Account among other measures.    

Companies announcing their Q4 ’22 continued to trickle in, with Goldman Sachs and Morgan Stanley reporting mixed results and Netflix missed their earnings expectation but offered an upside surprise to subscriber growth.  Earnings announcements pick up pace next week, with notable companies including Johnson & Johnson, Microsoft, Boeing and Tesla all reporting.  Overall, Q4 ’22 earnings are expected to be -4.6% from Q4 ’21, which would mark the third consecutive quarter of negative year-over-year earnings declines.  Expectations for full-year 2023 earnings growth have come down from 15% just a few months ago to just 4% today.1 

Along with continued earnings, the Bureau of Economic Analysis will release the first estimate of how much (or little) the economy grew in the 4th quarter of 2022.  The Atlanta Fed’s GDP Now tool forecasts that the economy grew at a 3.5% annual rate, while the consensus economist expectation is for an expansion of just 2.6%.2 The report will also include the Core PCE data, which is the Federal Reserve’s preferred indicator of inflation.  Core PCE is expected to come in 4% higher than a year ago, down from the 4.7% advance reported last quarter.  Markets will likely look closely at this data as it will be the last inflation data that the Federal Reserve will get prior to their meeting which concludes on February 1st.  

1 https://advantage.factset.com/ 

2 https://www.atlantafed.org/cqer/research/gdpnow 

What We’re Reading: 

Goldman Sachs: Why the US Can Avoid a Recession in 2023 

New York Times: Why China’s Shrinking Population Is A Cause For Alarm 

The Economist: The Destructive New Logic That Threatens Globalization 

Chart of the Week: 

The potential peak in inflation has halted the advance of interest rates.  One primary beneficiary of yields peaking would be dividend-paying stocks.  This chart illustrates how those stocks historically benefit as the 5-year treasury yield falls below its 200-day moving average (which it is currently). 

Market In a Snap! January 9th – January 13th, 2023

By: Dave Chenet

 CloseWeekly returnYTD return
    
S&P 5003,999.092.73%3.80%
Nasdaq Composite11,079.163.81%5.13%
Russell 2,0001,876.64.47%6.55%
Crude Oil80.002.05%-0.31%
US Treasury 10yr Yield3.51%  

Source: YCharts, Yahoo! finance

Market Recap

For our first market recap of 2023, we take a moment to both reflect on the year past and look forward to the year ahead.  2022 was a challenging year for investors; both the broad stock market and bond market finished in negative territory and a blended portfolio of 60% stocks and 40% bonds had its worst year since the 1930s.  The accommodative policies enacted in response to the COVID economic shutdown were quickly reversed as inflation proved less “transitory” than government officials had hoped.  As we turn the page to 2023, however, we enter the year with cautious optimism and focus on a few key areas:

  • Inflation & the Fed: The Federal Reserve was forced to dramatically tighten financial conditions throughout the course of last year to dampen the inflation that had arisen as a result of both fractured global supply chains and increased consumer demand on the back of fiscal stimulus.  Both Fed Funds rates and longer-term treasury rates increased substantially throughout the year, lowering bond prices and letting the air out of interest rate sensitive technology stocks.

Inflation, however, appears to have peaked.  This week gave us encouraging data that the pace of inflation is slowing.  While year-over-year CPI inflation remains high, the last six months has seen the growth of inflation fall to an annualized rate of 1.8% – a level that would signal the Federal Reserve tightening has had the intended effect. 

  • China reopening: China’s zero-covid policy has precluded an economic recovery in the world’s second largest economy, however, Beijing has begun to ease restrictions on travel and activity.  Simultaneously, credit conditions have been easing in China which will likely contribute to an uptick in economic growth and spillover to growth in other economies – notably the export-oriented economy of Germany.

In summary, while short-term challenges remain, the combination of lower stock prices reflecting current pessimism, a less aggressive Fed and a relatively strong US consumer may benefit asset prices in 2023 and beyond.

On a year-to-date basis, cyclical sectors (consumer discretionary, materials, real estate, etc) have been leading the markets higher with defensive sectors (consumer staples, health care, etc) lagging.  Regionally, Europe and Emerging Markets have lead US markets.


What We’re Reading:

NY Times: Tesla Cuts Prices Sharply as It Moves to Bolster Demand

FT: How do the Federal Reserve and ECB differ on tackling climate change?

Roosevelt Institute: The Causes of and Responses to Today’s Inflation

WSJ: US Cancer Death Rate Has Dropped by a Third Since 1991

Chart of the Week:

The S&P 500 fell 25% from its peak on October 12th of last year.  Using data from the 10 previous instances of 25%+ pullbacks since 1940, this has been an attractive long-term entry point for investors and has offered attractive subsequent returns. 

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! December 12th – December 16th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,852.36-2.08%-19.17%
Nasdaq Composite10,705.41-2.72%-31.57%
Russell 2,0001,763.42-1.85%-21.46%
Crude Oil$74.504.08%-1.26%
US Treasury 10yr Yield3.489%  

Source: Wall St. Journal

Market Recap

The Fed hiked rates by 50 basis points this week, bringing the rate up to 4.25% – 4.5%.  This rate hike cycle has the been the swiftest in decades, sending equity and fixed income markets materially lower year-to-date.  It seems like a broken record. Inflation is too high, and the Fed has taken away the punchbowl.  No more free money. No more asset purchases. No more cheap mortgage rates.  Undoing the massive stimulus that flooded the markets in 2020 and part of 2021 have been replaced by a restrictive stance, where money is more expensive and less plentiful. 

The result of this has been a slowing economy. We got more signs that the economy is softening, with the US manufacturing Purchasing Managers Index clocking in at 49. Why is 49 an important number? Anything below 50 signifies a shrinking of the manufacturing economy.  The consumer price index for November also came in slightly lower (which is better) than projected. So, with the economic and inflation data softening, shouldn’t it be a clear sign for the Fed to step away from rate hikes and a hawkish stance?  You’d think, but no.   Why not?  The answer is multi-faceted.  One reason is employment. It’s still too strong.  Unemployment claims remain low, and there are still too many job openings.  The other reason is that one or two months of good inflation data isn’t enough to alter the Fed’s path.  They have said for months and months that they’ll need convincing evidence that inflation is clearly headed back towards 2%.  One or two months of declining rates isn’t enough.  What is ironic about this is that at beginning of the year all the economists and Wall Street strategists were arguing that the Fed was behind the curve. The Fed isn’t restricted enough.  Fast forward to now and these same experts are saying the Fed is “too” restrictive and that unnecessary damage to the economy will be the end result of the Fed’s current direction.

So, what do we know at this juncture?  At the very least, it’s clear that the effects of higher interest rates are taking a bite out of economic activity. Revenues are up in many industries but its from price increases, not volume increases. Many parts of corporate America are selling less stuff but at higher prices. Stocks have been in a bear market for most of 2022, with share losses coming from a decline in the earnings multiple. Call it the “P” Stocks decline because investors are less bullish. They want to pay less for that same dollar of earnings because they believe that earnings have stalled, or maybe declining…. or just not growing as fast as before.  So, heading into 2023, it’ll be all about earnings (the “E”).  Multiples on earnings typically decline “before” earnings actually decline.  It is likely that a recession happens in 2023. Earnings will likely decline. Stock prices will remain volatile.  At some point, hopefully in 2023, inflation will back under control and the Fed will be able to stop hiking rates.  Earnings will bottom at some point in 2023 or 2024 and the next bull market in stocks could resume.  It’s all a cycle.  Don’t forget that.

Market In A Snap! November 28th – December 2nd, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5004,071.71.13%-14.57%
Nasdaq Composite11,461.52.09%-26.74%
Russell 2,0001,892.841.27%-15.7%
Crude Oil$80.344.95%6.48%
US Treasury 10yr Yield3.494%  

Source: Wall St. Journal

Market Recap

Fed Governor Powell gave a speech on Wednesday laying out the current challenges in bringing inflation back down towards its 2% “ish” target (1).  In general, the tone of the speech was hawkish (see the link below if you want to read it).  However hawkish he appeared for the bulk of the speech, traders reacted very positively to his closing paragraph.  Mr. Powell mentioned that given the full effects of the rapid increases in interest rates are yet to be felt in the economy.  It was this sentence that got traders racing to press the buy button. “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”.

The Nasdaq Composite rose nearly 5% on Wednesday alone. It kind of shows you how the market is desperate for some comfort that rate hikes are coming to an end.  It wasn’t only the US equity markets that reacted positively.  Credit Markets, specifically longer maturity bonds rallied, with the yield on the 10-year US treasury note dropping below 3.5%.  It was over 4.2% less than a month ago. That may not seem like a lot, but it is.  With that, the US dollar weakened, and international equities responded positively. 

The employment data released Friday kind of confirmed what the Fed was saying about the full effects of rate increases still not fully reflected in the economy.  Economists were predicting 200,000 jobs added for November. It came in at 263,000, signaling a pretty resilient labor market. (2)

Yet, on the corporate earnings side, analysts are sharpening their pencils and reducing their earnings targets for corporate America in Q4.  According to FactSet, analysts have lowered their Q4 earnings for the S&P 500 by 5.6%.  Historically, the average decline is around 2.1%.  This decline was larger than the 5-year, 10-year, 15-year and 20-year average.  Only two sectors had positive earnings growth estimates, with energy leading the way. (3)

What does this all mean?  First and foremost, the economy is slowing.  Inflation is lasting longer and straining household budgets.  The stock market is not pricing in a recession.  Economists are still all over the spectrum.  Some see a recession coming in 2023 while others see the economy “just missing” a recession.  Regardless, when earnings decline so do the multiples investors are willing to pay for those earnings.  Investors love to pay high multiples for growing earnings.  They pay less for slowing earnings, and even less for declining earnings.  The weighted average forward (i.e., 2023) Price to Earnings multiple on the S&P 500 is around 17 times. If earnings start to really come down, the multiple could easily approach 15, if not lower.  That could mean a tough year ahead for the markets, despite already enduring a tough time this year. 

  1. https://www.federalreserve.gov/newsevents/speech/powell20221130a.htm
  2. https://www.wsj.com/?mod=wsjheader_logo
  3. https://insight.factset.com/larger-cuts-than-average-to-eps-estimates-for-sp-500-companies-for-q4-to-date

Chinese Protests Take a Bite out of Apple’s Stock Price:

China is still battling Covid-19.  Lockdowns are still in place in many parts of the country. People are tired of it. Many have taken to the streets to protest the never-ending lockdowns.  Apple relies on China for a large portion of their iPhone production.  Q4 shipments could be down close to 15 million units.  Some analysts have even mentioned the unthinkable; a potential revenue decline in 2023.  Granted, Apple has had slight revenue declines in the recent past, but the stock wasn’t as richly priced as it is today.  It currently trades for 24 times earnings.  A pretty rich premium to the S&P. This premium has been warranted in the past.  You can even argue that it may have been valued too cheaply in 2015.  Apple is a large component of all three of the major US indices.  It is owned and loved by many analysts and individuals.  It has made many people very wealthy.  Apple’s market cap is $2.35 trillion now.  It was valued at nearly $3 trillion in early January.  In January of 2106, it had a paltry (sarcasm noted) market cap of $570 billion.  That is a ton of wealth creation. It’s been the largest component of the S&P 500 since 2011!  That is a long time.  Before that, Exxon Mobil was the largest, and held that post from 2005 until Apple took over the top spot.

We have been conditioned to believe that Apple will always be “Apple”.  No company has every dominated corporate America indefinitely. Zero!  The iPhone launched in 2006 when Apple had a market cap of roughly $60 billion.  Since that launch, Apple remained a product innovative juggernaut. The new Mac laptop, the iPad, the Apple watch. All amazing products that have changed lives. That pace of innovation is likely finite. Apple will likely remain one of the larger Corporations in America for a while, but don’t expect the same share price growth that we’ve witnessed over the past 15 years. 

https://www.wsj.com/livecoverage/stock-market-news-today-11-29-2022/card/apple-stock-falls-after-analyst-s-iphone-warning-38Ul4JdPl3YUXSLvXyqh?mod=Searchresults_pos5&page=1

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! November 14th – November 18th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,965.34-0.69%-16.80%
Nasdaq Composite11,146.06-1.57%-28.76%
Russell 2,0001,849.7-1.75%-17.62%
Crude Oil$80.09-9.73%%6.31%
US Treasury 10yr Yield3.829%  

Source: Wall St. Journal

Market Recap

After an explosive week in the markets last week, it was no surprise to see the markets take a bit of a breather this week.  We did get some more encouraging inflation data this week, with the US Core Producer Price Index dropping below 7% for the month of October. On Friday, we got US Existing Home Sales numbers, and, as expected, they were lower.  Sales were down almost 6% for October and nearly 30% for the year. These are not prices, just sales of actual homes.  With mortgage rates near 7%, the market has all but frozen over in many parts of the country.  Both buyers and sellers seem to be in a holding pattern, with neither willing to budge. 

Equity markets have had a nice bounce from the end of September, with the S&P 500 gaining a little over 10%.  US Small caps fared slightly better, nearly notching a 11% gain.  Even the fixed income markets have been in positive territory, with the US Bond Aggregate Index returning a little over 1.25% since October 1st. Investment Grade Corporate Fixed Income securities did even better, returning nearly 4%.  Part of this can be attributed to the declines seen in the 10 Year US Treasury Note, which have seen their yields decline from the 4.3% area down to roughly 3.8%.  That seemingly small move in yield is meaningful, both for longer maturity bonds and equities. 

We are a solid week and half past the mid-term elections, and there were some surprises. The Democrats seemed to defy the odds and retain control of the Senate.  It will either be 50 or 51 seats, depending on the Georgia election runoff results. But that won’t matter, as the Vice President has the deciding vote in the Senate.  Many of former President Trump’s endorsed candidates didn’t fare very well.  The Republicans will have an interesting decision to make when it comes to who will represent the party in the next national election.  Governor DeSantis of Florida had a monster victory and looks poised to be a potential candidate. Mr. Trump announced that he’ll be running again. We shall see.

We haven’t mentioned much about crypto currencies, but the sudden unraveling, and subsequent bankruptcy, of FTX this week has splattered the headlines and warrants a paragraph.  Pushing aside your thoughts on crypto, what we should focus on is this pervasive defect in our DNA that continues to get people into (financial) trouble.  Part of it is greed yes, but more importantly is the assumption that successful people who are investors have done the due diligence to vet the investment and that should be good enough for the rest of us.  From what we know at this point, there appears to be a fair amount of fraud.  How some of this was overlooked by some heavy hitters is always amazing to me. According to Forbes, at least 20 billionaires got caught up in it.  Once one person has apparently “done the work”, the next person says they have too, but its really basing their opinion from what they heard from that person. As the chain of these people grows in length, it appears that everyone has vetted it, and, if its good enough for the first 10 billionaires then it should be good for the next ten.  It reminds me of the fraud that happened in San Diego last year. Gina Champion-Cain ran an enormous Ponzi scheme, purportedly investing in liquor licenses and promising a rate of return that was much better than was available from other types of private lending.  Some smart people got left holding the bag.  I know this firsthand because her investment opportunity was shown to me while I was at my previous firm.  I had spent months trying to vet her business. I met her twice. She didn’t seem like a fraud. But then again, who does until they’re caught?!  She couldn’t answer some very basic questions of mine, so my due diligence just kind of hit a wall and I had pushed it to the sidelines until she and her team provided the information.  Well, it never came. The next time I heard her name was on local TV one morning announcing her arrest. I’d be happy to share the story in greater detail at our holiday party if any of you get bored (which you won’t! Ha-ha).

https://www.forbes.com/sites/mattdurot/2022/11/11/at-least-20-billionaires-got-burnt-by-sam-bankman-fried-and-cofounder-gary-wang/?sh=6819b4be6c52

China Continues to Struggle with Covid:

New Daily Cases Jump as the Government lifted some restrictions.  Without a vaccine, lockdowns have been the main line of defense.  They seem to be, according to a Wall Street Journal article, in a battle between excess measures and irresponsible loosening of those excessive measures.  There is just no easy answer.  It is tough for Americans to imagine that the pandemic still exists. We’ve emotionally moved on from it, but it is very real in other parts of the world. 

https://www.wsj.com/articles/chinas-new-daily-covid-cases-jump-above-24-000-11668762243?mod=world_major_1_pos2

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! November 7th-November 11th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,992.935.9%-16.22%
Nasdaq Composite11,323.338.10%-27.62%
Russell 2,0001,882.744.60%-16.15%
Crude Oil$88.86-4.04%17.8%
US Treasury 10yr Yield3.842%  

Source: Wall St. Journal

Market Recap

The market finally got the inflation data it so desperately wanted on Thursday.  The Consumer Price Index (“CPI”) clocked in at 7.75% annualized for October.  It was a disappointing 8.2% the previous month.  Markets participants witnessed the best day for equities since April 2020.  The Nasdaq Composite was up a whopping 7.35%.  Even the fixed income markets had a huge day, with the Bloomberg US Aggregate Bond Index gaining nearly 2%. That is a massive move in the credit markets.  As you can see from the chart above, all the major US indices are down for the year and still have a way to go.  It should be noted that we are still in a bear market and rallies (which are simply called bear-market rallies) are often more dramatic than rallies during a bull market.  One day doesn’t make a trend, but it goes to show you how sitting out of the market when you have a long-term time horizon can be costly to your returns.  We’ve cited on more than a few occasions how sitting on the sidelines for only a handful of days can have really hurt your returns.  Just think of Thursday’s crazy day.  If the long-term average annualized return for the S&P 500 is ~ 9 to 10%, missing a 6 or 7% return day can all but dash your hopes for the year.  Many of us want to time the market.  This should show you the perils of doing it wrong.  And, worse than that, if you did seem to time it right once, you may be emboldened to do it again…and again.  Eventually it will catch up to you. It is time “in” the market that matters most.  Granted, it also must include having a diversified portfolio that matches your time horizon.

We can’t forget to mention two other important news items. One, is the mid-term elections. It’s been a closer race than many thought. As of Friday, many races are still too close to call.  Odds are still in favor of the Republicans taking the House.  In the Senate, the Democrats have gained a seat and it’s coming down to the wire. If Republicans take both chambers, it will create gridlock which is normally favorable for markets. The other newsworthy note was that Ukrainian forces successfully pushed Russian troops out of Kherson, which was the only regional capital in the south of Ukraine that Moscow had seized.  The Ukrainian resolve has been impressive.  Hopefully, the conflict is closer to the end than the beginning.

https://www.wsj.com/articles/many-house-races-too-close-to-call-as-republicans-make-gains-11668162601?mod=us_lead_story

https://www.wsj.com/articles/ukrainian-forces-gain-on-kherson-as-russia-retreats-11668158517?mod=world_lead_story

Traditional Energy Companies are in the Green Energy Game:

Koch Industries, one the largest private companies in America, is getting into battery technology.  Many of us think of traditional energy companies as climate deniers or evil entities hell bent on destroying our planet in pursuit of profit.  I believe that, in the end, they are energy agnostic. They see where things are going. They want to be suppliers of energy in whatever form the market wants.  In the case of Koch’s investment in battery storage, its not for electric vehicles but rather for storing energy transmitted from wind and solar farms.  Both wind and solar can be intermittent. Having the ability to store energy in large batteries can go a long way to making renewable energy a dependable source for the US power grid. 

Image: wsj.com

https://www.wsj.com/articles/koch-teams-with-startup-to-build-giant-battery-factory-in-georgia-11668131957?mod=business_lead_pos4

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! October 31st – November 4th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,770.55-3.35%-20.89%
Nasdaq Composite10,475.25-5.65%-33.04%
Russell 2,0001,799.87-2.55%-19.84%
Crude Oil$92.524.71%22.64%
US Treasury 10yr Yield4.167%  

Source: Wall St. Journal

Market Recap

As expected, the Federal Reserve raised interest rates another 75 basis points this past Wednesday.  As we’ve stated countless times in previous weekly updates and on our podcasts, it should not have come as a surprise.  Inflation needs to come down. Until it does (in a statistically meaningful way), nothing is going to change.  We should welcome some kind of normal interest rate environment anyway.  The zero-interest-rate-policy was a sugar rush for risk assets. It felt good but it wasn’t healthy.  We need a return on our money when we park it in a savings account. We need to be incentivized to save. Saving is good. A healthy economy relies on savings.  Banks lend those savings to people who want to borrow and invest in manufacturing and the service industry.  Printing money and offering no rate of return on it just promotes speculation.  That rampant money printing is hopefully of a bygone era. In the meantime, the Fed has to battle inflation.  8% is much too high but getting back down to 2% may be a tough target to reach in the short term.  Unemployment will have to rise.  The economy will continue to slow and possibly contract.  Runaway home prices will be another thing of the past.  Getting back to some kind of normal economy is hopefully in the cards.  It’s been so long that many of us don’t know what a normal economy looks like. 

Source: Google Images (Denis Tangney Jr / Getty Images)

Unless you are a diehard fan of baseball, willing to endure 162 games spanning the spring and summer months, fall ball is where its at.  There’s something about it that appeals to me and yet, I can’t quite put my finger on it. I loosely follow it during the summer, but when the pennant race is on it has my attention.  Maybe its seeing ball players act like kids again.  The enormous salaries become an afterthought.  It’s as thought they are back in their neighborhood makeshift baseball field dreaming of winning a world series with one swing of the bat.  Its great seeing everyone, players and fans alike, loving the chance to call themselves World Series Champions. 

As you have likely asked yourself with previous weekly updates, what does this have to do with investing!?  Well, truth be told, not much really.  Not directly anyway.  Like baseball, investing is a marathon, not a sprint.  Baseball owners hire general managers to run the team.  Every team has needs. Some need better pitching.  Some need a better short-stop.  The team needs to stay healthy and hopefully be able to compete down the stretch and earn a playoff spot.  Over 170 games are played, when you add in spring training, just to make it to the playoffs.  And from there, it becomes a bit of a sprint, where emotion, momentum, and some luck can get you to the world series.  That annual journey takes more than six months of dealing with injuries, trades, and weather that can cut your season short at any point. And, if it does, there’s always next year.  Teams are often building towards a run for a championship ring or dismantling their team and rebuilding for the future.  Everything about baseball is geared towards the long-term. Only during that fall push for a championship does all that long-term planning come to fruition.

Investing is similar.  You need a plan.  You need a long-term horizon. You’ll need some flexibility because things will change.   At times, reaching your goal may seem like its agonizingly far away. Eventually, it’ll be within reach.  So, like the long baseball season, enjoy the journey.  Isn’t life all about the journey anyway? We worry about the destination, but there isn’t a destination without a journey.

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! October 24th – October 28th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,901.063.95%-18.15%
Nasdaq Composite11,102.452.24%-29.04%
Russell 2,0001,846.926.01%-17.41%
Crude Oil$88.373.8%17.12%
US Treasury 10yr Yield4.016%  

Source: Wall St. Journal

Market Recap

The last full week of October is in the books and what a week it was. It was an earnings-extravaganza. It was also full of economic data. It would be fair to say that both earnings and economic data were mixed. Some good stuff in there. Some OK-is stuff and some more than not-OK-ish stuff.

GDP came in at 2.6% for the third quarter. Not bad. Certainly not recessionary. At least not yet. Housing was THE big drag. Housing is having a tough time finding its footing (yes, pun intended). Homebuilders are pulling back on construction. Buyers are increasingly skittish, as are the banks’ lending to them. Sellers are living in the past. Living in a bygone era of being able to sell a house above ask, inspections waived, and within days, if not hours. That is what happens when mortgage rates triple! Yes, triple. Mortgage rates topped 7% this week. It has been decades since a seven handle entered the conversation.

Other economic data came in this week. Without boring you on the minutia of all the data points, suffice it to say that things aren’t collapsing. We’re still in expansion territory, however the rate of expansion is slowing. Consumers are slowing down when it comes to buying “stuff.”  And this is reflected in sentiment indicators as well as corporate earnings. Google, Microsoft, Amazon, and Facebook, all disappointed investors this week. The biggest miss came from Facebook, and Amazon. Apple was the lone bright spot in tech-land. We love our devices and all the attachments that come with living in the Apple biosphere.

There were plenty of companies that had solid earnings like Caterpillar. The maker of enormous yellow machines that you see building roads, hauling stuff to and from mines is widely considered an economic bellwether. They couldn’t’ be busier. The company grew revenues by 21%, earnings by 49% and posted operating margins that were well above the level seen in the same quarter last year. It kind of flies in the face of the constant recessionary drumbeat we’ve been reading about.

So, what’s the point? Glad you asked. We need to be aware that the world of business is dynamic. We can’t be conditioned to believe that what worked for the previous 10 to 15 years will work the same way over the next decade or decade and a half. It might shock some readers to read this but the ten largest companies in American today will not likely be the ten largest in a decade from now. Look at Facebook. Or Netflix. Both were massive disrupters in their industries. And investors made boatloads of cash. Take Facebook. Was basically THE only social media company for over a decade. They actually HAD to buy Instagram. It was too big a competitive threat not to. Now you have TikTok, Snapchat, and a host of other social media sites. When Netflix was in its infancy, it completely changed the way we consumed movies. Blockbuster was stuck in the old world with no way to survive. Now you have Amazon Prime, Disney Plus, and a host of other platforms that compete with Netflix. Netflix redefined that industry, and again, investors were paid handsomely for it. That is now over. The heyday of triple digit subscriber growth and buying content for peanuts is long gone. That is not to say Netflix is a bad company or that they won’t earn decent returns for investors in the future. They simply won’t deliver anywhere near the returns they did in the past. Let’s not cling to the past. Let’s move on. Adapt. Understand that capitalism is the machine that eats itself in order to nourish, replenish and strengthen. 

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.