Financial Market Update for the Week of 2/12/24

Presented by Marc Aarons

The broader major U.S. stock indexes kept chugging along last week, with the S&P 500 making fresh highs and closing above 5,000 for the first time in history. Last week’s gains for the S&P 500 marked its 14th weekly gain out of the last 15 weeks, a feat last seen over 50 years ago!

With so much talk about the stock market right now, it’s a good time to get you up to speed.

Overall, for last week, the S&P 500 climbed by 1.37%, the Nasdaq 100 rose by 1.81%, and the Dow Jones Industrial Average increased by a marginal 0.04%.

S&P 500 Closes Above 5,000

It’s all over the news, and markets are generally obsessed with round numbers. Some folks put on their party hats and get excited, but for the disciplined long-term investor, it really is just a number.

Yes, without a doubt, the major U.S. stock market averages have been in a tear as of late. In fact, the S&P 500 rose from the October 2023 lows just above 4,100 to north of 5,000 in just 15 weeks.

But there is no need for excitement when it comes to planning your financial future. Remaining steady and level-headed during both bull and bear markets is a critical component of long-term success.

To put the last 1,000 S&P 500 points into perspective, it was April of 2021 when the S&P 500 crossed the 4,000 level for the first time.

Tech in Growth Mode & To-Date Q4 S&P 500 Earnings

Earnings watchers have been pleased by several results from tech companies lately, indicating that the tech sector is back in growth mode.

Artificial intelligence (AI) continues to be a key driver in quarterly technology company conference calls, and the AI theme isn’t going away anytime soon.

For Q4 2023, with 67% of S&P 500 companies across all sectors reporting actual results, the year-over-year earnings growth rate is 2.9%.

If 2.9% ends up being the actual growth rate for the quarter, it will be the second consecutive quarter that the S&P 500 has reported earnings growth, according to data from FactSet.

Treasury Yields Rise

While markets were obsessed with the S&P 500 last week, Treasury yields quietly rose. Ten-year note yields rose by about 15.6 basis points, settling the week near 4.188%, up from their previous weekly close near 4.032%.

So, the ability of the major U.S. stock market indexes to rise with Treasury yields rising was alive and well last week, much to the displeasure of prospective mortgage borrowers, with the average 30-year mortgage rate climbing back above 7% last week before dipping slightly.

Inflation Data This Week

Consumer inflation data is on tap this week,  and many investors are eagerly awaiting the release of Consumer Price Index (CPI) data on Tuesday and Producer Price Index (PPI) data on Friday.

This is an important release, and anything is possible, especially after last month’s mixed inflation data. Revisions to December data released last week showed that U.S. monthly consumer prices rose less than initially thought, however.

As I mentioned earlier, it’s important to stay calm and level-headed when investing for the long term. No one can predict with a high level of certainty whether inflation will maintain its current pace of decline.

With that overview noted, if I can be of service in any way this week, please feel free to contact me. I am always here as a resource for you.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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 Financial Market Update – Week of 8/28/2023

Presented by Marc Aarons

Major U.S. equity indexes were mixed last week, with tech leading the way and industrials lagging for the week.

Tallying last week, the S&P 500 rose by 0.82%, the Nasdaq 100 increased by 1.68%, and the Dow Jones Industrial Average was lower by 0.45%.

The Federal Reserve

At the annual gathering at Jackson Hole of central bankers from around the world, Federal Reserve Chair Jerome Powell said that the Fed is “prepared to raise interest rates further if appropriate” and that inflation is “too high”.

“We are attentive to signs that the economy may not be cooling as expected,” Powell said. “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” said Powell.

Ultimately, Powell sounded rather hawkish in his commentary last Friday at the central banker gathering. Major stock indexes mostly shrugged off the comments as they were released, with the S&P 500 moving lower initially but turning higher Friday afternoon to close out the week.

Treasury Yields Mixed

The 2-year yield finally breached the key psychological level of 5.00% with conviction last week and settled near 5.08% last week. The weekly close in the 2-year yield is the highest since 2007.

10-year yields finished the week slightly lower after trading at levels also not seen since 2007. The yield on the 10-year closed the week near 4.240%, a decline from the previous week.

The 2/10 yield curve remains inverted, and last week’s trading action shows this type of trade/outlook is alive and well.

Oil Retreats

Some good news for consumers: crude oil traded lower last week for the second week in a row, hopefully translating to lower gas prices shortly.

Earlier in the summer, crude oil was on the rise for seven straight weeks, touching a high for the year earlier in August north of $84/barrel.

Jobs Data This Week

With a more hawkish-sounding Fed in the headlines, traders and investors will be paying extra attention to this week’s August jobs data release.

Last month, 187,000 new jobs were created, coming in below analyst expectations. For August, the bar is set low, with early estimates showing 170,000 jobs expected.

With the Fed citing the economy not cooling enough, this jobs report will be key.

Wrapping Up

Short-term Treasury yields have moved higher, and the Fed is broadcasting a “higher rates for longer” narrative right now.

August jobs data will be a big one on the radar for this week, setting the market tone for the fresh month of September. Fed-wise, a weak jobs number could be the best thing for equities this week.

With that being said, if there is anything on your mind regarding your portfolio or strategy, please let me know, and we can connect to discuss. I am always here as a resource for you.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

The post Financial Market Update -Week of 8/28/2023 appeared first on Money Managers, Inc..

A look at the early October selloff of U.S. government bonds.

 Provided by Marc Aarons at Money Managers, Inc. 

    Investors raised eyebrows in early October as long-dated Treasury yields soared. On Tuesday, October 2, the yield of the 10-year note was at 3.05%. The next day, it hit 3.15%. A day later, 3.19%. What was behind this quick rise, and this sprint from Treasuries toward riskier assets? You can credit several factors.¹

One, Federal Reserve chairman Jerome Powell made an attention-getting comment. On October 3, he expressed that the central bank’s monetary policy is “a long way from neutral.” In other words, interest rates (in his view) are nowhere near the point where the Fed needs to stop increasing them. Bond investors found his remark plenty hawkish.²

Two, great data keeps emerging. The Institute for Supply Management’s service sector purchasing manager index hit an all-time high of 61.6 in September. (It should be noted that this index has only been around for a decade.) ADP’s latest payrolls report found that private companies added 230,000 net new jobs last month, a terrific gain vaulting above the 168,000 noted in August. Additionally, initial unemployment claims were near a 49-year low when October started. These indicators signaled an economy running on all cylinders. Further affirming its health, Amazon.com announced it would boost its minimum wage to $15 an hour, giving some of its workers nearly a 30% raise.³

Three, you have the influence of the Fed thinning its securities portfolio. It has been reducing its bond holdings since last fall and is now doing so by $50 billion per month (compared to $40 billion per month last quarter).²

     Four, NAFTA could be replaced. Canada, Mexico, and the U.S. have agreed to a preliminary trilateral trade pact designed to supplant the North American Free Trade Agreement. Wall Street applauded that news as October began, which whetted investor appetite for stocks and lessened it for bonds.⁴

    What is the impact of these soaring yields? When 10-year, 20-year, and 30-year Treasury yields rise abruptly, the takeaway is that investors believe the economy is booming and inflation pressure is increasing. Meaning, more interest rate hikes are ahead.

As long-dated Treasury yields escalate, the housing market could feel the impact. Mortgage rates track the path of the 10-year note, and when the 10-year note yield rises, they move north in response. Higher mortgage rates would further decelerate the pace of homebuying, which has been slowing.⁴

When the yield on the 10-year note reached its highest level in more than seven years on October 4, Wall Street grew a bit worried. The Nasdaq Composite fell 145.57, the Dow Jones Industrial Average 200.91, and the S&P 500, 23.90. Now, the challenge becomes whether investors can shake the prospect of more expensive borrowing from their minds.⁵

  Marc Aarons may be reached at (714)887-8000 or Marc@ocmoneymanagers.com 

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{MMI Disclosure}

^{Citations.
1 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield [10/4/18]
2 – investors.com/news/economy/5-reasons-treasury-yields-rising-stocks-sliding/ [10/4/18]
3 – cnbc.com/2018/10/04/us-bonds-and-fixed-income-data-and-fed-remarks.html [10/4/18]
4 – marketwatch.com/story/mortgage-rates-tick-down-ahead-of-bond-market-bloodbath-that-sent-yields-surging-2018-10-04/ [10/4/18]
5 – cbsnews.com/news/stock-prices-tumble-as-interest-rate-fears-grip-wall-street/ [10/4/18]}

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