by Robert Holman | The Defensive Advisor | www.defensiveadvisor.com
Note: I was unable to publish yesterday due to a family emergency – my daughter and granddaughter were injured in a golf cart accident, resulting in an injured wrist and a broken ankle, respectively.
EQUITY MARKET RATING… 4.0 (0-4 bearish, 5 neutral, 6-10 bullish). The April DJIA was down 4.9%, the April SPX was down 8.8% and the NDX was down 13.4%. In April, the DJIA was unable to go up for more than 2 days in a row, nor did it go down for more than 2 days in a row. While the other two indices did go down 3 down days in a row – twice – the volatility in the DJIA is a serious indicator of indecision, reaction and fear. Two of the 3 indices set new lows, the DJIA being the exception. The DJIA has been down the last 5 weeks in a row.
I rarely do this, but its my guess that we could soon have a week or two where the market goes up consistently, maybe 7-8 out of 10 days. Much of the upcoming data and events are well understood (the Fed rate action, slowing of the CPI and PCE <see below, but more evidence is needed>, less robust economic trends in general, etc.) so with few surprises, the market could rally. Warning: that could be the bear trap before another market plunge. Warning: I would guess the chances of my being wrong on this are around 80% - it’s way too specific, and no one can predict the future like this - but nonetheless, this is my expectation. The war in Ukraine is the wild card – it seems increasingly likely that the Russians will not prevail, just as they did not prevail in their war with Afghanistan.
EQUITY MARKETS and the ECONOMY … Fear dominated the markets again last Friday, and the Tuesday before. So, that’s 3 days of the last 6 that were significantly down – lots of fear and negative sentiment. The volatility index (VIX) is again above 30, a point at which it has rallied in the recent past. This is speculative, but we may rally a bit and then have another down leg (see above).
An advance look at economic growth shows that it declined last quarter by an estimated <1.4%>. Note: this number is subject to substantial revision. The decline was due to unsold inventories and lower net exports of goods to foreign countries – both manufacturing related. Domestic sales growth was good and above the inflation rate. Surprisingly, consumer sentiment appears to be rising.
There are two CPI releases, and one PCE release, before the next Fed meeting in 6 weeks. If inflation continues to moderate, and the Fed raises another 50bp (1/2 of 1 percent) but announces that it will move to a 25bp increase for the following months, then all that could be real good for stock prices, leading to a fall/winter rally in stock prices. But if GDP, retail sales and new jobs created trends offset that good news on inflation, we could see a period of stagflation, which would be very bad for stock prices. So, keep an eye on these statistics as we move forward. I expect them to be the key drivers of stock prices.
INFLATION … Below is the completion of the inflation chart from last week.
March ___ February
CPI = Consumer Price Index Headline Core Headline Core
Monthly 1.2% 0.3% 0.8% 0.5%
Annual 8.5% 6.5% 7.9% 6.4%
PCE = Personal Consumption Expenditure Index
Monthly 0.9% 0.3% 0.6% 0.3%R
Annual 6.6% 5.2% 6.4% 5.4%
Note: Feb. mo. Core PCE revised to 0.3% from 0.4%, two months in a row below the prior 0.5% trend
PORTFOLIOS … After reading this material, if you are unsure what to do with your portfolio, call me to discuss your circumstances and I’ll explain what ought to be done to help your situation. Just click here, and I’ll be happy to give you a complimentary portfolio evaluation along with a recommendation for two stocks to put into your portfolio.
I’ll also explain what’s good about your portfolio, how it’s likely to perform in upcoming months, and give you a couple of ideas for improvement, all at no cost to you.
Alternatively, you may contact me by calling 972-702-6032, and I’ll give you a way to securely email your portfolio holdings to me and I will input the data for the evaluation report.
TO MY CLIENTS … THANK YOU FOR YOUR TRUST. We’ve had great success since we started this RIA in mid-2018, and are doing better than the market return over the same time.
Excelsior Divitiae. Proverbs 21:5, 22:3, 27:12 and 3:56, Joshua 1:9, Ecclesiastes 8:7, 1Chronicles 12:32 and 29:11-13, and James 4:13-16.
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Opinions voiced in this post are for general information only and are not intended to provide specific advice to or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Past performance does not guarantee future results.