Bi-MONTHLY MARKET ANALYSIS &

ECONOMIC UPDATES

April 18, 2024

A 2nd Green and More Green

Masters Green and Gain

For the World #1 Golfer, Scottie Scheffler, last week’s annual Masters Tournament meant a second Green Jacket. For the local economy of Augusta, Georgia and, to a lesser extent, the U.S. economy, the 2024 Masters also meant a lot of green – greenbacks! With the Masters, golf isn’t just a sporting event but an economic one, too. For the 88th time, golf fans flocked to Augusta, Georgia, for this year’s Masters. This event is a big boost to the local economy from a concentration of spending. Mastercard International Inc. is, through its Mastercard Economic Institute, calls the world’s meaningful events – ranging from concerts to sports – the “Eventful Economy”. It calls the Masters “An economic hole in one.”  As the tournament is held in a small metro area, receives international fanfare and lasts a defined number of days, it presents an opportunity to measure the economic impact. Through its Economic Institute, Mastercard can derive a close estimate of the incremental boost in spending due to the tournament. The analytical work has determined that while the best golfers across the globe compete each year at the Augusta National Golf Club for the chance to win one of the most coveted prizes in golf, The Green Jacket, Augusta can count on winning its green.  The graphs below show both the huge spike in the Augusta economy during Masters week and its visitors from all over the world.

The Gains from the Green

Going into the 2024 Masters, an estimated 250,000 would go to Augusta. Always a tough ticket to get, this year’s Masters single day tickets sold for $3,000 or more, and four-day passes went for $8,000-$10,000. The Augusta Metropolitan Convention and Visitors Bureau estimates Augusta gains more than $36 million in revenue during Masters Week, with a total economic impact of almost $110 million. Sources predicted that approximately 3,000 homes were rented to visitors during the week. The average four-bedroom, three-bathroom house rents for about $8,500 for the week of the tournament. Condos go for about $2,500, and some corporations rent eight-10 bedroom houses for $25,000 for the week. The Masters Housing Bureau collects 7% of every contract. This can result in the simple economic concept known as the Multiplier Effect. The theory is: An initial increase in spending, cycles repeatedly through the economy and has a larger impact than the initial dollar amount spent. Think of the dollars golf fans spent to stay in Augusta. What might those home owners do with the rent dollars received? Some homeowners might pour the additional income back into the house for renovations, while some may use it to go on a vacation, while others maybe use it for tuition. Remember, this is every year. A house there to rent during Masters week could out a kid through college

Why so many homes rented in Augusta during Masters week? Not enough hotels. Essentially every hotel is booked, with rooms running from about $70 a night to more than $400 a night. Restaurants begin preparing months in advance by hiring and training extra wait staff. For the hospitality industry, it’s like gaining an extra month, because many do about 10% of their annual business in that one week.

This best reflects the fans with the green to spend to get to the Masters. Officials have had to restrict the number of private jets that can fly into Augusta Regional Airport during Masters week. Last year, more private jets flew to The Masters than the Super Bowl.

What about the other green? The Green Jacket won by Scottie Scheffler not only earned him a second jacket, he made $3.6 million – that’s a lot of green! And he’s already made more $15 million so far this year. Scottie is a 27 year old golf phenom. This year’s win was Scottie’s second in 3-years. He is now one of only 18 golfers to have won the Masters at least twice in their careers. He may be the most dominant golfer since Tiger Woods. Scheffler has been ranked world #1 for a total of 82 weeks. He first got to #1 in March of 2022. His longest streak as the top ranked golfer in the world is now 48 consecutive weeks – between May 22, 2023 to today. Tiger Woods had topped the rankings a total of 11 times, with his reign of 281 weeks between 12 June 2005 and 30 October 2010 the longest consecutive streak.

Sure is a lot of green at the place of the Green Jacket. An Augusta, Georgia house may be a good investment opportunity. Scottie can afford one…

Proper Perspective:  In our hectic and often hard to comprehend world, it is very easy to lose perspective. You may agree it is sometimes difficult to see the big picture. The media often doesn’t help with this, but unfortunately instead encourages us to see things in a most negative light. Here is hopefully a pause to gain positive perspective.

“Think about every problem, every challenge, we face. The solution to each starts with education.”

~~George H. W. Bush, 1991

What Happened On This Day April 18, 1775 – 2 lanterns hung in Old North Church steeple in Boston, leading to the famous midnight ride of Paul Revere.

INDICATORS OF INTEREST:

• Market’s Current Signal: Uptrend Under Pressure.  Analysis of the stock market over 130 years of history shows we can view it in terms of three stages – market in uptrend, uptrend under pressure and market correction. I analogize this to a traffic signal’s changing colors from green to yellow and then to red. It is still green. Since the 1880’s, this perspective has led to investment out-performance relative to market indexes. This is due to trend analysis which determines risk reducing, return enhancing market entry and exit points.

The Stock Market Trend: Uptrend Under Pressure. From November 1 to last week the market was in a Confirmed Uptrend. Market action on April 12 triggered the weakened trend signal. After running higher 18 out of 22 weeks, the SP 500 is now heading to its third consecutive down week.

Here are key market levels as of Monday, April 15:

Recapping Last Week

U.S. Treasury yields spiked, and equity indices sold off after March inflation readings accelerated at a faster-than-expected pace. The S&P500 index fell 1.5%, while the Nasdaq Composite slipped 0.5%. The Russell 2000 dropped 3% on weakness in regional banks. All eleven S&P500 sectors finished lower, with financials slumping 3.5% after J.P. Morgan Chase issued disappointing guidance on net interest income. Crude oil prices slid 1.5%, while gold futures jumped 4% before selling off on Friday despite escalating Middle East tensions. The 2-year Treasury yield soared to 5% for the first time since November after the CPI report, while the 10-year yield nearly reached 4.6% before backing off slightly. Headline consumer inflation rose 0.4% MoM in March and 3.5% YoY, with core CPI climbing 0.4% MoM and 3.8% YoY. Investors’ outlook for interest rate cuts shifted dramatically after the news, with fed funds futures traders pushing expectations for the first cut out to September. Inflation is proving to be stickier than the Fed would like, especially in the services sector. Meanwhile, monthly wholesale prices increased less than forecast, but rose 2.1% YoY—the largest gain since April 2023. Weak Treasury auctions followed the inflation reports, contributing to the surge in yields. U.S. consumer sentiment fell in early April as one-year inflation expectations climbed to 3.1% from 2.9%. Minutes from the March FOMC meeting revealed little new information, but there was lengthy discussion regarding geopolitical turmoil and rising energy prices. The Volatility index leapt over 19, a 2024 high.

Internationally, Overseas, the European Central Bank held rates steady but hinted that it is ready to start loosening policy; market pricing suggests a quarter-point rate cut in June. German industrial production rose in February, while Eurozone investor confidence improved in April on incremental economic momentum. The Bank of Canada also left rates unchanged and suggested that a June rate cut may be forthcoming if inflation cooling trends persist. In the UK, GDP grew for a second straight month in February, fueling hopes for an end to the technical recession that nation experienced during the final two quarters of 2023. Finally, China’s CPI rose just 0.1% YoY in March versus 0.7% prior, while PPI tumbled 2.8% YoY. The deflationary trends kept pressure on policymakers to provide more stimulus to spur demand. China’s trade data also missed forecasts by a wide margin in March. Ratings agency Fitch cut China’s sovereign credit rating to negative, citing larger government deficits and high debt levels.

Current View

Caution is highly warranted. Recent market action has turned bearish. Since April 12, the stock market signal changed to Uptrend under pressure. On April 15 the Nasdaq dropped 1.8% in heavy distribution day.

The stock market today fired another loud warning shot across the bow for growth investors. Yesterday’s earnings-fueled decline placed the market outlook on the tipping point for a potential new downgrade. With earnings news revving into higher gear, including today with Netflix, it’s clear that institutions have sought to downshift their positions in a variety of sectors — from semiconductors to software to housing. No wonder, then, that the Nasdaq composite dropped nearly 1.2%, double the 0.6% decline seen by the S&P 500. Small caps fell significantly, with the Russell 2000 off 1% and the S&P MidCap 400 down 0.8%. Small cap stocks have been hit the hardest recently from the declining likelihood of a Fed rate cut soon. The small-cap Russell 2000 has dropped 8.8% from its recent high of 2,135 March 28 vs. a 4.6% pullback by the S&P 500. The Nasdaq composite, which took out its 50-day moving average on Monday, is now 5.2% below its all-time high of 16,538 set on March 21.The Nasdaq composite made a positive reversal during morning trading today as investors digested a growing plate of earnings news and gained some ground. Still, the Nasdaq has fallen more than 3% for the week, marking the worst performance since the tech-centered index slid more than 3.2% in the first week of January. As I noted above, there is absolutely more day to day volatility in the stock market – – and hour by hour.

• Industry Group Strength:  BULLISH. As of yesterday, 124 out the 197 groups I monitor are up year-to-date. 73 are down.
• New Highs vs. New Lows: BEARISH.  In yesterday’s session, there were 32 new 52-week highs and 196 new 52-week lows.
• Dow Dividend Yield:  BEARISH. The current yield for the Dow Jones Industrial Average is 2.03%. The 10-year Treasury now 4.65%. This rate is up from 4.36% 2 weeks ago.
• Volatility Index:  BULLISH. Volatility has been volatile. The “VIX” is near 19. It is up from 14 2 weeks ago. The index is also known as the “Fear Index.” It is considered a contrarian indicator and therefore viewed as bullish as it rises indicating investors are becoming more fearful. The VIX:

• Fear / Greed Index:  BULLISH.  Investors are driven by two emotions: fear and greed. Too much fear can create a condition of oversold/ undervalued stock prices. Too much greed can result in overbought/overvalued stock prices. The AAII Investor Sentiment Index is now neutral.   BE FEARFUL WHEN OTHERS ARE GREEDY. At 36, the Fear & Greed Index is down from 67 two weeks ago. That’s a sharp shift in investor sentiment. This bearishness is bullish.

CLICK VIDEO FOR MORE ON THE “FEAR & GREED INDEX”

How CNNMoney’s Fear & Greed Index works

• Bull / Bear Barometer:  BEARISH. This secondary market indicator should also be viewed with a contrarian perspective. As of yesterday, according to the latest survey of stock market newsletter writers by Investor’s Intelligence (see below), bullish sentiment is 56.5%. This is down from 62.5% 2 weeks ago. The bear sentiment is now 14.5%, about the same as 2 weeks ago. Consider this a contrarian indicator because the crowd is often wrong at market tops and bottoms. In other words, extreme bullishness has been seen near several market tops in the past, while extreme bearishness has been seen at market bottoms.  Note how close market sentiment is near the 5-year bullish high and near the 5-year bearish low…

• Put / Call Ratio: NEUTRAL. The ratio of put-to-call options is 0.83.  It is up from 0.53 2-weeks ago. The put-call ratio tracks the mood of what options investors are doing, not just saying. They typically buy puts if they think a stock will decline and calls if they think it will rise. If they’re buying lots of puts, they see the market declining. And if they’re loading up on calls, they’re generally bullish. Historically, market bottoms occurred when the reading spikes to 1.2 or more. Market tops are often made when the reading is 0.6 or less. Note how reliable this is with respect to the February record low coinciding with the market high. Keep in mind this is also a contrarian indicator.

Global Economic Indicators & Analysis:

POSITIVE INDICATORS

Initial Jobless Claims Flat: The number of Americans who applied for unemployment benefits last week was unchanged at 212,000, reflecting a surprisingly resilient labor market in which layoffs and unemployment remain very low. Jobless claims have hovered between 194,000 to 225,000 this year, a remarkably low level last achieved consistently in the 1960s when the population was much smaller. The government’s official employment report shows a big increase in hiring in early 2024, but recent surveys of businesses suggest they are not adding as many workers.

Fed’s Beige Book Finds Steady Growth: The U.S. economy grew slightly faster in the early spring and businesses added more workers, a Federal Reserve survey found, but there was little progress in lowering inflation. The latest findings in the so-called Beige Book match the assessment of top Fed officials, who in recent weeks pointed to a strong economy and still-elevated inflation as a reason not to cut U.S. interest rates soon. Ten of the Fed’s 12 regional banks said their regional economies sped up since the last Beige Book report in March. Two reported no change. The Fed said employment rose “at a slight pace” in March and early April.

U.S. Industrial Output Rises Modestly: Industrial production rose 0.4% for the second straight month in March, the Federal Reserve reported Tuesday. This is the first two straight monthly increases in output since last March and April. Still, output was down at a 1.8% annual rate in the first quarter after a sharp 0.8% drop in January. The data was encouraging but it is too soon to call it a real recovery.

Retail Sales Rise Sharply: Sales at retailers rose a robust 0.7% in March and outlays in the prior month were also stronger than previously reported, indicating the economy got a boost from consumer spending in the first quarter. Sales minus autos and gas rose an even stronger 1.0% last month. Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. Robust sales in early 2024 could be another reason the Federal Reserve decides to put off reductions in interest rates until later in the year. Strong retail sales in February and March could help pad gross domestic product in the first quarter. GDP is the official scorecard of the U.S. economy. GDP is forecast to increase about 2% in the first three months of the year, the latest estimates show. The economy’s top sustainable speed in the long run is seen at 1.8%, but the U.S. has been growing rapidly since last summer.

PPI Not Showing Intensifying Price Pressures: The producer price index is more volatile than a similar survey of consumer prices, but it’s not pointing to a broad acceleration in U.S. inflation. To be sure, the PPI has moved higher in early 2024. The yearly rate of wholesale inflation climbed to an 11-month high of 2.1% in March from 1.6% in the prior month Some of the increase has been driven by higher gas prices, though in March wholesale energy prices fell sharply to offer some relief.

Labor Market Still Strong: The U.S. created a larger-than-expected 303,000 new jobs in March and signaled the economy is still expanding at a solid pace, but the report won’t make it any easier for the Federal Reserve to decide when to cut interest rates. The increase in new jobs was the biggest since May 2023. Economists surveyed by The Wall Street Journal had forecast a 200,000 increase in new jobs last month. The unemployment rate, meanwhile, slipped to 3.8% from 3.9%. Before cutting interest rates, senior Fed officials have said they want to see the jobs market cool off a bit more and inflation slow further toward their 2% goal. A softer labor market can aid in the fight vs. inflation.

Housing Starts Plummet:  Construction of new homes fell 14.7% in March, as home builders scaled back new projects. The pace of construction slowed as builders contended with higher mortgage rates sapping demand. Housing starts fell to a 1.32 million annual pace from 1.55 million in February, the government said on Tuesday. The drop in March was the sharpest since April 2020, when starts dropped by 27%. Overall, the drop in new-home construction is a setback for the housing market, which is already facing a housing deficit due to demand outpacing supply.

Home Builder Confidence Falls: Builder confidence was unchanged in April, as the 30-year mortgage rate crossed 7% and dulled demand. A strong inflation report prompted the market to expect delayed interest rate cuts by the Federal Reserve, which in turn pushed up mortgage rates. The 30-year was at 7.3% as of April 12. Higher rates typically spook buyers, which is reflected in builders’ confidence in the market. Though demand is strong overall, builders expect a dip in sales over the next six months due to the higher rates, which left the National Association of Home Builders’ (NAHB) monthly confidence index unchanged, at 51 points in April. Builders are scaling back incentives, such as cutting prices, to entice home buyers.

Empire State Manufacturing Survey Remains Contracted: The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, rose 6.6 points in April to negative 14.3, the regional Fed bank said Monday. The index had fallen to negative 20.9 in March from negative 2.4 in February. The index for new orders rose 1 points to negative 16.2 in April. The shipments index fell 7.5 points to negative 14.4. Unfilled orders ticked up 0.8 points negative 10.1. Prices paid rose 5 points to 33.7 in April. Selling prices ticked down 0.9 points to 16.9. Optimism about the outlook for the next six months remained subdued.

Consumer Sentiment Falls: An early reading of consumer sentiment in April retreated from a 32-month high, a sign of some frustration on the part of Americans about lingering inflation. The first of two readings of the consumer-sentiment survey dipped to 77.9 this month from 79.4 in March, the University of Michigan said last Friday. The index reached the highest level in March in 32 months, but it’s still well below the pre-pandemic peak of 101. Consumers think inflation will average 3.1% in the next year, up from 2.9% in the prior month.

Import Price Index Rises Again: The numbers: The cost of imported goods rose in March for the third month in a row because of higher oil prices, adding a little bit to upward pressure on U.S. inflation. The import price index increased 0.4% last month, matching the forecast of economists polled by The Wall Street Journal. The cost of imports fell steadily in late 2022 and 2023 before wafting higher this year. Cheaper import prices help to lower U.S. inflation because Americans buy so many foreign-made products such as oil, cars and consumer electronics. Higher import prices make U.S. inflation worse. Even if fuel is set aside, import prices are no longer falling. The cost of food, autos and consumer goods have been creeping higher.

U.S. Budget Deficit Untenable: The U.S. budget deficit has topped $1 trillion halfway through the current fiscal year, driven in part by rising interest payments on the national debt. The U.S. deficit across the first six months of fiscal 2024 rose to $1.07 trillion in March, almost matching the increase seen in same period in the prior fiscal year. The annual U.S. budget deficit is forecast to decline slightly to $1.5 trillion in fiscal 2024 from a year earlier, and then rise again. High deficits and high interest rates, meanwhile, have caused net interest payments by the government to surge in the past few years. Net interest payments climbed to $429 billion in the first six months of fiscal 2024, from $301 billion in the same period in the previous year. Net interest payments now roughly equal what the U.S. spends on defense. These payments could continue to increase if interest rates remain high and annual deficits of $1 trillion-plus persist.

CPI Spikes Again: The cost of consumer goods and services rose a sharp 0.4% in March, capping off a third straight month of elevated inflation readings that will make it hard for the Federal Reserve to cut interest rates soon. The March report on consumer prices showed inflation stuck well above 3% and far from the Fed’s 2% goal. The increase in the CPI over the past 12 months moved up to 3.5% from 3.2% and hit the highest level since September. The cost of energy and shelter accounted for more than half of the increase in inflation in March, the government’s report showed. The so-called core rate of inflation that strips out food and energy also increased 0.4% last month, the government said last Wednesday.

NFIB Optimism Index Sinks: The NFIB’s Small Business Optimism Index declined to its lowest level since 2012 amid concerns about inflation, high interest rates and labor market challenges. NFIB’s Small Business Optimism Index, which is compiled monthly through a survey of small businesses, decreased in March by 0.9 of a point to 88.5, which is lowest reading since December 2012 and marks the 27th consecutive month with the index below the 50-year average of 98.

Consumer Credit Declines Slightly: Total consumer credit rose $14.1 billion in February, down only slightly from a revised $17.7 billion increase in the prior month, the Federal Reserve said last Friday. That translates into a 3.4% annual rate, down from a 4.2% rise in January. Revolving credit, like credit cards, accelerated to grow at a 10.2% rate in February after a 7.8% gain in the prior month. Economists see signs that consumer spending has softened, dragged down by a slump in auto sales.

John J. Gardner, CFP®, CPM®, AIF®

Blackhawk Wealth Advisors, Inc.

3860 Blackhawk Rd. Ste. 160 Danville, CA. 94506

Phone: 888-985-PLAN · Email: jg@blackhawkwealthadvisors.com

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For my Market Monthly podcast, click on the link below. I provide a review of global stock market highlights over the past month and preview of the month ahead. Forward insights and perspectives are based on current financial market and economic trends with an emphasis on relevant developments in various areas from Fed policy to company earnings announcements.

Blackhawk Wealth Advisors is the parent corporation of Equity Research & Portfolio Evaluation and Blackhawk Asset Management. It’s Chief Investment Officer is John J. Gardner. John is a Certified Financial Planner (CFP®) and Certified Portfolio Manager (CPM®). As an AIF®, John is also an Accredited Investment Fiduciary.

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