This time last year I wrote about the Top 20 over 20. It highlighted the top 20 most viewed ERPE Excerpts over the prior 20 years. Today’s ERPE Excerpts looks back at the archives of past notes and revisits the top 10 most read in the last 10 years. So, here they are: the top 10 ERPE Excerpts of the last 10 years. It is interesting how global financial markets, economies and world events, advancements and setbacks impact our investments. Hope you enjoy reading some of these top 10, maybe for a second time. Just click on any ERPE Excerpts listed below to see.
As I closed with in my ERPE Excerpts Top 20 Over 20, “Now I get to start on the top 20 over the next 20”, it’s now time to begin the top 10 of the next 10.
John
TAKING PERSPECTIVE…
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.
Famous Quote For Today:
“It is a bad thing to perform menial duties even for the sake of freedom”
~~ Karl Marx – January 25, 1843
What Happened On This Day January 25, 1915 – First transcontinental long-distance phone call made.
MARKET ANALYSIS
INDICATORS OF INTEREST:
Market’s Current Signal: Market in Confirmed Uptrend. 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. 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: Market in Confirmed Uptrend. Wednesday November 1 the market closed up in higher volume came on the fourth day of a rally attempt. This follow-through day triggered a positive market trend signal to Market in Confirmed Uptrend. This was a bullish direction change from Market in Correction. The market’s technical’s and fundamental’s are both solid and support the market’s extended Confirmed Uptrend. The market is now up 12 out of the last 13 weeks.
Here are key market levels as of Monday, January 22:
Recapping Last Week
Rising interest rates and weak Chinese economic data kept U.S. equities in check, but the S&P500 index still managed to gain more than 1% and reach an all-time high. The Nasdaq Composite rose more than 2%, while the Russell 2000 fell slightly. Six of eleven S&P500 sectors lost ground, with interest rate-sensitive utilities sliding nearly 4%, while energy dropped 3%. Still, crude oil prices rose 1%, supported by Middle East tensions and U.S. output disruptions caused by extreme cold weather. The 10-year U.S. Treasury yield jumped 20 basis points to 4.15% after retail sales increased more than expected in December. The U.S. economy remained on solid ground heading into 2024, casting further uncertainty on the Federal Reserve’s path to interest rate cuts. Comments from several FOMC members during the week revealed a wide range of opinions on the timetable for such action. Meanwhile, consumer confidence soared to the highest levels in nearly three years, backed by a strong labor market. One-year inflation expectations fell to 2.9%, suggesting more investors are convinced of the economic soft-landing scenario. Manufacturing remained a weak spot, as activity in New York State plunged in early January, and U.S. industrial production was sluggish in December. U.S. homebuilder sentiment improved slightly, but housing starts fell sharply in December after months of strong gains, likely due to rainy weather. Existing home sales capped their worst year since 1995 as high mortgage rates kept inventory and affordability low.
Internationally, China posted GDP growth of 5.2% for 2023 and 1.0% from the prior quarter. The annual number was above the official target but barely missed forecasts, sending Chinese equity prices reeling. December’s retail sales disappointed, and concerns about longer-term growth projections grew as the country’s population fell for a second straight year. In the UK, consumer prices accelerated for the first time in ten months, with CPI rising to 4.1% in December. Wage growth has slowed, however, and British retail sales plunged in December, stoking hopes for interest rate cuts by spring. Finally, Japan’s core CPI rose 3.1% year-over-year in 2023, the fastest rate in 41 years.
Current View
The major U.S. stock indices rallied sharply higher as 2023 came to a close. The stock market climbed higher 9 straight weeks into year end. As noted above, the market is in the 12 up week out of the last 13. Yesterday the S&P 500 scored its fifth straight gain.
Stock market psychology is showing more positive sentiment. Bullishness among newsletter editors rebounded to 52.9% vs. 48.5% this week, according to Investors Intelligence’s weekly survey. That still falls shy of a near-term peak of 57.1% seen both in early December and at the start of 2024. The ratio of bearish pundits fell to 17.1% vs. 19.1%. Editors at Investors Intelligence noted that “low levels of bears (near 18% in July/August 2023, just 15.3% in July 2021) hint at tops.” This point is worth noting.
The Nasdaq, which led was the leading index last year, is continuing its bulling trend. As of yesterday, it marked a fifth up day in a row and is up more than 3% YTD. I see many parallels in the stock market between now and the 1999/2000 period. Like then, the market now is trending higher boosted by great momentum. Especially in the space of megacap tech growth stocks. This trend will end, as in March of 2000, and preservation will be paramount.
Industry Group Strength: BULLISH. As of yesterday, 122 out the 197 groups I monitor are up year-to-date. 75 are down.
New Highs vs. New Lows: BULLISH. In yesterday’s session, there were 188 new 52-week highs and 69 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 4.13%.
Volatility Index: BEARISH. Volatility has been volatile. The “VIX” is now 14. 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: BEARISH. 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 77, the Fear & Greed Index is up from 72 two weeks ago.
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 52.9% and the bears came in at 17.1%. 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.
Put / Call Ratio: BEARISH. The ratio of put-to-call options is 0.54. 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.
ECONOMIC UPDATES
Global Economic Indicators & Analysis:
POSITIVE INDICATORS
Q4 2023 GDP Expands: The U.S. grew at a robust 3.3% annual pace in the fourth quarter, showcasing the economy’s remarkable vigor despite high interest rates and still-elevated inflation. Economists polled by The Wall Street Journal had forecast a 2.0% rate of growth. Although growth slowed from the third-quarter’s stunning 4.9% clip, the back-to-back readings were the strongest since 2014 if the sharp recovery after the pandemic is set aside. Nor is there any evidence the economy is slowing further. The first indicators of the new year show an acceleration in growth in January.
S&P Flash Services & Manufacturing Show Resilient Economy: The U.S. economy got off to a good start as growth sped up in January a pair of S&P business surveys showed, indicating a recession still appears far off. The S&P flash U.S. services PMI climbed to a seven-month high of 52.9 in January from 51.4 in the prior month, S&P said Wednesday. The flash U.S. manufacturing PMI, meanwhile, jumped to a 15-month high of 50.3 this month from 48.2 in December. It’s the first time the index has been positive in more than a year. Numbers above 50 signal growth in the economy. The surveys are the first indicators to give a sense of how the U.S. economy is doing in the new year. The U.S. economy softened toward the end of 2023, but it still appeared to grow at a reasonably healthy pace. The likely end of increases in interest rates by the Federal Reserve and rising odds of interest rate cuts soon could also give the economy more support in the months ahead.
New Home Sales Surge: Sales of newly built homes in the U.S. jumped in December as falling mortgage rates sparked home-buying interest. U.S. new-home sales rose 8% to an annual rate of 664,000 in December from a revised 615,000 in the prior month, the Commerce Department reported today. Mortgage rates dipped below 7% in early December 2023, according to data from Freddie Mac, which could be one reason for increased demand for homes. New-home sales continue to be a bright spot in the housing sector, and as mortgage rates fall, demand could be further boosted. The housing market continues to rely on newly built homes amid a persistent lack of resale home listings.
Consumer Sentiment Jumps: Consumer sentiment jumped in January to the highest level since the summer of 2021, reflecting fresh optimism about the economy as inflation slows and incomes rise. The preliminary reading of the sentiment survey shot up to 78.8 from 69.7 in December, the University of Michigan said Friday. Two straight strong increases pushed the index to its highest level since July 2021. The consumer-sentiment survey reveals how Americans feel about their own finances as well as the broader economy. While sentiment has improved lately, it’s still well below pre-pandemic levels of around 100.
Home Builder Confidence Soars: Builder confidence surged in January as falling mortgage rates drew in home buyers from the sidelines. The 30-year mortgage rate stayed well below 7%, which pushed the National Association of Home Builders’ monthly confidence index up 8 points to 44 in January, the trade group said on last Wednesday. The index is up for the second month in a row. The January figure exceeded what economists were forecasting on Wall Street, which was expecting sentiment to rise to 39. A year ago, the index stood at 35. The U.S. housing market is warming up as rates stay below 7%, and buyers are eager to jump back in. Home builders are in a prime position to capture buyers’ interest since they have new inventory to offer and are ramping up new projects to meet demand.
WEAK INDICATORS
Initial Jobless Claims Up: Initial jobless claims rose 25,000 to 214,000 in the last week, the Labor Department said today. This is the highest level in a month. Economists polled by The Wall Street Journal had estimated new claims would rise to 200,000.
U.S. LEI’s Fall Again: The leading indicators of the U.S. economy fell in December for the 21st month in a row, but a widely predicted recession still appears no closer than when the long losing streak first began. The leading index slid 0.1% last month. It’s the smallest decline since the stretch of negative readings first started in March 2022. Six of the 10 indicators in the survey were positive in December, a big improvement compared to prior months. The two other times the index was negative for longer — 1973-1975 and 2007-2009 — a recession took place. Yet the economy has not followed the usual patterns since the 2020 pandemic. The leading index is a gauge designed to show whether the economy is getting better or worse. The report is published by the nonprofit Conference Board. The economy has continued to expand through a period of high inflation and rising interest rates orchestrated by the Federal Reserve to get prices back under control.
Home Sales Hit 29 Year Low: Home sales fell in December to the lowest level in more than a decade as demand continued to exceed the supply of listings for sale, pushing prices up to close out the year. Sales activity on a monthly basis was at the lowest level since August 2010. Sales of previously owned homes fell by 1% to an annual rate of 3.78 million in December. That’s the number of homes that would be sold over an entire year if sales took place at the same rate in every month as in December. Compared with December 2022, home sales are down by 6.2%.Looking at 2023 overall, sales dropped by nearly 19% from the previous year, falling to the lowest level since 1995, the NAR said, and the median home price reached a record high. Falling mortgage rates are drawing buyers back in, but without a meaningful increase in the number of homes for sale, that’s going to keep a lid on home sales. That demand-and-supply imbalance could push home prices up further, as more buyers converge on the same properties.
Fed’s Beige Book Finds Cooling Labor Market: There were signs that the labor market was cooling in nearly all regions of the country, according to a Federal Reserve survey released last Wednesday. The survey, known as the Beige Book, is a collection of anecdotes from business contacts collected before Jan. 8. The contacts spoke of larger applicant pools, lower turnover rates, more selective hiring by firms and easing wage pressures. Cooling wages, in particular, would help keep inflation on a downward path. Fed officials will meet at the end of the month to plot interest-rate policy. They use the Beige Book to get a sense of conditions on the ground.
Industrial Production in Rough Shape: Industrial production rose 0.1% in December, the Federal Reserve reported last Wednesday. The gain was above a 0.1% decline, according to a survey by The Wall Street Journal. Business investment fell sharply in the fourth quarter. Production declined at a 3.1% annual rate in the final three months of the year, while manufacturing was down at a 2.2% rate. This will weigh on fourth-quarter gross domestic product. It remains to be seen if the recent easing in financial conditions will boost manufacturing. Early readings from the New York Fed show manufacturing conditions worsened this month.
Call me if you have any questions. I am always happy to help!
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.
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At BAM, we take the research we obtain from ERPE and utilize it to manage our clients’ assets. Our founder, John Gardner, CFP®, CPM®, offers high net worth investors experienced investment portfolio management based on a disciplined methodology. John is one of the nation's approximately 400 Certified Portfolio Managers and has managed billions of dollars in equity portfolios over his professional career since 1984. He has created four effective, proprietary portfolios: Thematic Growth, Strategic Income, Diversified Value, and Global Opportunity, which have helped clients prosper.
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Equity Research & Portfolio Evaluation
Equity Research & Portfolio Evaluation (ERPE) utilizes its propietary approach in analyzing investments. Its proven success researching equities is based on a blend of fundamental and technical analysis. ERPE's time-tested Top 10 Tenets guide the investment process to achieve Portfolio Optimization: This is through minimizing risk without sacrificing return.
