Transcript

A Pathetic Punt. · ANGLES.

0:01
SPEAKER_00: A Pathetic Punt.
0:03
SPEAKER_00: My weekly market review March 3rd, 2024.
0:06
SPEAKER_00: It was more of the same.
0:10
SPEAKER_00: For the second week running, stocks played a nervous waiting game for the first three days of the week, afraid of being disappointed by some data that was coming out on Thursday.
0:20
SPEAKER_00: Then, also just like the week before, when the data proved to be not as bad as feared, stock markets got bought up nicely on Thursday and Friday to end the week with gains and yet more new all-time record highs.
0:37
SPEAKER_00: Monday was quiet as Wall Street traders digested the previous week's melt-up and decided to hold their fire ahead of the influential PCE inflation numbers later in the week.
0:50
SPEAKER_00: It was suspected that this release could well confirm the inflation stickiness indicated by the most recent consumer and producer price index data, thereby justifying the Federal Reserve's highly cautious approach to lowering interest rates anytime soon.
1:07
SPEAKER_00: Stocks moved a touch lower.
1:10
SPEAKER_00: This waiting game continued on Tuesday.
1:13
SPEAKER_00: The latest data on durable goods sales and consumer sentiment
1:19
SPEAKER_00: Both came in softer than expected.
1:22
SPEAKER_00: The can braced itself for yet another kick down the road, as noises coming out of Washington DC took a decidedly optimistic turn regarding a deal to avoid the potential government shutdown.
1:36
SPEAKER_00: This proved ultimately to be misleading, as we'll see later.
1:40
SPEAKER_00: Suspicions continued to deepen that the inflation data coming out on Thursday would disappoint, but anyone selling stocks since October has usually gotten burned by the experience, so the net outcome was another holding pattern for most of the indexes, although the recently battered small caps actually ended up having a pretty good session.
2:04
SPEAKER_00: Stocks continue to struggle to find any direction and experience small losses on a largely uneventful Wednesday after a report showed that the Q4 2023 Gross Domestic Product GDP is estimated to have risen at a revised 3.2% annualized pace compared with the expectation of 3.3% Consumer spending advanced at a 3% rate a bit faster than estimates
2:31
SPEAKER_00: Over the course of the entire year, the US economy expanded 2.5% in 2023.
2:39
SPEAKER_00: When the government shutdown can did get kicked on Wednesday evening, it didn't make it very far down the road.
2:48
SPEAKER_00: The House agreed to extend federal funding for all of a week, and the lights-out date was pushed back by a whole two weeks, so the key shutdown dates are now March 8th for Part 1 and March 22nd for Part 2.
3:06
SPEAKER_00: This half-baked pathetic punt was then passed in the Senate the next day and sent to Biden for his signature.
3:14
SPEAKER_00: which means we will face the same political posturing shitshow in Congress all over again this week and likely for the next couple of weeks as well.
3:25
SPEAKER_00: We finally got to see the hotly anticipated Core Personal Consumption Expenditure price index on Thursday morning, before markets opened for business.
3:36
SPEAKER_00: This is the measure that the Fed uses to determine what inflation is really doing, and is therefore arguably the most important of economic statistics these days.
3:47
SPEAKER_00: It showed an increase of 0.4% for January and 2.8% from a year ago.
3:54
SPEAKER_00: This was entirely in line with expectations, leaving the fears experienced over the preceding few days unwarranted.
4:03
SPEAKER_00: Wall Street exhaled in relief and resumed its steady buying of stocks, which proved enough to send the S&P 500 to, you guessed it, its 14th new record closing high of 2024 and the NASDAQ to its first new record closing high since November 2021.
4:25
SPEAKER_00: The price of the stock of commercial real estate lender New York Community Bank Corp tumbled further on Friday after the regional bank admitted that it had discovered material weaknesses in how it tracks loan risk.
4:41
SPEAKER_00: The stock plunged 30% in a matter of minutes to a level 75% below where it was as recently as August of last year.
4:51
SPEAKER_00: The broad market did fine, however, on the back of continued relief surrounding the previous day's inflation figures and some rather benign Fed speak.
5:01
SPEAKER_00: All the indexes ran higher again, and yet more new all-time record closing highs were recorded.
5:08
SPEAKER_00: The bears are in full retreat.
5:13
SPEAKER_00: The market sense
5:15
SPEAKER_00: Last week was that the doomsayers ongoing narrative that any day now a catastrophic number will derail the rally and send the market into a tailspin was once again proved wrong and that the safest reaction in response seems to be to just keep on steadfastly buying.
5:36
SPEAKER_00: My view is that any meaningful derailment of this rally will be a process and not an event.
5:42
SPEAKER_00: If we are watching carefully enough, we should see it begin to unfold in real time.
5:49
SPEAKER_00: All the while, there seems to be a quiet but steady drumbeat in the deep background
5:55
SPEAKER_00: of the opinion that inflation stickiness could mean that there actually may not be any rate cuts at all in 2024.
6:07
SPEAKER_00: And while it would be wrong to say that this view is yet moving into the mainstream, you don't need to dig very deep into financial media anymore to find it.
6:19
SPEAKER_00: Hire for longer, as they say.
6:22
SPEAKER_00: But in a world that seems to automatically correlate the narrative of interest rates up equals stocks down and vice versa, it's sometimes easy to forget that investors had no issue with high interest rates back in the 1990s when stocks went on a record run.
6:40
SPEAKER_00: During that decade, the S&P 500 averaged an annual return of 18.2%.
6:47
SPEAKER_00: Meanwhile, the Fed funds rate was as high as 8.25% during that period and never once went below 3%.
6:54
SPEAKER_00: It's currently 5.375%.
6:58
SPEAKER_00: So it's clear that higher interest rates and upwardly mobile stock markets can coexist.
7:06
SPEAKER_00: What cannot coexist, though, is an upwardly mobile stock market and a meaningful recession.
7:13
SPEAKER_00: The S&P 500, which closed on Friday at 51.37, was trading solidly below 4,000 much of last year, precisely because investors feared a recession.
7:25
SPEAKER_00: If a recession does now occur, albeit much later than expected, then it's not unreasonable to expect stocks to drop back to that level or below.
7:35
SPEAKER_00: Put simply, no one currently expects the economy to roll over.
7:42
SPEAKER_00: But if it does, it could erase the entire rally that's occurred since October 2023 and then some.
7:49
SPEAKER_00: That's why investors must continue to watch economic data closely and recognize rising slowdown risks if they emerge so that they aren't blindsided by any sudden market volatility.
8:02
SPEAKER_00: That's what I tried to do all week and report back to subscribers each Sunday.