Stocks peak about every 36 years, most recently in 1929, 1965, and 2000. This 36 year cycle can be traced all the way back to the earliest eras in recorded human history, back to Pythagoras and Plato and the Axial Age around 600BC. After each peak comes a period of decline (punctuated by bear market rallies) that typically lasts 16 years or so. Then, with the excesses of the prior bull period wrung out and investors most depressed, the next 20-year run to the next market top can begin. We're in that Golden Age right now – take advantage of it!
Howdy, Bull-Riders:
The headline February Consumer Price Index was +3.2% year-over-year, a skotch higher than the +3.1% expected and the +3.1% in January. The lagging shelter component accounted for about two-thirds of the increase. The month-over-month CPI was +0.4%, right on the consensus but a tenth above January's 0.3%.
The core CPI excluding food and energy was +3.8%, a bit lower than January's 3.9% but just above the 3.7% consensus. The month-over-month core also was +0.4%, right on the consensus but a tenth over January's 0.3%. All in all, it was an unsurprising report that should keep the fed in “High – but not higher – for longer” mode.
Stocks rose because it wasn't bad, while the dollar rose and gold fell because the Fed won't be cutting any time soon. I expect headline inflation of 3.1% in March and 3.0% in April as the lagging shelter index very slowly falls. (“Owners equivalent rent” is 26.7% of the headline index and “rent of primary residence” is another 7.7%.) The core rate should be about 3.6% in March and April.
Yesterday's Producer Price Index was a better measure of market sentiment than inflation. February wholesale prices rose 0.6% from January, double January's 0.3% increase from December, mostly due to an increase in wholesale gasoline prices. The S&P 500 dutifully sold off 42 points before recovering. But the core month-over-month increase was 0.3%, down from a 0.5% jump in January. The Fed meets March 19-20. John Mauldin's Thoughts From The Frontline has a million subscribers and the latest one is headed:
Click for larger graphic h/t @JohnFMauldin
I guess the word is out. Goldman Sachs said Wednesday’s CPI ran hot but the composition “was disinflationary .. with a sharp normalization in non-housing services inflation and a return to the Q4 trend for the owners’ equivalent rent category. .. We also expect the rise in used car prices to more than reverse this spring. .. We continue to expect the FOMC to leave the Fed funds rate unchanged at the March meeting and to begin the easing cycle in June.”
But the 10-year Treasury yield is making a massive up candle as it take out the 4.2% resistance. Note that it now is above the 200-day moving average and closing in on a potential golden cross.
h/t @TheMarketEar
And, as happens during Presidential election years, the initial economic reports are surprisingly good for the administration in power, and then a month later are quietly revised down. The non-farm payroll report is getting especially silly:
h/t @DiMartinoBooth
The non-political Conference Board Employment Trends Index “decreased in February to 112.29, from a downwardly revised 113.18 in January...the labor market is likely to cool off, with modest job gains expected through Q3 and Q4 of 2024.”
The Fed knows all this, of course, and they have said point blank: “The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.”
The Fed is watching the PCE, which is down to +2.4% overall and +2.8% for the core rate. I still think they won't cut until they see real GDP weakness. That means a mild recession is coming.
Market Outlook
The S&P 500 dropped a minuscule 0.1% since last Thursday. Remember that 5% pullbacks tend to occur three times a year and 10% corrections have occurred once per year. The Index is up 8.0% year-to-date. The rally is broadening out - 26% of NYSE stocks have made a 52-week high in the past two weeks.
The Nasdaq Composite lost 0.9% as tech funds had the largest outflow ever last week, $4.4 billion. It was the first outflow in nine weeks.
The Naz is up 7.4% for the year. The SPDR S&P Biotech Exchange-Traded Fund (XBI) fell 4.4% as the biotech rally retraced a bit. It is up 5.8% year-to-date. The small-cap Russell 2000 dropped 2.6% and now is only up 0.2% in 2024.
The fractal dimension pushed further into uncharted territory as the pause that refreshes was postponed for another week.
The percentage of the S&P 500 stocks hitting new highs faded for three years into the market top in 2000.
h/t @GinaMartinAdams
But the percentage is increasing now.
h/t @GinaMartinAdams
Still, I am very aware that next-12-months Price/Earnings multiples have stayed elevated even as rate cut expectations have faded.
h/t Morgan Stanley
And the latest data from Investor's Intelligence shows the most optimism and the least pessimism since the summer of 2021.
h/t @himountresearch
That's why I suggested portfolio insurance in the February 23 issue - unneeded so far.
Economy
The Atlanta Fed's GDPNow model reduced its estimate for March quarter real GDP growth from +2.5% to +2.3% due to slower personal consumption expenditures growth.
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Golden Age Portfolio Update
This was a give-back week for the portfolio as it slipped 3.0% from last week's all-time high. We're now up 20.4% in 2024 with much more to come. Let's dig in...
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Each color shows $1 trillion getting added to the national debt.
Not that long ago, it took six years to add a bar.
We’re now adding one every 90-120 days.
h/t @RobertMSterling
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Your getting ready for the crisis Editor,
Paid subscriber or not, if you would click the ♥ symbol below it would really help me get the word out.