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 now – take advantage of it!
Howdy, Bull-Riders:
Stocks hit new highs as Chairman Powell told Congress the central bank is in no hurry to ease policy, though he said rate cuts are likely to come this year. I'm still doubtful, although I think a mild recession will start this year. It takes the National Bureau of Economic Research about a year after a recession starts to call it. That delay will give the Fed enough cover to not cut unless the recession spirals into something much bigger than I'm expecting.
The labor markets are slowly weakening. Friday morning's (fake) payrolls number will be revised down sharply, as usual. January's Job Openings and Labor Turnover Survey (JOLTS) showed 5.7 million hires were made in the month, a slight decrease from the 5.8 million in December. There were 8.86 million jobs open at the end of January, another slight decrease from the 8.89 million job openings in December, and the lowest level since March 2021. The quits rate, a sign of confidence among workers, slipped slightly to 2.1%, down from 2.2% in December and the lowest level since August 2020.
h/t Yahoo Finance
The ISM reports agree that employment has weakened notably in the last five months. The chart below shows the average of the employment sub-component for the ISM Manufacturing and ISM Services Index. The chart is smoothed by four months to reduce the choppiness.
h/t @EPBResearch
What will the Fed do? Torsten Sløk, Apollo Global's chief economist, became one of first Wall Streeter's to join me in saying “rates are going to stay higher for longer.” He even predicts the Fed will not cut rates this year. I think it's too early to make that call, as I still believe a recession is imminent and the Fed probably will make tiny cuts in response.
If you want to know what the Fed will do next, you could try to guess what their 400 PhDs will advise them to do based on their complex economic models. Or you could just do what I do and follow the 2-year Treasury note.
h/t @McClellanOsc
Market Outlook
The S&P 500 added 1.2% since last Thursday to new all-time highs yesterday as breadth improved and the percentage of stocks in the Index setting new 52-week highs surpassed the December peak. The S&P is up 8.1% year-to-date.
Since 1957, the S&P 500 has returned more than 20% over a four-month time frame only 14 other times, with the last coming in the summer of 2020. Twelve of those other 14 occurrences saw <double-digit returns over the next 12 months, with the lowest return being a positive 1.16%.
In years after the S&P gained in both January and February, the final 10 months of the year were higher 26 out of 28 times. The next 12 months were higher an amazing 27 out of 28 times, with the returns in both cases much better than the average returns.
h/t Carson Group
Looking at historical bull market analogs, we can see that after a slow start in 2023, the S&P 500 has now entered the zone of a typical bull market.
h/t @TimmerFidelity
The Nasdaq Composite gained 1.1%, setting a new intraday high today. It is up 8.4% for the year. The SPDR S&P Biotech Exchange-Traded Fund (XBI) only added 0.4% as the biotech rally took a breather. It is up 10.6% year-to-date. The small-cap Russell 2000 booked a 1.5% gain and is up 2.8% in 2024.
The fractal dimension is ridiculously overextended, but I said that last week.
I'm going to have to expand the graphic to properly record both the S&P highs and the fractal lows.
Economy
The Atlanta Fed's GDPNow model forecast for March quarter real GDP growth is down to +2.5%, a level the Blue Chip economists are rapidly approaching.
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Golden Age Portfolio Update
This was a very good week for the portfolio as it jumped another 3.3%. We were up 63.5% last year and we're now up 24.1% in 2024, with much more to come. It’s not too late to get onboard! You don’t have to chase hot stocks and risk a sudden drawdown. There are plenty of opportunities, even in AI, that are undervalued. You can continue to invest even as you minimize risk.
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