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!
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Bloomberg said the tailwind from surging immigration would boost March quarter GDP.
Oops. Real GDP only grew at 1.6%, short of all estimates including the Atlanta Fed's GDPNow +2.7%. Could it be that housing massive illegal immigration from South America, Asia, and the Middle East in luxury hotels isn't really good for the economy?
To be fair, the growth details were better than the headlines, although the inflation data was slightly hotter than I expected. The headline number was mainly driven by weakness in volatile components, especially net exports. Private domestic final purchases, the “core GDP” of consumption and fixed investment, grew a strong 3.1%.
h/t @ernietedeschi
Consumption was above expectations, business investment was below expectations, and overall private sector activity remains pretty strong. Part two of the Fed's dual mandate – full employment – is on track.
But part one, lower inflation, was not. This morning's March Personal Consumption Expenditures Index number confirmed yesterday's GDP report. Core PCE rose at an annual rate of 3.7% during the March quarter, faster than the 2.9% reported for last year's March quarter and the 2.0% in the December quarter, and above the consensus estimate for 3.4%.
h/t @jasonfurman
Bottom line: The real side of the economy remains healthy but the nominal side is too hot. Overall that is not a bad place to be, but also not a place where the Fed will need to cut rates anytime soon. Inflation remains sticky and paused – maybe reversed – its clear trend lower. The Fed will stay on hold at next Wednesday's meeting.
The futures market is still pricing a first rate cut in September, but the probability is down to 58%. I'm not quite ready to give up on my forecast of a mild recession starting this year, but it won't take much more to convince me that this is the first time in 56 years the leading indicators fell below -5% without being in a recession.
h/t @DiMartinoBooth
Stocks got a bid today in part because the buyback blackout ended. Goldman Sachs wrote: “On the authorization front, 2024 YTD authorizations stand at $317.4B vs $377.0B 2023 YTD authorizations. We expect to see authorizations this year finish higher, estimating 2024 authorizations to finish $1.15T (up ~16%).”
h/t @zerohedge
Market Outlook
Even after yesterday's intraday drop below 5,000, the S&P 500 added 0.7% since last Thursday. The Index is up 5.8% year-to-date. The Nasdaq Composite eked out a 0.1% gain and is up just 4.0% for the year. The SPDR S&P Biotech Exchange-Traded Fund (XBI) fell 1.5%. It is down 7.9% year-to-date as the biotech winter continues. The small-cap Russell 2000 gained 2.0% but still is down 2.3% in 2024.
The fractal dimension stopped the consolidation for the moment, but this probably is not a renewed uptrend. The fractals still are so low that they need many weeks of consolidation to build up the energy for another upleg. Don't be panicked out by drops like last week – markets can consolidate by periodic price reversals, sometimes sharp, or the passage of time. Or, most likely in this case, both.
Bitcoin has steadied after the halving. Barring a quick dump to clean out the weak hands, I expect a steady run to $100,000 over the next six to twelve months.
Coming Events for Free Subscribers
All times below are ET
Wednesday, May 1
Fed Meeting - 2:00pm press release; 2:30pm press conference
Friday, May 3
April payrolls – 8:30am - +210,000 expected; March was +303,000
Golden Age Portfolio Update
This was a very good week for the portfolio as it jumped 4.6%. We're now up 15.7% with much more to come. Let's dig in...
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RIP Calvin Keyes
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