For many investors tuning into CNBC, Fox News or Bloomberg all too often, the idea that stocks and the S&P 500 could be nearing ATH’s again is unfathomable.  Wasn’t there near unanimous agreement in 3q23 that we were heading for a recession in 1h2024?  Alas, we didn’t and stocks are much higher. Almost exactly 1100 S&P points higher from the late October bottom.  But even after such a run, many of those same personalities who got it wrong ofr their followers for the better part of 2+ years are still on TV preaching doom and downside. While their theories may one day be proven to be correct, exactly how many months, quarters, years, or decade+ in the case of Jeremy Grantham do they get for being “early”?  Investors, being “early”, is a polite way of trying to disguise being “wrong” but not admitting it.  Even the greatest investors (like Jim Simmons of Renaissance Technologies who passed away last week) are far perfect in this business.  But at some point, even the greatest investors admit when they are wrong, not just early. So far the “old normal” has played out for 2023 and year to date 2024.  What would more of that look like the next few months.  Well historically, the last couple of weeks in May aren’t the best for stocks. So with the stock markets near ATH’s and volatility now back around our historically low bound for over 3 decades, of 12.5 spot Vix index, ex 2017, I would expect some sloppy stock behavior in the coming weeks. It’s quite rare for stocks to break out to meaningful new all-time highs on the first attempt as many traders who bought late in a move, are happy to be back to breakeven, and sellers tend to pick up their pace.  Here’s a daily chart of the S&P 500: One can see the market lows in Oct 2022, March 2023, late October 2023, and most recently Mid-April option expiration Friday the 19th, 2024.  Looking back, an investor can see the prior…

In last week’s release, titled “Return to the Old Normal, back to our regularly Scheduled Program, How the rest of 2024 might play out for the S&P500”, we covered a lot of ground.  Here’s the link to that video.  The equity markets had already been in rally mode for about a week into what turned out to be bad news is good news “lower than expected, BLS jobs release Friday that was reported at 175,000 jobs, almost 20% lower than economist expectations. Into that number the S&P 500 had already rallied about 2% or 100 cash S&P 500 points off its closing, option expiration Friday April 19th close of 4967.  With that bad news is good news attitude, the attitude that the Federal Reserve might cut interest rates sooner than later, shorter term traders had to reverse course, cover shorts, or buy stocks back. Longer dated yields fell sharply, setting off what investors should come to expect, a rather broad overall market rally, led by? Yes, you guessed it, the Old Normal, large cap tech stocks, semiconductors stocks, and some industrial names. The Nasdaq Composite led the rally up 2% on the day. The SMH, semiconductor ETF was up 2.7%, And almost anything “techie” jumped between 2-8%.  It certainly didn’t hurt that Apple announced a positive earnings and revenue quarter versus low expectations due to its China exposure, announced a $110 billion stock buyback, and teased their entrance, development, and future release of an AI enabled phone later in 2024 or early 2025. But frequent listeners who know me well, know that I like real time tradeable date that leads markets, and I often say that the news headlines or government economic data is most often an excuse, or east reason given, for a move that was highly likely to occur anyway if one looks behind the scenes. Recall that just 3 weeks ago, on Friday April 26th, at the near height of the “inflation won’t drop, and the Federal reserve might have to raise rates” hysteria on financial networks,…

By the time this piece airs, we will have already made it through 75%+ of S&P500 earnings releases including most of the large cap tech stocks and the Federal Reserve will have met for their early May meeting and disseminated their “collective wisdom” on the economy and interest rates. For those only listening to this week’s stock talk, please note you cannot see or might not feel my level of sarcasm around the term “collective wisdom” economists and Federal reserve members. In last week’s piece, titled the “Good, Th Bad, and the Ugly”, we once again updated and coverred 3 data series we follow in real time which have been very good leading indicators for broad market moves and even fairly accurate at catching smaller, shorter term squiggly lines which from a trading standpoint is fun, but froma long term investing postion, are fairly irrelavnt. The “good” was the real time data was saying, inflation expectations were peaking 2 weeks ago just as the doomsdayers were getting most vocal about its return. We posted this chart before last week’s rally, noting the similarities to its late October 2023 peak about 4-5 days before the stock markets troughed, and promptly rallied 1100 S&P 500 points in almost exactly 5 months. The real-time 5-year inflation breakeven rates. Inflation expectation and statistics in the USA are very seasonal! …. That was the good news. Second the “bad” news, and the most likely reason for the broad market selloff the first 3 weeks in April. The bad news was the pivot higher, not lower, in 5-year real interest rates. Remember investors, this is the interest rate that comes closest to accurately forecasting whether investors are willing to pay higher PE multiples for the market or lower PE multiples.  Higher real rates histrically compress PE multiples, while lower trending real rates historically lead to higher PE’s and higher markets the past 15 years. Finally, “the Ugly”. The Ugly was that we continue to follow the pattern of October 1998-2000, when the Dot.com bubble rally happened,…

The last 3 weeks we recapped the first quarter 2024 returns, and covered what the remainder of 2024 and 1q2025 might look like for stock markets under 3 different scenarios. Scenario 1, a continued soft-landing outcome like1995, Goldilocks plays on, which would project the S&P 500 to 5900-6000 in the first quarter of 2025.  The second scenario, a hard landing outcome, like late 2000 through early 2001 post the Dot.com bubble, when the fed induced an economic slowdown, but a recession ensued, and the markets dropped -30% into the 1q2001.  This scenario equates to 3500-3600 on the cash S&P 500.  This of course is where the market was in late October 2022 at the most recent major market low 18 months ago.  Scenario 3 we presented last week, which I title “muddling through with a shot of volatility creating a very wide range in the markets but not much net gain over the 1q high we struck around 5250, call it a range from 4800 to 5400. This is final scenario is actually the least likely outcome for a 4th year presidential cycle, as politicians are busy trying to win votes and the November election election by keeping the economy chugging along. This week, I give you a quick recap of the last two weeks behind the scenes and title it the “Good, Th Bad, and the Ugly”, a classic Clint Eastwood movie released in 1966. First the good.  The good?  Regardless of what the government data is saying, what politicians on TV are spewing, what academics are hypothesizing, the real time data says, inflation, yes inflation expectations just peaked.  Yes, you heard that right. Inflation fears look to have just max out. Just as they did in late October of last year about 4-5 days before the stock markets troughed, and promptly rallied 1100 S&P 500 points in almost exactly 5 months. Here’s a daily chart of real-time 5-year inflation breakeven rates.  You can use most any maturity, but they all look pretty much the same. Peaked back at…

The last 2 weeks we recapped the first quarter 2024 returns, and covered what the remainder of 2024 and 1q2025 might look like for stock markets under 2 scenarios, first a continued soft-landing outcome like 1995 which would project 5900-6000 in the first quarter of 2025, and second, a hard landing outcome like late 2000 early 2001 post the Dot.com bubble when the fed and economic slowdown induced a recession and the markets dropped -30% equating to 3500-3600 on the cash S&P 500.  Which happens to be where the market was in late October 2022 ate the most recent major low.  Here are the links to those two prior videos, I’m biased, but I think they are worth anyone’s 6-10 minutes if an investor is interested in economic and stock market cycles. https://www.youtube.com/watch?v=teS1XRpiEhc https://www.youtube.com/watch?v=1yuRiY_yf6E Before we get onto scenario 3, which I title “muddling through with a shot of volatility”, I want to briefly note that this past weekends Iranian missile attack retaliating back at Israel, does play into the hand of an earlier Federal reserve interest rate cut this year which would most likely be taken by investors for a while as good for the markets. However, this rapid escalation of fighting in more regions of the middle east also ups the risk of the potential hard-landing outcome that played out in the 3rd quarter of 2000 through 2001. That was last week’s video. While this outcome would be very rare for a 4th year presidential cycle, as politicians are busy trying to win votes and the election by keeping the economy chugging along, it happened in 2000 and 2008 as well. As we stated in last week’s video, the prior low index level volatility regime we were in during the 4th quarter 2023 and 1st quarter 2024, up until the attacks in Iran and Israel the last 10 days, most likely wouldn’t last.  Well sure enough the low vol environment didn’t with spot volatility rising quickly last Friday to 19.25, up from about 12.5 2 weeks earlier. What…

Last week we recapped the first quarter 2024 returns, the S&P500’s best first-quarter performance since 2019. 1st quarter returns place it in the top 10 the last 54 years, and in the top 15 since the end of WW2. Investors, this is how stocks behave during a “soft landing” as we discussed back last October.  We covered what the remainder of 2024 and 1q2025 might look like for stock markets under a continued soft-landing outcome like 1995. We called this scenario one or the next year. This the goldilocks run continuing. This is a run of 2-3% real growth and 2-3% inflation outcome.  Not too hot not too cold.  Recall in 1995, Alan Greenspan after much anticipation and waiting, hinted at interest rate cuts in June, but then only cut interest rates once in July during the year and the stock markets were steady eddy up until they finally retested its upward sloping 50-day mva in October, and then resuming its march higher throughout the end of 1995 and 1h96. The second scenario I must present is quite the opposite outlook of “Goldilocks”. This is bearish Hard Landing outcome of the Federal Reserve holding rates too high for too long and causing a recession out 9 to 12 months from now.  This is the hard landing scenario the stock markets and economy experienced post the Dot.Com run in the 1st quarter of 2000. Having lived through and managed money during that time period, I cannot deny the similarities of many things going on in both our economy and stock markets now and then.  Back then, I recall, and the data shows that the US consumer was strong into Xmas 1999 and Jan 2000, but then someone turned out the lights in many areas of consumer spending in February of 2000 and the rest of the first half and most retailing and consumer stocks were horrible stocks. Homebuilding stocks hung in there for most of their part, but stocks like Nike and even MacDonalds fell out of bed in the 1h2000. …

The S&P 500 closed out its first-quarter performance since 2019. It’s the best in 5 years; in the top 10 the last 54 years, and in the top 15 since the end of WW2. Investors, this is how stocks behave during a “soft landing” as we discussed back last October. The cash S&P500 closed out March at 5,254. That is a little over 1% higher than our team’s optimistic outlook for 1h2024 we set way back in October of last year when the markets sat near 4150 and most strategists were preaching recession fears. Lower lows coming or worse yet crashes. I will note that our team’s outlook for 1q24 was an exceptionally strong first quarter peaking in mid to late March. This was the “normal” presidential cycle timing we discussed throughout 2023. For the first quarter, the S&P 500 gained over +10.2%. The value biased, Dow 30 advanced “only” +5.6% in first-quarter performance. And contrary to many financial networks reporting and hyping, the tech heavy Nasdaq, while strong and ended the quarter up over 9.1%; it lagged the broader S&P500. For the month of March, the S&P 500 gained 3.1%. The Nasdaq gained about half that at 1.8%, and the Dow rose 2.1%. It was the fifth straight positive month for all three major averages. AI leader Nvidia, was the best S&P 500 stock up 82.5% for the quarter while Tesla’s EV, battery powered profit machine ran out of electricity and was the worst performing S&P 500 stock down almost -30%, The question for investors now of course is “where do we go from here” during summer, the election period and into year end? Investors, this week we cover the possible positive outcome of a continued soft-landing scenario through 2nd, 3rd and 4th quarters resulting in more “goldilocks” for the rest of 2024. Next week we will present the negative scenarios. Lets start with the historical data first, knowing 1- there are no guarantees that history repeats, however 2- also knowing that history often rhymes due to normal repetitive…

  The talk around economist locker rooms centers almost exclusively on is inflation accelerating and running too hot for the Fed?  And when and how many rate cuts will the Fed move on in 2024?  To me, these are the wrong questions now. That was the question to ask 3-4 months ago before inflation started its normal seasonal upturn in the 1stquarter. To me, this is not the right question one should be asking oneself now.  The question one should be asking as an investor is how much the economic slowdown in the 2nd and 3rd quarters will be based on the Fed’s prior actions.  If something is ailing the market, it isn’t inflation, it’s the depth and magnitude of the coming summer slowdown. Central banks aim for a soft landings in the economy when they raise interest rates to curb inflation. However, our Federal Reserve has a pretty bad track record in accomplishing soft landings during past rate hiking cycles and the current data supporting a smooth landing is mixed at best and unfortunately won’t be known until late the 3rd or 4th quarter this year. We’ve discussed prior soft-landing cycles, that is the “Goldilocks outcome” in prior videos.  The last successfully executed one was the monetary tightening conducted under Alan Greenspan in the mid-1990s.  In 1994, the Fed raised rates seven times, doubling the federal funds rate from 3% to 6%. In 1995, they cut the federal funds rate three times when it saw the economy softening more than required to keep inflation from rising. The stock market as measured by the S&P 500 never pulled back to its 50 day mva until late August in 1995.  Will that happen in 2024?  I do not know.  As of right now it is possible, however the economic set-up also says it could be late 1q2000 near the peak of the tech bubble.  Here’s a look at the US economic surprise index, which we’ve talked about before. Here it is. As you can see, this data series exhibits a normal seasonal upturn…

Throughout the summer of 2023, and even into Thanksgiving of last year, many frequent purveyors of doom, crashes, and economic collapses where messaging that the American economic landscape was a looming disaster.  A repeat of the 1987 stock market crash, an echo of the Great Financial Crisis, or even the second coming of the 1929 Depression was around the corner.  They were certain of looming disaster to begin in the 4th quarter of 2023 or sooner, and one should dump all their stocks.  I would say that nearly half of sell side strategists and economists on Wall Street were parroting a looming recession in 2023.  Possibly closer to 90% of the $99 per year newsletter writers were spewing their stories of doom and fear throughout the year. When you turned on CNBC, Fox News, or Bloomberg and it was a frequent back and forth debate between a hard landing for the economy and stocks or a gentler soft-landing outcome in economist terms. A hard landing is usually referred to by investors when, after a period of Federal Reserve interest rate increases, in order to cool inflation, or slow the pace of economic growth, the Fed goes too far in its actions and causes a recession. The 1970’s had numerous hard landings.  And more recently the Post Dot.com period in late 2000 ushered in a hard landing as did the period in late 2007 through early 2009. Central banks aim for a soft landings in the economy when they raise interest rates to curb inflation. However, our Federal Reserve has a pretty bad track record in accomplishing soft landings during past rate hiking cycles. The classic example of a soft landing, that is the “Goldilocks outcome” was the monetary tightening conducted under Alan Greenspan in the mid-1990s.  During 1994, the Fed raised rates seven times, doubling the federal funds rate from 3% to 6%. Then in 1995, they cut the federal funds rate three times when it saw the economy softening more than required to keep inflation from rising. Here is a table from…

Investors, everyone, and I mean everyone with an interest in the stock market is finally talking about “AI” stocks, that’s short for Artificial Intelligence.  You know, computers learning and helping humans make better more informed decisions in the base case scenario.  “Sky net, and computers and robots running the world from the Terminator series in the ultimate bad outcome.  I’m revisiting the topic of market bubbles once again.  Given the stock recent parabolic moves, and the AI bubble we are currently in. yes, I said it, the current AI bubble we are in. I mean we are in a bubble, aren’t we Chris?  We must be Chris, since so many financial prophets and financial gurus have declared it so.  Be it Jeremy Granthan of GMO for the last 14 years and counting, Cliff Asness of AQR since January 2023, Rob Arnott of Research Affiliates since at least September 2023. I mean they all manage real money for their clients Chris and they are billionaires so they must be smart and right. Yes, Chris? Or be it newsletter and book writers like Harry Dent since December 2008, and 2016, and then again multiple times in 2021 and 2022 calling bubbles, or the “black swan’ shit happens, hedge every month, buy puts and roll them, academic community, we are sure it’s a bubble Chris. Well, investors, I am here to bring you a definitive guide on this bubble we are in.  So, this is your “AI” stock bubble definitive guide to investing. First here is a truly fantastic table from Michael Hartnett, one of the many investment strategists at Merrill Lynch, outlining a brief history of bubbles in one table. It’s got them all.  Who can forget the South Sea company bubble in 1720? That was a terrific run back then up 700% in less than half a year.  More recently there have been th Nifty Fifty bubble in the late 60’s, and the Japan bubble in the late 80’s.  But of course, todays bubble is centered around the “magnificent 7” technology…