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Is ‘The Low’ In ? April 13, 2025

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April 11, 2025 – Of course the question is “Is this the Low?”  And if anyone says positively Yes or No . . . . run, don’t walk away from them.  Because nobody knows with any certainty, that’s for sure.  And the main reason is that this volatility was man-made; not economic and not fundamental.  Whether you agree or not, the USA has an administration that has no experience in governing, and precious little in what they are attempting to do. (a.k.a. expertise).  Plus, a President who likes to (must) be in the news every day.  Thus, we can expect more volatility, more back & forth, especially over the next 1-2 years.  (Falling bond prices coupled with the falling dollar is a major problem if it continues!)

Businesses do not like uncertainty, whether you agree with government policies or not, they can not plan for things that change weekly, let alone daily, and neither can the consumer.  The USA economy is based 70% off of consumer consumption and right now the consumer is getting nervous.

The chart shows the daily SPY ETF.  Until it closes above 551, on higher volume, I remain a little skeptical.  The next level of support would be around 466.  Either could be broken next week.  But back to volatility:  No matter which way the market goes, it will likely be a back-and-forth path with a clear and steady direction unlikely.  IMHO.  All of us will need to be careful and selective.  My advice (when to enter into a purchase) is to scale in and then determine what level you need to get out.  The next few years will not be as easy and straight forward as the last 2 years; I’m pretty sure of that.  There will be opportunities in very select industries and stocks.   I wish all Good Trading & Investing.         …………  Tom  ………..

Possible Destinations (?) April 7, 2025

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April 4, 2025 – This will be short and to the point. Yes, the market was overvalued and very susceptible to a correction. All it took was some “bad news”, and Trump gave plenty of that.

So now what? The chart below shows some possible areas of support or at least hesitation. Moving through these areas is not a good sign, but that’s the problem with a news driven market. Signs of a bottom will be a dat where volume is high and the closing price is near the high. Then, a retest of the previous low price (on low volume). Then, a move higher (past previous high) on even higher volume.

Be careful out there ! ………. Tom ………..

Are We There Yet ? March 1, 2025

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February 28, 2025 – About a 5% drop off the highs and then a late day recovery on Friday via the PCE data (Personal Consumption Expenditures).   The data indicated a 2.6% inflation rate and the stock market loved it.  But I’m looking at this reaction (possibly) a little differently.  Inflation is down but the data shows expenditures down and savings up.  People are spending less and saving more . . . . Why?  Could it be many don’t see “good weather” ahead (i.e. Trump’s activities)?  Also, the market action late on a Friday after a poor week also indicators short term traders closing out ‘Short’ positions before the weekend.  Monday will be interesting to see if there is any follow through . . .  in either direction.

In the meantime, we’re right back to where we were in early November of last year.   Something to contemplate.  (weekly chart of the SPY, S&P 500 ETF)

Expected Returns February 18, 2025

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Feb 20, 2025 –  It’s HARD to be pessimistic at / near market all time highs.  But I’ve had “Risk Adjusted Returns” drilled into my head over a series of monthly classes by a hedge fund manager.  OK, I can be overly conservative . . . I admit it.  But I think it’s a wise idea to every so often take a step back and answer the macro question: “What makes stock prices rise?”.

Over the short / near term it’s all about supply vs demand, and that gets evaluated every hour of every day via the stock markets auction system (a.k.a. bid vs ask).  It’s worth whatever somebody will pay for it.

Over the long term, it’s really about earnings (or the potential for earnings), both current and future earnings.  And so, everyone has an opinion on that.  Heck, that’s why the Wall Street folks hire stock analysts.  And we know how well they do with future earnings forecasts (editorial sacrarium).   I ran across a chart that (I feel) puts our current market in perspective with a forward 10 year focus.

It shows (based on history) that Higher total returns (say around 20%) are achieved at Low Price / Earnings ratios, while Lower returns generally happen at evaluated P/E ratios.  This is the equivalent of “Buy Low, Sell High”.  Which brings me to the question I sometimes ask an audience when I speak.  I say, “Where is the risk? At the market top or bottom?”.  Many don’t know how to answer.  The easy response is ‘Where is the Top and Where is the Bottom?”.  And yes, if we knew that the rest would be easy indeed.  History would tell us that the longer markets go up and the higher the P/E ratio gets people are paying more and more for less/the same earnings.  It’s getting expensive.  Markets stop and correct when the FOMO factor (Fear Of Missing Out) stops and marginal or bad news hits that could effect earnings.   We saw that briefly with the “Deep Fake” AI news.  People were in a near panic to get out.  Thankfully after a few hours cooler heads prevailed and the recovery started.  But the message was clear.  This market is highly valued.  I’m NOT saying it can’t go higher, but we ARE at all time highs . . . . and perhaps with all-time risks as well.

I’m not using leverage / margin, and I’m keeping a close eye on holdings, giving a nod to diversifying into different sectors (i.e. not all tech).  With an especial eye on where the exit door is.  Now is a good time to ask: “What does my stock have to do in order for me to sell it?” (Actually, an exit plan is always good; I try to have it right after I take any position).  Don’t get overwhelmed or discouraged.  “If It Was Easy, Everyone Would Do It !”

“Trump Bump” or . . . OMG ! February 1, 2025

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February 1, 2025   OK, some folks have labeled the market action after the election in November as “The Trump Bump”.  But really?  Businesses may be euphoric wishing for everything from “No Regulations” to “Tax Cuts”.  But if the current rate of changes, purges and marginal (I’m charitable here) cabinet secretaries are any indication, the effects on the economy are just beginning.  A.K.A. Tariffs, trade wars, dare I go on?  Gone are the comments about “Lowering the Cost of Groceries” and in with “I am your Retribution”.

The US economy is 70% consumer based, and that is based on consumption.  High prices, stagnate wages = not much consumption.  Econ 101, supply is greater than demand.  Thus, prices may fall. But profits take a hit.  Profits go down, tariffs kick in and all of a sudden, the stock market “looks expensive”.

The chart shows that in reality, we’re in a trading range since late November.  Are investors getting concerned and want to wait to see what happens next?  It sure does seem like it. 

I’m treading lightly here, invested yes, but lightly so.  Where is the market leadership?  Technology?  Well . . .  not really.  Financials, yeah kind of but . . .  What’s the next shoe to drop?  And, will it help or hurt the US consumer?  That’s the question and we likely won’t have to wait very long for an answer.

Have a good week + and be careful out there.            ……………  Tom  ………………

Not a Cheap Market December 23, 2024

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12/23/24 – OK, I’ve been ‘meaning to’ write this for over a week now, and folks will inevitably say  “sure, because the markets down now!”.  Fair enough, but taking a look at the chart, the “over priced market” goes back awhile.  That’s not to say that it “must’ go down, it’s just a heads up that we are likely closer to a correction (down), than we are to a rip-roaring rally.

Another way to look at this is just how narrow the market up trend has been; think Technology.  The top 10 stocks in the S&P 500 Index are valued at 50% more that the other 490 stocks.  And . .  those 10 are concentrated in Technology of one form or another (I’m lumping Crypto along with Tech).

My ‘line in the sand’ is around a close below 580.91 (SPY), which was the low price last Friday.  That level also goes back to a consolidation pattern in mid-October of this year.  I doubt if we’re at the end of this Bull market, but one could make the case that we’re due for a significant correction of say 10% or more.  All it would take would be some bad news; economic or geo-political in nature.  And (IMHO) the incoming administration is not exactly staffing up with experienced personnel that can make a good decision quickly.  (hope I’m wrong)

In the mean time, be watchful and careful.  For those who celebrate it, Merry Christmas and for other Happy HanukKah.    ……………….  Tom  ……………….

Back On Top; but . . . August 31, 2024

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Aug. 30, 2024 – Greetings!  It’s been “a while” since I’ve posted, so I thought I’d take the time over this 3-day weekend.

I could have easily titled this as “So . . . Where Is The Risk?”   But I didn’t want to sound too alarmist.   But let’s use this time to ask the question: “Where is the (market) risk: at the top or at the bottom?”  To many folks it’s not that obvious, but think about it.  Markets correct or “crash” from market tops, and rally from market bottoms.  The trick is to recognize when a trend has changed before the move is significant and obvious.  So, the answer is, risk is greatest at the top (with 20/20 hindsight).

Right now, this market (via the S&P 500) is back to it’s all time high; a.k.a. “Top”.  Has the ‘risk’ increased or decreased?  Well, this market has priced in a fair amount of good news.  Multiple interest rate cuts, a strong & growing economy and consumer strength.  Earnings have been good and guidance fairly positive for future earnings.  Sounds like Goldie Locks to me; a.k.a. the market is ‘priced to perfection’.  That’s all well and good as long as things keep going in that direction and no one or no thing upsets this dynamic balance. 

I want to emphasize that I’m NOT predicting gloom & doom, just caution.  The easy money has been made already.   Here are a couple of things to keep an eye on:

  • The consumer is strong, but savings are not growing, but declining.  Credit card debit is increasing, not decreasing.  (slowing consumer demand?)
  • Inflation is down, but prices remain high.  This will take time to resolve.
  • Financials are strong with the anticipated rate cuts, but Technology is sluggish. (see chart)

note: sectors ranked by 21 day % return

All this sounds like a pause if things keep going “OK”, or a set up for a double top correction if things go a miss.  A lot of folks are using leverage, and IF anything gets shaky, they will certainly reduce exposure. That’s for sure.

So, let’s be invested, but not over confident.  “Nobody rings a bell at the market top”, it’s up to us.

For those in the USA, have a good holiday & Take Care.          ……………  Tom  ……………….

Heads Up: 2nd Quarter Earnings Starting This Week July 7, 2024

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July 7, 2024 –This will be a short post.  I note that Powell (FEB Chair) speaks on Tuesday.  And . .  earnings season begins again this week.  Here’s a partial list:

Thursday – PepsiCo & Delta

Friday – JP Morgan, Wells Fargo, Citi Bank, Bank of NY / Mellon, Fastenal, Ericsson

Watching for hints of an up coming interest rate cut and forward earnings guidance.

The affect on the market could go either way . . . depending.  Have a Good Week.  ….. Tom  …..

Expecting A Dip July 1, 2024

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June 28, 2024 – I guess that it bares repeating . . . . this market is narrowly focused on large cap tech stocks, and only a handful of them.  While that’s not necessarily “Bad”, it does leave everything venerable to one small slip in tech world, and everything hits the skids.

Couple that with these stocks are over extended and the end of the second quarter means let’s be extra careful over the next 1-2 weeks.  I’m watch the NASDAQ 100 Index particularly for signs of weakness, since that’s where the big Tech stocks are dominating the index.

It’s not all doom & gloom though.  I’m thinking only a small dip for the markets to “catch their (collective) breath”.  Then, back at it again.  Have a great 4th of July (those in the US).          ………….  Tom  ……………

“All Interest Rates . . . All The Time” May 26, 2024

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May 24, 2024 – I’ve been harping on this for what seems like a year now.  The stock market always “looks forward”, whether it be right or wrong, it always tries to “get a jump” on the economy and corporate earnings.   Thus, interest rates are high on the list of “what’s happening next” for both the economy and earnings.

Since the FED controls the interbank loan rate and hence interest rates in general, that’s the thing to watch, or actually, anticipate.  And since this FED is determined to deal with inflation, the inflation rate (and job growth) are big factors that drive the decisions.

So . . .  I present the chart below on the inflation rate over the past 3 years.

The FED’s stated goal is to get very close to a 2% inflation rate and they are getting there.  Many folks confuse high prices with inflation.  Inflation is the rate of change of price, not the level of prices.  How long will this take?  Longer; but no one really knows.  The tricky balance is to slow consumer demand without screwing up job growth, and that’s not easy.

Secondary to all of this is that China is selling US Treasury Bonds big time and buying gold.  That does not help to lower interest rates.  But corporate earnings are generally pretty good (an excuse to raise prices?).

I have slowly reentered this market, but don’t expect the rapid price appreciation of the past 2 years going forward.  Plus, it will be more of a stock pickers market.  Just using the letters “AI” seemed to be a golden touch, but now companies have to deliver and competition is high.

Have a good holiday weekend (those in the US) and take care.        ………..  Tom  ………..