February 19, 2024

“These are the times that try men’s souls”
Thomas Paine
(the author of Common Sense (is there any these days?)

Happy Presidents Day! What a week, Mayorkas impeached, Trump loses his New York predetermined bench trial, and his company is ordered to pay $355 million for a victimless crime, Fani Willis Georgia RICO case has a “small distraction.” Who says we are not living in interesting times?

January’s higher than expected consumer-price index drew a strong response from financial markets, investors, and traders early in the week with the markets tanking only to recover the following days to end down on Friday but almost even for the week. Here are the numbers:

The S& P 500 was off .42%, Dow Jones Industrial average gave back slightly .07%, the Nasdaq dropped 1.28%, all snapping five straight weeks of gains. The good news, The FTSE 100 gained 1.84% and the MSCI-EAFA added .84%. The Two-year Treasury closed with a yield of 4.642% and the 10-year closing rate was 4.281%.

On the economic front, Market Watch reported “wholesale costs rose in January at the fastest pace in five months, possibly another sign that inflation won’t slow toward the Federal Reserve’s 2% target as fast as hoped. The producer-price index rose 0.3% last month, a considerably stronger increase than the 0.1% forecast from economists polled by the Wall Street Journal. Core wholesale prices, which exclude food, energy, and trade margins, rose by an even sharper 0.6% in January. That was the biggest increase in a year. The rise in wholesale inflation over the past 12 months ticked down to 0.9% from 1%. The 12-month rate of core wholesale inflation was unchanged at 2.6%. Inflation tends to bubble up at the wholesale level before spilling over to consumers. Both the CPI and PPI reports also feed into the Fed’s preferred inflation tracker, the personal consumption expenditures index. Economists now expect the January PCE report to show an elevated inflation reading when it is released in two weeks.”

That will keep the worries about persistent inflation alive. Still there will be little relief at the grocery store or the gas pump. Economists now expect the January PCE report to show an elevated inflation reading when it is released in two weeks. “Everyone was fairly optimistic that inflation was a thing of the past and then we got cold water thrown on that,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company in Milwaukee. So, everyone was wondering was whether the markets’ knee-jerk reaction was justified or went a bit too far. It seems the following trading session repaired the damage.

In other news, MarketWatch highlighted the number of Americans who applied for unemployment benefits in early February falling to a one-month low of 212,000, indicating layoffs remain low nationwide despite big job cuts at some large businesses such as UPS.

Initial jobless claims slid by 8,000 from 220,000 in the prior week, the government said Thursday. But……. The number of people collecting unemployment benefits in the U.S., meanwhile, rose by 30,000 to 1.9 million.

The housing market revealed some depressing news for home buyers with construction of new U.S. homes falling 14.8% in January as home builders scaled back new projects.

The pace of construction slowed down as housing starts were off to a 1.33 million annual pace from 1.56 million in December, the government said Friday. Adding to the supply shortage in most major markets. Housing starts fell to the lowest level since August 2023. Builders scaled back construction of new single-family homes, leading to a 4.7% drop, as well as apartments, which fell 35.8%. Add that to mortgage rates going up again after the inflation data showed continued strength in the U.S. economy. The 30-year fixed-rate mortgage averaged 6.77% as of Feb. 15, according to data released by Freddie Mac FMCC, last Thursday. “The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season,” Sam Khater, chief economist at Freddie Mac, said in a statement.

This collection of data releases sent a message of a softening economy, which will be a bigger factor in market direction going forward than the political theater going on in this presidential campaign year.

Any good news? Consumer sentiment was up in early February to a 31-month high. The first of two readings of the sentiment survey this month rose to 79.6 from 79.0 in January, the University of Michigan said Friday. That is the highest reading since July 2021.

Americans appear to be more confident inflation will continue to slow and that jobs will remain easy to find. A rising stock market has also added to consumer confidence.

This “feel good, or bad” consumer-sentiment survey reveals how Americans feel about their own finances as well as the broader economy.

One final thing to ponder, Barron’s Randall W. Forsyth offered a scenario that could happen by suggesting that “[e]ven more shocking would be no Fed rate cuts in 2024.” And points out…. “But that non-consensus outlook shouldn’t be ruled out, given how past forecasts have gone awry, including the 100% probability of a 2023 recession seen by Bloomberg Economics in October 2022.” The Federal Reserve may have the last laugh on all the Fed Watchers yet.

As we all are deep in our depression as tax season looms, a fun fact that will depress you further is the federal revenue from individual income taxes, payroll taxes, corporate taxes, and other taxes equaled 16% of gross domestic product in fiscal year 2023, according to Treasury Department numbers. Can you think of a better investment?

Enjoy your President’s Day.

Mike