October 21, 2024

“The aim of the wise is not to secure pleasure, but to avoid pain.”

Aristotle

Wise words from the source of most western philosophy, in life and in investing. Well, here we go with another positive week as we enter the third year of this Bull Market. Here are the numbers. The S&P 500 gained .60%, the Down jones Industrial Average won the week up 1.11%, the Nasdaq brought up the rear adding .34%. Internationally things were great in merry old England with the FTSE 100 up 3.95%, while the broad European market missed slightly off .04%. The 2-years Treasury settled on a yield of 3.95% and the 10-year paid 4.08%.

Just for fun…. last Friday in 1867, the U.S. formally took possession of Alaska from Russia, marking Alaska Day and finalizing the Alaska Purchase that significantly expanded U.S. territory. Showing public opinion can often be wrong, “Seward’s Folly” turned out to be one of the greatest real estate purchases in human history. (in my humble opinion having been a commercial fisherman there in my youth.)

So, what happened last week, outside of the fallout of VP Harris finally doing a serious interview? The Vegas betting odds jumped to its highest level for Trump, and the financial markets are signaling more success for the republicans who seem to have got the memo to vote early. Further, the US dollar is staging a robust gain against other currencies, (Time to take that European vacation) It isn’t the only reason, but the U.S. dollar has been strengthening in part because investors are growing more confident Republican nominee Donald Trump will be victorious in the Nov. 5 presidential election, according to one Wall Street strategist. Enough about politics.

Earnings season so far has gone well but a bit mixed. It was a relatively quiet week in terms of economic news. The focus was much more on corporate earnings reports, especially in the financial sector. In general, the numbers were solid, with the big banks beating estimates by a good margin. Shares of JPMorgan, Morgan Stanley, Bank of America, and Goldman Sachs are up several percentage points this week as a result, and even Schwab posted good numbers. The S&P 500 Financials sector pushed to new highs. Also, some good numbers on the other side of the pond help rally the FTSE 100 last week.

The September jobs report shifted the market concerns away from recession and toward scenarios where the economy does not slow enough to cool inflation, but we will see. The rally in equities also continued as retail-sales data for September came in surprisingly strong and jobless claims retreated, reinforcing a soft-landing scenario for the U.S. economy.

In the housing market, Barron’s Megan Leonhardt reported last Wednesday, Freddie Mac will also release its weekly update on mortgage rates. Ralph McLaughlin, senior economist at Realtor.com, expects an uptick in rates over the past week thanks to the 10-year Treasury yield continuing to hover near highs not seen since July. “While we expect the long-run trend in mortgage rates to be downward, recent weeks have brought volatility,” McLaughlin says. This recently has given a rebirth to “creative financing “from the high mortgage rate days of the past. Last in vogue in the early to mid-2000s, piggyback loans were a tool to make down payments seem more affordable. How it worked, instead of taking one 30-year mortgage to finance the purchase, home buyers would take a second loan at the same time to borrow additional money to lower the down payment. Piggyback loans typically have higher interest rates than a borrower’s primary mortgage, and those rates are often adjustable, according to the Consumer Financial Protection Bureau. The point being, as inventory is limited, prices are high, mortgage rates drive up payments limiting buyers’ ability to afford needed housing. We will continue to see more financing alternatives until mortgage rate recedes to an affordable level. This, by the way, isn’t good and did not work out well for most who did it in the early 2000’s.

So, what’s ahead? Market Watch last week gave a little history lesson which was instructive: U.S. stocks were kicking off their third year in the bull market with the S&P 500 scoring a fresh record last Monday — but history suggests investors need to be prepared for a potential setback in the coming 12 months. Since 1947, all 11 bull markets that celebrated their second birthday experienced at least one decline of 5% or more in the subsequent 12 months, with some even turning into new bear markets, according to Sam Stovall, chief investment strategist at CFRA Research. “The average return following the 11 bull markets [since 1947] that celebrated their second birthday was a mere 2%,” Stovall said in a Monday client note. “What’s more, all of them experienced a decline of 5% [in the next 12 months], while five endured selloffs in excess of 10% but less than 20%, and three succumbed to new bear markets.”

Are we pessimistic? Ask me after the election. As such please remember to get engaged this political season because we certainly have very clear differences between the candidates. As always, I encourage everyone to vote regardless of political persuasion.

Mike