MARKET WATCH
One should be quite pleased with the progress made in all markets over the last five months since last year’s “Santa Claus Rally” was ignited by the Federal Reserve’s admission that they’d continue to pause raising interest rates and their next move might be to begin rate reductions. This sent bond yields below 4 percent and as I wrote in the Winter Newsletter, “Currently, this still leaves us with an inverted yield curve and markets anticipating six rate cuts in 2024 to get the yield curve to depict a positive slope.” One quarter later, markets are anticipating perhaps three rate cuts in 2024 and as Randall Forsyth reported in Barrons this week, perhaps “One and Done” may be the case this year.
What changed? The explanation is quite simple. Initial reactions by investors tend to overreact to positive and negative news and information, so when the initial euphoria or pessimism subsides markets tend to settle down and reach a consensus. This seems to be what is happening as we enter the second quarter. Markets have begun to digest the fact that interest rates will probably be higher for longer.
The Consumer Price Index (CPI) increased 0.4 percent in February after rising 0.3 percent in January. Over the last 12 months, the all-items CPI increased 3.2 percent. The CPI for all-items less food and energy rose 3.8 percent over the past 12 months.
The Producer Price Index (PPI) rose 0.6 percent in February, after increasing 0.3 percent in January. The PPI advanced 1.6 percent for the 12 months ended in February, the largest rise since moving up 1.8 percent for the 12 months ended September 2023. The PPI less food, energy, and trade services increased 0.4 percent in February after rising 0.6 percent in January. For the 12 months ended in February, prices for final demand less food, energy, and trade services moved up 2.8 percent.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures price index (PCE), which was released on Good Friday with financial markets closed increased 0.3 percent. Excluding food and energy, the PCE price index also increased 0.3 percent. From the same month one year ago, the PCE price index for February increased 2.5 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.
As you can see from the various measures of inflation, it has not been vanquished. Furthermore, core inflation, which has energy and food prices removed is still higher than the all-items number, which means core inflation has been stickier than the Fed would like. While much progress has been made towards lowering expectations for continued high inflation, the Fed is not going to lower rates when the economy is strong, job creation continues to be impressive and inflation is still hovering at 3 percent.
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As I mentioned at the onset, the markets have been rallying impressively, and at the end of the first quarter the Dow Jones Industrial Average (DJIA)* finished at 39,807.37 for a year to date (YTD) gain of 5.62 percent. The S&P 500* closed at 5,254.35, increasing 10.18 percent YTD. The NASDAQ* ended the quarter at 16,379.46 up 9.11 percent YTD, and the Russell 2000* climbed to 2,124.55, which was a 4.81 percent increase YTD.
I’m not sure there is one factor that is the driver of this market, although interest rates and artificial intelligence are two candidates that come to mind. Even with the low volatility we are currently seeing, I don’t view that as complacency. After the last few years, only the most naïve person on the planet would expect unabated increases in the markets through the elections without a healthy correction.
Historically, the S&P500* has only gained 8 percent or more in the first quarter 17 times since 1950. Of the 16 other times the index gained 8 percent or more, 15 of those years went on to gain an average of 9.7 percent for the remaining three quarters.
The world can seem scary with autocrats on the march. Continued growth in Gross Domestic Product (GDP) is necessary to solve our fiscal and leadership issues.
I hope everyone had a very Happy Easter and enjoyed time with family
THIS RALLY HAS LEGS BUT RISKS REMAIN GOING FORWARD
As we noted in the Winter Newsletter, the markets have been broadening out to where the S&P 500* is not being driven solely by the few technology stocks known as the “Magnificent Seven”. Data provided to MarketWatch by Carson Group's Ryan Detrick showed the number of S&P 500 stocks trading at 52-week highs recently peaked at 118, the highest in three years, and a clear sign that market breadth has continued to improve.
Also, more index members are entering long-term uptrends, as the percentage trading north of their 200-day moving average topped 83% on Thursday, March 28th, the highest since August 2021, according to Dow Jones Market Data. This suggests the rally we have been experiencing should continue. With the Russell 2000’s* nearly 5 percent gain this year smaller companies are also contributing to this rally.
With that said, it is important to note the gains since November 2023 have been attained with no down days of 2 percent or more, which is unusual, at best. While we are probably due for a 10 percent correction, or more, there is no crystal ball available to guide us as to when or if it will occur. In this type of situation, dollar-cost averaging into the market is prudent.
With 7 months until a significant election, geopolitical risks around the globe and the inability to find consensus among our leaders, any number of issues could prompt a correction. While the disastrous bridge collapse in Baltimore has snarled supply chains for the city, logistics experts have already begun to reroute much of the traffic in and out of the harbor. I hope for the city not permanently.
SOCIAL MEDIA “INVESTMENT GROUP” IMPOSTER SCAMS ON THE RISE
The Financial Industry Regulatory Authority (FINRA) has seen a recent significant spike in investor complaints resulting from recommendations made by fraudulent “investment groups” promoted through social media channels. Complaints received by FINRA and posted on social media describe bad actors, posing as registered investment advisers, who initially advertise “stock investment groups” on Instagram and other social media channels and then turn to encrypted group chats on WhatsApp to communicate with investors and pitch investments. Since November, FINRA has received dozens of investor complaints regarding this threat, alleging millions of dollars in losses. If history is a guide, it’s likely that this is just the tip of the iceberg.
What You Should Know
As with other broker imposter scams, the bad actors might falsely portray themselves as registered professionals, in some recent cases fraudulently claiming affiliation with well-known public figures and others in the investment industry; people who are not involved in the scheme.
The scammers also create fake personas by taking the name and other details about a registered investment professional with a spotless disciplinary history. They then misuse this information to establish legitimacy, unbeknownst to the actual investment professional being impersonated.
Scammers start out by promoting investment in a well-known, actively traded stock and then, through ongoing conversations in the private chat platform, move their targets to invest in a low-priced low-volume U.S. or Hong Kong listed stock. They instruct investors to open an account at a specific broker-dealer, then guide them on which stocks and how many shares to purchase and at what times and prices, essentially leading the investors to unwittingly manipulate the price of the securities upwards. At some point, the investors become unable to sell, and the price of the security inevitably crashes.
The scammers try to convince investors to transfer in as much money as possible from other bank and brokerage accounts. When investors report losses, the scammers promise to “make the money back” if the investors can transfer more funds into their accounts. One victim reported that the scammers requested that investors borrow money from friends and family to make back the money that was lost.
How to Protect Yourself
To avoid becoming a victim of these types of scams, be wary of unsolicited messages or social media promotions of investment opportunities. Always research investment professionals before making an investment. Be sure to use FINRA’s BrokerCheck to see if the promoter is a registered investment professional and verify that the names of the person and the firm, along with their addresses, or the locations where they do business, align with your own research. Never invest without first carefully and independently evaluating the product. You should also be aware that many brokerage firms in the U.S. specifically prohibit their registered investment professionals from using channels like WhatsApp to conduct their securities business. Asking to meet in person also never hurts!
Company Information
Jersey Benefits Advisors is the trade name used by John H. Kaighn to offer various products and services.
PO Box 1406
Ocean City, NJ 08270
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Osaic Wealth, Inc. Securities and Advisory Services are offered through Osaic Wealth, Inc. Member FINRA & SIPC.
Osaic Wealth, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth, Inc.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Osaic Wealth, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Jersey Benefits Group, Inc., is a licensed Insurance Agency in the State of New Jersey & offers Insurance and Third Party Administration Services
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
All opinions expressed in this newsletter are independent of Osaic Wealth, Inc. and are solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
