Market Pulse: Monotony
My dictionary defines the word as “tedious repetition” and that has described life for investors the past few months. Each rally is met with heavy selling. Upward pressure on interest rates and downward pressure on economic and earnings growth were the reasons why. A few comments:
A few weeks ago the Dow Industrials promptly fell 1,000 points after Fed Chief Powell took to the microphone and assured us that this time he means it. About what? About doing whatever it takes to lick inflation “until the job is done.” How will we measure that? If the CPI is flat or down for a single month would that do? Need it be down for three months? Six? No one says. He also said to expect “some pain.” That was one of his better forecasts.
The Fed’s record on policy and execution going back decades is anything but reassuring. I would have more respect for the Fed governors if they’d just once showed remorse and admitted they made a colossal policy error and stayed with it for over two years. Now we will suffer while they try to undo the damage they caused. But no.
Mortgage rates have doubled this year. The lifetime cost of the median-priced home has risen by $200,000 due to the higher mortgage rate alone. New cars will cost more to finance, credit card charges will rise, businesses will pay more to finance inventories. The only winners will be savers, sort of. Interest rates on bills, notes and bonds will rise. Money-market rates that recently were literally zero are now above 2% and rising. Cash is no longer trash, unless you factor in inflation.
Given the uncertainties and headwinds so-called defensive sectors should continue to do best and they have been the leaders. Those include energy, healthcare and utilities. Dividends matter.
Granted, some macro factors are working against the market and will for a while. Rising interest rates and slowing economic growth are two, but they were expected and prices reflect them. That is why the S&P 500 is down 17% year-to-date. One can never put a fine point on what investors expect and what is already reflected in stock prices, but I suspect investors are too gloomy. Stocks can’t keep falling for the same reason. With expectations so low, eventually something will be better than expected. Stocks will respond.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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