At its November meeting, which ended last week, November 1 to be precise, the Federal Open Market Committee (FOMC) decided to leave interest rates unchanged. While normally issuing a perplexing post decision meeting press conference to the financial media, Chairman Powell assuaged concerns that the FOMC would continue to tighten in the future. It seemed that the FOMC finally flinched and was signaling an end to its tightening cycle. This led to a strong post-press conference boost to the stock market indexes.
S&P 500 Stages Rally
The Standard & Poor’s 500 Index (SPX) of the largest market capitalization stocks bottomed out on October 27 at 4,117.37, a few days before the FOMC meeting. This ended a correction which began back in July. The SPX rally lasted for eight consecutive trading sessions. I keep my own proprietary database of the SPX going back to 1950. Since then the SPX has strung together sixty-six (66) eight day winning streaks (nearly one per year) of which thirty-four (53.5% of the time) extended to a ninth winning day. I would also note that the bond market was rallying during that period and mortgage rates dropped for two consecutive weeks. All was looking sunny in the financial markets.
It Was Nice While It Lasted
All good winning streaks come to an end, except the 1972 17-0 Miami Dolphins. Here in Las Vegas, the Stanley Cup Champion Golden Knights (you knew I had to throw this in) started the season without a regulation loss in the team’s first dozen games. They then lost two in a row. As it turns out, yesterday the markets were heading for a ninth consecutive winning day until Powell put his foot in his mouth again at an IMF (International Monetary Fund) conference saying, “If it becomes appropriate to tighten policy further, we will not hesitate to do so …” Well, that was all it took to cast an evil eye on the nascent financial market rallies and markets slipped for the day sticking a fork in the consecutive day streak. Still, we had an impressive rally, which may continue after a pause.
Is Inflation Still a Worry?
First let me say that the rate of inflation is slowing down but the impact of over two years of rapidly rising prices and interest rates is still having a deleterious effect on economic behavior. Surprisingly, despite the Hamas-Israel War, crude oil prices declined. So, finally the FOMC might be seeing signs of inflation getting under control. However, real estate should be a concern. When it comes to residential real estate, there is still a shortage of new homes and rental properties, which is not a good sign for inflation. On the other hand, people are holding onto their low mortgage rate homes rather than trading up in terms of size and mortgage rates. As I mentioned before, mortgage rates are beginning to come down. Hopefully that is not a temporary condition. Of greater concern is the market for office buildings. Office real estate was already showing signs of weakness and then along came the bankruptcy filing of WeWork.
Themes Remain the Same
Technology is still the leader, especially companies focusing on Artificial Intelligence and the semiconductor sector. Just look at the strength in Broadcom (AVGO) and Nvidia (NVDA). Software stocks remain an industry laggard. Dividend stocks are being shunned as many of the above market yielding companies are in the REIT (Real Estate Investment Trust) sector which is suffering from weakness in office, retail and other commercial property demand and rising interest rates. Also with the fall of crude oil prices and the mega deal purchases of Hess (HES) by Chevron (CVX) and Exxon-Mobil’s (XOM) purchase of Pioneer Natural Resources (PXD), energy stocks, which tend to pay hefty dividends, are exhibiting weakness. There will be a chance to swing back into those sectors, but that time is not now. If you have energy stocks, they can be held but not added to just yet.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AVGO, CVX, NVDA, XOM, SPY, SSO & SPXL- although positions can change at any time. Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
© 2023 LakeView Asset Management, LLC. All rights reserved.