Investing Update: A New Bull Market?
What I'm buying, selling & watching
This week was jammed packed with important events. It started with the Fed signaling a downshift in rate hikes. The unemployment rate hit its lowest level since 1969. That’s a 53-year low. The three big tech companies Apple AAPL 0.00%↑, Amazon AMZN 0.00%↑ and Alphabet GOOGL 0.00%↑ announced earnings. All of them reported worse than expected results, but nothing terrible.
After digesting all that news the market has continued to surge higher. With an almost 9% return on the S&P 500 to start the year, we’re experiencing the best start to a year since 1987. The fifth best start ever.
For the month of January the Dow was up 2.8%, S&P 500 up 6.2% and Nasdaq up 10.7%.
Last January it was the opposite start to the year with being down 5.2%. Looking back at history it tells us that usually January returns set the tone for how a year is going to go.
Four-Year Presidential Cycle Update
I spoke about the midterm elections and the four-year presidential cycle back in October in my Investing Update: Are Midterms the Catalyst? It detailed the S&P 500 returns following the midterm elections and how they’ve rallied throughout the remainder of the terms. Below is an up-to-date chart showing where we’re at in the cycle dating back to 1928.
If We Have a Recession, There Is More Downside
Chart of the week award goes to Warren Pies over at 3Fourteen Research. As you can see in the chart below they’ve charted each recessionary bear market. If we do enter a recession, the stock market has a long ways to go down from here if compared to the others in history. This illustrates why the debate of a recession and how it affects the stock market has been so relevant.
Nobody Is Talking About Immigration
Last week Sam Ro had a post on TKer about how immigration is rebounding. I was surprised by this because I have not heard or seen anything about this. Leave it up to Sam to keep us informed.
When I discussed this with Sam, we both agreed it will be interesting to see how this affects labor supply and wages. It’s a very important element to the path forward for wage inflation and filling the large hole of unfilled jobs. Thus helping business and the overall economy. The entirety of this section in Sam’s post is below.
🇺🇸 Immigration is rebounding. From Apollo’s Torsten Slok: “Immigration declined during Covid, contributing to significant labor shortages and high wage inflation across many industries. But over the past 12 months, immigration has increased significantly, and the working age immigrant population is returning to its pre-pandemic trend, see chart below. This ongoing increase in immigration is the reason why wage inflation continues to come down from the significantly elevated levels we saw during the pandemic. This is good news for the Fed and markets because a less overheated labor market will accelerate inflation’s return to the Fed’s 2% target.“
Moves I’ve Made
S&P 500 Index On Wednesday I added to my S&P 500 holding. I continue to be fully invested with less than 1% of my portfolio in cash. That’s the lowest cash levels I’ve had in a few years.
What I’m Watching
It seems that tax-loss selling may have meant more to the year-end selloff than people thought. As soon as the calendar turned to January 2023 the switch seemed to flip.
As we’re in a clear uptrend you now have to wonder when the large amounts of money not in equities starts to come back in. If the market stays hot, many managers are going to be forced to put money to work. They can’t afford to sit in cash while the market is going up. They’re not paid to sit in cash. They need to generate returns that are better than the overall market for clients.
I spoke to this last month in my Investing Update: 3 Stocks For 2023. See below.
The BofA Fund Managers Survey results came out this week. It showed that global investors are the most underweight US stocks since October of 2005. This is a screaming bullish indicator for stocks to me because this will eventually turn. With a long-term time horizon in the stock market, this says we’re in an area to buy equities. Years from now when we look back, I think this will be a chart where we say, that was a time to buy stocks.
You have an oversold market with people being too bearish and negative. I’ve continued to say that if things turn bullish, a lot of people are going to be caught offsides. That side of the boat has been very crowded. Groupthink sometimes isn't the best way to think.
The Coffee Table ☕
Tony Isola wrote a very informative post on the new provision allowing tax-free rollovers of money in 529 plans to Roth IRAs starting in 2024. He gets into further detail on 529 plans and college costs in Few Can Roll With This College Funding Strategy
Famed investor Bill Gurley joined Tim Ferriss on his recent podcast, Episode 651. Bill is one investor in Silicon Valley that I follow and listen when he speaks. They get into strategy, startups, investing, innovation, running a company and network effects. It has been a while since I’ve had to pause a podcast this often to write down notes. Entrepreneurs and investors should view this as a must listen.
Many of you know that I was able to get a bottle of the famous bourbon Castle & Key from the documentary Neat. I keep getting asked how it is, so I’m going to share my thoughts. First off the bottle design and cork is one of the best I’ve seen. Very cool! But the bourbon did disappoint. With it being their first batch and only aged for three years, hopefully it improves as it ages. I will give it another chance when the older batches come out.
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.