Investing Update: What Recession?
What I'm buying, selling & watching
This week saw the Dow and S&P 500 finish down slighty but the Nasdaq was up. So far this year the Dow is up 2.1%, S&P 500 up 6.2 % and Nasdaq up 12.6%.
This now makes 2 weeks in a row of more bulls than bears on the AAII Investor Sentiment Survey. This come after 44 straight weeks of more bears than bulls. That streak was longer than both the Financial crisis and COVID. This is definetly significant.
With signals that the economy is reaccelerating, it’s likely we won’t see rate cuts by the Fed this year. It may even further the likelihood that the fed raises further.
The bottom line is both the news and price action is showing that we’re in a bull market. Agree or disagree but that’s what I’m seeing. Investors are still offsides and a lot of money is on the sidelines. The longer this market runs higher, the more investors may need to chase and it could set up for a massive rally.
Inflation Driver
This week the inflation number came in a tad higher at 6.4% vs the 6.2% that was expected. I’ve been in the camp saying inflation has peaked and that I’m expecting it to go down further. I think it’s safe to say we’ve seen the peak but it isn’t falling as fast as I would have thought. I was curious why and what sectors were being so sticky. I did some digging and found these two great charts from Michael McDonough.
In this first chart we can see that energy and goods (excluding food & energy) has come way down. Food has been stuck in the same range for quite some time. But it’s the services (excluding food & energy) that has been climbing consistently since the fall of 2021.
What in services is being stubborn? Below in the second chart we can see the clear winner is shelter. I don’t think this is a bad sign as shelter in CPI is a lagging indicator. It should fall in the months ahead. I think it will fall significantly as we’ve seen rent costs peak and start to head downward.
What Recession?
Is the economy heating back up? It’s looking like consumer spending is ticking upward. Data from BofA on credit and debit card spending shows a 5.1% year-over-year increase in January. That’s the highest monthly increase since July 2022. Don’t forget that consumer spending accounts for about 70% of the US economy.
This and other data points have slashed the odds of a recession. The odds of a recession peaked in November 2022 at 77%. They now stand at 24%. That’s the lowest odds since June 2022.
Tracking Insider Buying
One thing that I’ve always watched with stocks is their insider activity. Any current stocks I own and stocks on my watchlist, I’ll cross check to see if there has been any insider buying or selling.
Market Sentiment did the work and analyzed insider transactions in a piece called Should you follow transactions? I found the below chart rather interesting. The gap in returns was wider than I would have expected for insider buying. Telling me this is still a very important thing to watch.
Moves I’ve Made
Deere DE 0.00%↑ After a blowout earnings release I added more to my position which I started last month and discussed in my Investing Update: 3 Stocks For 2023. It beat on the top and bottom lines along with raising their future outlook. Projections across their lines of business are higher than others in the industrial sector. Equipment margins rose. Their farm income side was the highst since the 1970s. Construction and foresty was up 26%. Small equipment and turf were up 14%. Then the category I've had my eye on, production and precision agriculture was up 55%. That's a side of the business that I believe has a tremendous runway for growth. Right now nothing runs like a Deere.
T. Rowe Price New Horizons I’ve closed my position in this fund. This became a sentimental part of my portfolio as this was the first security I purchased on my own back in the summer of 2003 when I started investing. I automatically bought more of it every month for many years. It did phenomenally for me. It’s how I got my start.
Now I want to put this money elsewhere and I did hold it much longer than I wanted to for that sentimental reason of being my first buy. In doing that I did break one of the rules of investing that is don’t get too attached with emotion or “marry” any one holding. But at least it did very well for me.
The Coffee Table ☕
Edwin Dorsey who writes The Bear Cave on Substack wrote a very helpful and resourceful post entitled The Best Stock Research Tools for 2023. He lists, reviews and ranks both free and paid places to get quality investing content. This is something that you save for future reference.
Gunjan Banerji wrote a great piece in the WSJ called The Retreat of the Amateur Investors. I enjoyed how she profiled individuals about their experiences of being up huge with amazing life changing gains, only to see it go away. A nice piece of journalism.
I recently watched the Bernie Madoff documentary on Netflix called Madoff: The Monster of Wall Street. This whole story is just fascinating how he got away with his Ponzi scheme for so long and to hear how many times it came so close to unraveling. They did a great job telling this story along with adding in some great interviews.
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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.