DIASTOLE ECONOMIC AND MARKET COMMENT
January 22, 2024

Last Friday was a banner day in stock markets, with the Standard & Poor’s 500 Index and the Dow Jones Industrials both rising to record highs. The Nasdaq climbed, too, to a level not seen in two years.

Per CNBC, this confirms that we are in a bull market that began in October of 2022. Since then, the S&P has risen more than 34%. Driving the markets on Friday was a new University of Michigan consumer sentiment survey that showed consumers are feeling their best about the economy since July of 2021. Sentiment rose 29% for the period of November and December - the largest two-month increase since 1991.

Tech stocks led the way higher, with Apple in the vanguard after an analyst upgrade of the stock. This rally followed on the heels of a weak beginning to the new year.

In other good news, the average rate on a standard 30-year mortgage loan fell to 6.6%, per Bloomberg. That’s down from almost 8%, and the lowest since May of 2023. As mortgage rates fall further, it is expected that more homeowners will be willing to sell their current low-mortgage-rate homes and relocate - freeing up some housing inventory. But it may take rates nearer to 4% to accomplish that.

Blackstone CEO Stephen Schwarzman sat down with Barron’s in Davos (my invitation apparently went straight to spam) and explained why he thinks that inflation is already near 2% - lower than the consumer price index (CPI) shows. He based his remarks on the rise in rents which he says is less than 1% currently. Schwarzman credits the Federal Reserve with doing a good job cutting inflation, but says, “They just can’t overstay their welcome.”

U.S. retail sales rose 0.6% in December from November, which was higher than expected, according to the Wall Street Journal. And initial unemployment claims unexpectedly dropped to 187,000 in the week ending on January 13th - below all estimates in a Bloomberg survey of economists.

Also helping to buoy the mood on Wall Street was Congress’s passage of a third stop-gap Continuing Resolution (CR) to extend the time it has to figure out funding to keep the government open for the rest of the fiscal year through September 30th. The CR gives Congress until early March to pass a dozen spending bills totaling $1.66 trillion. Insert your own inefficient-Congress joke here.

Was your family name changed at Ellis Island? Turns out, no. Nobody’s family name was changed. According to research carried out by Rosemary Meszaros and Katherine Pennavaria and reported in Documents to the People and Morning Brew, nobody’s name was written down at Ellis Island - incoming immigrants were merely checked against ships’ manifests which were created at the beginning of their journey. Many people’s names seem to have been simplified in the years after they arrived, as they settled in and assimilated. Why is this urban legend so persistent? Because we are hard-wired to look for the obvious answer, a LOT of names were changed, and Ellis Island is a common denominator.

In case you missed it (ICYMI), Japan has landed a craft on the moon. Yay! But it is facing the wrong way and is not collecting solar energy. Darn. The “Moon Sniper” was forced to operate on battery power since its solar cells were not recharging. But there may be hope that the lander and its two rovers can adapt to the moon and point themselves closer toward the sun. Stay tuned.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Fortune, The Economist, Barron’s, MarketWatch, Bloomberg, Yahoo Finance, Business Insider, CNN, CNBC, Reuters, The Associated Press, The Washington Post, The New York Times, USA Today, and The Wall Street Journal. If you have questions, please call us at 203.458.5220.

Do you just love cicadas? Especially sautéed? Me neither! But two broods of cicadas will be back this spring and will overlap in Illinois and Indiana. Other places, including Alabama, Arkansas, and various midwestern and southern states will see brood 13 or brood 19, but not both. The confluence of two broods of cicadas is very rare, and won’t happen again until 2245 according to ScienceAlert.com and USA Today. If you end up with an abundance of cicadas, I recommend popping them like corn, or dipping them in chocolate. No. No, I don’t.

DIASTOLE ECONOMIC AND MARKET COMMENT
January 29, 2024

Markets were strongly positive last week, as the Dow Jones Industrials broke 38,000 for the first time on Monday, and the Standard & Poor’s 500 hit multiple new record highs. The Nasdaq Composite Index has not made a record high since late 2021, but is markedly higher than its recent low of October 2022.

Expectations of the Federal Reserve’s cutting the fed-funds interest rate, hope that the current “soft-landing” of the economy will continue, and confidence in the resilience of the American consumer are all pushing stock prices. And from the Commerce Department on Friday we received the Personal-Consumption Expenditures price index (PCE) - which is the Fed’s preferred inflation measure. It showed that in December the index rose 2.6% annualized, which was down from 5.4% one year earlier. Furthermore, for the six months ending in December, the PCE rose at an annualized 2% rate.

2% is exactly the Fed’s target inflation rate, and so this news engenders speculation about when the Fed will begin to reduce interest rates from its current range of 5.25% - 5.50%. Will it be at this week’s meeting? The Magic-8 Ball says no; the data is too new to be fully analyzed. But the Fed’s next meeting, in mid-March, is looking likelier after Friday’s report, and analysts are split evenly between expecting movement in March and expecting it in April/May. Still, the Magic-8 Ball is sometimes <gasp> wrong, so we will be watching the Fed’s announcement on Wednesday, and listening to the subsequent press conference to get an idea of the thinking of the Fed’s Open Market Committee.

It is worth noting that the S&P’s meteoric rise (up 22% for the trailing 12 months) as well as the Nasdaq’s (up 35% over the same period) are resting on a narrow base of tech stocks. While the S&P makes new highs, only the tech sector is doing the same. The other ten sectors “are trading an average of 15% below their all-time highs,” per the Wall Street Journal. Analysts worry that the narrow-based rally is vulnerable to bad news, especially during this earnings season. Tesla stock is one high-flyer that is already faltering, in the wake of the company’s announcement that 2024 growth would be lower than 2023’s (Barron’s).

About a year ago, the Federal Reserve predicted that the unemployment rate would be 4.6% by now (CNN). But actually, we are sitting at 3.7%. And January’s jobs numbers and unemployment rate will be released this Friday. After receiving the PCE report, the Fed is likely waiting to see the jobs numbers before acting.

The U.S. economy as a whole grew at a 3.3% annualized pace in the fourth quarter of last year, per CNBC. That was WAY more than expected, and probably indicates that growth will continue this quarter at some level.

Remember when bitcoin ETFs started trading and you worried that you’d missed the boat by not getting in at the beginning? (Hint: it was 18 days ago.) Well, worry no more! The price of bitcoin is down since the ETFs launched, and so are the prices of the ETFs. Jamie Dimon, CEO of JPMorgan Chase (whom I only cite when I agree with him) has called bitcoin a Ponzi scheme which is based on the greater-fool theory (you will only be able to sell your bitcoin to a greater fool).

Today is the first day when the IRS will accept 2023 tax returns. Yay! Go ahead and file! You know you want to!

For the week ending on January 26th, the S&P finished at 2,890, the Dow Jones at 38,109, and the Nasdaq at 15,455. The yield on the ten-year Treasury Note closed at 4.15%. U.S. crude oil cost $78.01 per barrel, N.Y. gold cost $2,017.30 per ounce, and one Euro was worth $1.09.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Financial Times, The Wall Street Journal, The New York Times, The Washington Post, USA Today, The Economist, Barron’s, MarketWatch, Fortune, Yahoo Finance, Business Insider, Investopedia, Coinbase, CNBC, CNN, Reuters, and the Associated Press. If you have questions, please call Diastole at 203.458.5220.

Saudi Arabia, traditionally a “dry” country (in so many ways), has just announced that it is opening its first alcohol store, per Reuters. The store will service non-Muslim diplomats. "Customers will have to register via an app, get a clearance code from the foreign ministry, and respect monthly quotas with their purchases.” Rumors that the customers will have to sign that they are “infidels” are probably exaggerated.

DIASTOLE ECONOMIC AND MARKET COMMENT
February 5, 2024

We thought the big news of the week would be the Federal Reserve’s decision on Wednesday to do nothing with interest rates. That was expected; after all, doing nothing is a policy choice. But it turned out that the really big news of the week was the jobs report for January, which was issued on Friday.

Experts, analysts, and talking heads were predicting 175,000-185,000 net new jobs created in January, but the actual figure came in at 353,000. Wow, wow, wow. And on top of that, December’s new jobs number was revised upward from 216,000 to 333,000. More wows!

The unemployment rate remained unchanged at 3.7% - and has now been under 4% for two years. That’s the longest such stretch since the 1960s. Average hourly wages grew in January by 0.6% (month-over-month) to $34.55 per hour. And that’s up 4.5%, year-over-year.

With inflation running about 2.6-2.9% based on the personal consumption expenditures price index, which the Fed favors, workers are finally seeing actual wage increases.

The Fed is looking for inflation to drop to 2%, and is unwilling to just hope that the inflation rate will continue to slide on its own. (But is no doubt happy not to be seeing inflation at 7-9% any more.)

Perhaps it’s no wonder, then, that Fed Chairman Jerome Powell appeared last night on CBS’s “Sixty Minutes” to discuss the economy and downplay the likelihood of an interest rate cut coming at the Fed’s next meeting in March. More people working, and making more money, are factors that could push inflation higher, if you think of inflation as too much money chasing too few goods and therefore pushing the costs of those goods higher.

Another economic factor that could put more money in people’s pockets is the stock market. It has become almost ho-hum to see the Standard & Poor’s 500 and the Dow Jones Industrials Average hit new record highs. The S&P has hit seven record highs in 2024, while the Dow has hit nine. The Nasdaq Composite Index, which has risen the most over the past year, is within 2.5% of its record high. All three indices have posted four consecutive weeks of gains, after beginning the year with weak performances.

The Magnificent 7 stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla) are still leading the way, except for Tesla which is now lagging. So maybe it’s the Magnificent 6? Nvidia ( a chipmaker - but not the delicious kind) was the leader last year, up 235%. Tesla has been recently beset with woes like a general recall of 2.2 million cars due to too small fonts on the dash, and ongoing issues with its autonomous driving mode. But a Delaware judge’s recent finding that Elon Musk’s compensation package was excessive may leave a little more money in the company, which should please shareholders, after they get over feeling sad for Elon.

Meanwhile Meta, parent company of Facebook (happy 20th birthday!) has declared a dividend for the very first time. The stock is already up 433% since its low in late 2022, and may ride this dividend higher. Dividend-paying stocks are often considered more conservative, so this dividend declaration may allow Meta to be held in more kinds of portfolios. Mark Zuckerberg, head of Meta, is due to receive about $700 million per year from this dividend.

Apple ended four straight quarters of losses on Thursday, and also announced on Friday that its virtual-reality headset, the Vision Pro, is available for purchase. It makes wearers look like insects, and it costs $3,500, but the Vision Pro is a computer and camera for your face, which uses something Apple calls “spatial computing”. CEO Tim Cook said at the unveiling that the Vision Pro “works the way the mind works. People put it on, and they instantly know how to use it.” But do they instantly know how to pay for it?

It may surprise you to realize that online shopping only represents about 16% of overall retail sales. The rest happens in brick and mortar stores. Think of all those Amazon boxes on your porch and then picture five times as many boxes coming from Walmart. Your porch isn’t big enough!

In the last three years, at least 24 homes in the U.S. have sold for $100 million or more. If you have neighbors, it’s not you!

For the week ending on February 2nd (Groundhog Day!) the S&P 500 finished at 4,958, the Dow Industrials at 38,654, and the Nasdaq at 15,628. The yield on the ten-year Treasury Note closed at 4.03%. U.S. crude oil cost $72.28 per barrel, N.Y. gold cost $2,053.70 per ounce, and one Euro was worth $1.08.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Financial Times, Barron’s, MarketWatch, Bloomberg, The Economist, Yahoo Finance, Fortune, Business Insider, CNN, CNBC, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

The next Super Bowl takes place on February 11th, and for a mere $9,815, you can buy a ticket to see the game in Las Vegas. Oh wait, that was the original price. Now that it’s sold out, you can only buy a ticket on the secondary market, and prices are MUCH higher. Especially if you need to factor in your new Vision Pro headset which will do something amazing that no one can explain while you watch the game.

DIASTOLE ECONOMIC AND MARKET COMMENT
February 12, 2024

On Friday, the Standard & Poor’s 500 closed over 5,000 for the first time ever. On Sunday, the Kansas City Chiefs won their second Super Bowl in a row. But perhaps the most important news of the week came from a National Institutes of Health study which indicates that nose picking may be linked to the development of Alzheimer’s disease. Ouch!

Oh wait. Did I mention that the S&P 500 closed above 5,000? Maybe that IS more important than nose picking. We are only in the middle of February, and the S&P has already risen by almost 6%. The Nasdaq Composite Index is up more than 8%. The laggard is the Dow Jones Industrial Average, which has grown by just 2.5% because it doesn’t have the advantage of holding the high-flying Magnificent 7 tech stocks. (Of course Tesla doesn’t look so magnificent these days, so maybe it’s the Significant 6?)

You’ll remember that the January jobs number came in WAAAAAY better than expected, and since then the odds of the Federal Reserve cutting interest rates at its March meeting have dropped considerably. Nonetheless, the Fed’s Chairman Jerome Powell has successfully communicated the idea that the Fed has switched from possibly raising rates further to cutting rates at some point this year. This makes investors happy, despite the fact that cutting rates hurts savers.

The current Fed-funds rate is 5.25-5.50%, while the ten-year Treasury is yielding 4.17%. So - you can see anticipation in action. Bond buyers are satisfied to receive less than current interest rates on their bond purchases, in the belief that in the long run they will receive more than current rates. In other words, they believe that an average of 4% over ten years will be attractive.

Anticipation also explains why 30-year Treasury bonds are yielding less (4.37%) than two-year Treasury Notes (4.48%). Bond buyers are expecting the Fed to cut rates and keep them low over a long period, while in the short term, rates remain high. Remember that the Fed does not peg the interest rates that Treasurys pay, the yields are determined at auction.

And there was a big Treasury auction last Wednesday, when the U.S. government sold a record $42 billion of 10-year notes. The notes ended up paying 4.093%, based on the bids that came in. Per Bloomberg, observers were concerned that demand would not hold up to the extra-large number of notes that were issued, but in fact demand stepped up to fill the increase. If demand had not been there, the auction would have settled at a lower price and consequently a higher yield. (Prices and yields move in opposite directions.)

The fact that the government has an ever-increasing deficit to fund makes these larger auctions necessary. But it scares some analysts who worry that we will be stuck with more and more debt at higher and higher interest costs if demand falls off. And we are seeing that some of our usual foreign buyers of Treasurys are backing off (we’re looking at you, China).

Speaking of government debt brings us to the budget finagling that’s going on in Washington. There are 12 tranches of spending for 2024 that have been settled in principle, but not in specifics. The House and the Senate are nowhere near agreement on how to spend the allocated funds, and the current stop-gap spending bill expires in early March. Stay tuned.

Some good news in real estate: mortgage rates have fallen from near 8% to around 6.6% in recent months, according to Freddie Mac. And buyers are poking their heads out of their shells. Real estate showings in the last week of January were up 9.9% over the first week of the year, per Zillow. The big question is, when will current homeowners be willing to give up their attractive mortgages and put their houses on the market? Lack of inventory is keeping prices high.

Think a Category 5 hurricane is super-scary? Who wouldn’t, with wind speeds over 157 miles per hour? But what if there were a Category 6? According to USA Today, meteorologists have analyzed hurricane data going back to 1980 to see if there were any hurricanes with wind speeds over 192 m.p.h. - and they found five, all in the past decade. These “Category 6” storms are fueled by the warmer water temperatures caused by global warming. It is not expected that the National Hurricane Center will add an official 6 designation any time soon, but we may hear them referring to hypothetical Category 6s in order to warn residents in the path of mega-storms.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Axios, Yahoo Finance, The Financial Times, Barron’s, The Economist, Business Insider, MarketWatch, CNBC, CNN, The Washington Post, USA Today, The New York Times, The Wall Street Journal, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

Thieves have stolen a 200-foot tower in Jasper, Alabama, leaving no trace behind, and shutting down radio station WJLX. All of the broadcasting equipment stored nearby was also stolen. Cutting the guy wire would have brought down the tower, but if the thieves are hoping to start their own radio station, they will find it much harder to raise the tower again. Brett Elmore, the General Manager of WJLX says that the station had no insurance, and replacing the tower and equipment could cost up to $100,000 dollars. Perhaps that brand new station that popped up next door could hold a fund-raiser?