Financial Market Insight - October 2024

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HIGHLIGHTS

Why the Next Two Weeks Are So Important for This Market
Market Preview: Magnificent Seven Earnings and Important Economic Data
Economic Cheat Sheet: Jobs and ISM Manufacturing PMI on Friday
Sentiment: Still Not as Wildly Bullish as You Might Think

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STOCKS

“Stocks declined modestly last week as Treasury yields rose to multi-month highs while earnings results were a bit more mixed, although the declines were modest especially compared to the recent rally.”

✓ What is Outperforming: Defensive sector, minimum volatility, and sectors linked to higher rates have relatively outperformed recently as markets have become more volatile.

✓ What is Underperforming: Tech/growth and high valuation stocks have lagged as yields have risen.

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A Critical Two Weeks for the Rally

It is not an exaggeration to say that the next two weeks could likely determine if stocks hold (and potentially extend) the YTD gains, or if volatility re-emerges and we have a tumultuous end to what has been, so far, a good year in the markets.

We say that not to be hyperbolic, but instead because it is true, as each of the major supports of this rally will be tested over the next two weeks, and if the current positive market expectations are undermined, the S&P 500 could hit an air pocket of roughly a 5%-10% pullback (or possibly worse).

Let us Examine the Major Tests of Support in the Equity Market:

Test #1: Soft Landing

We have seen quite a switch in the outlook for the economy over the past two months. In July, a soft landing was all but guaranteed. However, hard landing fears rose (and stocks dropped) in August and September as the labor market data disappointed. Then, over the past month, data has rebounded and at this point, a “no landing” possibility is openly discussed. Over the next two weeks, we will get important economic updates that will either 1) Validate the soft-landing thesis (positive for stocks) or 2) Challenge it (one way or the other, via a no landing or hard landing). Specific data points to watch include the jobs report, ISM Manufacturing PMI¹, and Services PMI (the first two out this Friday, the Services PMI out next week). For markets to pass this test, economic data needs to remain Goldilocks (so not too hot and imply no landing and less rate cuts, or too soft and hint at a recession).

Test #2: Earnings

Earnings have been, in many ways, the “unsung hero” of this rally as earnings growth has remained remarkably consistent throughout 2024, allowing the S&P 500 the fundamental justification to rally to current levels. But we get the final earnings updates for 2024 this week, including AMD/GOOGL and V on Tuesday, META/MSFT on Wednesday AAPL/AMZN, and INTC on Thursday. For the market to pass this test, we need to see guidance from these companies remain upbeat and above expectations, underscoring that earnings growth is solid.

Test #3: Aggressive Fed Rate Cuts

Fed expectations have also shifted wildly in the past few months, as in June just one rate cut was expected, while by August multiple rate cuts were forecast by year-end. The Fed validated those dovish expectations via the 50-bps cut in September and markets proceeded to price in another 75-bps of cuts between then and December. Since then, because of good data and stickier inflation, rate cut expectations have declined to just two 25-bps in November and December and that is less certain than before. For the market to pass this test, Fed rate cut expectations need to stay at two 25-bps cuts in November and December (and not decline below 50-bps of additional easing).

Test #4: Political Calm

Markets have been amazingly resilient in the face of geopolitical upheaval (two ongoing major wars) and throughout this election season, but that will be tested on November 5th! Depending on when the outcome is known (no verdict on, or shortly after election night would be a worst-case for markets) and the make-up of the government post-election, markets may be forced to face (and account for) looming fiscal challenges in the form of budget battles, elevated trade tensions or similar issues. Meanwhile, the transition of power in the U.S. may embolden global adversaries and potentially intensify global conflicts. For the market to pass this test, we need to have political clarity out of the election and have the geopolitical situations (wars) NOT spread or intensify.

Bottom line: The market has been incredibly resilient this year, but that resilience will be tested in a big way over the next two weeks. Vann Equity Management will be here, committed to helping you cut through the noise and stay focused on the core drivers of this market, which remain growth, Fed rate cuts, and earnings. Ultimately, they will determine whether this market extends this rally into year-end; or if we see an uptick in volatility that makes the final two months of 2024 more difficult than the first 10. We have your back!

¹ ISM manufacturing index, also known as the purchasing managers’ index (PMI), is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at manufacturing firms nationwide. PMIs use a monthly questionnaire survey of selected companies which provide an advance indication of the performance of the private sector. It achieves this result by tracking changes in variables such as output, new orders, and prices across the manufacturing, construction, retail and service sectors. It is considered to be a key indicator of the state of the U.S. economy.

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Economic Data (What You Need to Know in Plain English)

The recent rally in stocks (off of the September lows) has been underwritten mostly by Goldilocks economic data, which largely continued into the end of October. So, while there was some mild profit-taking in stocks, the bigger takeaway has been that an economic soft landing remains the most likely outcome (which is important for the long-term sustainability of this rally).

The key report for October was the flash PMIs and they were Goldilocks! The composite headline beat estimates at 54.3 vs. (E) 54.0, while we saw a familiar weakness in manufacturing (still below 50), but it was not worse than feared at 47.8 vs. (E) 47.6. Finally, the flash Services PMI, which is the most important reading, remained strong at 55.3 vs. (E) 55.0.

Looking at jobless claims, they were mixed as initial claims declined to 227k vs. (E) 243k, and claims have now reversed, again, a temporary spike up towards 260k. Notably, Continuing Claims reached a three-year high, implying those who have been laid off are having a harder time finding new jobs. Now, part of that pop could be because of extended unemployment from the hurricanes or the ongoing Boeing strike. Nonetheless, our team thinks it is fair to say we are seeing cooling in the labor market, just not enough at this point for it to be a negative economic signal.

Bottom line: Economic data has been Goldilocks, and that is a good thing for stocks and bonds because it keeps a soft landing as the most likely economic outcome (and justifies much of the 2024 rally) and because it keeps the Fed on track to continue to ease rates (including two more 25-bps cuts this year).

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COMMODITIES, CURRENCIES & BONDS

“Commodities traded with a bias to the upside last week thanks to simmering geopolitical tension supporting gains in oil while inflation worries and Goldilocks global economic data kept a bid in both industrial and precious metal varieties.”

Commodities trade with a bias to the upside as lingering geopolitical tensions kept a fear bid in the oil market while industrial metals were little changed on the economic data, but gold extended the YTD advance to new record highs amid upward-trending inflation expectations.

Looking ahead, there continues to be a fading outlook for demand in oil as an uncertain outlook for the global economy paired with prospects for a rise in global production in the months ahead (thanks to U.S. output hitting new records this month) and OPEC+ members planning production target increases in December, leave the threat of a surplus in the global oil market elevated. Geopolitics remain a critical near-term influence, however, the threat of a price spike in the wake of the weekend’s retaliatory attacks by Israel on Iran is a distinct possibility.

Switching to precious metals, worries about inflation, for now, leave the fundamental backdrop of the gold market bullish, matching the uptrend on weekly charts.

“The Dollar Index extended the gains last week and hit a multi-month high thanks to solid economic data and rising yields.”

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Still Not as Wildly Bullish as You Might Think

Sentiment data this month provided a bit of a surprise, because our investment team assumed with the relentless rally in stocks investor sentiment would be pushing the highs of 2024. However, despite a positive view and clear optimism, sentiment is not at the levels that would, by itself, make us concerned the market has become unsustainably stretched. So, while investors are bullish, there is anxiety despite the new highs.

Now, perhaps that level of anxiety is tied to the election, which will be behind us in next month’s sentiment reading; or perhaps it is because investors’ economies are not quite as strong as the S&P 500. Regardless, investors are not as greedy or extremely bullish as the stock market performance would typically imply.

From a market standpoint, there are two takeaways from this analysis. First, sentiment is not widely bullish enough to cause a correction, and that is good. Second, sentiment is still complacent and if one of the positives in this market (stable growth, Fed rate cuts) disappoints, then current levels of elevated bullishness amongst investors and advisors reinforce that we could easily see a 5%-10% air pocket in the S&P 500 (even if the news is not that fundamentally negative).

Bottom line: Sentiment is not a reason to lighten up on stocks, but it does leave this market still vulnerable to a short, sharp pullback, even if the news is not that bad, and we want everyone to be aware of that from an expectations standpoint.

AAII Investor Sentiment

CNN Fear & Greed Index

Investors Intelligence Advisor Sentiment

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Disclaimer

The Financial Market Insight is protected by federal and international copyright laws. Vann Equity Management is the publisher of the newsletter and owner of all rights therein and retains property rights to the newsletter. The Financial Market Insight may not be forwarded, copied, downloaded, stored in a retrieval system, or otherwise reproduced or used in any form or by any means without express written permission from Vann Equity Management. The information contained in Financial Market Insight is not necessarily complete and its accuracy is not guaranteed. Neither the information contained in Financial Market Insight, nor any opinion expressed in it, constitutes a solicitation for the purchase of any future or security referred to in the Newsletter. The Newsletter is strictly an informational publication and does not provide individual, customized investment or trading advice. READERS SHOULD VERIFY ALL CLAIMS AND COMPLETE THEIR OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES, OPTIONS AND FUTURES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND SUBSCRIBERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

Financial Market Insight - September 2024

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HIGHLIGHTS

How to Explain This Market (September Update)
Weekly Market Preview: Two Key Central Bank Decisions (Fed on Wednesday, BOJ on Thursday)
Weekly Economic Cheat Sheet: Important Growth Updates This Week

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STOCKS

S&P 500 Weekly Chart

5626.02

S&P 500

Technical View: The medium-term trend in the S&P 500 remains neutral as the broad market index has so far failed to breakout beyond the July record highs.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5648, 5670, 5700
Key Support Levels: 5554, 5408, 5293

"Stocks rallied and the S&P 500 climbed close to previous all-time highs thanks to solid tech earnings from ORCL and increased expectations for a 50-bps rate cut from the Fed"

✓ What is Outperforming: Defensive sector, minimum volatility, and sectors linked to higher rates have relatively outperformed recently as markets have become more volatile.

✓ What is Underperforming: Tech/growth and high valuation stocks have lagged as yields have risen.

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How to Explain This Market

Over the weekend, our team was at a social function, and we were asked, "How can stocks be near all-time highs when the economic data is so clearly showing a loss of momentum?" It is a great question, and the answer is the key to understanding this market and what will likely drive it through year-end.

First, the data is showing a clear loss of momentum. But it is not showing an imminent recession. Second, and most importantly, the market is trading almost entirely on Fed expectations. And right now, the market expects the Fed to cut rates by 50 basis points next week. That is a very aggressive expectation, and it is the primary reason why stocks have been so resilient in the face of slowing growth.

Bottom line: The market is in a "bad news is good news" environment. As long as the economic data is soft enough to keep the Fed on track to cut rates, but not so soft that it sparks legitimate recession fears, stocks can continue to grind higher. However, this is a very delicate balance, and any shock to the system (either a surprisingly strong economic report or a surprisingly weak one) could cause a significant market reaction.

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Economic Data (What You Need to Know in Plain English)

Last week's economic data was mixed, but the key takeaway is that the economy continues to lose momentum. The headline numbers from the retail sales and industrial production reports were both weaker than expected, and while the housing data was a bit better, it was not enough to offset the broader trend of slowing growth.

Looking ahead, this week is all about the Fed. The FOMC will release its latest policy statement on Wednesday, and while no one expects a rate cut this month, the market will be laser-focused on the updated "dot plot" and Fed Chair Powell's press conference. The key question is whether the Fed will signal a 50-basis-point cut in September, as the market currently expects. If they do, stocks will likely rally. If they do not, we could see a significant pullback.

Bottom line: The Fed is the only game in town right now. The economic data will continue to matter, but only in the context of how it might influence the Fed's decision-making process.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2341.20

Gold

Technical View: Gold has been consolidating in a multi-month range, and the technical outlook is neutral pending a breakout in either direction.
Primary Trend: Neutral (since the week of May 27, 2024)
Key Resistance Levels: $2372, $2391, $2454
Key Support Levels: $2305, $2286, $2222

"Commodities were mixed last week as a stronger dollar weighed on metals while oil prices were supported by ongoing geopolitical tensions."

Commodities were mixed last week as a stronger dollar weighed on metals while oil prices were supported by ongoing geopolitical tensions. Gold ended the week down 0.5%, while WTI crude oil rose 1.5%. The broader commodity ETF (DBC) was little changed.

Looking ahead, the outlook for commodities remains uncertain. If the global economy continues to slow, that will be a headwind for industrial metals and energy. However, if the Fed does cut rates as aggressively as the market expects, that could be a tailwind for gold and other precious metals.

Bottom line: The commodity markets are likely to remain volatile until we get more clarity on the outlook for global growth and Fed policy.

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Disclaimer

Financial Market Insight - August 2024

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HIGHLIGHTS

The Growth Scare Is Here (What It Means for Markets)
Weekly Market Preview: How Far Can This Pullback Go?
Weekly Economic Cheat Sheet: Important Growth Report Today
What the Fed Decision Means

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The week of August 5, 2024, begins with a major global market sell-off following the Bank of Japan's decision to tighten monetary policy for the first time in three decades. As investors brace for the volatility tsunami impacting a cross-section of risky assets (stocks, credit, commodities), greater uneasiness and a slowing U.S. economy could be enough to prompt the Federal Reserve to adopt a more aggressive schedule for cutting interest rates and loosening monetary policy. As such, we as investors may be given a narrow window to add on market risk if financial contagion does not spread or does the global economy fall into recession.

The interconnectedness of global financial markets means that Japan's financial turmoil could have ripple effects worldwide and exacerbate tightening financial conditions that would impact the funding sources of risk-on position-taking. The sell-off is not only impacting global equities, particularly markets with high-yielding currencies funded in the so-called carry trade. A carry trade is a trading strategy that involves borrowing at a low interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency such as Australia, New Zealand, and Latin America, but also corporate credit risk and commodities.

Despite the recent pullback and selling pressures, the analyst community remains sanguine over earnings prospects, not just for U.S. companies, but for global markets as well. Earnings are expected to grow over the next two years for the major markets (U.S., Japan, Europe, and Emerging Markets) even if that growth trajectory starts to slow down. Near-term liquidity-driven selling could eventually give way to long-term earnings growth reality.

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STOCKS

S&P 500 Weekly Chart

5346.56

S&P 500

Technical View: The medium-term trend in the S&P 500 has shifted from bullish to neutral as the uptrend line off the October 2023 lows was violated last week.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5399, 5479, 5537
Key Support Levels: 5302, 5235, 5116

"The S&P 500 fell sharply last week thanks to disappointing economic data as the economic growth scare finally arrived and pushed the S&P 500 to multi-week lows."

✓ What is Outperforming: Defensive sector, minimum volatility, and sectors linked to higher rates have relatively outperformed recently as markets have become more volatile.

✓ What is Underperforming: Tech/growth and high valuation stocks have lagged as yields have risen.

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Market Recap & The Growth Scare

Market Recap

Domestic stocks attempted to stabilize into the middle of last week as tech earnings suggested AI-driven growth prospects were still intact; however, bad economic data Thursday and Friday led to a resurgence in recession concerns that saw the S&P 500 roll over to end the week down 2.06%. The index is now up 12.09% YTD.

The Growth Scare is Here

The growth scare that our investment team has been worried about finally appeared last week courtesy of the soft ISM Manufacturing PMI and jobs report and the result was a sharp drop in the S&P 500 and a collapse in Treasury yields (to nearly six-month lows). Additionally, on Friday we heard countless mentions across the financial media of recession risks and possibilities.

However, it is important to push back on the emotional anxiety that naturally occurs when stocks drop and the financial media screams trouble. Here is the reality from last week's data: First, for anyone paying attention (as we all have been) last week's data was not a surprise. There have been signs of a loss of economic momentum in various data points for months via economic reports and corporate commentary.

Second, last week's data really was not that bad in aggregate. Yes, the ISM Manufacturing PMI was ugly, but it has been weak for months and was not that much worse than before. Jobless claims and the jobs report, meanwhile, were worse than expected but on an absolute basis, 249k jobless claims is still very low and while July only added 114k jobs, the three- and six-month averages are still very healthy in the high-100k range.

Third, and most importantly, last week's declines are more about the complacency we and others have warned about, not about a sudden, serious deterioration in the data. Two weeks ago, the S&P 500 was trading near 5,600 on a 2024 EPS of $245ish and 2025 EPS of $270ish. That is a 22.8X multiple and a 20.8X multiple, respectively. Those are multiples for perfect environments, i.e., solid (and not slowing growth), explosive earnings growth, and no existential risks (geopolitics, etc.). That is not the environment the market has been in for months and last week the data was bad enough to make the market finally admit it and that is why stocks dropped hard, not because the actual fundamentals turned materially worse (they just were not as good as hoped for and investors finally had to admit it Friday).

Our investment team can confidently say this: If the data were as worrisome as the market implied on Friday, nothing would have been up last week; but plenty in the market was in energy and utilities. If the data were screaming recession, those sectors would not be positive, they would just be down a lot less than everything else.

Looking forward, is a recession that hits stocks hard possible? Absolutely, and that is a risk we are continuing to look at closely. However, suddenly saying a recession is a real risk is about as appropriate as previously thinking one was not possible at all.

Bottom line: The growth scare is here. We are reducing volatility in our equity portfolios via defensive sectors and lower volatile names because we doubt it is over yet. Last week's data just told us, unequivocally, that growth is slowing, and the market finally had to listen. That does not mean a contraction or recession is imminent and as such we do not think de-risking via raising cash is appropriate unless you are sure you can get back in appropriately, because the outlook for this market has not significantly changed as much as the price action implies.

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Economic Data (What You Need to Know in Plain English)

Economic data was almost universally disappointing last week, and two of the three major monthly economic reports pointed to an economy now losing momentum and those weak readings spiked economic growth concerns and sent stocks lower and Treasuries higher. The big report last week was on July jobs, and it was the weakest report in a long time. Job adds were 114k, far below the 170k estimate and the lowest number in several years. The unemployment rate, meanwhile, rose to 4.3%, above the 4.1% expectation and the highest reading since October 2021. Perhaps most disconcertingly, the U-6 under-employment rate rose to 7.8% from 7.4%, the highest level in several years.

Bottom line: Labor market indicators have been consistently, albeit slowly, softening for months and it finally showed up in the monthly labor market data as the labor market is clearly slowing in the U.S.

Looking at other data last week, there was only one notable growth report, but it was one of the biggest disappointments of the week, as the ISM Manufacturing PMI declined to 46.8 vs. (E) 48.8, the lowest level since last August. That drop caused a slowdown in concerns to pop and majorly contributed to Thursday's steep selloff. What made the ISM Manufacturing PMI such a bad number was not just the headline, but also the details of the report (which were equally as bad as the headline, if not worse). New Orders, the leading indicator in the report, fell to 47.4 vs. 49.3 previously while the Employment Index declined to 43.4 vs. (E) 49.3.

In sum, this was the worst week for economic data in a long time. To be clear, these numbers do not point to a recession. 4.3% unemployment is hardly awful and jobless claims of 249k would, historically, still be considered good. But the trend in this data is concerning from a growth standpoint and because the market has priced in virtually zero chance of a slower-than-expected economy, the data did spike slowdown worries and hit stocks and boosted Treasuries.

Bottom line: The Fed is clearly telling us they are going to cut in September. Powell also hinted at several rate cuts in 2024. Why? It is not because inflation is so low they can cut aggressively. It is because they are getting worried about growth and this just reinforces what is the key question for markets for the second half of 2024: We know that the Fed is going to cut rates, but will they cut rates in time to avoid a slowdown?

The answer to that question will ultimately determine which direction the next 15% (or more) lies in the S&P 500. From a tactical standpoint, in the short term (meaning the next few weeks) the economy remains in a Goldilocks state of solid growth and looming Fed rate cuts and that should support a milder, but ongoing rotation to Large Cap Value, the "rest" of the market (RSP) and cyclical sectors (small caps, industrials, energy, financials). So, this rotation from tech to the value/cyclical/small caps/RSP can continue given the Fed news.

However, looking beyond the next several weeks, the Fed's increased urgency regarding rate cuts just reinforces our preference for reducing volatility in portfolios via lowering beta. To be clear, the Fed could still stick the soft landing and that is why our investment team does not advocate raising cash.

The Fed is going to cut more because they are worried about growth. The market is not worried about growth at all. That setup does not usually end well in our estimation and as such, we do think it is best to continue to gradually and systematically reduce volatility in our tactical holdings while maintaining long exposure because if we get a growth scare, Fed rate cuts will not be able to stop the correction and high-beta and cyclical will get hit hard.

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Disclaimer

Financial Market Insight - July 2024

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HIGHLIGHTS

Market Impact of the Assassination Attempt on Former President Trump
Acknowledging There is a Downside to Current Market Events, Too
Weekly Market Preview: Do Growth and Earnings Hold Up?
Weekly Economic Cheat Sheet: An Important Check on the Consumer This Week
Special Reports and Editorial:
- Is the Rotation from Tech to the "Rest of the Market" Sustainable?
- Powell Testimony Takeaways
- Market Multiple Table: An Important Change

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STOCKS

S&P 500 Weekly Chart

5615.35

S&P 500

Technical View: The medium-term trend in the S&P 500 remains bullish as stocks have consistently rallied to fresh record highs in mid-2024.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5633, 5656, 5700
Key Support Levels: 5585, 5509, 5448

"The S&P 500 hit yet another record high last week as CPI rose less than expected and boosted investor expectations for a September rate cut and two rate cuts in 2024."

✓ What is Outperforming: Defensive sector, minimum volatility, and sectors linked to higher rates have relatively outperformed recently as markets have become more volatile.

✓ What is Underperforming: Tech/growth and high valuation stocks have lagged as yields have risen.

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Market Impact of the Assassination Attempt on Former President Trump

Geopolitical risks are a constant for markets, but domestic political risks are much less common. Unfortunately, the assassination attempt on Former President Trump is a stark reminder that domestic political risks are real, and they can impact markets. The initial market reaction to the horrible events of Saturday was a classic "risk-off" move. From a practical standpoint, this event likely ensures a Trump victory in November. While markets generally prefer Republican presidents, the key takeaway is that this event introduces a significant amount of uncertainty into the political outlook, and markets historically do not like uncertainty.

Bottom line: The assassination attempt is a horrific event that reminds us that domestic political risks are real. While the market impact has been minimal so far, this event does increase the chances of a volatile summer and fall, and we need to be prepared for that possibility.

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Acknowledging There is a Downside to Current Market Events, Too

The S&P 500 hit another new all-time high last week thanks to a soft CPI report that increased the chances of a September rate cut. But despite the new highs, there are some underlying currents that are not so positive. Specifically, there’s a legitimate downside to the soft economic data that’s fueling rate cut hopes. The data is pointing to a loss of economic momentum that could become a problem for markets later this year.

So far, markets have ignored this because as long as the data implies rate cuts are coming, that’s all that matters. But at some point, the reason for the rate cuts will matter, and if it’s because of a rapidly slowing economy, that will not be a positive for stocks.

Bottom line: We are not trying to be overly bearish, but we do want to acknowledge that the current market environment is not without risks. While the path of least resistance remains higher for now, we are watching for any signs that the economic slowdown is accelerating, as that would be a legitimate threat to this rally.

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Economic Data (What You Need to Know in Plain English)

Last week was all about inflation, and the data was unequivocally positive for markets. Both CPI and PPI came in softer than expected, and that sent a clear message to investors: The decline in inflation has resumed. That’s a critical development because it increases the chances of a September rate cut and further easing from the Fed later this year.

Looking ahead, the focus now shifts to economic growth. This week, we get updates on retail sales, industrial production, and housing starts. Markets will want to see these numbers hold up to support the "soft landing" narrative. If the data is too weak, it could spark growth concerns and weigh on stocks, even if it means more rate cuts are coming.

Bottom line: Last week’s inflation data was a clear positive, but now the market needs to see that the economy is not slowing too quickly. As long as growth remains resilient, the outlook for stocks remains positive.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2346.9

Gold

Technical View: Gold has been consolidating in a multi-month range, and the technical outlook is neutral pending a breakout in either direction.
Primary Trend: Neutral (since the week of May 27, 2024)
Key Resistance Levels: $2372, $2391, $2454
Key Support Levels: $2305, $2286, $2222

10-Year T-Note Yield Weekly Chart

4.22%

10-Year T-Note Yield Futures

Technical View: The 10-year yield has been grinding lower since late April, and the path of least resistance remains to the downside.
Primary Trend: Bearish (since the week of April 29, 2024)
Key Resistance Levels: 4.281, 4.336, 4.400
Key Support Levels: 4.187, 4.091, 4.000

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SPECIAL REPORTS AND EDITORIAL

Is the Rotation from Tech to the "Rest of the Market" Sustainable?

One of the key themes in markets over the past month has been the rotation out of mega-cap tech stocks and into other sectors of the market. This is a healthy development, as it suggests the rally is broadening out. However, the key question is whether this rotation is sustainable. The answer to that question will depend on economic growth. If the economy remains resilient, then the rotation can continue. But if growth starts to falter, investors will likely flock back to the perceived safety of mega-cap tech, and the rotation will end.

Powell Testimony Takeaways

Fed Chair Powell’s testimony to Congress last week was largely a non-event, as he stuck to the script and did not provide any new information on the outlook for monetary policy. The key takeaway is that the Fed remains data-dependent and will not be rushed into cutting rates. That’s a net neutral for markets, as it keeps the possibility of a September rate cut on the table but does not guarantee it.

Market Multiple Table: An Important Change

This month, we made an important change to our Market Multiple Table. We are now using 2025 earnings estimates instead of 2024 estimates. The reason for this change is that as we move through the second half of the year, markets will increasingly focus on the outlook for next year’s earnings. This change results in a lower market multiple, which is a more accurate reflection of the current valuation of the S&P 500.

Market Multiple Levels: S&P 500

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Disclaimer

“August 2025 Investment Insights: Inflation, Fed Rate Cuts, Commodities, and the Future of AI”

Financial Market Insight - August 2025

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HIGHLIGHTS

Two Events That Could Actually Cause a Pullback
Weekly Market Preview: All About the Fed (Does Powell Signal a September Cut on Friday?)
Weekly Economic Cheat Sheet: Important Growth Updates This Week (Do They Push Back on Stagflation Worries?)
What Happens if AI Starts to Lose Momentum?
The Hot PPI Threatens Multiple Pillars of the Rally

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STOCKS

S&P 500 Weekly Chart

6449.8

S&P 500

Technical View: The trend in the S&P 500 has shifted back to cautiously bullish after the index notched fresh records on both an intraday and closing basis this month.
Dow Theory: Bearish since the week-ending March 14, 2025
Key Resistance Levels: 6463, 6481, 6500
Key Support Levels: 6381, 6287, 6198

"Stocks rallied last week despite hotter-than-expected inflation data (in total) and some disappointing tech/AI earnings, as stable growth and still-high expectations for Fed rate cuts powered stocks to new all-time highs."

✓ What is Outperforming: AI-related tech, cyclical sectors, small caps.

✓ What is Underperforming: Defensive sectors, energy.

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Two Events That Could Actually Cause a Pullback

The S&P 500 has pushed to new all-time highs month-to-date, even as the flow of news has been more negative than positive. Inflation metrics remain stubborn: CPI was mixed but still above the Fed's 2% target, while PPI came in hot. Corporate earnings in the AI sector were also uneven-AMAT issued soft guidance, and both C3.ai (AI) and Core Weave (CRVW) sold off sharply. Geopolitical tensions persist, and expectations for Fed rate cuts have been trimmed, though markets still broadly anticipate a September cut.

Despite these headwinds, equities rallied. The reason: none of the data was severe enough to shake investor conviction in the two drivers of this market:

Tariffs will not trigger stagflation (a toxic mix of weak growth and high inflation).
AI enthusiasm remains intact as a growth engine for earnings and valuations.

Last week's news did, however, inch toward those risks. With hot inflation raising the possibility that tariffs could fan price pressures, and AI earnings were disappointing, but neither development was dramatic enough to alter the prevailing narrative. Markets effectively shrugged them off.

Bottom line: There is plenty of noise-conflicted inflation data, questions about data accuracy, geopolitics, and AI momentum. But cutting through it all, investors are really asking two questions:

Has the likelihood of tariff-driven stagflation increased materially?
Has AI optimism been seriously undermined?

So far, the answer to both remains "no." As long as that holds, volatility is possible, but the market trend should remain higher.

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Economic Data (What You Need to Know in Plain English)

August was squarely on inflation, and the data delivered a rollercoaster ride for investors. CPI came in relatively tame, sparking optimism for Fed rate cuts and pushing the S&P 500 to fresh all-time highs above 6,400. But enthusiasm was quickly checked by a much hotter-than-expected PPI report, which erased some of the gains and reminded investors that the path to lower inflation remains uneven.

Starting with the Consumer Price Index (CPI), the headline number was encouraging, rising 2.7% year-over-year versus expectations of 2.8%. Core CPI, however, increased 3.1% compared to estimates of 3.0%. While that core reading was hotter, markets largely looked past it. The upward pressure was concentrated in services categories like dental care and airfare (areas that are not tied to tariffs and therefore less relevant to the broader inflation debate). As a result, CPI was interpreted as easing inflation worries, and markets moved to full price in the September Fed rate cut, fueling last week's rally.

The Producer Price Index (PPI), however, told a different story. PPI surged 0.9% month-over-month (vs. expectations of 0.2%) and 3.3% year-over-year (vs. 2.5% expected, and up from 2.4% the prior month). Like CPI, the strength came from services, airfare, cable, and internet in particular. However, unlike CPI, the surprise was too big to dismiss. While it did not cause a sustained selloff, it did pull markets back from their highs and highlighted that inflation risks remain.

The key takeaway is that neither CPI nor PPI showed meaningful evidence of tariff-driven goods inflation, which is the real concern for stagflation. For now, markets remain confident that the Fed will cut rates in September and again in December, with a possible October cut still on the table. Nonetheless, the outlook will hinge on the next three major inflation readings (Core PCE, CPI, and PPI), which will set the tone for the remainder of the year.

On growth, the story was steadier. July retail sales were a touch light on the headline (0.5% vs. 0.6% expected), but June was revised higher, and the "control" group beat expectations with an upward revision. The data confirmed that consumer spending remains resilient, countering fears that the economy is slipping toward stagflation.

Looking ahead, we are looking for clarity from the Fed. Chair Powell's speech at Jackson Hole on Friday, 08/22/2025, is the most important event, though it is notoriously difficult to predict whether he will address monetary policy directly. A signal toward a September cut would be well received, while a pushback, or silence, could pressure markets. In addition, the release of July FOMC minutes will be closely watched after two officials dissented in favor of a cut, the most since the early 1990s. If the minutes suggest broader support for easing, markets will likely interpret that as dovish. Finally, Thursday's flash PMI for August will provide the first major read on growth this month, and the stronger the number, the more it will calm lingering stagflation fears.

Bottom line: August remains a month defined by the tug-of-war between inflation, Fed policy expectations, and growth. Last week's data kept the hope of near-term rate cuts alive while reminding investors that risks have not disappeared. As long as confidence in Fed easing and consumer resilience holds, the market's momentum should remain intact.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$3381.7

Gold

Technical View: Gold prices closed at new records in early August offering technical confirmation the primary trend remains bullish, albeit amid fading momentum.
Primary Trend: Bullish (since the week of November 27, 2023)
Key Resistance Levels: $3407, $3434, $3483
Key Support Levels: $3367, $3314, $3244

10-Year T-Note Yield Weekly Chart

4.318%

10-Year T-Note Yield Futures

Technical View: The 10-year yield has been in a compressing trading range for the bulk of 2025 leaving the technical outlook neutral until a new extreme is reached.
Primary Trend: Neutral (since the week of January 6, 2025)
Key Resistance Levels: 4.327, 4.414, 4.479
Key Support Levels: 4.235, 4.201, 4.167

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SPECIAL REPORTS AND EDITORIAL

What Happens if AI Starts to Lose Momentum?

While most of last week's attention was on CPI and Fed policy, two high-profile AI bellwethers posted disappointing results. C3.ai (AI) dropped 25% after soft guidance, while Core Weave (CRWV) fell 21% following weak earnings. Those sharp declines raise an important question: What happens to this market if AI loses momentum?

It is easy to focus entirely on tariffs, inflation, and economic growth, but history reminds us that markets can falter even when the economy holds up. During the dot-com bubble, for example, the S&P 500 lost more than 20% between March 2000 and August 2001, despite unemployment rising modestly from 4.0% to 4.6%. The economy remained broadly stable until the combination of the tech bust and September 11th finally tipped it into recession. In other words, the bursting of tech enthusiasm itself was enough to drag markets down.

The parallel matters now. The current rally has been disproportionately fueled by AI-linked mega-cap stocks. Five names (NVIDIA, Microsoft, Meta, Broadcom, and Palantir) account for about 6% of the S&P 500's 9.7% year-to-date return, or roughly 60% of the index's gains. More broadly, the Information Technology and Communication Services sectors together make up two-thirds of the rally.

Bottom line: The market is acutely vulnerable to a loss of enthusiasm in AI. Even if the broader economy remains resilient, whether in a soft-landing or stagflation-light scenario, a slowdown in AI momentum would represent a real headwind for equities. The declines in C3.ai and Core Weave serve as reminders that execution, not just narrative, now matters for AI companies, and by extension, for the market as a whole.

The Hot PPI Threatens Multiple Pillars of the Rally

The July Producer Price Index (PPI) surged by the most since March 2022, rising more than four times the consensus estimate. That surprise matters because it threatens several of the "pillars" currently supporting the 2025 stock market rally.

Pillar 1: Inflation Is Widely Expected to Return to the Fed's 2% Mandated Target

Markets have been priced for inflation to steadily move back toward the Fed's target. Historically, PPI leads CPI, so if July's spike is the start of renewed wholesale price pressures, history suggests consumer inflation could reaccelerate within two to six months. That outcome is not reflected in record-high stock prices.

Pillar 2: The Fed Is Expected to Resume Rate Cuts in September

The expectation of resumed rate cuts this fall rests on inflation staying contained. But if PPI proves to be an early warning of hotter CPI, the Fed faces a dilemma: support a weakening labor market (as July's jobs report suggested) or hold off on easing to fight inflation. Either way, higher inflation reduces the case for near-term rate cuts-the second key pillar of this rally.

Pillar 3: Corporate Earnings Are Seen Growing Solidly into 2026

Corporate guidance during Q2 built confidence that earnings growth would remain strong into next year. But higher producer prices mean rising input costs, which could compress margins. If companies pass those costs to consumers, it feeds back into inflation, threatening both corporate earnings and the Fed's ability to cut rates.

U.S. Producer Price Index (YoY % Change)

Bottom line: The July PPI report represents more than a one-off surprise. It directly challenges expectations for falling inflation, steady Fed easing, and resilient earnings-all of which underpin the current market rally. With the S&P 500 trading at 22x 2026 earnings estimates, any shift toward stagflation in the back half of 2025 would leave equities looking stretched.

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Disclaimer

Financial Market Insight - April 2024

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HIGHLIGHTS

Initial Thoughts on the Iranian Strikes on Israel
Weekly Market Preview: How Bad Was Last Week for the Rally
Special Reports and Editorial:
- The Most Important Long-Term Indicator for Markets
- What Does CPI Mean for Markets?

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STOCKS

S&P 500 Weekly Chart

5123.41

S&P 500

Technical View: The medium-term trend in the S&P 500 is shifting neutral from bullish as the index tested one-month lows last week.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5210, 5244, 5265
Key Support Levels: 5070, 4968, 4846

"The S&P 500 declined last week as June rate cut expectations plunged following the hotter-than-expected CPI report and as Treasury yields surged to multi-month highs."

✓ What's Outperforming: Growth factors, tech, consumer discretionary and communication services have outperformed thanks to strong earnings and continued "AI" enthusiasm.

✓ What's Underperforming: Defensive sectors and value have underperformed recently mostly as Treasury yields have risen, although they are poised to rebound substantially if there is a surprise slowing of growth.

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Geopolitics & Market Reaction

Initial Thoughts on the Iranian Strikes on Israel?

Geopolitical tensions rose even further over the weekend as Iran launched several hundred missiles and drones at Israel... However, there is reason to believe that geopolitical tensions will not become a material negative for markets... Bottom line: This is clearly a further deterioration in the geopolitical landscape, and it will increase market volatility... a pullback towards 5,000 in the S&P 500 more likely but does not view it as a fundamental negative shift.

How Bad Was Last Week for the Rally?

The S&P 500 dropped to a one-month low as inflation ran hot and markets abandoned the idea of a June rate cut... Nevertheless, were these events material negatives that should make us suspect of this rally? No, not at this point... There is a difference between not perfect and bad. Inflation has stopped falling (not perfect) but it is not rebounding (that would be very bad). The Fed will not cut in June (not perfect), but the Fed is not thinking about hiking rates (that would be very bad).

Bottom line: The market was priced for perfection at 5,200 but was forcefully reminded this week that the environment is not perfect. A continued decline towards 5,000 should not shock anyone and is likely an opportunity to add long exposure at more reasonable valuations.

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Economic Data (What You Need to Know in Plain English)

Inflation for the month was the focus and the data sent a clear message: The decline in inflation has stalled. The key report was Wednesday's CPI, and it came in hotter than expected... The biggest practical impact was the drastically reduced June rate cut chances, which ended the week at just 25%.

However, importantly, the CPI number did not imply that inflation was bouncing back. Instead, it just implied the decline in inflation had stalled...

The other notable inflation report for the month was the PPI and the headline was encouraging as the PPI rose just 0.2% vs. (E) 0.3%... the market gave back those initial gains as PPI showed sticky services inflation.

Bottom line: Last week's inflation data pointed to a stall in the decline in inflation and while that will not undo the five-month-long rally in stocks, it will increase near-term volatility. The focus of economic data for the rest of the month turns to economic growth; growth is now more important than ever.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2360.2

Gold

Technical View: Gold hit fresh record highs last week as the strong push higher in early 2024 continues with the path of least resistance still decidedly higher.
Primary Trend: Bullish (since the week of November 27, 2023)
Key Resistance Levels: $2386, $2415, $2448
Key Support Levels: $2348, $2297, $2259

10-Year Treasury Note Yield

4.52%

10-Year T-Note Yield Futures

Technical View: The 10-year yield rose to new multi-month highs to start Q2 leaving the path of least resistance higher.
Primary Trend: Bullish (since the week of August 21, 2023)
Key Resistance Levels: 4.588, 4.632, 4.725
Key Support Levels: 4.419, 4.304, 4.248

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SPECIAL REPORTS AND EDITORIAL

The Most Important Long-Term Indicator for Markets

What is the single most important long-term indicator in the markets right now? The unemployment rate. Our investment team has maintained that the one "rally killer" event we all need to be watching for is an economic slowdown... That would put the S&P 500 under 4,000.

It is very unlikely that we will get an economic slowdown as long as the unemployment rate stays near 4%... unless the unemployment rate rises into the mid-4% towards 5%, then the likelihood of a rally-killing slowdown will remain low.

What Does CPI Mean for Markets?

CPI ran hotter than expected and resulted in a moderate decline in stocks... First, CPI did not imply inflation was rebounding... Second, CPI is a short-term negative for this market... Third, while markets are vulnerable to a pullback, they can still rally. The keys are growth and earnings... Fourth, higher-for-longer sector positioning likely works near-term but defensive and slower growth remains our investment team's preference over the medium and longer term.

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Disclaimer

The Financial Market Insight is protected by federal and international copyright laws... READERS SHOULD VERIFY ALL CLAIMS AND COMPLETE THEIR OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES, OPTIONS AND FUTURES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND SUBSCRIBERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

Financial Market Insight - February 2024

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HIGHLIGHTS

What Could Interrupt This Rally?
Weekly Market Preview: Can Inflation and Growth Data Push Stocks Even Higher?
Weekly Economic Cheat Sheet: CPI Tomorrow, Key Growth Readings Thursday.
Special Reports for Advisors and Advanced Renders:
- Market Multiple Table Update
- Is NYCB A Canary in the Commercial Real Estate Coal Mine?

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STOCKS

S&P 500 Weekly Chart

5026.61

S&P 500

Technical View: The medium-term trend in equities remains bullish confirmed by the latest run to all-time highs in the benchmark equity index.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5050, 5100, 5135
Key Support Levels: 4959, 4899, 4792

"The S&P 500 traded above 5,000 last week thanks to strong Treasury auctions reducing concerns about demand for U.S. debt and on generally solid economic data."

✓ What's Outperforming: Growth factors, tech, consumer discretionary and communication services have outperformed thanks to strong earnings and continued "AI" enthusiasm.

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What Could Interrupt This Rally?

Stocks extended the rally and the S&P 500 hit a new all-time high and finally topped the 5,000 level; the question that investors should be asking is not "Why did stocks keep rallying?" but rather "Why would stocks not keep rallying?"

Our investment team says that because the news and data reinforced the three drivers of this bull market:

Fed rate cuts by May
Solid economic growth (and no signs of a hard landing)
Continued disinflation and strong earnings

Our broader point is this: The burden of proof lies squarely with the bears and so far, the economic data and Fed speak have not done enough to disprove any of those four bullish factors.

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Emerging Risks & Positioning

Now, while it is true that the burden of proof lies with the bears, and so far, they have not had any news to derail this rally, the reality is there are a number of risks emerging. Here is the point: We get the S&P 500 5k euphoria, but the inevitability of the rally is not accurate. Yes, data has pointed to a sweet spot for growth, inflation, and the Fed; but that will not last forever and there will be bad news for this market, there always is.

So, our investment team wanted to point out the risks that have quietly grown in the background during this rally:

Rate cut disappointment: The chances of a May rate cut have declined from 100% three weeks ago to just over 70% as of last Friday. If those expectations drop below 50%, Treasury yields will rise and that will be a negative for stocks.
Layoffs: The jobless numbers (monthly numbers and claims) are at odds with the long and growing list of companies announcing layoffs...
Commercial real estate (CRE): We profiled this risk last month, and what is notable is it is not just New York Community Bancorp (NYCB) that has been hurt by bad commercial real estate loans...
Valuations, enthusiasm: Our team has always maintained that valuations themselves are not something that causes a reversal in stocks...

Bottom line: it is important to acknowledge that this rally has been driven by actual good news and bullish expectations being reinforced by actual data. At the same time, the risks that kept investors worried in October (and even throughout 2023) have not been vanquished-they simply have not shown up, yet!

From a positioning and tactical standpoint, we continue to prefer the minimum and lower volatility and value overgrowth. These metrics outperformed through January but have lagged the past two weeks into February, as tech has rallied after earnings; but the risk-reward here continues to imply we should be focused on limiting downside exposure in the event of disappointment, not reaching for upside in a market that is already trading at an unsustainable valuation (above 20X earnings) and has priced in essentially a financial version of Nirvana (low inflation, dovish Fed, solid growth, resilient earnings and no negative surprises). We suppose that can happen, but in our 30+ years in this business, we have not seen it yet (and this is not to be confused with irrational exuberance).

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Economic Data (What You Need to Know in Plain English)

There were only two notable economic reports so far in February, but both supported the "No Landing" economic thesis and as such, helped the S&P 500 to touch 5,000 on Thursday. However, one of the reports also echoed a potential rebound in inflation and as such, this week's CPI, which will be closely watched as a rebound in inflation is not at all priced into stocks (or bonds) at these levels and would cause immediate volatility.

Looking at this month's data, the key growth report was the ISM Services PMI... However, the one negative in this report was a jump in the price index to 64.0 from 56.7...

The other notable number this month was weekly jobless claims, which declined slightly to 218k vs. (E) 227k...

Bottom line: This market has rallied on the ideas of 1) Fed rate cuts (meaning May or earlier), 2) Stable growth and 3) Continued falling inflation. The data this week has the opportunity to continue to reinforce those expectations (and support S&P 500 5,000) or refute them (and pressure stocks), so this is an important week for investors.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2038.7

Gold

Technical View: Gold futures broke out to fresh all-time in late 2023, shifting the technical outlook decidedly in favor of the bulls.
Proprietary Model: Bullish (since the week of November 27, 2023)
Key Resistance Levels: $2072, $2094, $2152
Key Support Levels: $2032, $1995, $1950

"Commodities rallied moderately last week thanks mostly to gains in oil, as a lack of a ceasefire in Gaza increased geopolitical tensions and sent oil sharply higher on the week."

Commodities remain mixed as a stronger dollar, fading hopes for economic growth overseas and easing inflation worries continue to weigh on the metals, while escalating geopolitical tensions resulted in energy bucking, the otherwise heavy trend, with oil posting a solid gain.

Trading in gold has remained quiet as futures remained pretty well pinned to the $2,050 level... Look for initial support at $2,000/oz. as the long-term outlook remains bullish given the new record highs in late 2023.

For now, the outlook for the oil market remains cautiously bullish...

Bottom line: the best-case scenario for the Israel-Hamas conflict, a ceasefire, is the worst case for the oil market right now.

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SPECIAL REPORTS FOR ADVISORS AND ADVANCED RENDERS

Market Multiple Table Update

The February update of the Market Multiple Table clearly and efficiently delivers this message:

"The current drivers of stocks and bonds are positive, but at these levels the market has priced in essentially zero chance of disappointment. If we do get negative news from any of these drivers, a 10% correction is not just warranted, it's likely."

Market Influence	Current Situation	Things Get Better If...	Things Get Worse If...
Fed Policy Expectations	Fed Chair Powell has directly pushed back on the idea of a March rate cut; however, a May cut is still expected by markets.	The Fed hints a March cut may happen and more forcefully points towards a May rate cut.	The Fed pushes back against a May rate cut, putting the idea of five or six cuts in 2024 in jeopardy.
Hard Landing vs. Soft Landing	Economic data broadly remains resilient although there remain signs that the economy is losing some forward momentum.	Economic data remains Goldilocks and isn't so strong that it decreases the chances of rate cuts, nor so weak it sparks slowdown concerns.	Economic data begins to point towards a slowdown or re-accelerates and jeopardizes rate cuts.
Inflation	Major inflation metrics have continued to decline and recent measures of inflation have shown it below the 2% target.	Core inflation metrics decline towards 2% making a May rate cut more certain.	Inflation metrics rebound and make both a May rate cut and five or six rate cuts in 2024 unlikely.
Expected 2024 S&P 500 EPS	$243	$246	$235
Multiple	18.5X-19.5X	20X	17X-18X
S&P 500 Range	4,496-4,739	4,920	3,995-4,230
S&P 500 Target (Midpoint)	4,617	4,920	4,113
Change from today	-6.6%	-0.45%	-16.7%

Looking at the changes in this month's Market Multiple Table, there were several positive changes...

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Is NYCB A Canary in the Commercial Real Estate Coal Mine?

New York Community Bank (NYCB) stock has continued to decline following its disastrous earnings report... So, we wanted to cover:

Why commercial real estate worries are legitimate,
If it can be compared to what occurred in '07/'08 and,
What any type of commercial real estate stress means for markets.

Why Are People Worried About Commercial Real Estate?

The commercial real estate (CRE) market is facing stress and prices are declining... Bottom line: a combination of higher rates and workplace changes have negatively impacted the CRE market...

Can What is Happening in CRE Be Compared to the Origins of the Housing Crisis?

So far, thankfully the answer is "No," but the list of similarities is growing...

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Disclaimer

Financial Market Insight - March 2024

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HIGHLIGHTS

Market Preview: Updated Risk/Reward Outlook
Economic Update: What you need to know in plain English
Special Reports:
- What Is the Bitcoin 'Halving?'
- What the Fed Decision Means for Markets: Still All About Growth

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STOCKS

S&P 500 Weekly Chart

5234.18

S&P 500

Technical View: The medium-term trend remains bullish, however there were early signs of exhaustion last week as the index failed to make a new intraday high.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 5242, 5261, 5300
Key Support Levels: 5178, 5079, 4963

"The S&P 500 accelerated to new all-time highs thanks to the Fed upgrading its outlook for economic growth this year (and inflation expectations) while critically keeping three rate cuts penciled in for 2024, which reignited soft/no landing hopes in the back half of the week."

✓ What's Outperforming: Growth factors, including tech and communication services have outperformed thanks to strong earnings and continued "AI" enthusiasm while energy and financials have both had solid runs into the end of the quarter.

✓ What's Underperforming: Defensive sectors, including real estate and utilities as well as value styles have underperformed recently as Treasury yields have risen, although they are poised to rebound substantially if growth slows down.

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Market Outlook & Risk/Reward

This month the stock market rallied to new record highs as the Fed (FOMC) maintained its expectation for three rate cuts this year while simultaneously upgrading its outlook for domestic economic growth. The uptick in inflation expectations was largely dismissed because, as long as, growth holds up, "slightly sticky" high inflation will be tolerated.

However, growth is the key variable as an economic slowdown is not at all priced into the market with the S&P 500 trading above 5,200 at a never-before-sustained next, 12-month multiple of 21.5X expected current-year earnings.

To be sure, history has proven on multiple occasions that markets can remain irrational longer than even the most seasoned investors can remain solvent, which is why it would be a fool's errand to try to short this market based on fundamental caution right now. There is simply too much bullish momentum behind the advance. To that point, the bullish fundamental mantra for 2024 is still intact based on the expectations for:

imminent rate cuts this year,
continued disinflation,
resilient growth, and
ongoing AI optimism.

All that is great, and we are hopeful this rally can continue to new highs.

Playing devil's advocate, using the round number of 10% to perform a quick risk-reward assessment of the market, the S&P 500 is up nearly 10% YTD; and another 10% gain from here would take the S&P 500 to just shy of 5,800. This would mean an extremely stretched multiple of 23.8X this year's expected earnings. Conversely, a 10% pullback from here would take the S&P 500 down towards 4,735, which would mean a much more reasonable multiple of 19.5X this year's earnings and match the "Current Situation" midpoint price target from the March Market Multiple updates.

So, if everything remains perfectly "Goldilocks" between economic growth, inflation, earnings, and Fed policy, there is a case to be made for that next 10% to the upside. However, the number of risks to the overextended rally leaves our investment team a bit skeptical about meaningful further upside and cautious (not bearish) about the YTD gains as one negative catalyst (i.e. a hot inflation print or weak growth report) could spark volatility and a pullback in stocks, which would likely be amplified by the combination of an increased amount of leverage in the long mega-cap tech trade, and a historically overcrowded short-volatility position.

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Economic Data (What You Need to Know in Plain English)

This month the market's focus was on the March Fed meeting, which proved to be a bullish catalyst for markets. Economic data was mixed, as several reports met the perfect "Goldilocks" criteria needed for a soft landing, while others were a bit less encouraging.

Chairman Powell and the company did not disappoint with their Summary of Economic Projections which revealed an upgraded outlook for growth and still mentioned three rate cuts anticipated for this year, which overshadowed a modest increase in their inflation expectations for 2024. Powell confidently proceeded through the Q&A session and there were no surprises, statements or comments that discounted the dovish-leaning outcome of the FOMC meeting. That saw stocks sprint to record highs amid firming confidence in the prospects of a soft landing in 2024.

No material moves in the weekly jobless claims data and a strong Philadelphia Fed Business Outlook Survey provided very optimistic forward-looking indicators and evidence of easing price pressures, as well as, improving corporate margins. Those reports followed modestly soft Composite PMI Flash releases in Europe, which were received as slightly dovish.

Bottom line: There were a few less-favorable reports sprinkled into the economic data this month, but for the most part, the widely followed economic releases supported the idea that the Fed is on track to cut rates multiple times between now and the end of the year with an initial cut still being priced in for some time in the summer. Any data that challenges that thesis, such as hot inflation or very strong growth will present a risk to the 2024 rally.

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2166.5

Gold

Technical View: Gold pulled back from record highs last week in what appeared to be a countertrend pullback in an otherwise still very bullish uptrend.
Primary Trend: Bullish (since the week of November 27, 2023)
Key Resistance Levels: $2183, $2203, $2225
Key Support Levels: $2150, $2092, $2053

"Commodities traded with a bias to the downside last week with copper the notable laggard with a 3% pullback after previously breaking out to YTD highs. Gold edged higher on dovish money flows while oil retreated from a test of $83/barrel, but the space remains in a long-term uptrend."

10 Year Yield Weekly Chart

4.218%

10-Year T-Note Yield

Technical View: The 10-year yield rose to new 2024 closing highs above 4.30% last week, which introduces the technical risk of a further rise in yields.
Primary Trend: Bullish (since the week of August 21, 2023)
Key Resistance Levels: 4.273, 4.340, 4.472
Key Support Levels: 4.186, 4.129, 4.067

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SPECIAL REPORTS FOR ADVANCED RENDERS

What Is the Bitcoin 'Halving?'

Our investment committee does not focus a lot on Bitcoin for numerous reasons... However, the approval of the Bitcoin ETFs has changed that, and as such, we will be modestly increasing our Bitcoin analysis... To be clear, please do not take this as an endorsement or opinion on Bitcoin, it is just our team reacting to the changing investing landscape...

Bitcoin Halving

Bitcoin Halving Rallies

Why does this predictable event result in these outsized gains? It is pretty much Economics 101: As supply decreases and demand remains constant (or increases), the only thing left to move is price.

The next halving is projected to take place around April 19-20, 2024. So, if the past is prologue, some of these gains have been driven by halving anticipation, but more is still to come.

What the Fed Decision Means for Markets: Still All About Growth

The Fed decision was essentially "not as hawkish as feared" given the recent firm price data... But if there was a "beneath the surface" take away from the Fed, it is that the major focus for investors right now needs to be on growth and specifically whether growth can hold up...

Bottom line: With Fed policy known and major relief on rates not coming in 2024, we must focus on growth and make sure we see, as early as possible, any evidence of a rollover because if that happens, it is a major problem for this market. And that is exactly what we will be doing for our clients.

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Disclaimer

Financial Market Insight - January 2024

FINANCIAL MARKET INSIGHT

VANN EQUITY MANAGEMENT

January 3, 2024

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HIGHLIGHTS

Weekly Market Preview: Five Market Assumptions to Know as we Start 2024
Weekly Economic Cheat Sheet: Jobs Report in Focus
Special Reports and Editorial:
- Two Important Differences in 2024
- Thoughts On 2024

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STOCKS

S&P 500 Weekly Chart

4769.83

S&P 500

Technical View: The medium-term trend in equities flipped bullish to start December as the S&P 500 rallied to fresh 2023 highs.
Dow Theory: Bullish (since the week of July 10, 2023)
Key Resistance Levels: 4783, 4818, 4850
Key Support Levels: 4555, 4496, 4415

"Stocks were little changed last week in very quiet trade as investors wanted a quiet end to a very strong 2023 as the S&P 500 rose more than 24% on the year."

✓ What's Outperforming: Growth factors, tech, consumer discretionary and communication services, the worst performers in 2022, have outperformed YTD. However, higher yields remain a headwind and as such we do not think this outperformance will last over the longer term.

✓ What's Underperforming: Defensive sectors and value have underperformed YTD but are still massively outperforming since the bear market started in 2022, and since our primary concern in 2023 was economic growth, we think underperformance will be temporary.

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Five Market Assumptions to Know as We Start 2024

The S&P 500 is starting 2024 trading at a very lofty 19.5X valuation and while we are not going to say that valuation is unjustified, we will say that valuation makes several key, positive assumptions about critical market influences in the coming year. How reality matches up with those assumptions will determine whether stocks extend the rally (and the S&P 500 hits new highs and makes a run at 5,000) or give back much of the Q4 Santa Claus rally.

As such, we want to start 2024 clearly defining the five most important assumptions investors are making right now because it is how these events occur vs. these assumptions, and not absolute values, that will determine if stocks and other assets rise or fall in Q1 and 2024.

Assumption 1: Fed cuts rate six times for 150 basis points of easing and a year-end fed funds rate below 4.0%.

The main factor behind the S&P 500's big Q4 rally was the assumption that the Fed was done with rate hikes and would be cutting rates early and aggressively in 2024. How do we know this is a market assumption? Fed fund futures. According to Fed fund futures, there is a 70%-ish probability the Fed fund rates end 2024 between 3.50% - 4.00%.

Assumption 2: No Economic Slowdown.

Markets have not just priced in a soft landing, they have priced in effectively no economic slowdown as investors expect growth to remain resilient and inflation to decline, the oft-mentioned "Immaculate Disinflation," a concept that is possible, but to our investment team's knowledge has never actually happened. How do we know this is a market assumption? The market multiple. The S&P 500 is trading at 19.5X the $245 expected S&P 500 earnings expectation. A 19.5X multiple is one that assumes zero economic slowdowns (if markets were expecting a mild slowdown, a 17X-18X multiple would be more appropriate).

Assumption 3: Solid Earnings Growth.

Markets are expecting above-average earnings growth for the S&P 500 to help power further gains in stocks. How do we know this is a market assumption? The consensus expectations for 2024 S&P 500 earnings per share are mostly between $245-$250. That is nearly 10% higher than the currently expected $225 per share earnings for last year (2023), which points to very strong annual corporate earnings growth.

Assumption 4: No Additional Geopolitical Turmoil.

Despite the ongoing Russia/Ukraine war, Israel/Hamas conflict and escalating tensions between the U.S. and Iranian-backed militias throughout the Middle East, the market's assuming no material increase in geopolitical turmoil. How do we know this is a market assumption? Oil prices. If markets were nervous about geopolitics, Brent Crude prices would be solidly higher than the current $77/bbl. Oil prices in the high $80s to low $90s reflect elevated geopolitical concern while prices above $100/bbl reflect real worry.

Assumption 5: No Domestic Political Chaos.

This is an election year in the U.S. The Republican front runner, Donald Trump, is facing a long list of various civil and criminal charges along with challenges to whether his name will be on the ballot in certain states. Meanwhile, there has been no long-term compromise on funding the government, so shutdown scares remain a real possibility; and that is before we get into the heart of election season later this year. How do we know this is a market assumption? Treasury yields. A 3.80%-ish yield on the 10-year Treasury does not reflect much domestic political angst. If markets become nervous about the U.S. political situation and/or fiscal situation in the U.S., the 10-year yield would be sharply higher than it is now (well above 4%, like we saw in the late summer/early fall).

Bottom line: These market assumptions are not necessarily wrong. Events could unfold the way the market currently expects. However, these assumptions are aggressively optimistic, and it is how events unfold versus these expectations and not on an absolute scale that will determine how stocks and bonds trade to start the year.

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Economic Data (What You Need to Know in Plain English)

Important Economic Data

The year starts off with a proverbial "bang" from an economic standpoint as we get the three most important economic reports of each month over the next four days. Now that the Fed has dovishly pivoted, "bad" data will not remain "good" for stocks very long, so expect the markets to begin to react negatively to soft reports here. The reason is clear: Now that the Fed has pivoted, bad economic data just means an increased chance of an economic slowdown, something that is not priced into markets with the S&P 500 trading at a 19X multiple.

The key report this week is Friday's jobs report, which should be a solid, yet unspectacular, number of job adds with a slight drift higher in the unemployment report. Put simply, markets continue to need Goldilocks jobs data to support stock prices, but the margin for error of the report is much smaller now that the Fed has dovishly pivoted.

The next most important economic reports this week come on Wednesday and Friday via the ISM Manufacturing and Services PMIs. The ISM Manufacturing PMI remains below 50 and is expected to stay there while the ISM Services PMI remains slightly above 50. The reason these two reports are important is that if both reports drop below 50 for a few months, that would be a very accurate historical indicator of a looming economic slowdown. The point is that markets will want to see improvement in the ISM Manufacturing PMI and stability (so staying comfortably above 50) in the Services PMI.

The final important economic reports of the week are labor market-related via today's JOLTS (Job Openings and Labor Turnover Survey) and Thursday's weekly jobless claims. As mentioned, the labor market broadly remains strong but not too hot and markets will want to see data that reinforces strong employment, but not so strong it increases wages and a bounce in inflation.

Bottom line: Now that the Fed has dovishly pivoted, investors will want to see stability in the economic data above all else in Q1, because if economic data starts to roll over from here, more expected Fed rate cuts will not help (they will be too late) and with the S&P 500 trading above 19X next year's earnings, there simply is zero economic slowdowns priced into stocks (although Treasuries would rally in the face of soft economic data).

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COMMODITIES, CURRENCIES & BONDS

Gold Weekly Chart

$2071.80

Gold

Technical View: Gold futures broke out to fresh all-time in late 2023 shifting the technical outlook decidedly in favor of the bulls.
Proprietary Model: Bullish (since the week of November 27, 2023)
Key Resistance Levels: $2089, $2108, $2152
Key Support Levels: $2033, $2000, $1967

"Commodities decline slightly following a reduction in geopolitical tension and despite a continued decline in U.S. dollar."

Commodities declined broadly in the last week of 2023, thanks mostly to declines in oil as geopolitical tensions eased slightly.

Gold changed little during the week as there was little data or Fed speak to trade-off. Midweek dollar declines helped boost gold, but the impact was modest, although gold remains within striking distance of the new all-time highs hit in early December. Looking forward, we can expect gold to continue to trade inversely off the U.S. dollar and as long the dollar remains broadly under pressure the outlook for gold will remain positive.

OIL MARKET UPDATE

Looking forward, geopolitics will remain an important influence on oil but, barring a major escalation in the Russia/Ukraine war or Israel/Hamas conflict, the larger supply/demand picture will drive oil prices, and as we start the year there remain real concerns 1) If global demand can stay resilient (there are hints the global economic is slowing) and 2) If OPEC+ can remain disciplined on supply (their actions late last year underwhelmed traders) and as such the outlook for oil prices remains mixed over the longer term.

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SPECIAL REPORTS AND EDITORIAL

Two Important Differences in 2024

Each year in markets is different (it is one of the reasons this is such an interesting business) and there are usually many changes from one year to another. However, there are two important changes that will occur in 2024 that we want to point out because these changes mean that events that were tailwinds for stocks in 2023 (falling yields and earnings results) will become neutral to potentially negative in 2024.

Change 1: Falling Yields Will not be Positive for Stocks

There were two overarching reasons for the rally in 2023: The first was AI enthusiasm powering the "Magnificent Seven" stocks higher and pulling the S&P 500 with it. The second was the expectation of a dovish Fed pivot that essentially saved the 2023 rally in late October.

Falling interest rates were a clear positive in 2023 because they 1) Eased valuation headwinds and 2) Signaled that Fed hikes were ending, which reduced recession changes. However, as we start 2024, the dovish Fed pivot is fully priced into stocks with the S&P 500 just under 4,800 and the market has priced in six Fed rate cuts and year-end 2024 fed funds below 4.00%.

So, the dovish pivot and expected easing policy is already priced into stocks and Treasuries. If we see the 10-year Treasury yield continue to fall to the low 3% or sub 3% range, that is not going to be a major tailwind for stocks because that will not be forecasting a dovish Fed, it will be forecasting slowing growth. Those falling yields will then become a harbinger of a potential economic slowdown and not the welcomed signal of a Fed that is finally turning dovish.

Change 2: Earnings Results Will not Have Low Expectations to Excuse Poor Performance

S&P 500 earnings were not particularly great in 2023 but they were much better than some of the awful expectations that were prevalent when the year started.

To put some numbers on it, many analysts penciled in 2023 S&P 500 earnings between $220 and $225, but there was a definite minority that had estimates much lower, anywhere from $185 to $215, as these analysts expected the recession that never appeared.

Now, as we start 2024, it is the total opposite. Consensus S&P 500 earnings growth is nearly 10% year over year, well above the longer-term averages of around 5%-ish annual growth. Keep in mind, at 4,800 the S&P 500 is trading over 19.5X that $245 earnings estimate, which means there is little room for disappointment from a valuation perspective.

So, "ok" earnings will not be good enough and we got a preview of that in the Q3 numbers (which were not great) and especially in December as results were generally poor. That does not mean the upcoming Q4 earnings season (which begins in mid-January) will not be positive, but for it to be positive it will have to be because of actual good results, not "better-than-feared" results that were good enough in 2023.

Bottom line: The markets will need something "new" to power stocks higher in 2024 because the dovish pivot (which powered stocks higher since October) is fully accounted for while low expectations for earnings and economic growth no longer exist. That does not mean we will not get new, positive influences on stocks, but it will have to come from something new in 2024 because the "low-hanging fruit" of dovish pivot and not-as-bad-as-feared earnings have already been picked to fuel the Santa rally.

Thoughts On 2024

As we look towards 2024, we cannot help but feel as though we are all in a proverbial canoe; and the investing public is violently running to one side of the canoe and then the other, causing it to nearly tip each time. Here is what we mean.

Think back to December 2021. The S&P 500 had just hit an all-time high. The impact of the pandemic was still being felt but tech companies were surging and leading the market higher. The investing public was convinced we were in a new "hybrid" world that was here to stay, fueled by stimulus and forced savings, growth was strong, inflation was rising, and markets admitted that the Fed needed to hike rates in 2022 but did not think it would be that bad. Put simply, market sentiment was resoundingly bullish and while investors admitted there were some issues, they were minimized and the outlook was very, very positive.

Of course, that optimism was unfounded. The Fed was much more aggressive on rate hikes, inflation exploded, growth slowed, and the S&P 500 dropped 19.4%. Put simply, consensus was universally bullish, and consensus was wrong.

Now think back to December 2022. Investors were despondent. The S&P 500 was ending the worst year in over a decade, the Fed was massively hiking interest rates, inflation was not breaking, recession fears were surging, and investors were convinced we were facing either 1) Stagflation or 2) An imminent recession.

Of course, that pessimism was unfounded as growth remained resilient, inflation was broken and the Fed dovishly pivoted. Put simply, the consensus was universally bearish, and the consensus was wrong.

Now, in December 2023, the consensus was absolutely bullish. The soft landing was all but assured. The Fed will cut six times in 2024 but not because of slowing growth and instead because inflation is about to go into some sort of freefall. Despite numerous geopolitical hot spots, none of them will get materially worse, U.S. politics will not be a problem and despite a potentially slowing economy and margin compression, companies in the S&P 500 will grow earnings by nearly 10% this year. The 5,000 mark on the S&P 500 is not a matter of "if," it is a matter of "when."

That all may come true and that might be exactly how it works out, but we have been in this industry long enough to know that when everyone seems to be on one side of the proverbial canoe, it is time to get nervous and move to the middle.

In December 2021, we cautioned against this universally bullish outlook as too complacent. Last year, we cautioned against the very bearish outlook saying under the surface, positives were in place.

Those were not predictions. Rather, they were observations stemming from 20+ years of "new year's" in the markets. The reality of a market in any given year hardly ever matches the consensus and it almost never matches the consensus when it is this sure of the outcome.

We hope the consensus is right. We hope that in the year we are writing to you and the S&P 500 is above 5,000 and that it has been a great year for your businesses. But this universally bullish expectation makes us think everyone is on one side of the canoe when in reality, we need to be in the middle because things can go wrong.

We can still have a growth slowdown and a recession. It is not impossible. Earnings growth can falter as demand slows and margins compress. Geopolitics can provide real, negative surprises. Inflation can bounce back. Domestic politics can present a surprise (it is an election year). None of these events would be shocks, although thankfully, they are not the most likely case.

Bottom line: We view part of our job as making sure you have someone giving you agenda-free analysis that pulls you back to the middle of the proverbial canoe, and as we start 2024 that is what you can expect our Investment team to continue to do.

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Disclaimer

Future-Proof Your Wealth: Top Investment Strategies for 2025 | Vann Equity Management

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Future-Proof Your Wealth: Top Investment Strategies for 2025

By Vann Equity Management • August 20, 2025 • 5 min read

Graph showing investment growth trends for 2025

As we approach 2025, market dynamics are shifting with technological advancements, economic uncertainties, and global changes. While no strategy guarantees success, these five steps can help you consider ways to build a resilient portfolio. Remember, this is educational information only.

1. Assess Your Financial Goals and Risk Tolerance

Begin by evaluating your long-term objectives, such as retirement or education funding. Understanding your risk tolerance—whether conservative, moderate, or aggressive—helps in aligning investments accordingly.

Why It Matters

Clear goals provide a framework for decision-making, ensuring your portfolio matches your timeline and comfort with volatility.

Key Takeaways:

Define short-term vs. long-term goals.
Evaluate how much risk you can handle.
Consider consulting a professional for personalized assessment.

2. Diversify Across Asset Classes and Sectors

Spread investments across stocks, bonds, real estate, and alternatives to potentially reduce risk. In 2025, consider exposure to emerging sectors like renewable energy and AI.

Diversification Insight

“Diversification does not eliminate risk but can help manage it by avoiding over-reliance on any single asset.”

Include a mix of domestic and international assets.
Explore ETFs for broad market exposure.
Monitor correlations between assets.

3. Incorporate Sustainable and Innovative Investments

Look into ESG-focused funds and technology-driven opportunities, as these areas may offer growth potential amid global trends.

Emerging Trends

Sustainable investing aligns with regulatory shifts, while innovation in tech could drive future returns.

What This Means:

Research ESG criteria for alignment with values.
Consider sectors like clean energy and digital transformation.

4. Implement Risk Management Techniques

Use tools like stop-loss orders or hedging to protect against downturns. Stay informed about economic indicators that could impact markets in 2025.

Risk Considerations

Volatility from inflation or geopolitics requires proactive monitoring.

Set allocation limits for high-risk assets.
Build cash reserves for opportunities.
Review insurance and estate planning.

5. Regularly Review and Adjust Your Portfolio

Schedule periodic reviews to rebalance and adapt to changes. Continuous education on market trends is essential.

Ongoing Process

Markets evolve, so flexibility is key to long-term resilience.

Key Takeaways:

Rebalance annually or after major events.
Stay educated through reliable sources.
Seek professional guidance as needed.

The Bottom Line

Implementing these steps can help you navigate 2025's investment landscape thoughtfully. Always remember that past performance is not indicative of future results.

Building wealth requires patience and informed decisions—start with education and professional consultation.

This content is brought to you by Vann Equity Management, dedicated to providing insights and guidance to help you achieve your financial goals.

Disclaimer: Investing involves risks, including possible loss of principal. This content is for educational purposes only and does not constitute financial advice nor a solicitation for services. Always consult with a licensed financial professional before making any investment decisions. Vann Equity Management is a registered investment advisor, and all information provided complies with SEC and FINRA regulations. No guarantees of performance are made, and individual results may vary.

Vann Equity Management

Sophisticated Portfolio Solutions for Institutional and Individual Investors

info@vannequitymanagement.com vannequitymanagement.com