Any time we get strong runs up-or even down it is totally normal to have a day or 2 of backing and filling. Yesterday we had a tiny amount of giveback in preferreds and baby bonds as prices fell by a nickel or a dime. After the run up we have had in prices the last 5 weeks I am more than happy to have falls of only nickels and dimes.
While common stocks fell yesterday and look pretty soft this morning I think it is a struggle going on—is the economy going to continue strong going forward and thus these high equity prices are justified—or are we going to finally see the recession that everyone has continued to predict and thus equity prices are too high? The S&P500 is not all that far away from all time highs–is this justified if we are on the edge of recession?
Today the 10 year treasury is trading at 4.23% which is 5 basis points lower than yesterdays close. With employment numbers this week we could see interest rates move sharply–up or down-who knows? Tomorrow we have the ADP employment report–job creation report. While ADP ‘got no respect’ from investors last year, we are now seeing more respect for their numbers-folks are thinking maybe their data is pretty damned good. Forecasts for ADP job creation is for 128,000 new jobs in November–Octobers number was 113,000. Friday we have the ‘official’ report on employment with forecast for 190,000 new jobs (versus 150,000 last month).
Yesterday I did nothing at all investment wise–I have a little cash from some sales last week so part of my decision is on allocation given my personal belief that interest rates will drift lower until debt issuance by the Treasury forces rates higher later in the year (2024). I am thinking in need to add more short duration term preferreds or baby bonds – if interest rates move as I think they will the share price of short duration issues will not move much – a steep rise in rates late in 2024 will slaughter perpetuals.