One can’t really predict with any level of certainty to whether equity markets are going to move into a ‘melt up’ with all the cash that continues to be available in fixed income–OR whether markets will ‘melt down’ as folks decide it is time to bail out and move MORE to money market funds. I see everyone and their dog on CNBC, Fox Business and Seeking Alpha have an opinion as to which way markets will move. NONE of them know squat–but likely maybe 1/2 will be correct. Does that mean I know? Of course not, but I just say ‘I have no earthly idea’. I have no newletters to ‘push’ or special ‘morning calls’ to sell—everyone of these folks is ‘talking their book’. Very honestly these ‘gurus’ are kind of dangerous to the non thinkers–and I have concluded the number of non thinking investors out there is pretty massive–seems like most folks want to let others do the thinking–then they have someone to blame when their ‘stash’ goes south. I like the thinking of folks on this website–plenty of info to educate oneself and then make your own decision.
Last week the S&P500 moved higher by about 1.7%—not quite a record weekly close, but the close on Thursday was a record high close. There wasn’t really any economic news to push markets higher. Jobless claims were 223,000-about on forecast and historically fairly low–if folks are employed the economy marches on. Existing home sales are pretty quiet–they say the slowest since 1995–obviously the high prices and the somewhat normal mortgage rates (apparently not normal for anyone under 40 who is waiting for 3% to return) have stymied most folks. 2 high income families and old folks with cash in their pockets can do what they want–but that leaves a lot of folks on the sideline.
The 10 year treasury closed the week at 4.63% which was 2-3 basis points up on the week. Without consequential news movements were minimal. This week we do have economic news of meaning. We have the federal open market commitee (FOMC) meeting starting on Tuesday afternoon–then the ‘announcement’ and Jay Powell presser on Wednesday afternoon. Prior to the interest rate decision we have the advance estimate of GDP for Q4 on Wednesday morning. Lastly we have inflation numbers from the personal consumption expenditures (PCE) on Friday. If all that news doesn’t cause some market movements I would be surprised.
So are rates going up or down–or staying the same. For now I think they remain unchanged. There is no labor stress and inflation is kind of flattish–not at target yet–but just treading water. Almost without doubt Jay Powell wants to see more data.
The Federal Reserved Balance Sheet fell by a piddly $3 billion last week–now the balance is $6.832 trillion. Already the Fed has run off more of the balance sheet that I thought they could accomplish–the high point was right around $9 trillion. Certainly sometime in the next couple of years we will need to utilize the balance sheet for quantitative easing–so at least we have built a $2 trillion buffer (as compared to the high) of buying power.
Last week the average $25/share preferred and baby bond bounced back a bit. The overall average share was up 16 cents with investment grade issues moving 25 cents higher, banks up 18 cents with CEF preferreds up 8 cents and mREIT preferreds up 15 cents. All in all not a big up week, but at this stage anything green is good.