The Long Term Investor

I know this is the same issue.....GDP......but this is such a well written article.....I have to post it.

Q4 GDP: US economy expanded at 6.9% annualized rate, topping expectations

https://finance.yahoo.com/news/q4-gdp-us-economic-activity-recovery-192945002.html

(BOLD is my opinion OR what I consider important content)

"U.S. gross domestic product (GDP) ramped up in the final months of 2021, with still-solid consumer spending helping stoke growth and offset early negative impacts from the Omicron variant's spread.

The Bureau of Economic Analysis (BEA) released its first estimate of fourth-quarter GDP on Thursday. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

• GDP quarter-over-quarter, annualized: 6.9% vs. 5.5% expected, 2.3% in Q3
  
• Personal consumption: 3.3% vs. 3.4% expected, 2.0% in Q3
  
• Core personal consumption expenditures, quarter-over-quarter: 4.9% vs. 4.9% expected, 4.6% in Q3
  

Growth in the fourth quarter rebounded more than expected from the third quarter's disappointing rate of expansion, when GDP rose at a 2.3% annualized rate — its slowest since mid-2020.

But despite the brief deceleration in third-quarter GDP, economic growth throughout 2021 had been robust as vaccinations picked up across the country and stay-in-place behaviors began to abate. For the full-year 2021, GDP grew at a 5.7% rate, marking the fastest since 1984. And this marked a sharp reversal from the contraction seen in the economy in 2020, when GDP shrank by 3.4%.

A jump in consumer spending during this year's record holiday shopping season helped contribute to the headline gain in the fourth quarter. As consumers attempted to get ahead of supply chain delays and out-of-stocks, spending was pulled forward from the typical holiday period of November and December to October. This helped to lift overall fourth-quarter consumption for the final three months of the year to a rate well above that from the third quarter, even as retail sales in December pulled back on a month-over-month basis.

But even more notable during the quarter was the jump in private inventories, as companies worked to replenish supplies drawn down in the early phase of the reopening as demand soared. The build in private inventories contributed 4.9 percentage points to the headline 6.9% jump in GDP, and was led in turn by inventory investment by motor vehicle dealers, the BEA said in its report

Other areas of the economy, however, served as drags to GDP. Government consumption expenditures subtracted about half of a percentage point from headline GDP, reflecting a "decrease in defense spending on intermediate goods. and services," the BEA said. And government assistance payments also decreased during the second half of the year relative to the first, as COVID-related relief programs tapered off.

Net trade had a net neutral impact on GDP following five consecutive quarters of negative contribution, as a surge in imports — which subtracts from GDP — was offset by a rise in exports during the quarter.

Embedded in the report was also yet another sign of soaring inflation, with widespread supply shortages and elevated consumer demand pushing up prices. The GDP price index soared by 6.9% — the most since 1981 — to exceed consensus estimates for a 6.0% gain. And core personal consumption expenditures (PCE) accelerated to reach a 4.9% quarter-over-quarter pace, compared to the third quarter's 4.6% clip.

And as usual, the latest quarterly GDP report serves as a backwards-looking indicator capturing the economic momentum heading into the first quarter of 2022. Given that the Omicron variant first discovered in the U.S. only very late in November, notable impacts from the virus were likely not reflected in the latest GDP print.

Many economists are expecting to see the data reflect a deceleration in growth for the start of this year, as the further spread of Omicron dampened activity and compounded with other drags to the economy. Just earlier this week, the International Monetary Fund (IMF) lowered its forecast for U.S. and global growth this year, citing ongoing supply chain challenges, lower expected fiscal stimulus after the collapse of President Joe Biden's sweeping Build Back Better package, and the pullback of highly accommodative monetary policies from the Federal Reserve.

"The pace of economic momentum has slowed in recent weeks due to the impact from the Omicron variant," Sam Bullard, Wells Fargo managing director and senior economist, wrote in a note ahead of Thursday's report. "Add on the expiration of the monthly Child Tax Credit and ongoing challenges to the supply chain (labor, material and transportation), first quarter GDP growth looks to have decelerated substantially — our call 2.9%.""

MY COMMENT

Way to go Wells Fargo economist......you put out a negative note......just a day before the greatest GDP growth since the 1980's. These people really have no clue. AND......the IMF....dont even get me started on their comment.

Of course......these sorts of predictions have NO impact on investors or investing. This stuff is put out DAILY and is usually WRONG. Actually, they dont care if they are wrong......they simply throw this stuff out there daily in the hope that they will randomly hit one of the predictions spot on.....and get media attention for being right. they dont care how often they are wrong. No one ever remembers all the wrong predictions or projections...anyway.

 

I see lots of negative headlines and articles lately.....masquerading.....as news. Most are nothing more than opinion and not very well thought out opinion. I assume mush of this stuff is simply leaked by people that are trying to semi-legally manipulate and support their trades.

In any event....I see this stuff as a solid contrary indicator that the BULL market is far from over. There REALLY are no new issues......everything is baked in for the past six months. At some point there is going to be enough PENT UP pressure and we are going to see an explosive, extended, rally. It may happen tomorrow.....or....it may take months to get there.......but....it will happen. the question for any investor is....are you going to be in the markets when it happens and will you participate?

I KNOW that I will.

 

I see that the gains and and markets are strengthening as we move further into the day. Of course....we still have a long way to go till the close. BUT....I will take a strong start to the day anytime over what we have been seeing for much of January.

Hopefully the markets are reflecting what APPLE will report at the close today. That will give us a really good shot at another nice day tomorrow. Strength this week will help to start us toward breaking the back of the negative start to the year.

LETS GO.......SHOW ME THE MONEY.

 

Is Stewart Varney on fox business spying on this board and thread?

About 30 minutes after I posted the above........"LETS GO.......SHOW ME THE MONEY".......they played the Buddy guy song...."Show Me The Money"....on the show.

We have such a good mix of posters and investors on here......perhaps they are using this board as a SECRET source of material. Who knows?

 

For the year I am LAGGING the SP500. No surprise there since I am BIG CAP TECH heavy in my portfolio.....intentionally. It is not that I am simply a fan of TECH. I am in these companies because they are the......most dominant..... BIG CAP companies in the world. That is the ONLY reason I am in the companies that I am in. I dont care what business the companies that I own are in......I simply want.....potential long term BIG CAP DOMINANCE. At this time and for the foreseeable future.....it looks like the big tech companies will be it.

In the past.......it was the BIG CAP conglomerate consumer companies that were in this position for many decades......and....I owned all those stocks for a long time. They made me a lot of money. As an investor, I SLOWLY evolve with the times.

My current year to date is......(-11.10%). Better than the NASDAQ and the NASDAQ 100 by a small amount and worse then the SP500. Considering the start to the year I am satisfied with where I am at the moment......it is reasonable and realistic.

 

Well the markets screwed us today......normal for the short term.

I ended the day in the RED. We started with so much promise and ended with nothing. BUT.....hey....I beat the SP500 today by MASSIVE......0.03%. YEA ME!

You cant fight the tape....you cant fight the trend.....you cant fight the FED. All I or anyone else can do is simply....WAIT IT OUT. The FUTURE is always positive.

 

The markets.....perversely.....probably did not like the great forth quarter GDP numbers. It makes the economy look strong and means we will get the interest rate increase in March. Plus....I am sure some are reasoning that this strong economy does not bode well for inflation.

As I have said I do believe that we need to start normalizing rates and as usual....I dont care about this supply imbalance caused inflation. If inflation is still around in a year or two....I will re-evaluate than.

 

Here is what went on today.....as we move to a new day tomorrow.....post Apple earnings.

Stock market news live updates: Stocks extend volatility streak to close lower amid positive economic data, Fed update

https://finance.yahoo.com/news/stock-market-news-live-updates-january-27-2022-232500671.html

(BOLD is my opinion OR what I consider important content)

"Wall Street’s major indexes closed in negative territory on Thursday after a sharp U-turn earlier in the session to erase morning gains, continuing a streak of recent volatility as investors weighed upbeat economic data out of Washington alongside Wednesday's Federal Reserve update.

The Dow Jones Industrial Average ended just below its flatline, losing steam from earlier gains, while the S&P 500 closed down 0.54%, also retreating from an earlier climb. Declines in heavily-weighted Tesla (TSLA) dragged down the Nasdaq to close 1.4% lower.

Despite notching a quarterly profit and sales well above analyst estimates for the fourth quarter, shares of Tesla closed down 11.55% to $829.10 a piece after the electric vehicle maker admitted supply chain woes were likely to strain operations and halt new vehicle launches this year.

U.S. gross domestic product (GDP) ramped up in the final months of 2021 at a better-than-expected 6.9% annualized rate in Q4, up from Bloomberg economists' consensus estimate of 5.5%. Meanwhile, first-time unemployment filings ticked lower for the first time in four weeks after notching a three-month high in the previous reading, suggesting some of the Omicron-related disruptions that have recently weighed on the labor market's recovery may be easing.

Fed Chair Powell "has to walk a very thin line, a very thin tightrope between not choking off the economic recovery, which does appear as though it's happening pretty well, but at the same time fighting off inflation," F.L. Putnam portfolio manager Ellen Hazen told Yahoo Finance Live.

The Federal Reserve held rates at near zero following a two-day policy meeting that concluded on Wednesday, citing plans to halt pandemic-era policy of asset purchases first. The Federal Open Market Committee, however, reaffirmed it will wrap up the process in early March, suggesting the first rate hike could come in six weeks.

Investors had been anticipating clarity from the Fed on measures it would take to mitigate inflation leading up to Wednesday's statement, with uncertainty around the pace and extent of policy change weighing on markets since the start of the new year.

“While offering some clarity on how the Fed would begin the process of removing policy accommodation, the outcome of the meeting fell short in providing the needed guidance on the timing and magnitude of the shift in policy,” Charlie Ripley, senior investment strategist for Allianz Investment Management said in a note. "Today’s meeting has market participants fully convinced that a March hike is certain, but with Chairman Powell not making any timing commitments, the door is slightly open for a slower moving Fed."

While questions around when — and how profoundly — short-term borrowing costs will be increased, the Federal Open Market Committee unanimously agreed that “it will soon be appropriate to raise the target range for the federal funds rate,” with remarks from Federal Reserve Chair Jerome Powell signaling the first increase will happen on March 16, after the central bank's next scheduled meeting.

“I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming conditions are appropriate for doing so,” Powell said in a press conference.“I don’t think it’s possible to say exactly how this is going to go, and we’re going to need to be, as I’ve mentioned, nimble about this.”

JPMorgan Chief U.S. Economist Michael Feroli said Powell’s comments were “arguably the most hawkish he’s made as Fed Chair.”

Powell deflected questions about whether a 50 basis point hike was on the table, including one posed by Yahoo Finance’s Brian Cheung about whether hikes would be gradual, but Powell indicated that the central bank’s moves could differ in tempo from when it began raising rates in 2015 due to the notably stronger economy and labor market and inflation running hot.

“While remaining noncommittal, Powell clearly wanted to indicate that hiking at consecutive meetings was a possibility, a risk we’ve also been flagging,” Feroli said."

1:16 p.m. ET: Tesla's supply chain woes, new vehicle delays weigh on shares

Tesla, Inc. (TSLA) reported blowout fourth quarter results after market close on Wednesday, but Wall Street wasn’t sold on the company’s earnings beat.

Despite notching a quarterly profit and sales well above analyst estimates, shares of Tesla were down 8% in intraday trading Thursday after the electric vehicle maker admitted supply chain woes were likely to strain operations and halt new vehicle launches this year.

“Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022,” Tesla said in a shareholder deck.

The stock was down -8.49% to trade at $857.81 per share in the afternoon session as of 1:16 p.m. ET."

MY COMMENT

One of those days that proves that the short term markets are just plain STUPID.

I dont see the Tesla statement as a negative. I actually think that if they can put up Those sorts of numbers during the PEAK of the supply chain issues....they will continue to do so. With the two new plants starting to produce this year it should be a RECORD YEAR for Tesla.

I cant believe the statements above about the start of rate increases.....it is as clear as day that they will start in March. Drives me crazy how the.......wall street types.....just love to twist things around.

 

NOW.....Apple....I have been stalling waiting for this report to come through.

Apple revenue pops 11% to $123.9 billion, Cook says supply chain improving

https://www.cnbc.com/2022/01/27/apple-aapl-earnings-q1-2022.html

(BOLD is my opinion OR what i consider important content)

"Key Points

• Apple reported its largest single quarter in terms of revenue ever, with sales growing over 11% despite supply challenges and the lingering effects of the pandemic.
• Apple beat analyst estimates for sales in every product category except iPads.

Apple CEO Tim Cook said on Thursday that the company’s supply chain challenges were improving, sending shares up over 3% in extended trading, while delivering a solid beat on earnings.

Apple beat analyst estimates for sales in every product category except iPads and overall revenue was up 11% annually.

Here is how Apple did in the quarter ending Dec. 25 versus Refinitiv consensus estimates:

• EPS: $2.10 vs. $1.89 estimated, up 25% year-over-year
• Revenue: $123.9 billion vs. $118.66 billion estimated, up 11% year-over-year
• iPhone revenue: $71.63 billion vs. $68.34 billion estimated, up 9% year-over-year
• Services revenue: $19.52 billion vs. $18.61 billion estimated, up 24% year-over-year
• Other Products revenue: $14.70 billion vs. $14.59 billion estimated, up 13% year-over-year
• Mac revenue: $10.85 billion vs. $9.52 billion estimated, up 25% year-over-year
• iPad revenue: $7.25 billion vs. $8.18 billion estimated, down 14% year-over-year
• Gross margin: 43.8% vs. 41.7% estimated

Apple again did not provide official guidance about expectations for the current quarter. Apple hasn’t provided guidance since the start of the Covid-19 pandemic, citing uncertainty.

It was another strong showing for Apple in its most important quarter of the year which includes holiday sales. Every one of Apple’s product lines grew year-over-year from last year, except for iPad sales, despite management warnings from October that supply issues could hurt the company’s sales.

Apple CEO Tim Cook said that the company’s supply issues were improving. He said that in terms of supply challenges, the December quarter was worse than Apple’s September quarter, but that he is projecting the March quarter to improve.

″“Our biggest issue is chip supply, it’s chip supply on legacy nodes,” Apple CEO Tim Cook told CNBC’s Julia Boorstin. “And we’re doing okay on the leading edge stuff.”

Leading edge chips are the powerful processors at the heart of a phone, while “legacy node” chips are the other, less sophisticated parts that run functions like driving displays or managing power.

Apple released new iPhone models in September, and this quarter was the first full quarter of iPhone 13 sales, giving investors a preview of how competitive the devices are in the market. Sales were up 9% annually to $71.63 billion, although they are growing slower than Apple’s overall business.

Cook said that Apple was proud of the 9% increase in iPhone sales. “That’s despite having supply constraints during the quarter,” Cook said.

Services, which include iCloud, Apple Music, search licensing and App Store fees, continued growing strongly, rising 25% annually to $19.52 billion. Services is Apple’s most profitable business unit and its rise contributed to Apple’s higher-than-expected gross margin.

Apple’s other products category, which includes Apple Watch and AirPods, was up 13% year-over-year. This quarter included sales from Apple’s latest Series 7 watch, which has a larger screen, and new AirPods.

Macs had the strongest growth of any of Apple’s hardware lines, growing 25% over last year to $10.85 billion. In October, Apple launched new MacBook Pro models starting at $1,999 that were well-received and featured a new Apple chip instead of an Intel chip.

iPads were the most notable disappointment. Sales shrunk from last year, and missed analyst estimates, but it was likely because Apple could not make enough iPads and prioritized other devices. Apple warned in October that it expected iPad sales to decline because of supply constraints.

Cook also told CNBC that Apple was seeing inflationary pressure.

“I think everybody’s seeing inflationary pressure,” Cook said. “There’s no two ways about that.”"

MY COMMENT

Another BLOW OUT earnings report for this week on top of Microsoft and Tesla. A solid beat in every category but the Ipads.

With such an AMAZING report the stock will probably be down by at least 20% tomorrow......considering the recent pattern of ..........PUNISHING.......great earnings. (just kidding)

 

I have no concern in general with rising rates......from historic lows....... based on my past experiences as an investor.

Don't Fret Rising Rates. They Won't Wreck Stocks or the Economy

https://www.realclearmarkets.com/ar..._wont_wreck_stocks_or_the_economy_814074.html

(BOLD is my opinion OR what I consider important content)

"Will interest rates really jump in 2022? Inflation surges. The Fed and most central banks seem soon to “tighten.” Recent rising long-term rates have nearly everyone convinced much higher rates loom. Further, most think stocks’ January selloff—especially growth stocks’--portend a steeper swoon. Don’t believe it! As supply chain pressures wane, long rates will shock everyone--ending 2022 roughly unchanged—whether central banks tighten or not. If I’m wrong? The impact on stocks won’t match the fear.

Take inflation. In America it is increasingly a partisan issue in this mid-term year. But my comments aren’t ideological whatsoever; instead they simply assess the economics through a market-oriented lens. While headlines shriek of continuous inflation, relatively benign long rates show you the forces now stoking prices are temporary. Otherwise long rates—which reflect lenders’ inflation expectations—would have soared much more long ago. Lenders would have demanded it to compensate for any significant inflation risk eroding borrowers’ repayments.

Even after its recent bump, the US 10-year Treasury yields just 1.80%. That is meager, but juicy by developed world standards. The U.K. 10-year gilt offers only 1.14%. Japan’s nearly doubled since December—to a still-microscopic 0.13%. Germany’s recently made headlines … for briefly turning positive at 0.02%. Now? Negative again! Lending and money flows globally, seeking best returns. The correlation between long rate movements country to country is high and consistent.

Why haven’t yields jumped? Markets pre-price what pundits miss: True and enduring inflation is broad-based and monetary—too much money chasing too few goods, as Milton Friedman famously preached. Today is different. Beyond Europe’s energy crunch, current price pressures mostly involve supply-chain snags tied to varied global yet repeated and intermittent lockdowns and re-openings. Those pressures are temporary—and already abating.

Yes, US CPI rose 7.0% y/y in December. The eurozone’s climbed 5.0%. But month-over-month American inflation slowed in November and December. Eurozone spikes are largely limited to energy—core year-over-year inflation is just 2.6%. American purchasing manager surveys show input price jumps slowing to their lowest level since March--and Europe’s show leveling off. Shipping costs are down.

The Fed and ECB’s slowing quantitative easing (QE) bond purchases won’t jumpstart long rates, either. Markets pre-price all well-known information—and QE’s demise is staggeringly old news. Fed Chair Jerome Powell and ECB President Christine Lagarde telegraphed tapering for months. Hence America’s 10-year Treasury yield rose just 0.01 percentage point the week after the Fed’s November taper announcement and 0.02 point the week following its December taper acceleration. (It rose just 0.05% after Powell’s blunt talk this Wednesday.) The 10-year German bund yield crept just 0.03 point higher the week after the ECB’s September QE cut. Markets pre-priced it all long ago. If less QE hasn’t already juiced yields, why would it now?

But won’t widely expected short-term Fed rate hikes send long rates skyward? No! Long rates often rise slightly ahead of the first Fed hike in tightening cycles—because little is more widely watched and long pre-priced than central bank actions. But the Fed is much more reactor than causer, and usually the town fool—which I’ve preached for decades—meaning rises usually end there. Since 1933, the median 10-year US Treasury yield 6, 12 and 18 months after initial Fed hikes all gained less than a quarter of a percentage point—tiny! Long yields fell inabout a third of those spans. Why? Again, long rates are market-set. Markets anticipate and pre-price widely watched factors like expected Fed moves. Always.

Note; The FED has never been good at forecasting. What do you get when you put 850 PhD Economists together? More or less the equivalent to the Russian Politburo. Apparatchiks all. Recall it was just months ago Powell claimed inflation was “transitory.” If you believe he was wrong then…..why be so sure he is right now. If you really want to scare yourself half stupid go back and look at Janet Yellen’s internal FED comments in October, 2008. More wrong than group think in a late night bar. And then unrepentant. Apparatchiks all.

Today most think rising long rates will hurt stocks overall—growth stocks and Tech especially. Early 2022’s volatility may appear to validate that. But too many other forces are entangled to pin the declines on interest rates. Markets are never univariate. Always remember, one liquid market never “knows” more than another—if looming rate rises drive today’s Tech sector stumbles, why haven’t long rates already surged?

History clearly shows rates alone don’t determine market direction—so be a contrarian. Consider: The S&P 500’s long-term correlation with 10-year yields is actually, and contrary to common mythology, slightly positive—0.33—showing a minor tendency for stocks to move with, not against, 10-year yields. Growth and Tech stocks are similar. Cognitive and confirmation biases likely make the consensus gasp at this thought. Regardless, that correlation is too weak to mean much—a trend mirrored globally. Germany’s 10-year bund and its benchmark DAX index have the same 0.33 correlation. Spain and Italy are negative, but even weaker. Flimsy, flip-flopping correlations reveal no set relationship between long rates and global stocks—nothing supporting doomsday narratives.

Still unconvinced? The Fed has launched 10 fed-funds rate hike cycles since 1971. In the 12 months after each initial hike, world stocks averaged 6.9% gains in USD, rising in 8 of 10 cycles. The two declines were only -3.9% and -13.6%, not great but no disaster. After 24 months, stocks averaged 19.3% gains, again with only two minor declines.

Now, don’t ignore central banks altogether. Sometimes they just do really stupid stuff. But they are more follower than causer—a force, but generally an overrated, after the fact one. Rate hike cycles normally begin when the Fed responds to economic growth fueling inflation pressures, so they see less need for alleged “stimulus.” And, in that they are right. We don’t need “stimulus” now.

Don’t let rising rate goblins scare you. Big time rising rates aren’t likely to materialize—but even if they do, they won’t wreck stocks or the economy.'

MY COMMENT

I agree completely. There is NO reason to think there is a correlation between rising rates and negative stock performance. It is IDIOTIC to think that there is some correlation between rates and the performance of the greatest companies in the world....the big tech companies.

Yes.....we need to end the various FED programs and rise rates. BUT......NO....these actions are not likely to impact inflation. The current inflation is simply the result of supply chain issues...everyone sees this. Rising rates is not going to have any impact on this issue. The issue will simply resolve itself over the next 12-18 months. All kinds of officials and politicians will take credit as inflation resolves....but....this will be a FALSE narrative.

 

The current market drop will end.......when it ends.

When Will the Stock Market Bottom?

https://awealthofcommonsense.com/2022/01/when-will-the-stock-market-bottom/

(BOLD is my opinion OR what I consider important content)

"A reader asks:

Since Ben is a data junkie, does he have any data or opinions on when markets hit a bottom? Does the adage ‘catching a falling knife’ always hold true?

Guilty. I am a data junkie.

I can’t help it.

I know you can’t predict the future based on historical data but you can analyze the present and try to calculate reasonable probabilities from the past. Past data doesn’t tell you what will happen but it can help you prepare for what can happen.


As far as market bottoms go, fundamentals are basically useless.

The only real difference is what kind of correction we’re in — recessionary or non-recessionary.

Non-recessionary corrections are much milder than those that occur because of a recession. This is the data for the S&P 500 since 1950:


Corrections that occur outside of a slowdown in the economy tend to be shallower and shorter. This makes sense when you consider how much financial pain is inflicted on households during your typical recession.

Obviously, the hard part here is knowing if you’re going into a recession or not. It’s hard to tell most of the time (save for when Tom Hanks contracts Covid, the NBA shuts down its season and everyone is told in no uncertain terms to stay home for 8 weeks in a pandemic).

But let’s say you did have the foresight to be able to predict the economic environment. You still wouldn’t be able to use fundamentals to nail the bottom.

This is a list of the non-recessionary corrections going back to 1950 along with the CAPE ratio, P/E ratio and dividend yield at the bottom of those corrections:


The only thing that sticks out here is that valuations were much lower and dividend yields much higher back in the day. Otherwise, there are no discernable patterns where you can pick a valuation metric that tells you when a bottom is imminent.

It is interesting to note bear markets outside of a recession are rare. There have technically only been two since 1950 (although I included the four times we came close):


Never say never, but unless the economy goes into a recession it would seem a correction is more likely than a crash in the current environment.

Now here is a look at the recessionary corrections:


There is no line in the sand when it comes to this stuff.

Not only are all market environments different but human beings are unpredictable by our very nature. And we become even more unpredictable when we’re losing money and panicking.


Therefore price is arguably your best indicator but even technicals are waning as an indicator of when the selling pressure will end.

Volatility in the markets tends to cluster during downtrends. This is why we tend to see the biggest up days and the biggest down days in history occur during bear markets. The swings in price are bigger when people are nervous.

This is why so many traders say “markets don’t bottom on big up days.”

And that makes sense in theory…until you realize the last two bear markets did just that. In 2018, the S&P 500 was up 5% on the trading session the day after Christmas following a 19.8% downturn. It never looked back.

The March 2020 bottom came on a 9.4% up day. No one actually thought it was THE bottom but it was. Stocks were up 1.2% and 6.2% over the next two days (for a total gain of 17.6% in just 3 days) and we were off to the races.

I wish I had the secret sauce for picking a bottom but even if there was some formula it would eventually stop working once enough people learned of it.


It’s always impossible to predict what the stock market will do in the short-term but for some reason investors seem to try even harder to guess what comes next during a correction.

You want your hands on the steering wheel when the excrement hits the fan. It gives you feel a sense of control to predict what comes next, even when that control is an illusion.

In 1966, Warren Buffett was still running his investment partnership.1 The stock market went into a correction that year after the Dow first broke through 1,000 for the first time ever. That correction would eventually reach losses of more than 20%.

Buffett had some new investors in the partnership who were a little nervous after experiencing their first pullback. They called Buffett to warn him the market would likely go even lower.

He responded in his next letter to investors by raising two questions:


(1) If they knew in February that the Dow was going to 865 in May, why didn’t they let me in on it then; and,


(2) If they didn’t know what was going to happen during the ensuing three months back in February, how do they know in May?

Buffett continued:

Let me again suggest that the future has never been clear to me (give us a call when the next few months are obvious to you — or, for that matter, the next few hours).


The future is never clear to any of us, no matter how confident we are in our assertions.


The market bottom will only be known with the benefit of hindsight (and it will look crystal clear after the fact)."

MY COMMENT

It is a waste of time and effort to try to predict the markets. At best you might be able to predict the future of a SINGLE BUSINESS based on fundamentals. BUT....the stock markets....forget it. The current drop.....no way....it will end when it wants to end. People do CRAVE control and fool themselves into thinking that they have it. No one has a clue about the short term markets.....just deal with it.

 

A long winded way to say......RELAX.

It’s Been Rough for Stocks, but the Outlook Is Still OK
The changing outlook for the Fed continues to spark volatility.

https://www.morningstar.com/articles/1075786/its-been-rough-for-stocks-but-the-outlook-is-still-ok

(BOLD is my opinion OR what I consider important content)

"It’s been an especially rough start to the year for the stock market, but as painful as the hit has been to portfolios, that doesn’t mean the outlook is equally as dire.

It’s natural for investors to see a day like Monday’s sell-off--when broad market indexes were down more than 3% before bouncing--as a sign of worse to come. And financial markets often are forward-looking, with prices rising and falling based on expectations for what is to come.

Yet, in this case, it may be more of an overdue reset by an overvalued stock market when it comes to the outlook for interest rates and Federal Reserve policy. Economists expect the economy to continue growing at a healthy pace this year, and that by historical standards, interest rates are expected to remain low for some time, supporting that economic growth.

“While the markets have been brutalized the past few trading sessions, the outlook is not as dire as the market action implies,” says David Sekera, Morningstar’s chief U.S. market strategist

And it has been brutal. The Morningstar U.S. Market index has lost 8% so far in 2022 and at its worst levels Monday was down more than 10% from the most recent peak on Jan. 3--a decline known in market lingo as a “correction.”



Raheel Siddiqui, portfolio and quantitative strategist in Neuberger Berman’s global equity research department, says Monday’s steep declines weren’t driven by fundamental news, but rather a confluence of “technical” factors, such as selling by trend-following futures traders, stock options traders, and ripples from leveraged exchange-traded funds. That coupled with a lack of “buy-the-dip” support from individual investors helped create a void for the market to fall into to start the week. At the same time, there was an overhang of big, institutional investors heavily weighted in the very largest--and often most expensive--stocks who finally started cutting back on those positions.

“A lot of the selling was technical in nature … but obviously the trigger was the Fed,” Siddiqui says.

Another challenge for the stock market has been valuations. Based on the universe of stocks covered by Morningstar's analysts, U.S. stocks came into 2022 roughly 5% overvalued.



When it comes to the Fed, another the issue is the Fed’s hard pivot in terms of its support for the economy. The central bank is making a quick switch from a pedal-to-the-metal approach, to keeping the economy rolling during the worst of the coronavirus pandemic recession, to hitting the brakes in response to the flareup in inflation. This Tuesday and Wednesday Fed officials are meeting to decide the next steps for monetary policy.

While a change in posture by the Fed been in the cards for months, the pace at which the outlook for the Fed is evolving has forced investors to adjust their expectations rapidly as well.

As recently as Thanksgiving, the Fed was expected to start raising interest rates in mid-2022 and boost the federal-funds rate just two, maybe three times this year. Now the Fed is expected to lift off its rate increases in March with a total of four increases expected this year.

Not only that, the Fed is expected to start reversing the bond-buying program--known as quantitative easing--that it used to pump money into the economy during the pandemic. That looming switch from quantitative easing to the opposite--known as quantitative tightening--is what some speculate has particularly roiled the market.

Barry Knapp, direct of research at Ironsides Macroeconomics, says the market’s action in January reflects a relatively new dynamic for stocks that began to show up in the wake of the global financial crisis when the Fed first employed QE.

Prior to 2008, stocks would typically have just one big sell-off when the Fed switched into rate-increase mode. But in the world of quantitative easing and tightening, there has been considerably more volatility around Fed policy. From 2010 through 2018, Knapp says, the market had eight Fed-policy related declines, with an average loss of 11%.

Quantitative tightening “is a much bigger deal than the Fed raising rates … and the markets have a big adjustment to that,” he says.

That said, with stocks down roughly 11% from their peak during the worst of Monday’s sell-off, “we’ve followed that pattern,” he says. “I think we’ll find a bottom here.”

It’s important for investors to realize that even with the Fed switching gears, “monetary policy has been so easy and so far from tight, the Fed starting to normalize isn’t a negative” for the economy, Knapp says.

Morningstar’s Sekera notes that Morningstar’s forecast for the U.S. economy in 2022 is still for growth to come in at a healthy 3.9% rate and 3.5% in 2023. “Both these levels of economic growth are still near the highest levels the U.S. has experienced over the past 15 years.”

In addition, “while inflation is running hot and will remain elevated for the next few months, we project it will begin to moderate in the second half of this year and continue to decline toward normalized levels in 2023,” Sekera says.

“Factoring these attributes, at current levels, we now see the market as being broadly fairly valued,” Sekera says"

MY COMMENT

I dont see or hear much panic or even mild concern from anyone I know that is an investor. In fact most people I know are not paying any attention to the markets at all. I see ZERO evidence of panic. NOW.....the media....that is a different story.

It is the financial media that needs to....RELAX. The constant breathless coverage every day is way over-done....but....that is the modern world......everything is the worst crisis ever. There is no appreciation or awareness of history or the past. It is all about....now, now, now.....and.....me, me, me. We live in a total NARCISSISTIC SOCIETY. HOWEVER.....I choose to not live in that world......I am fine in my own little world. I just IGNORE all the NOISE. Do that as an investor and you will be just fine.

 

Today....typical markets that we have been seeing lately. No....I dont care. The markets dont care about fundamentals at the moment....so I dont care about the markets. Over the long term the markets will be FORCED to care about fundamentals.

 

Here are the concerns of the day. Seems the same to me as the past days, weeks, months.

Stock market news live updates: Stocks mixed as inflation rises by most since 1982, Apple gains after earnings

https://finance.yahoo.com/news/stock-market-news-live-updates-january-28-2022-231329863.html

(BOLD is my opinion OR what I consider important content)

"Stocks traded lower Friday as investors took in earnings results from some major tech companies and another hot print on inflation at the end of another volatile week.

The S&P 500 and Nasdaq turned lower. The Dow dipped, even as component stock Apple (AAPL) jumped after the iPhone-maker reported record quarterly sales and better-than-expected profits despite supply chain challenges. Meanwhile, Robinhood (HOOD) shares sank after the trading platform missed on quarterly revenue, posted a larger-than-expected quarterly decline in users, and offered disappointing guidance.

Fresh economic data was also in focus on Friday. The latest inflation data showed another multi-decade high rate of price increases, as the Personal Consumption Expenditures (PCE) index posted a 5.8% year-over-year rise in December, or the biggest jump since 1982. Core PCE, which excludes more volatile food and energy prices, rose at a 4.9% annual rate, representing the largest leap since 1983.

The S&P 500 was on track to post a weekly loss of about 1.3%, based on Thursday's closing prices. New reports showing a better-than-expected rise in fourth-quarter U.S. GDP and improvement in weekly jobless claims did little to help turn stocks around on Thursday. The Dow and Nasdaq have each also fallen over the course of the past week, with volatility rising as traders considered the implications of the Federal Reserve's more hawkish monetary policy tilt for markets.

"The markets digested this hawkish Fed pivot that I think surprised people in terms of its magnitude," Scott Crowe, CenterSquare Investment Management chief investment strategist, told Yahoo Finance Live on Thursday. "It wasn't so long ago that they were describing inflation as 'transitory,' but now they have their sights firmly set on moderating inflation. And I think that's given the market a lot of indigestion as it starts to digest that pretty dramatic shift."

Federal Reserve Chair Jerome Powell strongly signaled earlier this week that a March liftoff on interest rates to above their present near-zero levels was in the cards. However, other questions remained — namely around just how quickly the Fed will raise interest rates, and around when and how rapidly the Fed will begin drawing down its nearly $9 trillion balance sheet and tightening financial conditions.

"Everything the Fed is doing at this point we think has just been priced in over the last few weeks. And that's where a lot of the slide in the market has come from," Morgan Stanley Managing Director Kathy Entwistle told Yahoo Finance Live on Thursday. "And the big question is, will we slide a little bit more? What's happening?"

"We're looking at companies and their earnings ... to determine whether or not we're going to have a little bit more of a pullback in the market or not," she added. "And that's based on what they can do going forward, where their opportunities are. And we've been hearing a lot about inflation. If you think about a 7% inflation rate, that's quite significant."

"Back in the fall, it was the retail investor that was holding up the market," Entwistle said. "And now, their sentiments have sort of turned and they're no longer optimistic about where we are right now. So I think we have to think about all of these things. We do think that the quality, again, is going to do better than growth."

8:37 a.m. ET: Personal income posts disappointing rise in December as spending dips

U.S. personal income rose at a lackluster pace in December, logging the smallest gain since September as pandemic-era government assistance programs waned.

Personal income rose at a 0.3% month-on-month rate in December, the Bureau of Economic Analysis said Friday, missing estimates for a 0.5% rise, according to Bloomberg consensus data. Income had risen 0.5% in November.

Personal spending fell 0.6% during the month, matching consensus estimates. This came marked the first drop since February 2021, and came following a 0.4% rise in. spending in November.

8:30 a.m. ET: Personal Consumption Expenditures jump 5.8% in December, marking fastest rise since 1982

A key measure of inflation rose at a fresh four-decade high in December, underscoring lingering inflationary pressures in the economy.

The Personal Consumption Expenditures (PCE) index rose 5.8% in December compared to the same month last year, the Bureau of Economic Analysis said Friday. This accelerated from November's 5.7% year-over-year. gain. The print for the final month of 2021 matched consensus estimates, based on Bloomberg data. Month-over-month, PCE rose 0.4% in December, also matching estimates and slowing from November's 0.6% gain.

Excluding food and energy prices, however, the core PCE rose slightly more than expected, logging a 4.9% year-over-year rise versus the 4.8% increase consensus economists had anticipated. This also sped up from November's 4.7% rise in core PCE. Core PCE serves as the Federal Reserve's preferred indicator of underlying price trends."

MY COMMENT

Anything new in the above? Not that I see. Anything in the above that has not been known for at least 3 months now? Not that I see.

Another day....same old issues. In the meantime we are now seeing very nice earnings. The supply chain issues continue.....but....it seems to me that they are already showing signs of very slowly resolving.

Does anyone remember that we shut down the entire economy.......especially the small business economy? In reality....we are LUCKY that things are as good as they are considering what we did to the economy and labor markets over the past couple of years.

 

I agree Zukodany....I dont see the economy slipping into a recession. If we end up in a recession it will be due to the FED........NOT......actual inherent economic weakness in the economy. Of course....you could make the case....and many do.....that the majority of the recessions that we have seen over the past 50 years were CAUSED by either the FED or other government actions.