The Long Term Investor

YEP.....Smokie. Here is more detail.

Federal Reserve holds interest rates steady, forecasts two more rate hikes this year

https://finance.yahoo.com/news/fede...e-policy-decision-june-14-2023-180115494.html

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

"The Federal Reserve held interest rates steady Wednesday, but officials signaled they are prepared to raise rates again this year to tame stubborn inflation.

The central bank maintained its benchmark interest rate in the range of 5%-5.25%, the first time since January 2022 the Fed made no change to interest rates following a policy meeting.

Fed officials did, however, raise their interest rate forecasts for this year, signaling rates could rise to as high as 5.6%, implying two additional rate hikes are likely this year. Three officials see rates rising closer to 6%.

"Inflation pressures continue to run high," Federal Reserve Chair Jerome Powell said at a Wednesday press conference. Getting inflation down to the Fed's target "has a long way to go."

Next year, officials see interest rates falling by 100 basis points to around 4.6%, higher than the 4.3% forecasted in March.

The pause announced Wednesday, Powell said, shouldn't be called a "skip." What it does do, he added, is give the economy more time to adapt to prior hikes while letting Fed officials see the "full consequences" of the banking turmoil that roiled the financial system in the spring.

"We are trying to get this right," Powell said.

Stocks closed mixed Wednesday. The S&P 500 (^GSPC) was roughly flat, while the Dow Jones Industrial Average (^DJI) fell 0.68%, or more than 200 points. The tech-heavy Nasdaq Composite (^IXIC) rallied off lows to gain 0.39%.

Many regional banks that struggled following the failures of several sizable lenders fell again Wednesday. PacWest (PACW) ended the day down 6.5%, Western Alliance (WAL) fell 5.8% and Zions (ZION) was down 5.7%. Banks are highly sensitive to rate increases.

The Fed had raised rates at 10 straight policy meetings through May, bringing its target range from 0%-0.25% to 5%-5.25%, the highest since 2007, in just 14 months. Wednesday's decision to hold rates steady was unanimous.

Since peaking at 9.1% in June 2022 inflation has come down, with headline inflation rising just 4.1% in May according to data released on Tuesday. On a "core" basis — which strips out volatile food and energy prices — inflation clocked in at 5.3% for May. That compares with 5.5% seen in April.

Both readings are still well above the Fed's 2% target.

Updated economic projections released Wednesday, said Renaissance Macro economist Neil Dutta, allowed the Fed to have it both ways — pause rate hikes and also be more aggressive in signaling future action.

"This is what the Fed had to do," Dutta wrote in an email.

The Fed in its statement did leave itself room to raise rates again this year, keeping language that said, "In determining the extent to which additional policy firming may be appropriate … the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Powell said at a press conference that the subject of what to do in July "came up" at the central bank's Federal Open Market Committee meeting Wednesday but the Fed didn't make a decision about what to do next month.

Powell also brought back language made popular by former Fed Chair Janet Yellen ahead of the Fed's rate hiking cycle that began in 2015 — "live" meetings.

Asked directly about July's meeting, Powell said — "One, [a] decision hasn't been made. Two, I do expect that it will be a live meeting."

Powell also emphasized that inflation isn't coming down as quickly as the central bank had hoped.

"We want to see it moving down decisively," he said. "That's all. Of course, we are going to get inflation down to 2% over time. We want to do that with the minimum damage we can to the economy, of course. But we have to get inflation down to 2%, and we will."

Along with its policy decision on Wednesday, the Fed released an updated Summary of Economic Projections (SEP), which outlined officials’ expectations for growth, inflation, rates, and the labor market over the balance of this year and the next two.

Fed officials see inflation finishing the year close to 4% now, compared with 3.6% prior. Unemployment is only seen rising to 4.1% from 4.5% previously. Officials now see stronger economic growth this year of 1% verses 0.4% previously.

Officials again noted that tighter credit conditions for households and businesses are likely to weigh on the economy, hiring and inflation and the degree of impact is uncertain."

MY COMMENT

About what you wold expect. They PAUSED.....even if they dont want to say so. At the same time.....they left all their options open by implying 1-2 more hikes this year. They dont want to let the cat out of the bag about what they plan to do and unleash the economy. So they will play this little game....hinting at future rate hikes and perhaps even doing one once in a while.

 

A nice BIG gain for me today. I got in a big beat on the SP500.....1.37%.

My big winners today.....NKE +5.69%......and.....NVDA +4.81%

My little NVDA addition of 15 shares on 6-2-23 is now up by 9.08%. I would like to see it up by about 15-20% to be somewhat safe from going into the red in the near future.....if the stock backs off short term.

NIKE finally had a good day. I think the recent selling was way over-done. This company is still the most dominant shoe and sports apparel company in the world.

 

NVIDIA is on fire....but this does not surprise me. When I added 15 shares on 6-2-23 I was thinking that my target range for this stock over the next 6 months is $500 to $600 per share. If it gets into that range it will be in STOCK SPLIT territory.

As of the close today is it now trading at $430. I know many people were expecting that it was a top at about $400 for a while. I dont see this at all. The recent forward guidance was EXTREMELY BULLISH. I dont believe that management would go out on that big of a limb unless they know something about future earnings that outsiders dont know.

It is strange to see NVIDIA as the largest holding....by far.....in all my accounts. It has never been close before this recent run up and the recent earnings.

 

HUMP DAY......as well as.....FED DAY is now out of the way. Any probability says that the markets can end the week in style. But short term....trying to predict the markets is virtually impassible.

 

I hope you are right that the banter about the FED cutting rates this year is over.....Smokie. I am tired of seeing this foolishness repeated over and over. All year long the FED has said there WILL NOT be rate cuts this year.

It is a BIG media game to hint at and a TEASE to hold out hope of rate cuts this year. IT IS NOT GOING TO HAPPEN.

 

Before the open today the USUAL negative "experts".....were on TV saying how the markets were going to be down due to the shock of the FED saying there might be up to two more hikes this year.

AS USUAL........so far they are totally WRONG. The markets opened and within a short time ALL the averages were green.

A strong open today especially for the DOW.

 

YES......we are in a BULL MARKET. I have been saying that for all year and much of last year. It was obvious by simply looking at the SP500 from the end of June 2022 over the next months.

The Timely, Transatlantic Lesson From Cooling US CPI

https://www.fisherinvestments.com/e...mely-transatlantic-lesson-from-cooling-us-cpi

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

"Slowing US inflation puts fast UK wage growth in context.

Despite all the media racket over the S&P 500 breaching 20% up from the October 12 mark last week, there is no surefire way to know a bull market is underway early in its life. But, with that said, here is a pretty good sign: When people move on from a big fear that accompanied the prior bear market … but move on to another, similar issue that seems like the next shoe to drop. So it went Tuesday with inflation. The US Labor Department’s May Consumer Price Index (CPI) report showed headline inflation slowing bigtime, from 4.9% y/y to 4.0%, while “core” CPI, which excludes food and energy, eased from 5.5% to 5.3%.[ii] Headlines acknowledge the improvement, but many publications buried the news under an allegedly alarming story about UK wage growth jumping 7.2% y/y in the three months through April, sending long-term UK gilt yields above their autumn 2022 highs—implying stubbornly high inflation will prompt the Bank of England (BoE) to keep ratcheting up rates.[iii] It all kind of reminds us of 2010, when mortgage-backed security fears morphed to municipal debt worries, which never materialized. Now US inflation concerns seem to have largely ceded the spotlight to UK inflation. But the US’s recent experience also shows why the UK edition doesn’t add up, likely rendering this another brick in what we increasingly think is a young bull market’s wall of worry.

Since peaking at 9.1% y/y in June 2022, US headline CPI has more than halved.[iv] A lot of this has to do with energy costs’ substantial easing, but the core inflation rate has also improved notably—from 6.6% y/y last September to 5.3%.[v] When you also exclude shelter—which we think is logical, considering the majority of that component is the imaginary owner’s equivalent rent line item (aka the amount homeowners would pay to rent their own house)—we get all the way down from 6.7% y/y last September to 3.4% in June.[vi] That is darned near the long-term average inflation rate and a sign inflationary forces have moderated substantially outside categories with big commodity exposure and supply quirks. And it is very, very good news. Not that inflation is a market driver, but this was a big source of fear for investors and folks just trying to make ends meet. Relief is a good thing.

And it should be encouraging for those now sweating UK inflation: All of this improvement happened despite above-average wage growth. When we study this, we like using the Atlanta Fed’s wage growth tracker, which follows individual workers’ earning power rather than statistical aggregates. It is newer and has a shorter history than the BLS’s official measure, but it isn’t skewed by high-earning folks retiring while young people enter the workforce—which can have a massive, illusory downward drag on broad national pay data. As you will see, this measure of wage growth has topped the year-over-year core inflation rate since last October. Yet inflation has still slowed. Broaden your view to the full history, which starts in March 1997, and you will see wage growth regularly moves after inflation, peaking and troughing at a lag.

Exhibit 1: Wage Growth Follows Inflation


Source: St. Louis Federal Reserve and FactSet, as of 6/13/2023. Overall year-over-year wage growth and year-over-year core inflation rate, March 1997 – May 2023.

We don’t think this is surprising. In the late 1960s, Nobel Laureate Milton Friedman gave a rather forceful speech excoriating economists and central bankers for presuming rising wages drive inflation. He argued this couldn’t be true because employers factor in living costs when setting wages—making wages the last price to respond to inflationary forces. Therefore, anyone saying wages drive prices would be making a circular argument—Bad Logic 101. The next several decades’ worth of data proved him right, but myths die hard.

Which is why that UK wage growth rang such alarm bells. UK inflation has been more stubborn than its American cousin, owing largely to the way the government handled spiking energy prices. In the US, the relatively free pricing system made both the initial spike and comparably fast subsequent relief show up in fuel and household energy bills swiftly. But the UK capped energy prices, setting a minimum average annual rate that reset every six months. As is typical, the cap became a target for most suppliers, leading to huge semiannual stairstep increases. These didn’t go down well with the public, so the government added a second emergency price ceiling, which capped annual household costs while the government paid the difference between its ceiling and the regulatory cap. If you are confused, we don’t blame you. But the long and short of it is that even as wholesale energy costs plunged, it hasn’t yet shown up in household costs. The regulatory cap is only now coming down to the government’s emergency ceiling. Meanwhile, economists and even the BoE have zeroed in on stubborn food prices and wage growth as the UK’s inflation culprits, making that February – April pay acceleration such a big source of fear.

Here is another way to look at it: Wages have lagged UK inflation badly. Their 7.2% year-over-year growth rate may seem fast, but it pales next to the peak inflation rate of 9.6% y/y last October.[vii] Just like US wages, British pay has moved after inflation. But there, taxes have eaten a large share of this increase, as the government froze the income thresholds where the 20%, 40% and 45% tax rates kick in. In the US, tax bands are indexed to inflation, which gave households a modicum of relief this year. But the UK has frozen them through 2026 in the name of shrinking the deficit. Several key credits and allowances have also been frozen, leading to this awful quirk where incomes between £100,000 and about £125,000 face an effective 60% tax rate. So for those whose wage growth increased the amount of earnings taxed at 60%, the raise is much less than meets the eye. It is a modest, partial catch-up on the heels of nearly 10% inflation, not some massive new buying power.

As food price spikes fade and falling energy costs finally filter through to UK CPI, the wage chatter should quiet down. Plodding consumer spending (up just 0.2% annualized in Q1) will probably help, too.[viii] As for UK long rates, today isn’t the first time they have suddenly freaked out, and it probably won’t be the last. Bond markets can swing on sentiment every now and then, just like stocks. But over more meaningful stretches, markets weigh fundamentals, and we see plenty of UK disinflation for them to weigh looking forward—just as we have seen in the US."

MY COMMENT

YEP.......we are ACTUALLY just on the upper edge of NORMAL inflation and a normal healthy economy. We STILL have some lingering distortions from the idiotic long closure of the economy. Two weeks became years......thanks to out of control politicians and bureaucrats. BUT we are now open again and past all of the nasty impacts of the closure.

As time goes on we will see more and more people acknowledge the BULL MARKET and come back into the market. It will be a classic example of why the average investor TOTALLY LAGS the returns of the general averages like the SP500.

HINT......the SP500 is fully invested all the time.....it never tries to time the markets.....it never panics.....it captures EVERY single market move. It is a DUMB average....but it beats the HUMANS.

 

You tell'em Zukodany. They tried to push their BS and it did not work.

 

Long Term Investing 101.

This is Why You Stay the Course

https://awealthofcommonsense.com/2023/06/this-is-why-you-stay-the-course/

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

"Last year was one of the worst years ever for financial markets.

Call it recency or loss aversion or some other Daniel Kahneman bias but for some reason, our brains are hard-wired to assume big losses will be followed by additional losses (just like we assume big gains will be followed by additional gains).1

The thing about big losses in the stock market is sometimes they are followed by big losses…but sometimes they’re followed by big gains.

Just look at every double-digit down year for the S&P 500 going back to 1928 along with the ensuing returns in the following year:


Historically after a bad year you’re looking at feast or famine. You either got a huge rally or further soul-crushing losses.

It was not a foregone conclusion that stocks would rally this year as much as they have — the S&P 500 is up almost 14% while the Nasdaq 100 has gained nearly 27% this year. It could have gotten worse if inflation stayed high or the Fed broke something or we went into a recession or some other risk came out of left field.

Regardless of the outcome, this is a good lesson in the power of staying the course as an investor. And I believe staying the course was the right move whether stocks cratered even more or took off like a rocket ship.

Why?

What’s the alternative? Guess what will happen next? Good luck with that.

Even the pros have no idea what will happen next in the market.

Heading into the year, Sam Ro published a list of S&P 500 year-end price targets from 16 of the biggest Wall Street firms:


The S&P 500 ended 2022 at around 3,840 so there were a handful of strategists who expected mild losses in 2023 while most were expecting mild gains.

It makes sense that Wall Street was tepid coming into the year considering the stock market fell almost 20% in 2022.

We’re only halfway through the year so it’s still a little early to offer a full report card for these predictions but the stock market has outperformed expectations based on where we sit today.

As of this writing the S&P 500 is trading at roughly 4,370.

So the stock market has already gone up more than any of these strategists, save for Deutsche Bank, predicted for the whole year.

But they’re not waiting around to see if those original forecasts could come true. Now that stocks are up double-digits for the year many Wall Street strategists are revising their forecasts higher.

Wall Street strategists get pessimistic when stocks are falling and optimistic when stocks are rising. I don’t share this with you to poke fun at Wall Street.

The point of this exercise is to prove how difficult it is to make predictions about the future, especially as it relates to short-term movements in the stock market.

When stocks fall, our emotions make us think they will fall even further. And when stock rise, our emotions make us believe they are going to rise even more.

This is why I’m such a big proponent of having an investment plan that you can stick with through a wide range of market and economic environments.

Staying the course means going against your own emotions at times.

Staying the course means thinking and acting for the long term even when it doesn’t feel right in the short-term.

Staying the course means preparing not predicting.

Staying the course means doing nothing when that’s what your plan calls for.

Unfortunately, doing nothing is hard work because markets are constantly tempting you to make changes to your portfolio.

There’s an old parable about a locksmith who had a tough time picking locks when he was just a lowly apprentice learning on the job. He would have to use all sorts of tools and it took him a long time to open doors when people locked themselves out of their cars or homes. But people saw him sweating it out and the effort was evident so they tipped him quite well.

But as he slowly but surely learned the tricks of the trade he was able to pick locks quicker which much less effort. The problem is his tips went down because he got people into their vehicles or houses much faster. He made it look too easy.

There is a good investing lesson in this story.

Intelligent investors realize effort is often inversely related to results in the market. Just because you do more or try harder doesn’t guarantee better results. In fact, doing more is more often than not damaging to your investment performance.

Doing less or doing nothing at all most of the time is the right way forward for the majority of investors.

This is why you stay the course."

MY COMMENT

SO TRUE. I talk about short term stuff all the time one here. At the same time I post every long term investing related article that I can find....like the one above.

I am sure this confuses some people. I do the short term predictions and talk as simply daily........FUN. I like business and markets. I like to test my instincts and feelings against the short term reality.

BUT....when it comes to my money.....I simply sit and do nothing. I dont keep any giant charts or data. I dont do spread sheets and all the other investing BUSY WORK. All the fundamental data is easily available to me online at the click of a button....so I dont have to do any fundamental analysis. I just have to follow the very simply rules of long term investing that are discussed over and over in this thread......and do NOTHING.

 

You are on a good roll this year Zukodany. My take on why.....because you are a common sense business person.

 

I have been saying for a long time that this bull market started at the end of June in 2022.

Bull Market Turns 1-year Old

https://allstarcharts.com/bull-market-turns-1-year-old/

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

"How’s the Bull Market treating you so far?

Can you believe it’s been a year already since the new 52-week lows list peaked?

Remember, the first thing stocks need to do before they can start to go up in price, is to stop going down!

That happened 1-year ago.

Since then Technology, Communications, Consumer Discretionary and Industrials are all up over 20%. Tech is up almost 40%.

Meanwhile, Healthcare and Financials are each up 10% during this period.

And then some of the more defensive sectors, like Staples and Utilities, are up, but very much underperforming the more offensive sectors.

This is all perfectly normal behavior in bull markets, so we’re not surprised at all. No one should be.

Here’s a chart of each sector’s performance since the start of this bull market – exactly one year ago!



The stocks that performed the worst in the back half of last year are the ones who have performed the best this year.

We call that sector rotation.

So the next step for this bull market would be to rotate once again into those initial leaders off the lows last summer.

Industrials are front and center in that conversation.

What’s interesting is that on an equally-weighted basis, Industrials keep making new all-time highs relative to the S&P500:



I believe the rotation has already started.

You’re seeing it in Industrials. And you’re seeing it in Small-caps."

MY COMMENT

Look at a chart of the SP500 since last June. Many up and down periods.....BUT......over that entire time the trend.....in hindsight....was UP. AND.....it continues.

 

Another GOOD indicator for the stock markets.....and for the economy.

Number of Americans filing for jobless claims stays high for second straight week

https://finance.yahoo.com/news/number-americans-filing-jobless-claims-124029199.html

"...a possible sign that the Federal Reserve's interest rate hikes over the past year may taking hold in what's proved to be a resilient job market."

AND.....yes there is STILL no indication of a RECESSION.

 

HERE is the market today.

Dow jumps 200 points as investors hope the Fed is nearly done raising rates

https://www.cnbc.com/2023/06/14/stock-market-today-live-updates.html

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

"The Dow Jones Industrial average rallied more than 200 points and the S&P 500 touched a fresh 13-month high as investors bet the Federal Reserve was close to done raising rates after the central bank this week paused its rate-hiking campaign following 10 consecutive increases.

The 30-stock Dow Jones Industrial Average added 205 points, or 0.6%. The Nasdaq Composite gained 0.4% while the S&P 500 climbed 0.3%. Bond yields were lower, while tech stocks continued to lead the market upswing in line with the trend on Wall Street so far in 2023. Th S&P 500′s climb on Thursday marked a new intraday 13-month high for the index.

On Wednesday, the S&P 500 and the Nasdaq Composite both reached their highest levels since April 2022. The S&P 500 closed the session 0.08% higher. The index notched its fifth consecutive positive session and its longest winning streak since November 2021. The Nasdaq rose 0.39%, while the Dow fell 0.68%.

Fed Chair Jerome Powell said during a post-meeting press conference that the Federal Open Market Committee would use the six weeks until its next meeting to “take into account the cumulative tightening of monetary policy.” He added that a decision on July’s policy move has not yet been made. The upswing on Thursday shows investors remain willing to place bets on the overhang of uncertainty heading into the July FOMC meeting.

Still, Powell insisted that the central bank will likely raise rates further this year, and said the Fed will remain data dependent on a month-by-month basis. Stocks whipsawed throughout Powell’s comments on Wednesday.

“The key question for the market [now] is, can value and cyclical stocks catch up to growth and tech?” said Dylan Kremer, co-chief investment officer at Certuity. “If it does, then that momentum has the ability to help grind the market higher.”

In tech, shares of Microsoft and Oracle were higher with gains above 1%. Alibaba
stock climbed 2.5%.

Additional economic data releases Thursday morning gave investors and policymakers better insight on the strength of the labor market and consumer spending. Weekly jobless claims numbers were slightly above estimates at 262,000 compared to a Dow Jones estimate of 245,000, while retail sales ticked up 0.3%.

“While this policy decision indicates that the Fed has transitioned from the escalation stage of the rate cycle to the calibration stage, there is little question that the Fed is fully prepared to raise rates further in the future if needed,” said Marty Green, principal at Polunsky Beitel Green."

MY COMMENT

I dont know about the reasoning above....but my view......no one cares about the FED anymore. They TRASHED the markets for the entire past year and now everyone is sick of them and their BS. They are clearly at the end of their hikes....even if there is one or two more. Their POWER over the medium to long term markets is over.

 

Averages STILL doing very nicely today. As the markets give the FED......the middle finger.

 

Having just looked at my account for the first time today.....I have a nice gain going. So much for the FED impacting the markets today. Seven stocks UP.......and three DOWN. The DOWN stocks today.....AMZN, NKE, and NVDA.

If his rally continues to the close I would not be shocked if all ten are green by the end of the day.

NVIDIA is undergoing some profit taking today after the BIG run up in price above $400 over the past days. NKE is probably also seeing some short term trading profit taking after the +5% gain the other day. AMZN.....well....just doing what it seems to do lately.....lingering.

We are now heading toward locking in some MONEY today. BUT.....I dont discount the ability of the markets to turn on a dime based on some short term story-line and end the day in the RED. Short term is short term and OPAQUE.

 

As usual......what recession?

US economy shows 'more signs of strength than weakness' in latest data deluge

https://finance.yahoo.com/news/us-e...weakness-in-latest-data-deluge-160030799.html

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

"Investors digested a rush of economic data on Thursday which showed the economy continues to perform better than feared, particularly when it comes to consumer spending.

Thursday's rush of news comes just a day after the Federal Reserve paused its aggressive rate hikes but signaled two more increases would be needed this year. The weekly report on initial jobless claims showed some softening in the labor market, while retail sales beat expectations and manufacturing activity showed signs of resilience.

"There was a little for everyone, but more signs of strength than weakness," strategists at Bespoke Investment Group wrote in a note early Thursday following the news.

On the labor market side, jobless claims climbed higher than expected last week, a sign of a softening labor market. The number of Americans filing new claims for unemployment benefits reached 262,000, the highest level since October 2021 and higher than the 245,000 consensus estimated by economists.

Meanwhile retail sales, which are not adjusted for inflation, advanced by 0.3% month over month, versus estimates for a decline of 0.2%. Retail sales for May grew 1.6% year-over-year.

The print comes on the heels of the latest consumer price index which showed inflation cooling to 4% in May compared to the same month last year. Oren Klachkin, lead US economist at Oxford Economics, wrote in a note Thursday this report showed, "the recession will be delayed as long as consumers continue to spend."

On the manufacturing side, New York state factory activity data released Thursday showed a surprise rebound in orders and shipments in June. The Federal Reserve Bank of New York’s general business conditions index expanded the most in three years to 6.6. The reading surpassed most economists' forecasts.

Meanwhile a survey among manufacturers in the Philadelphia region showed manufacturing activity contracted in June for a 10th consecutive negative reading. However, "the index for shipments rose and turned positive. The employment index suggests steady employment overall," said the Manufacturing Business Outlook Survey.

On Wednesday, the Federal Reserve announced it would not raise interest rates for now, but signaled another two hikes could be in store later this year as it aims to cool inflation.

At issue for the Fed has been the continued strength in the US labor market, with jobs reports in both April and May far exceeding estimates.

Thursday's jobless claims data, however, indicates the number of Americans seeking unemployment benefits is ticking higher amid layoff announcements.

"If you want to think about the labor market, that's always the last shoe to fall. Once the labor market breaks, that's when you're in the recession," JP Morgan Asset Management global market strategist Jordan Jackson told Yahoo Finance Live on Wednesday after the Fed decision. "We're seeing signs that the labor market will start to come under pressure.

"I think the Fed should be done. I think further hikes, especially two more hikes potentially is overdoing it," added Jackson."

MY COMMENT

Looks good to me for the economy continuing to grow. BUT....even if we do at some point get a technical recession.....I expect it will be very mild and irrelevant to stock and fund investors. In fact....it might even be a good thing if it keeps the FED's hand off the BIG RED rate hike button.