The Long Term Investor

This seems to be a forgotten topic.....but.....it is the most important component of the current economic recovery that is nearing completion from the pandemic business shut-down.

US Supply Chains are Recovering
After a Years-long Supply-Chain Crisis, Relief is Finally Here—Especially in Key Sectors like Semiconductors and Motor Vehicles

https://www.apricitas.io/p/us-supply-chains-are-recovering

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

"The early pandemic was dominated by acute supply-chain issues—hitting supplies of masks and PPE, then food and household essentials, then electronics and household durables, and finally spreading to virtually all consumer products. Americans were buying more goods than ever before while weakened global manufacturing hubs and congested international trade networks struggled to keep up the pace. A shortage of semiconductors and other electronic components wrecked complex manufacturing, especially the global car industry, while broad production constraints reached a fever pitch coinciding with the energy shortages of early 2022.

That supply-chain crisis put massive upward pressure on goods inflation—the price of manufactured goods in the US has risen 16% since the start of COVID, more than during the entire period from 1990 to 2020, with key durable goods like motor vehicles rising in price even more. Industrial output, GDP, and labor productivity were all hurt as producers struggled to source key inputs and keep their factories running.

Now, however, the worst of the supply-chain crisis is definitely behind us. Manufacturing output in key industries has recovered to pre-pandemic levels, materials shortages are abating, and international trade networks are normalizing. More than that, real goods consumption in the US has been stagnant for two years now, allowing time for manufacturing output to catch up—and actually driving a broad-based domestic industrial slowdown.

Cooling Capacity Constraints

The share of firms citing materials shortages or logistics constraints as a reason for running below full capacity has declined significantly according to recently-released data from the US Census Bureau. The share with a critically insufficient supply of materials has declined from a peak of 43% in Q4 2021 to 24% in Q1 of this year, while the share with logistics and transportation bottlenecks fell from 12.5% to 6% over the same time period. While both of these metrics would represent crises by pre-pandemic standards, they are nonetheless massive improvements compared to the state of supply chains just one year ago.


In addition, lead times for production materials—the time between order and delivery and a key shortage indicator—have shrunk significantly from early 2022 highs. On average, input lead times are hovering near 85 days compared to a peak of 100 days and a pre-pandemic average of roughly 70 days. Prices for a wide range of early-stage production inputs have likewise declined over the last year, the first such deflationary impulse since early 2021, and a further sign that input shortages are alleviating.


However, supply constraints remain disproportionately concentrated among high-complexity electronics and durable goods manufacturing industries even as they ease. The share of computer/electronics manufacturers citing materials shortages as a constraint on output remains near 50%, while equivalent numbers for electrical equipment, machinery, and transportation equipment (mostly car) manufacturers remain above 35%—among the highest for major industries.


Indeed, there are only four input commodities that remain in short supply according to US manufacturers—down from more than 35 at the peak in mid-2021. Plus, three of the four inputs—semiconductors, electronic components, and electrical components—have been continuously in short supply for two and a half years at this point, indicating just how long acute supply shortages can persist.


However, it is now clear that the worst of the semiconductor shortage is over, with the share of US computer and electronics manufacturers citing materials shortages falling to the lowest levels since mid-2021. Likewise, the share of transportation equipment manufacturers citing materials shortages as a production constraint has fallen to the lowest level in two years.


More frequent and up-to-date data on US car production shows a near-complete recovery—total motor vehicle assemblies reached the highest levels since mid-2020 last month, with light truck assemblies notching a new all-time record high. That corroborates data on the easing of the chip shortage we’re seeing across the globe—European car output hit the highest level since 2020 in February, Japanese car output is at the highest level since 2021, and Mexican car output is at a record high. Those supply improvements should hopefully continue passing through as lower prices, especially in the used car market where wholesale data suggests prices have fallen 3.2% in the first half of June.

The End of the Goods Demand Boom?

The initial US supply chain crisis has to partially be understood as a crisis of abundance—it was not simply that COVID impaired production abilities and logistics networks, but also that Americans were consuming significantly more goods than could reasonably have been expected by producers before the pandemic. By early 2021, US real durable goods consumption had jumped 20% above pre-pandemic levels, condensing roughly 4 years of normal growth into just 12 months. Globally, this was highly unusual, with the increase in US goods consumption making up the vast, vast majority of the total rise across the OECD, and holding well above pre-pandemic levels even years throughout 2021 and 2022 thanks to America’s heavily stimulative positive mix and rising spending power among lower-income households that put more of their consumption towards goods. Yet we are now in 2023, and the boom in goods spending has slowed down considerably, with real consumption being mostly flat for two years straight and essentially back in line with the pre-pandemic trend.


The waning of consumer spending amidst the easing of supply constraints has left domestic manufacturers increasingly more demand-constrained than supply-constrained. The share of plants citing insufficient orders—usually the dominant reason for running below full capacity—as a constraint on production has risen for three straight quarters and now sits at the highest level since early 2021. It’s also worth noting that labor constraints have remained more binding than materials constraints even as they ease, indicating how relatively tight the job market remains.


Plus, that weaker demand has also led to an ongoing slowdown in US manufacturing output—essentially all of the regional Fed manufacturing activity diffusion indices have remained decidedly negative for the bulk of the last twelve months, indicating an ongoing contraction in output. Headline manufacturing production is still down 0.3% over the last year despite a 10% jump in the output of motor vehicles and parts. There are some signs that manufacturers are getting more optimistic about a future rebound, and the recent recovery in volatile New York Fed data is a good sign, but the dominant recent industrial dynamic has been one of slow contraction.

Conclusions

The buildup of US manufacturing capacity in the wake of the CHIPS Act and Inflation Reduction Act is also continuing at a record pace—domestic construction spending reached an annualized rate of nearly $190B last month, more than 50% of which is going to computer and electronic manufacturing facilities like semiconductor fabricators. There has also been a notable boom in transportation equipment manufacturing construction as carmakers start building out US electric vehicle supply chains and responding to incentives from the IRA. In other words, large capacity increases are in the pipeline for the industries that were most affected by recent supply-chain issues.

The underlying motive for subsidizing those domestic manufacturing investments was to counter inflation by building out aggregate supply to meet elevated demand. At the moment, it looks like much of that capacity will arrive too late to make a significant difference for current supply chain troubles—in upstream inputs like semiconductors, demand has already cooled to such a degree that output has contracted in many foreign production centers. Yet the US has pursued a similar path as many countries in the wake of the pandemic-era supply chain crisis—investing large sums in capacity, hoping to build resilience and strength in supply chains as a buffer against possible future crises."

MY COMMENT

ALL of the economic data was severely impacted by the supply chain issues. It was the PRIMARY cause of inflation and employment distortions.

It took much longer than I anticipated to resolve. We are FINALLY just now seeing these issues over with. This......NOT THE FED......is the primary reason inflation is dissipating and the economy is improving. It is also much of the reason behind the continued good stock earnings and the current BULL MARKET

Yet.....in typical fashion.....it is rarely mentioned.

 

A typical LINGERING open today. We have now turned POSITIVE but the old headlines have not been updated yet.

S&P 500 is little changed as market rally stalls

https://www.cnbc.com/2023/06/21/stock-market-today-live-updates.html

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


"The S&P 500 was little changed on Thursday.

The Dow Jones Industrial Average dipped 12 points, or 0.04%. The S&P 500 was flat, and the Nasdaq Composite
gained 0.18%.

Investors this week are taking profits on some of the winners that have been leading the stock market’s breakout. Tesla shares were down 2.4% after the second major Wall Street bank in as many days downgraded the high-flying retail trader darling that has doubled this year. Morgan Stanley analyst Adam Jonas, a longtime Tesla bull, revised his rating Thursday to equal weight from overweight. He said the stock presents “a more balanced risk reward” after its rally.

Elsewhere, Boeing supplier Spirit AeroSystems dropped 10% after the company halted production in its Kansas facility. This follows a worker strike announcement, set to start Saturday. Separately, Boeing
shares also dropped 3%.

The S&P 500
slid 0.5% on Wednesday, marking its worst daily performance in June. The equity benchmark is now down 1% week to date, on pace to break a five-week win streak. This comes after the broader market index hit its highest level in more than a year last week.

Wednesday’s decline came as Federal Reserve Chair Jerome Powell after more rate hikes are likely ahead to combat inflation, pouring cold water on investors who had hoped the central bank was close to the end of its tightening cycle.

“Powell said lowering inflation has a long way to go and that could very well mean that they won’t stop until the fall,” said Edward Moya, senior market analyst at Oanda. “If other central banks seem poised to deliver more than a couple rate hikes, that might make it easier for the Fed to remain aggressive with tightening.”

The Fed kept rates steady at last week’s policy meeting after 10 consecutive hikes. However, officials indicated there could be two more quarter-percentage point increases this year.

Powell will deliver his Semiannual Monetary Policy Report to the Senate Banking Committee on Thursday morning. Investors will look for further comments on inflation and interest rates.

Investors digested higher-than-expected weekly jobless claims data Thursday morning. The Labor Department reported first-time filings for unemployment benefits totaled 264,000 for the week ended June 17. Economists polled by Dow Jones were expecting a total of 256,000."

MY COMMENT

As NORMAL of a day as possible. PLUS....absolutely nothing going on in terms of media fear mongering. It is so nice to be seeing a "normal" market recently.

 

A bit of economic data for home buyers and sellers.

Home sales barely budge from April to May in sluggish spring market

https://www.cnbc.com/2023/06/22/home-sales-flat-may.html

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

"Key Points

• Home sales inched higher in May from April, according to the National Association of Realtors.
• High interest rates, inflated prices and tight supply are weighing on the traditionally busy spring market.
• Compared to a year earlier, sales fell more than 20%.

Sales of previously owned homes were essentially flat in May compared with April, according to the National Association of Realtors.

They rose 0.2% to a seasonally adjusted, annualized pace of 4.30 million units. Compared to a year earlier, however, sales were 20.4% lower.

The slow spring sales pace is a combination of still-high prices, higher mortgage rates, and a critical shortage of homes for sale.

There were just 1.08 million homes on the market at the end of May. That’s 6.1% lower than the supply in May of last year. At the current sales pace that represents a three-month supply. Six months is considered a balanced market. Before the Covid pandemic hit, there were nearly twice as many homes on the market.

“Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector,” Lawrence Yun, chief economist for the NAR, said in a release. “However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019.”

May sales are based on closings – that is, homes that likely went under contract in March and April. Mortgage rates were choppy during that period. The average contract interest rate on the popular 30-year fixed mortgage started March over 7%, then dropped sharply close to 6% briefly before then heading higher again, spending most of April around 6.5%.

Strong demand has kept a floor under home prices, which would normally drop more given the slow sales pace. The median price of an existing home sold in May was $396,100, which is 3.1% lower than May 2022. Prices rose in the Northeast and Midwest but fell in the South and West.

This is the largest price drop in just over a decade, but it is a median measure, which skews the price toward the type of home that is selling the most.

Right now, lower-priced homes are seeing the most activity. While sales of homes in all price tiers are now lower compared with a year ago, sales of homes priced between $250,000 and $500,000 were down 12%. But sales of homes priced between $750,000 and $1 million were down 21%. Other price indices that measure repeat sales of similar homes are showing prices rising again.

The pull between strong demand and tight supply is keeping the market competitive. Nearly a third of properties sold above list price. Properties remained on the market for 18 days in May, down from 22 days in April but up from 16 days in May 2022. Nearly three quarters of the homes sold in May were on the market for less than a month.

“With fewer homeowners poised to become sellers in 2023, buyers have a tough road ahead,” said Danielle Hale, chief economist for Realtor.com. “Our revised 2023 outlook expects that there will be some positives, namely, a gradual decline in mortgage rates beginning midyear and a continued softness in home prices that will start to stabilize high housing costs.”

The start of the summer housing season is shaping up much like the spring, with slower sales due to lack of supply. In a separate report from Redfin, a real estate brokerage, pending home sales fell 16% from a year earlier during the four weeks ending June 18. Pending sales are based on signed contracts, not closings.

Despite slower sales, Redfin’s measure of requests for tours and other early-stage buying services from is up 11% year over year. There are simply more buyers than homes for sale, as new listings are down 24% from a year ago, and the total number of homes for sale is down 8%, the biggest drop in over a year."

MY COMMENT

A very challenging market for buyers. Sellers.....they dont care......they are refusing to list and are on strike since they dont want to give up their low interest loans.

It is creating a very nice environment for the big builders with new homes for sale and the typical incentives they can give on financing.

All in all.....BAD NEWS....for buyers that are trying to get into built out neighborhoods that are high end and have superb school systems. You can still buy in these areas....but there will NOT be any bargains.

 

I hear the TV people talking about BUD stock. I also continue to see people calling what is happening a boycott.

I am fascinated by this event. SADLY for BUD.......this is NOT a boycott. I am in a lot of bars and around a lot of drinkers.....and.....I dont see or hear anything about a boycott.

What I see happening......as a marketing person......is a sudden, catastrophic, consumer behavioral change by BUD customers. This is bad news for BUD since it is not just going to peter out over time. I believe this is a permanent change in consumer behavior.

This is the greatest marketing BLUNDER in history. It is also a TOTAL failure of management to practice proper damage control.

 

The market GREEN continues....at least in the SP500 and the NASDAQ. It took a while for the markets to turn green today.....but this open reminds me of the market action over the past couple of weeks. If we follow that same pattern we will close in the GREEN today....at least for the SP500 and the NASDAQ.

I see the market direction over the near term as EXTREMELY positive. There is nothing going on in terms of news. Economic data will continue to be mildly positive. I have every reason to expect that EARNINGS will be good over the next couple of quarters.....at least better than all the so called experts say.

AND.....the big one.....what else is anyone going to do with their money? Stocks and funds are basically the only game in town....and.......the BIG, SCARY, market has now been replaced by a BULL MARKET. It will take a while for people to come out of hiding....but slowly and surely the money will flow into stocks and funds over the rest of the year.

 

Another bit of economic data today......as if anyone cares.

U.S. jobless claims hold steady at 20-month high, current account gap widens

https://www.reuters.com/markets/us/...h-high-current-account-gap-widens-2023-06-22/

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

"June 22 (Reuters) - The number of people filing for state unemployment benefits for the first time held steady at a 20-month high last week, remaining elevated for a third straight week in what may be an early indication of a softening labor market in the face of the Federal Reserve's aggressive credit tightening.

Data from the Bureau of Labor Statistics on Thursday showed 264,000 new claims were filed for jobless benefits on a seasonally adjusted basis in the week ended June 17, unchanged from the prior week's upwardly revised level, which is the highest level of initial claims activity since October 2021.

The median expectation among economists polled by Reuters was for 260,000 new claims.

Meanwhile, the ranks of all those continuing to receive benefits beyond the first week fell to 1.759 million in the week ended June 10 from a revised 1.772 million the week before. The latest reading compared with a median economists' estimate of 1.782 million so-called continued claims.

The government also reported that the U.S. current account deficit - the broadest measure of the flow of goods, services and investments into and out of the country - widened modestly in the first three months of 2023, snapping three quarters of narrowing.

The Commerce Department said the current account gap grew to $219.3 billion in the first quarter from a revised $216.2 billion in the fourth quarter of 2022. Economists in a Reuters poll had estimated it widening to $217.5 billion."

MY COMMENT

Meaningless to stock and fund investors in general. BUT....for anyone that cares....here you go. This is as good as it gets for news today.

 

My account is looking good right now. Nine of ten stocks are UP at the moment. My single loser today is.....HON. I also have a nice "medium" level gain for the day.....so far.

"So far"......is the key phrase since we have a long way to go till the close today. It would be nice to balance out the first two market days of this week with a couple of GREEN days today and tomorrow.

Step by step....day by day....we slowly move forward in the markets. EVENTUALLY it all adds up to the long term.

 

At least we are having fun once again this year. Last year was a BRUTAL year of simply ENDURING the markets day after day.

That is how it works as a long term investor. You enjoy the markets and investing most of the time. BUT....every so often you get hammered by a negative year and environment.

As a long term investor you just have to endure. Over the long term the positive years will significantly outnumber the negative years. This is just the price you pay for being invested and being able to capture every single gain that the markets will provide to you over a lifetime.

 

Yeah....Intel used to be like NVDA....in the old days. They were the DOMINANT name in the chip business. I owned them for many years back than. I cant remember when I sold them....probably in the late 1990's or early 2000's. They were the POSTER CHILD for Moore's Law back in the old days.

"Moore's law is the observation that the number of transistors in an integrated circuit (IC) doubles about every two years. Moore's law is an observation and projection of a historical trend. Rather than a law of physics, it is an empirical relationship linked to gains from experience in production."

https://en.wikipedia.org/wiki/Moore's_law

 

WELL.....WELL.....a really good day for me today. A nice big gain in my account. I had eight of ten stocks UP today. In the RED were....NVDA (slightly) and HON. I also got in a very nice beat on the SP500 by 0.97%.

The end result today reminds me of the days we were seeing over the last two to four weeks....with the DOW red and the other averages showing nice gains.

 

Here is the close today.

S&P 500, Nasdaq rise to end 3-day losing streak as investors snap up tech shares

https://www.cnbc.com/2023/06/21/stock-market-today-live-updates.html

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

"The Nasdaq Composite and the S&P 500 rose Thursday, snapping three-day losing streaks as investors resumed buying tech stocks.

The tech-heavy index rallied 0.95% to 13,630.61, while the S&P 500 rose 0.37% to 4,381.89 — both closing near session highs. Meanwhile, the Dow Jones Industrial Average was lower by 4.81 points, or 0.01%, to 33,946.71.

“The Nasdaq is higher today but then again, it was off yesterday,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “Equities appear to be in pause mode. The tug of war between bull and bear market camps is balanced, which implies uncertainty and increased volatility for the foreseeable future.”

Investors snapped up some major tech stocks that got dinged this week. Tesla shares closed higher, despite falling earlier in the day, even after the second major Wall Street bank in as many days downgraded the high-flying retail trader darling. Shares have more than doubled this year. Morgan Stanley analyst Adam Jonas, a longtime Tesla bull, revised his rating Thursday to equal weight from overweight. He said the stock presents “a more balanced risk reward” after its rally. Meanwhile, shares of Amazon were higher by more than 4%. Microsoft rose 1.8%. Apple hit a fresh all-time high late in the day, rising more than 1%.

Elsewhere, Boeing supplier Spirit AeroSystems dropped more than 9% after the company halted production in its Kansas facility. This follows a worker strike announcement, set to start Saturday. Separately, Boeing shares also dropped more than 3%, weighing on the Dow."......"

"Better news for contrarians. Bullishness fell and bearishness rose in latest AAII survey

Bullishness toward stocks over the next six months fell to 42.9% in the latest American Association of Individual Investors’ weekly sentiment survey, down from 45.2% last week, while remaining above the historical average of 37.5% for a third consecutive week.

Meanwhile, bearish opinion grew to 27.8% of respondents from 22.7% — which was the lowest since July 2021 — but stayed above the historical average of 31.0%, also for a third week. Neutral opinion narrowed to 29.4%, the lowest in seven weeks.

The AAII survey results were in contrast to the Investors Intelligence poll posted earlier this week that showed bullishness among financial newsletter editors continuing to expand, to 54.3%, a fresh 19-month high and up from 53.4% last week.

Contrarian investors look for rising bearishness as a sign of diminishing risk in the stock market, arguing that more pessimism means most investors are done selling and hold ample amounts of cash to eventually push prices higher. The reverse is true at times of growing bullishness."

MY COMMENT

YES.....a very nice day today. I especially LIKE the contrary indicator above. It is fine with me if investors want to be BEARISH. The longer the better. I dont understand it......but.....I LIKE IT.

 

Looks like the short sellers...."the professionals".....are out to kill the rally.

Short sellers are betting more than $1 trillion against US stocks after big run

https://finance.yahoo.com/news/short-sellers-betting-more-1-222209512.html

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

"

• Total US short interest exceeded $1 trillion as of last Friday, S3 Partners data shows.
  
  
• The top five shorts are mega-cap tech stocks Tesla, Apple, Microsoft, Nvidia and Amazon.
  
  
• That comes after big stock market gains so far this year.

US short interest this month rose to the highest level since April 2022, as investors bet that the current bull run in stock market is set to falter.

According to data from S3 Partners, the amount spent by short sellers against US stocks hit $1.02 trillion, as of Friday. Those bets came even as the continued to rally earlier this month, costing short sellers $101 billion.

S3 data shows that the top shorts are Tesla, Apple, Microsoft, Nvidia, and Amazon. As of Friday, their collective short interest topped $83 billion.

The bearish sentiment results from skepticism on how much higher stocks can go. So far this year, the S&P 500 is up 13.5%, and the Nasdaq is up 29%.

But since the Federal Reserve last week indicated more rate hikes are on the table this year, stocks have been on a losing streak.

This year, Wall Street has been caught up in hype over artificial intelligence companies, which saw their valuations skyrocket and have brought more investors into the market due to "fear of missing out."

But big names have voiced divided outlooks on the AI frenzy. For instance, while Stanley Druckenmiller sees Nvidia as a stock worth holding for the next couple of years, short seller Jim Chanos has demonstrated skepticism towards the stock.

Meanwhile, the prospect on continued hawkishness from the Fed has added to macroeconomic risks. A recent Goldman Sachs report put the odds of a recession in the next 12 months at 25%, and warned a downturn could cause a 23% decline in the S&P 500.

Still, if bullish investors win out, short positions could eventually support market gains, as a short squeeze forces more buying and boosts stocks."

MY COMMENT

MORONS. They will play their little games....trying to manipulate the markets (legally?) by dropping story lines to their media buddies. The negative crescendo is going to be EPIC.

BUT....in the end they will fail. They will WIMP OUT just like they always do......and as they do......the result will be exactly the opposite of what they want as they are caught in a HUGE SHORT SQUEEZE.

This is all simply short term "stuff"......the regular investors and little people....WILL simply wait them out as long term investors.

Now the article that I posted earlier about all the negative sentiment makes sense.

 

Here is exactly what I mean in the above comment.

A recession is coming by year-end and stocks will struggle amid elevated risk of an 'unknown unknown,' JPMorgan says

https://finance.yahoo.com/news/recession-coming-end-stocks-struggle-002653253.html

Good old JP Morgan.

Nvidia Stock Could Be Headed for a Fall. One Firm Explains Why.

https://finance.yahoo.com/m/1090ce0e-7466-314f-b354-2adce42081f5/nvidia-stock-could-be-headed.html

Of course consider the recent day or two ago TSLA downgrade.

AND....dont forget good old Goldman Sachs

The S&P 500 could sink 23% in a recession, so investors should consider some downside protection, Goldman Sachs says

https://finance.yahoo.com/news/p-500-could-sink-23-012336945.html

These people are so transparent and PATHETIC. It is actually funny. I could post this stuff all day long. BUT.....why bother....these people have absolutely ZERO impact or relevance on the returns of long term investors.

 

Ignoring the markets today. So I will post this instead.

The Dollar Isn’t That Mighty

https://www.fisherinvestments.com/en-us/insights/market-commentary/the-dollar-isnt-that-mighty

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

"Dollar swings don’t dictate stocks’ direction.

Is the dollar pushing the stock market around? Many think so, with some pointing out last year’s strong dollar coinciding with weak stocks—and vice versa this year. They see the dollar’s moves as causal—and new. But in our view, this purported power of the US dollar is misplaced and the misperception is old. The greenback’s relative strength or weakness doesn’t drive stocks’ direction.

Now, stocks’ struggles last year did coincide with a strong dollar, and many attributed the latter to Fed rate hikes. The rationale is logical: All else equal, money flows to the highest yielding asset, so the Fed—which out-hiked other major central banks last year—likely contributed to an extent to a stronger dollar. From January to mid-October, the dollar rose 11.0% against a trade-weighted basket of currencies while the S&P 500 endured a bear market, falling -24.5% over the same stretch. Moreover, US stocks’ rebound (7.8%) for the rest of the year coincided with the dollar falling -5.2%, and that has continued in 2023. Year to date, the S&P 500 is up 15.2% and the dollar is down -2.1% against other major currencies.[ii] Based on this, some think currency fluctuations will dictate stocks’ fate going forward.

We agree the dollar and stocks have an interesting relationship, but it isn’t that the former drives the latter. As we discussed last month, when stocks fall, investors tend to seek stability (i.e., what some call a flight to quality). The dollar fills this role well thanks to its deep, liquid capital markets, and in our view, investors sought this sanctuary during last year’s bear market. Moreover, when a downturn ends and stocks recover, the dollar tends to weaken—as it has since October last year, which has aligned with stocks’ rebound. This isn’t a causal relationship, though, in our view—it is coincident, based on sharp sentiment swings around inflection points, which is largely what seems to drive the moves in both assets.

Consider: If a strong dollar was inherently bad for stocks, history should confirm as much away from troughs and early recoveries. But the past paints a more nuanced picture. During the 1990s bull market—a terrific time to own stocks—the dollar rose 33.9% from April 1995 – August 1998.[iii] The greenback also got buff for a good chunk of the 1982 – 1987 bull market, strengthening relative to other major currencies from January 1982 – September 1985.[iv]

Likewise, there have been stretches of a weakening dollar andfalling stocks. From August 2007 – July 2008, the dollar fell -9.5% against a trade-weighted basket of currencies—and over that same period, the S&P 500 fell -12.3% (and entered the 2007 – 2009 bear market in October).[v] Or go back to 2002: The dollar fell -6.1% from February’s end through mid-July as stocks plunged -23.2%.[vi] The latter was mired in the throes of the 2000 – 2002 bear market, but the weak dollar didn’t jumpstart a recovery—stocks bottomed in October.

In our view, currencies and stocks are similarly liquid markets and pre-price all widely known information close to instantaneously. Said another way: Currency traders don’t possess special insight over stock investors, and may actually be the same people in some cases. Rather, the asset classes have different demand drivers. We think stocks focus mostly on the probable economic and political conditions over the next 3 – 30 months and how they align with expectations. As we have written, sentiment played a huge role in last year’s bear market. Investors grappled with fear after fear, from elevated inflation and supply chain issues to energy shortages and recession projections. In our view, the strong dollar resulted partly from that prevalent pessimism, fueling false fears of its impact moving forward. But treating coincidence as causality is an investing error as old as the hills, and we think conflating currency swings as a stock market driver is just that."

MY COMMENT

As a long term fundamental investor....I really dont care what the dollar is doing. This is simply another piece of economic data and I dont ivnest based on economic data.

As an investor.....if you get caught up in the economic weeds....it will drive you crazy. You will be seeing all sorts of confusing connections that in reality are NOT there. It will lead to extreme complexity......when....you should be seeking SIMPLICITY as an investor.

 

I like this little article.

The Bulls Are Back In Town

https://ofdollarsanddata.com/the-bulls-are-back-in-town/

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

"It’s official. The S&P 500 is up over 20% from its October 2022 lows and we’ve technically entered a new bull market:


But, before you break out the champagne, there are a few things that you should consider about this new bull market we find ourselves in:

• We still aren’t at all-time highs. As much as I want to celebrate the recent rise in stocks, the S&P 500 is still in a drawdown. The index closed at a record of 4,796.56 on January 3, 2022 and hasn’t seen that level anytime since. Even if we include re-invested dividends, the S&P 500 is about 6% off its highs:

A year ago I blogged about the frequency of false rallies during bear markets and we may be experiencing such a fakeout today. I don’t say this because I’m pessimistic about the future, but because drawdowns can last longer than we might imagine.

• Inflation is still higher than normal. Though the annual inflation rate hit a recent low of 4% over the past year, we are still in an environment where individuals are dealing with the effects of rising costs. We see this both among consumers and investors.
  • According to the Federal Reserve 2022 report on the Economic Well-Being of U.S. Households, “more adults experienced spending increases than income increases” over the past year, with 23% of adults reporting that their spending had increased but their income had not.
  • For investors, the impact of inflation has been equally troublesome. Though U.S. stocks are only 6% below their all-time highs on a total return basis, once we adjust for inflation, the actual drawdown is closer to 15% (according to Robert Shiller’s data). This means that even if U.S. stocks hit new all-time highs, we would still have a way to go before our purchasing power fully recovered.
  • Overall, while inflation does seem to be slowing down, the damage it has caused is already done. We can’t escape the fact that we need 18% more money today to buy the same set of goods that we could’ve bought in January 2020. Though the data is moving in the right direction, we should still be weary of inflation’s long-term impact.
• This is the most concentrated bull market maybe ever. Even though a new bull market is upon us, it’s being driven by an exceptionally small number of stocks. As S&P Global recently noted, so far in 2023 the entire gain in the S&P 500 can be explained by just 7 companies:

If we removed these 7 companies from the index (orange line pictured above), the S&P 500 would be flat on the year. There’s plenty of research demonstrating that a small number of companies drive the vast majority of the market’s overall return. For example, I highlighted one such piece in Just Keep Buying:


As Hendrik Bessembinder found in his paper “Do Stocks Outperform Treasury Bills?”: “the best-performing 4% of listed companies explain the net gain for the entire U.S. stock market since 1926.”

But, is this true on a year-to-year basis? Are a small percentage of stocks responsible for the index’s gain during a typical year?

I don’t know the answer to this because I don’t have the data on the list of companies included in the S&P 500 over time (along with their returns). However, I did look into this for a few recent years where the S&P 500 had a positive return and here is what I found:

• 2017: 203 stocks (40%) accounted for the index’s gain.
• 2019: 328 stocks (65%) accounted for the index’s gain.
• 2020: 60 stocks (12%) accounted for the index’s gain.
• 2021: 258 stocks (52%) accounted for the index’s gain.
• 2023 (through May 31): 7 stocks (~1%) accounted for the index’s gain.

After seeing this data, it’s quite apparent that our current rally is a major outlier in terms of its lack of market breadth. In other words, a very small number of companies are driving all of the gains and that isn’t normal.

More importantly, these companies are some of the biggest ones out there. As the chart below illustrates, this is the most that megacap stocks have outperformed small stocks going back to 2002:


When you combine the current drawdown, the possibility of further inflation, and the high amount of market concentration in our current rally, you can see why I’m hesitant to take a victory lap for the new bull market. Though I’m always bullish in the long-term, I’m not necessarily bullish in the short-term. And while I just wrote about how down & sideways markets (like the market we are in today) tend to have higher future returns, it’s possible that this time is different.

I don’t say this to scare you or because I plan to change my investment strategy if this turns out to be correct. No, I say it because I have to mentally prepare myself for what may come. Because if I don’t, then I might abandon my beliefs when the going gets tough. You might do the same as well.

Because choosing an investment philosophy is only half the battle. The other half is sticking to it. In my case that philosophy is Just Keep Buying or “the continual purchase of a diverse set of income-producing assets.” I understand that Just Keep Buying is easier said than done. Because you don’t buy income-producing assets in a vacuum. You buy them in the real world where the media can influence you, where your friends can influence you, and where your family can influence you.

The trick is not to let them. The trick is to find something that works for you and tune everything else out. For me that means analyzing historical data and understanding how markets have behaved in the past. This doesn’t change how I invest that often, but it does help me keep an even keel with my emotions.

And right now my mind is telling me not to get too excited because we may have a long road to recovery ahead of us. Though the bulls are back in town, the bears haven’t gone into hibernation just yet."

MY COMMENT

YES....plenty of bears out there in the world of investing right now. That is just how it works. That is also how every BULL MARKET starts out.

The key point of the above article is to have an investment plan and stick with it. If something works for you and keeps you investing for the long term.....just do it.

Dont get caught up in the day to day drama. KISS......keep it simple stupid.