The Long Term Investor

Good news.

Fed expected to hold rates steady as Wall Street looks for signs of cuts in 2024

https://finance.yahoo.com/news/fed-...ooks-for-signs-of-cuts-in-2024-130033262.html

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

"The Federal Reserve is widely expected to hold rates steady Wednesday afternoon but stop short of telling markets the central bank is ready to start easing monetary policy after its most aggressive rate-hiking campaign since the 1980s.

While many Fed officials are feeling more comfortable that rates are likely at the right level to bring down inflation, most are still keeping the option of another rate hike on the table and suggesting rates will remain elevated for some time.

The Fed last hiked rates in July and has elected to keep interest rates unchanged for the past two policy meetings in a range of 5.25%-5.50%, a 22-year high.

Fed Chair Jerome Powell is also expected to strike a hawkish tone, similar to the message conveyed in his address at Spelman College earlier this month when he warned investors not to assume the Fed is finished raising rates and will soon turn to cutting.

Wall Street is pricing in an average of 100 basis points of cuts next year.

One reason Powell and other Fed officials may keep the possibility of rate hikes on the table even if they don't intend to use them is because they want to prevent financial conditions from loosening as inflation continues to drop closer to the Fed's 2% target.

The Fed’s favored inflation measure — the core Personal Consumption Expenditures index, which excludes volatile food and energy prices — clocked in at 3.5% for the month of October, down from 3.7% in September and 4.3% in June.

The Consumer Price Index on a core basis showed inflation rose 4% in November, at the same clip as in October.

The Fed will announce its final policy decision of the year at 2 p.m. ET, followed by Powell’s press conference at 2:30 p.m. ET.

Fed officials will release an updated Summary of Economic Projections, which includes its "dot plot" that maps out policymakers' expectations for where interest rates could be headed in the future.

Forecasts on inflation, GDP growth, and unemployment will also be released."

MY COMMENT

I expect that Powell will be strident in his commentary later today and will.....as usual......try to TRASH the markets going into the close. Will it work this time around......perhaps.

All the AI based trading systems operated by the big investment banks and others will be madly trading the micro second news and Powell comments. That will create a self fulfilling cascade with potential for market negativity going into the close. The good news....if it happens.......it will have no real staying power. It will simply be a one to two hour event that will be totally irrelevant by tomorrow.

 

Pre-earnings Costco stock is on a tear. A typical run up to earnings day and than a drop after? Possibly. But over the longer term this company is a MONSTER......a very loyal customer base.....massive profits from the membership fee.....great employees......and amazing management.

They are UP by over 1% today to another all time high $636 per share. Up as follows lately:

One day +1.02%
Five day +4.122%
One month +10%
Year to date +40.29%
Five years +207%

Come on man......I WANT MY STOCK SPLIT. At the minimum I want a Special Dividend this year.....although that will generate capital gains and taxes......so I would rather have the stock split.

 

A very good year this year for me as an.....ART COLLECTOR.

I collect American Impressionistic paintings and Western Art. Both markets are on fire with the Western Art market especially sizzling. New record prices at auction right and left this year. I cant say that art will keep up with stock returns......but.....for me it has been a significantly positive year.

We had two paintings in museum exhibitions this year. We added three nice oil paintings. We also added a number of pieces of bronze sculpture. We have an iconic bronze sculpture on the way right now......which will come out of our 2024 art budget. If we are lucky it will arrive about the first of the year.

I cant look at Art as an investment. BUT......I do look at it as an inflation hedge and as a part of the four leg stool that makes up our net worth. The legs of that stool are:

Stock Market investments.
Real property, our home which is free and clear.
Cash and cash equivalent, including our income annuities.
Art, antiques and personal property.

I am lucky to appreciate art, collectables, and antiques. It is nice to furnish a home with such items that do not just immediately depreciate to nothing as soon as you buy them. Even if they go down in value at times....they hold more value than any other sorts of home decor.

 

Powell is talking in the background as I type this. Markets are BOOMING. Here is why.

Federal Reserve holds interest rates at 22-year high, signals three cuts next year

https://finance.yahoo.com/news/fede...h-signals-three-cuts-next-year-190138119.html

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

"The Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%, the highest in 22 years, but signaled they will likely cut interest rates by a total of 75 basis points, or 0.75%, in the year ahead.

In September, the Fed's forecasts had suggested the central bank would cut interest rates by 0.50%. The Fed has moved in 25 basis point increments over the last year, indicating the central bank now expects to cut interest rates three times in 2024.

These projections come as the central bank now expects inflation to fall to 2.4% next year — down from 2.5% forecast in September — and drop further to 2.2% by 2025.

Wednesday's policy statement tweaked language leaving room for rate hikes.

"In determining the extent to which any additional policy firming may be appropriate," the statement read, "…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."

Earlier statements had not included "any" before the mention of additional rate hikes, suggesting the central bank is now biased against further interest rate increases. This policy meeting marks the third meeting in a row the central bank has held rates at current levels.

Fed Chairman Jerome Powell said at a press conference Wednesday afternoon that "we added the word 'any' as an acknowledgement that we are likely at or near the peak rate for this cycle," he said.

He added, though, that "participants did not want to take the possibility of further hikes off the table, so that’s what we were thinking."

Acknowledging progress in inflation, officials changed long-held language in the statement to note that inflation has "eased over the past year, but remains elevated." Previously, the central bank had merely referred to inflation as "elevated."

Officials also acknowledged in their statement the slowdown in the economy since the torrid pace of over 5% in the third quarter. The Fed sees the economy growing 1.4% next year, down a tenth from the 1.5% forecast in September.

Fed officials still see the unemployment rate rising to 4.1% next year.

Inflation, which the Fed is trying to cool, continues to drop closer to the central bank’s 2% target.

The Fed’s favored inflation measure — the core Personal Consumption Expenditures index, which excludes volatile food and energy prices — clocked in at 3.5% for the month of October, down from 3.7% in September and 4.3% in June. The consumer price index on a core basis showed inflation rose 4% in November, the same clip as in October.

The decision was unanimous."

MY COMMENT

WELL......hello Santa rally.

 

Here is the rest of the story.

Fed 'dot plot' shows central bank will cut interest rates by 0.75% in 2024

https://finance.yahoo.com/news/fed-...-interest-rates-by-075-in-2024-190734687.html

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

"The Federal Reserve kept interest rates unchanged in a range of 5.25%-5.5% at its final meeting of the year on Wednesday. Central bank officials also predicted rate cuts to come, with interest rates expected to tick down to 4.6% next year.

Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future.

Fed officials see the fed funds rate peaking at 4.6% in 2024, down from the Fed's previous September projection of 5.1%. That suggests the Fed will cut rates by 0.75% next year.

The Fed has moved in 25 basis point increments over the last year, indicating the central bank now expects to cut interest rates three times in 2024.

Immediately following the SEP's release, markets were pricing in a nearly 60% chance the Federal Reserve will begin to cut rates at its March meeting, up from 40% the day prior, according to data from the CME Group.

Seventeen officials predict a rate cut next year, with five officials seeing a decrease of more than 0.75% while just two see no cut. No officials see rates ticking higher in 2024.This month's expectations for rates next year were also less widely distributed compared to September's projections.

The forecast was also revised lower for 2023 to match the Fed's hold. As recently as September, officials had forecast one more rate hike this year. At the end of 2022, officials had projected interest rates would peak at 5.1% in 2023.

The SEP indicated the Federal Reserve sees core inflation peaking at 2.4% next year — lower than September's projection of 2.6% — before cooling to 2.2% in 2025 and 2.0% in 2026.

Officials see unemployment rising to 4.1% in 2024, matching the previous forecast. Unemployment is expected to remain at that level through 2026.

The Fed also sees a deceleration in economic growth, with the economy forecast to grow 1.4% next year — down from September's 1.5% projection — before picking up slightly to 1.8% in 2025 and 1.9% in 2026.

Stocks jumped materially on the heels of the decision as the 10-year treasury yield (^TNX) dropped about 11 basis points to trade near 4.1%"

MY COMMENT

 

On the news today:

10-year Treasury yield drops to lowest level since August as Fed forecasts easing rates 3 times next year

https://www.cnbc.com/2023/12/13/us-treasury-yields-investors-look-to-fed-rate-decision.html

Right now the yield is down to....drum roll please.....4.048%.

People that locked in CD and other cash equivalent yields a few months ago when rates jumped up to near 5%.....are in for a HAPPY NEW YEAR.

I think in hindsight....the rate jump a month or two ago....was simply pushed up by short term speculators acting in concert.

 

Of course just to confound investors......MSFT....is down by $2.95 at this moment. I dont see any reason why......this is the only story that I see today. Obviously this story is......NEVER-MIND.

Microsoft Stock Rises On Positive Analyst Reports

https://www.investors.com/news/technology/microsoft-stock-rises-on-positive-analyst-reports/

In just a few minutes now down by $3.22. Must be some news that I am not finding.

 

This is about all I see today that might explain MSFT being down in spite of the FED today.

Oracle's Latest Results Show Cloud Slowdown Despite Expansion Efforts

https://finance.yahoo.com/news/oracles-latest-results-show-cloud-190557772.html

 

With 25 minutes to go......DOW....above 37,000 for the first time in history.

 

Today and the markets today is why I am fully invested all the time. I guess soon........all the money siting on the sidelines will be entering the markets.

 

I had a nice fat gain today....another new all time high. I had six of seven stocks UP today and one that was unchanged.....MSFT....down by ONE CENT. Even with my good result I could not beat the SP500 today. I lost out to the SP500 by 0.17%. Who cares on a day like this.

I am looking forward to the rest of the week and curious to see how much follow through we see on Thursday and Friday.

 

I heard a guest on one of the business TV shows today say that the MAGNIFICENT SEVEN are in a category by themselves. Yes....they are.

Apple Hits Record High While Big Tech Stocks Rally

https://finance.yahoo.com/news/apple-hits-record-high-while-210433264.html

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

"(Bloomberg) — Apple Inc. shares closed at a record high on Wednesday amid a broad rally in technology stocks spurred on by bets that the Federal Reserve will soon begin cutting interest rates as inflation slows.

The iPhone maker’s shares climbed 1.7% to $197.96, surpassing its previous closing record set in July. The gain leaves the stock up 52% for the year, for a market capitalization of about $3.08 trillion, cementing Apple’s position as the world’s most valuable company.

Apple has rallied with other technology stocks over the past month as US Treasury yields have dropped amid signs that inflation is cooling and the economy remains resilient. That view was reinforced on Wednesday when central bankers held interest rates steady for a third meeting and forecast a series of cuts next year. The 10-year Treasury fell to the lowest since August during the session and is close to sliding below 4%.

The recent surge for Apple is a big reversal from October when the stock closed at the lowest in about five months amid concerns about revenue growth and sales in China.

Apple has seen revenue fall every quarter in fiscal 2023 relative to the same period the year before. Last month, it forecast that sales in the holiday quarter will be about the same as last year, disappointing some investors.

Wall Street projects that the company’s revenue growth will re-accelerate in 2024 as demand for smartphones, laptops and computers rebounds, according to the average of analyst estimates compiled by Bloomberg."

MY COMMENT

The Magnificat Seven are the guts of the world economy and the crown jewels of American business. Obviously I do not like Meta and I do not currently own TSLA.....but the other five.....I cant imagine not owning all of them. I do not foresee any time that I will own Meta. I have no current plans to add TSLA again to my stocks......

 

The Ten Year Treasury now sits at 4.024. A stones throw from going back into the 3% range. I see a strong chance that the Ten Year will go below 4% over the next 2-7 market days.

GOOD news for those that are in the market for a mortgage right now.

 

We are seeing follow through today....although we have backed off a little bit. A good start to the day.....now....where do we go from here?

 

I like this little article.

Maturity Wall or Wall of Worry?
Markets are taking corporate bond refinancing fears in stride.

https://www.fisherinvestments.com/en-us/insights/market-commentary/maturity-wall-or-wall-of-worry

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

"Young bull markets often come with a lot of yah-buts, and this one is no different. One we have heard a lot the past few months: Yah, the economy is holding up fine with high rates, but corporate bond markets face a giant maturity wall from 2025 onward, and having to refinance at higher rates will squeeze corporate cash flow and raise credit risk—with high-yield bonds facing the biggest headwinds. Like all theories, we can use markets to test this claim, and, well, we don’t think it passes.

While markets far-future events don’t materially sway stocks, and—breaking news—we are in 2023, 2025 is within the 3 – 30 month window stocks, bonds and other similarly liquid markets look toward. Therefore, if crushing refinancing needs in 2025 were a looming problem, we would likely see markets at least partly reflect it now. They wouldn’t wait to register the risk, especially such a widely watched one.

And, particularly, we would expect to see this in credit spreads—the premium investors charge for investment-grade and high-yield corporate bonds relative to 10-year US Treasurys, widely seen as the “risk-free” rate. A wider spread means investors are charging more for the added risk, implying they see those risks as greater. Narrower spreads, by contrast, mean lower perceived risk and therefore a lower premium.

So let us look at credit spreads since the end of 2021. As Exhibit 1 shows, they rose throughout 2022, with high-yield spreads enduring the greatest swings, largely mirroring the stock market’s moves. This makes sense, considering whatever concerns affected investors’ willingness to take stock market risk would naturally spill over to their willingness to lend to many of these same companies.

Yet high-yield spreads peaked in mid-July 2022, with their autumn spike not quite as high. Broader corporate spreads peaked that October, the day after the stock market’s bear market hit its low. Since then, high-yield spreads have mostly fallen, hitting year-to-date lows in December despite some temporary volatility along the way. Corporate spreads are flatter but still down on the year, too. This is the opposite of what we would expect to see if refinancing was a looming threat.

Exhibit 1: Corporate Credit Spreads Aren’t Flashing Red


Source: FactSet, as of 12/11/2023. ICE BofA US Corporate and High-Yield Index yields to maturity and Benchmark 10-year US Treasury Yield, 12/31/2021 – 12/8/2023.

It probably is fair to say that higher-for-longer rates contributed to high-yield bonds’ summertime swoon, which paralleled stocks’ correction on similar concerns. That is when chatter about the refinancing wall hit its apex. But this also tells us markets have seen these stories, heard fearful coverage, priced these concerns … and moved on, sending spreads below pre-correction levels.

As always, broad market aggregates aren’t representative of every company. Just as some S&P 500 constituents can have bad years or even bankruptcy during a stock bull market, it could well be that some individual companies face refinancing problems even as the vast majority skate through. But that isn’t unusual, and it isn’t some huge economic risk. Rather, it tends to be the market’s way of enforcing discipline and punishing bad business models, clearing room for more competitive firms to fill the void. It is a normal and healthy part of capital markets.

It also isn’t even a given that rates will still be so high in 2025 and beyond. Frankly, that is a big unknown. Maybe they will be. Or maybe waning inflation concerns keep Treasury yields tame. Maybe the Fed cuts rates a bit because it can. And it is also possible that we will have a recession and low rates come 2025 or 2026. We aren’t deeming this probable or even trying to estimate the likelihood, as we think doing so would be fruitless at this point (largely for the reasons documented by a former Bank of England economist in The Telegraph this week). But it is worth bearing in mind if only to really let it sink in that these refinancing wall claims depend on extrapolating high rates forward indefinitely. It is one possibility but far from the only one.

In the meantime, as ever, we suggest trusting the market. It is a wonderful sorting mechanism when it comes to long-running and widely circulated headlines like this. Stocks and bonds alike pre-price all widely known information, and this year that includes bond refinancing fears. Yet bond markets are signaling declining credit risk, suggesting the “maturity wall” is just one more brick in the wall of worry."

MY COMMENT

A good try to bring a new fear mongering topic into the current mix. Sorry.....not going to happen or matter. Companies that have good management know how to deal with this sort of stuff. Those that cant......well.....the business world is a big sorting machine. Companies that are not able to thrive simply go away.

 

And speaking of interest rates......right now The Ten Year Treasury......GASP....siting at 3.947%.

Looks like we are solidly back at the extreme low end of the historic chart for the Ten Year. According to the.....current market MYTH.....the big tech stocks should be booming since they are supposedly so interest rate sensitive.

I find it strange that when rates are up the big cap tech companies take a hit.....yet....when rates are down they dont move much.

This rate sensitivity is simply a big MYTH......there is no reason these companies would be sensitive to rates. Of all the businesses there are in the American economy the big cap tech companies are the most IMMUNE to rates. They all have massive piles of money siting there.