The bears are prowling the corroders of Wall Street. No one questions that, but rallies in downtrends can be breath-taking. Look for one of those short covering relief rallies in the coming week.

 

Do I know that will happen? Of course not, but when we get as oversold as we are now, the chances are high. If we do bounce in a relief rally it would trace out the first up to the center of my "W" pattern. The bounce won't last long, maybe for a few days or, at best, next week. And then down again. For those readers who may be hoping that at some point we will resume the bull markets of the last decade, give up that notion.

 

I fully expect another low that may match or break the year's low of S&P 500 Index of 3,877 made this week. Readers were forewarned last week that the index could (and did) break my 4,000 targets. There were several reasons for this bearish behavior.

 

The inflation numbers were the key trigger. On Wednesday May 11, 2022, the Consumer Price Index came in hotter than expected at 8.3 percent. For the month, the index gained 0.6 percent. The data disappointed traders who were gambling on a cooler set of numbers that might confirm that inflation was peaking.  But instead of carrying the market up 5 percent, or more, the opposite occurred.

 

The Producer Price Index, which was reported the following day, did come in a bit weaker at a11 percent increase year-over-year, and 0.5 percent for the month. The lack of "inflation peaking" evidence squashed hopes that the Fed might be tempted to go easier in their hawkish policy plans, so markets tumbled. 

 

For many investors a bearish assault on the market's "Generals" was of far more concern. The bears have torn apart the Meme stocks, the Cathy Wood stocks, and every other high-priced, no earnings, kind of security they could sell or short. However, this week traders came after the Generals — Apple, Microsoft, Meta, Amazon, Google and even Tesla.

 

As company after company during the last quarter's earnings season provided poor future guidance in sales and earnings, investors are wondering how long it will take for the Generals to add their voices to this growing chorus. Many investors are not waiting around to find out. Price declines in these individual stocks has had a knock-on effect in the market, since they comprise such a large weighting in the overall investments of so many mutual funds and exchange traded funds. As such, the further they decline, so goes the stock market.  

 

I have been waiting for this kind of behavior, because without it there is no hope that we can find a bottom in the stock market. The problem is that this selling has only just begun for many of these stocks. remember that in many cases, the more speculative stocks are down 60-80 percent from their highs.

 

The Generals are nowhere near this kind of decline. Do I think we will see the price of Apple, for example, cut in half or more? Doubtful, but another 10-15 percent might be a real possibility. That is important since Apple is about 7 percent of the S&P 500 Index, and 13 percent of the NASDAQ Index.

 

As I said, I am expecting a relief bounce this week. It is just another bear market bounce, one of many we can expect as markets search for a bottom. Readers may ask where do I see that bottom?  This week we briefly touched my target of 20 percent on the S&P 500 Index at 3,858. The NASDAQ hit my targets weeks ago and has suffered further declines. 

 

I expect we will need to retest that 3,858 level on the S&P 500 Index level. If it holds, I might feel confident that we have made an interim low that could last out to September. That said, May, I believe, is the month to pick up some good bargains as we continue to dip and bounce in this "W" formation. I am hoping that by June, we can see a better market with some hope of putting together a string of higher highs for two months or so.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The impending Supreme Court decision to strike down Roe v. Wade will have enormous ramifications for American corporations. Legal issues, user data privacy practices, and workforce challenges will prove impossible to ignore.

 

Businesses of all kinds face the following facts: most Americans (53 percent), according to a recent Washington Post-ABC News poll, believe the Supreme Court is wrong and that the court should uphold the landmark ruling that established a constitutional right to abortion. Only 28 percent believe it should be overturned.

 

Nonetheless, if the Supreme Court hands down its expected decision to overturn Roe v. Wade, 13 states have trigger laws banning abortion that immediately go into effect. Another 14 states have more restrictive abortion laws that will kick in at the same time. Since about half of the U.S. workforce is comprised of women and given that one in four U.S. women will likely have an abortion by the age of 45, this will have legal ramifications for a vast number of companies.

 

How, for example, will companies domiciled or headquartered in one of those anti-abortion states contend with a female workforce who may disagree with the courts and their resident states' decision? What if a portion of a company's female workforce want to transfer out of these states?

 

And while some states will limit or make abortion illegal, other states such as Massachusetts, New York, and California will be moving in the opposite direction. They are planning on becoming sanctuary states for women who desire abortions but can't obtain them without travelling out of state. That could leave businesses in a political tug of war between various states. Companies such as Yelp, Amazon, and Citibank (among others) have already promised to reimburse employees who travel for abortions. Legally, that may fall into a gray area depending on a state's interpretation of their anti-abortion legislation.

 

Conservatives in Congress have already begun to retaliate against those companies that they perceive as pro-abortion companies. Citigroup, one of the largest banks in the U.S., has been targeted by conservatives who want the House and Sente to cancel the company's contracts to issue credit cards to lawmakers. 

 

In Texas, a state lawmaker introduced a bill that would prevent companies who provide their employees with abortion-related benefits from doing business with local governments. In Florida, Disney has already felt the economic backlash of Gov. Ron DeSantis' campaign against the LGBTQ+ community. U.S. Sen. Mark Rubio introduced a bill, the "No Tax Breaks for Radical Corporate Activism Act," which would prevent employers from deducting travel expenses for their workers' abortions. This is in direct response to Citigroup, Apple, Yelp, Levi's, Match Group and Amazon, who have already announced they plan to reimburse travel costs to access abortion if their employees live in a state where it becomes illegal.   

 

Technology companies have even more difficult issues to deal with. Dozens of large tech companies are headquartered in the states preparing to ban or restrict abortions. In the anti-abortion states, legal enforcement of the new laws may mean that user data could be a tool to enforce and pursue those who break those laws.

 

User data is often bought and sold by third parties who then use that information to effectively target advertising. This data normally includes the location of a person's phone, the applications they use, (for instance, ride-hailing), and the user's search history. There is also an array of health tech, femtech and other medical-based applications that track and target women, their menstrual cycles, medications, and sexual activity. All of these apps, while promising privacy, are not immune from law enforcement and a court's subpoena power.

 

Could a local sheriff's department subpoena the IP address of someone or some organization they suspect are violating or have violated the statutes of new anti-abortion laws? Could state authorities demand tracking data from a tech company like Facebook, Apple, or Google that may or may not show visits to an abortion clinic out of state?

 

I know this is beginning to sound like the workings of a police state such as one would find in China or Russia, but given the background, it is reasonable to at least plan for the worst. Companies may try to downplay the significance of this issue, but the end of Roe v. Wade will open up the question of protection of health-care access for their workforce.

 

As has been shown in the past, consumers identify with companies and their brands that support their causes, while an employees' identity can be tied to ethical positions of the companies they work for. About the only good thing one can say is that companies still have a little time to plan and decide their response. The clock is ticking.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Market participants heard from members of the Federal Reserve Bank this week. Their intention is clear: bringing down inflation will take precedence over everything else in the economy. The message went over like a lead balloon.

 

You would think that most investors would have received that message by now.  I know that I have been warning readers of this outcome since last year. But for most market participants this seems to be a shock given the positioning in the stock market this week. It was nothing short of tumultuous.

 

We started the week by retesting the lows we put in for the year. The S&P 500 Index hit 4,062 on Monday, May 2, just 10 points higher than the previous low. 

Stock indexes subsequently careened higher into Wednesday's FOMC meeting, expecting that whatever announcements on Fed tightening had already been discounted. That triggered a "buy on the news" event. It was the same strategy traders used after the last Fed meeting in March that saw stocks gain for weeks afterward.

 

The maneuver worked again — at least for the day. The indexes soared well over 2 percent-3 percent between the time that Fed Chairman Jerome Powell started his press conference at 2:30 and the markets close at 4 p.m.

 

Did he say anything that could have triggered such a move? The only comment that could be construed as new information was Powell's intention to limit monthly interest rate hikes to 50 basis points or less, rather than the 75 basis points or higher many investors expected. On Thursday, May 5, the markets tore down the entire gain and then some. Friday, we continued the downward spiral. What happened?

 

One can only guess that investors were spooked by how much monetary tightening is going to negatively impact the economy and earnings. Investors are now asking at what price level markets should be trading given the unknown future. Obviously, investors determined that level should be lower. How much lower?

 

My own target has already been met for a third time (as of Monday's and again Friday's retest of the lows). Can it go even lower? Yes, some strategists have targets as low as 3,650-3,750 on the S&P 500 Index. In a market where the VIX index is still trading above 30, the swings in markets are such that we can easily overshoot on the downside to those levels.

 

We are now in a period of bottoming that will look like a sloppy "W" pattern that will play out into sometime in June. I suspect it will take a few days for investors to come to an agreement on at what index level stocks represent better value. That level could be around my target low, or somewhat lower.

 

Take that time to pick and choose where you want to "Play in May" as I said last week. I expect that over the next two weeks we could see the 4,370 level on the S&P 500 Index and then down again into early June and then up again. If you can't stand that kind of heat, stay out of the kitchen.      

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Investing in cryptocurrency has been legal in some retirement accounts since 2014. Few if any entities, however, have offered savers this option. That may be changing.

 

The IRS issued Virtual Currency Guidance back in 2014. Since then, cryptocurrencies have been considered acceptable assets for self-directed IRAs (SDIRA) and Solo 401(k)s. A self-directed IRA, which represents less than 3 percent of all IRAs, is a type of Individual Retirement Account that can hold a variety of alternative investments normally prohibited from regular IRAs. It can invest in things like precious metals, real estate, private placements, and cryptocurrencies. It is directly managed by the account holder, thus the term "self-directed."

 

These SDIRAs are generally only available through firms that offer specialized custody services. There are additional fees involved as well due to additional compliance and IRA requirements. It is also your responsibility to abide by all the rules governing your investments, and if you fail to adhere to them, you could lose your SDIRA's tax deferred status.

 

You face the same annual contribution limits as traditional, or Roth IRAs, and you can roll over funds from a normal IRA or 401(k) to a self-directed IRA.

 

If you are buying Bitcoin or other currencies in your SDIRA keep in mind that doing so involves three components: A custodian holds your IRA and is responsible for its safekeeping, along with ensuring your accounts adheres to regulations set by both the IRS and government. This is the typical role financial institutions provide to holders of traditional IRAs.

 

An exchange, which is a different financial institution than regular stock exchanges, manages your cryptocurrency trades. In addition, a secure storage solution is necessary to protect your cryptocurrency purchases. This is necessary considering the number of hacking cases that have occurred in the cryptocurrency world. Many firms that offer SDIRAs also provide proprietary secure storage methods for Bitcoin.  

 

If you are self-employed, you can use a Solo 401(k) to buy cryptocurrency. The Solo is a unique retirement plan designed for self-employed individuals and small business owners. If you are eligible, you can establish a self-directed Solo 401(k) along the same lines as a self-directed IRA. You are bound to the same rules on contributions, and withdrawals that govern traditional 401(k)s.  

 

As for those who would like to invest in cryptocurrencies in their traditional 401(k)s, Fidelity Investments announced last week that it will begin allowing investors to do just that. It is the first large scale retirement plan provider to do so, but I expect it won't be the last. Fidelity is the largest player with more than $2.4 trillion in plan assets for 23,000 companies.

 

That is good news, but there is a catch. While Fidelity may offer this opportunity, it is up to your company, as the plan sponsor, to agree to it.  That could be a tall order, since most companies that offer 401(k)s take their role as a fiduciary very seriously. The fiduciary must ensure that the plan is being run in the best interests of the participants. Plan fiduciaries tend to be a conservative lot at best. Some could call them stodgy. Most are seen as a sober voice of reason. As such, it may be a stretch to believe that your company is going to simply okay buying Bitcoin, or some other crypto offering, in your 401(k) anytime soon.

 

Fidelity recognizes this and has tried to reduce the risk somewhat by limiting crypto purchases to 20 percent of participant plan savings. It is an amount that plan sponsors can reduce further if they so choose.

 

The government may also provide a roadblock. The Department of Labor (DOL) is not convinced cryptocurrency is a good idea in retirement plans. The DOL is expected to open an investigation of plans that offer participants access to investments in cryptocurrencies. It is planning to ask fiduciaries to demonstrate how they meet their required fiduciary duties of "prudence and loyalty" when choosing a cryptocurrency option for their plan participants. That challenge may be enough to deter many companies from considering cryptos in their investment menu.

 

I asked Berkshire Money Management's Zack Marcotte, the best Certified Financial Planner I know, what he thought of buying crypto currencies in retirement accounts.  Here is what he said:

 

"Traditionally 401(k) providers avoid such aggressive holdings out of fear of being sued. Adding crypto to a 401(k) is appealing for younger more growth orientated investors. Investors considering crypto in their retirement accounts should know transactions carry high fees (and should avoid frequent trading) and limit how much crypto is owned to no more than a few percent of your total portfolio. Remember, the most successful investors aren't those that know all the right investments, they're the ones that avoid catastrophic errors."

 

Sage advice. I think that it will take some time before the combination of government caution and fiduciary reserve can be overcome in most retirement plans. As for your own company plan, a trip to your human resources department to make your preferences known might be helpful, but don't hold your breath.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

By now, you may have noticed that something doesn't look quite right on your grocery shelves. Could be that bag of chips, or maybe that roll of toilet paper seems to have shrunk? Let me assure you it is not your eyes; we have all come down with a bad case of shrinkflation.

 

Shrinkflation is an actual term, according to Wikipedia, which means "a rise in the general price level of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold." I must admit that, until recently, the shrinkage that has now become commonplace in most grocery stores and supermarkets, thanks to a generational high in the inflation rate, went largely unnoticed in my weekly food shopping.

 

Most shoppers are like me in the sense that we tend to be price sensitive. The explosion in prices has caught my attention, and I have written about it at length. It's not hard when a pound of ground beef today now costs as much or more than a pound of sirloin steak did a year ago. But while I may keep track of the price, I don't usually notice the size or weight of the container, at least until recently.

 

My ignorance is commonplace among many consumers. We fail to realize we are paying more for some of our regular purchases since the price appears to be the same. That is because companies are reducing sizes on countless products, while keeping prices the same.

 

I use a certain brand of mouthwash, which arrives from Amazon automatically every few months. This month, I noticed the price has skyrocketed, while the size of the bottle was reduced by one third. I was shocked, angry, disappointed. Needless, to say, I canceled my automatic delivery.

 

I admit, my major weakness in shopping (especially for food) is that I do not bother reading the fine print on the size, or weight of a product. Unless the size of the container has drastically changed, I usually don't notice — until now. I mentioned toilet paper, but all kinds of paper from tissues to paper towels are not only going up in price, but also contain less sheets per package.

 

After decades of stable prices, the highest inflation rate in decades has companies scrambling to keep customers happy, but at the same time survive rising costs across their product lines, while staying competitive with companies selling similar products. As an illustration, when my favorite company brand of almond milk reduced their container size, while keeping its price the same, I switched to a competitor's product that offered better value.

 

"Family Size" can also be a concept you might want to re-examine. The average size of a U.S. family has been increasing, according to the U.S. Census Bureau. My assumption was that when I buy a "Family Size" package I am getting a discount off the price because I am buying more chicken or a larger portion of something. That is no longer the case in many supermarkets. The price might be the same, but the amount of product you get has been greatly reduced. Buyers beware.

 

In a world of escalating inflation, depending upon the company, profitability is being squeezed dramatically. Stock market investors are parsing through companies' income statements, looking to sell stocks in those companies that are having difficulty passing rising costs onto consumers. Equity investors are looking for profit margin expansion, not contraction.

 

Many corporations have three options: raise prices directly, take a little bit out of the product in separate shrinking waves and hope customers do not notice, or reformulate the product with cheaper ingredients. This practice has been going on for over a year.

 

Bounty paper towels, Doritos, Wheat Thins, Gatorade, certain brands of vitamins, among other well-known products, have all experienced shrinkflation in 2021. Many more have jumped on the bandwagon this year, as inflation continues to climb.

 

Downsizing products isn't cost free, however. Shrinkflation needs to be worth it. In many cases, reducing the weight and/or number of items in a product may require redesigning product packaging. That, in turn, may require purchasing the machines to make it. Business managers need to make cost analysis decisions on whether to spend millions of dollars to invest in new machines, approve new designs, and wrestle with supply chain issues just to make a package slightly smaller. Reducing the number of chips by five in a 9.25-ounce package of potato chips or shrinking a 4.1-ounce tube of toothpaste to 3.8 ounces may not be worth it without significant price increases tacked on as well.

 

I may not like it, but quietly downsizing products is legal in the U.S. Companies can generally price and package their products whenever and however they want. It is my choice whether to buy it or not.

 

Selling less of their product in the same packaging for the same, or even higher, prices without telling me borders on unethical in my book, but in the end, it is my responsibility (and yours) to remain an informed consumer, even more so in a world of rising inflation.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.