One of the main complaints of market watchers has been the narrow breadth of the stock market. Few areas, besides the handful of tech stocks, have participated in the bull market this year. That has changed.

 

Biotech, crypto, financials, industrials, and even the staid healthcare sector have come to life this week. The Russell 2000 small-cap index outperformed as well. In the meantime, the Mag 7 and AI 5 marked time.

 

As I warned readers last week, I thought stocks were due for a little consolidation as traders took profits on some of the large gains accrued over the last two months. The fact that large-cap tech sold off and the markets barely budged was meaningful to me. It is an indication that there was a lot of non-tech buying under the hood of the averages.

 

The value of any one of three of the Mag 7 stocks (Microsoft, Apple, or Nvidia) is equal to the entire market capitalization of the small-cap, Russel 2000 Index. If all three were sold down at the same time (even a little), there needs to be an awful lot of buying in other areas just to keep the major averages afloat. That is what happened.

 

This week's most important data point was the Personal Consumption Expenditure Price Index (PCE), which is the Federal Reserve Bank's key inflation indicator. The PCE increased 0.3 percent month-over-month in January 2024. That was in line with market expectations. Prices for services went up 0.6 percent while goods decreased 0.2 percent. The monthly core PCE inflation, which excludes food and energy, edged up 0.4 percent.

 

All those data points came in as expected, and traders used that as an excuse to boost the market. However, nothing in the report would convince the Fed to cut interest rates in March at their next FOMC meeting on March 15-16, in my opinion. It may have been the smallest annual rise in inflation we've seen in three years, but it was still a rise. If anything, it justifies the Fed’s decision to wait until they see further headway on inflation before considering an interest rate cut.

 

The real star of the week was Bitcoin. The cryptocurrency breached $60,000 for the first time since November 2021 and came close to $64,000 before giving back some of its gains. Bitcoin is up more than 42 percent since the Securities and Exchange Commission approved spot exchange-traded funds back in January 2024.

 

With the move higher, Bitcoin has reclaimed its trillion-dollar status. But it has yet to top its all-time high made in November 2021. At that time, the coin surpassed $68,000 briefly as many panicky traders turned to the digital asset during the pandemic fears.

 

However, this week, it did hit an all-time high in 14 different countries with weaker currencies than the U.S. dollar. Some of the crypto bulls I follow predict we will break above the old high (after a pullback) and could see as high as $100,000 by the end of the year. I don't see why not.

 

We are at that stage in the markets where we could see an end to this bull run at any time. It could be today, two weeks from now, or ... The problem with that forecast is that everyone is saying the same thing. And what do the markets usually do in that situation — what is most inconvenient for the greatest number of people? In this case — up.

 

Last week we came close to my S&P 500 Index target of 5,140. Since then, we have traded down slightly, but momentum traders simply moved from buying tech to bidding up other sectors of the market. It is the financial equivalent of a game of moving chairs.

 

March is upon us, and it looks to me like we still have a little gas left in the tank. The charts say we can still go higher. Most technicians see this week's mild consolidation as no biggy. Yes, the markets are extended and overbought, but could get more so. Margin debt, which is a good indicator of speculation, stands at $702 billion as of the end of January. That is a lot of gambling money, but it is still lower than it was at the beginning of the two previous selloffs ($936 billion in October 2021, and $710 billion in July 2023). 

 

As I have written in the last few weeks we are no longer in the land of fundamentals. The markets are being driven by money flows. Momentum rules the day and as such, we could just as easily see 5,200 as we could see 4,800 on the S&P 500. I say enjoy the ride while it lasts and when we pull back buy the dip.

 

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.

At this point, few would question the economic impact that Taylor Swift has had on the world. The sheer level of spending the singer has triggered among consumers is breathtaking. The ripple effect of her business affairs has produced unexpected profits for many corporations and even countries worldwide. No wonder she is the only person from the world of entertainment to ever be on the cover of Time magazine.

 

In my day, Michael Jackson was the pop star who took the world by storm. The "gloved one" was the record breaker in the music and entertainment business every week. He made millions for himself and others. But Taylor Swift, the "anti-hero" singer who has captured the minds and hearts of millions, has largely eclipsed Michael Jackson's rise.

 

She toppled Jackson's AMA awards record at the American Music Awards recently while her Grammy awards have also broken records. Taylor's worldwide Eras Tour has garnered more than $1.04 billion which is the first tour in history to top the billion-dollar mark. She pulled in an additional $261.6 million worldwide from her movie, "The Eras Tour," thus far. That box office success also surpassed Jackson's total global take of $261.2 million for "This Is It" back in 2009. "Eras" is the highest-grossing concert or performance film of all time, recognized by the 2023 Guinness World Records.

 

However, the global impact of Swift has far transcended her economic successes. The level of spending, sales, engagement, viewership, and business synergy continues to reach new heights. Her work is benefiting countless industries, companies, and even regions throughout the world. Hotel chains, restaurants, clothing companies, transportation services, theatres, and even tourism have received substantial boosts from her endeavors. 

 

Swift has boosted business in far-off places such as Singapore where her concert has attracted thousands of fans from all over Southeast Asia. In Japan, her appearances are expected to generate more than $230 million, which would make it the country's biggest-ever musical event in terms of economic impact. Mexico saw a big jump in tourism as well during the concerts she gave last August.

 

Here at home, Swift has already generated $4.6 billion in consumer spending at last count and is expected to exceed $5 billion before the end of the year. Ticketing companies saw their stocks rise as her stadium appearances around the country produced more than $554 million in sales. Her concerts in Chicago spiked the hotel occupancy rate in Illinois with 44,000 rooms sold. Another record in her trail of records.

 

Probably the most popular episode in Swift's super-charged life is her romance with Kansas City Chiefs' tight end Travis Kelce. Their relationship blossomed as the NFL played in the background. Her appearance at games is credited with a 53 percent increase in viewership of girls between the ages of 12 and 17. That was most remarkable given the total amount of her available screen time during the Chiefs' games was a mere 0.46 percent. Kelce's jersey sales spiked 400 percent overnight. Fast forward to the Super Bowl.

 

Thanks to Swift's participation, brand awareness received by the Superbowl was almost 10 times the exposure an advertiser received in a 30-second commercial. That was worth about $9,500,000 in free advertising for the game. At the same time, this year's Super Bowl viewership increased to 123.4 million viewers versus 115.1 million last year. But among women ages 18 to 24 viewership increased 24 percent from last year, according to Sports Media Watch.

 

Swiftonomics is the word most often used to describe the global impact of Taylor Swift. It is a phenomenon that is so novel that a University of Kansas professor has recently created a curriculum called "Swiftynomics 101" to study the economics of the 34-year-old pop star's effect on the NFL.

 

The media would have you believe that everything Taylor touches turns to gold. That may be true, but it is not luck or accident that makes it so. Yes, her bank account now totals more than $1.1 billion by most estimates. But she has earned every dime of it.

 

She has written and sung 250 songs, and 10 albums beginning at the ripe age of 16. It may be the reason she has almost 500 million followers on social media. Her Eras tour consisted of 66 concerts in 20 U.S. cities and four cities in Latin America. There are still another 85 concerts left to do. She sings 44 songs per concert no matter whether she is "sick, injured, heartbroken, uncomfortable or stressed," according to her Time interview. To say she works her tail off would be an understatement. Bloomberg estimates she pockets $13 million every night.

 

For millions of children and adults, it would be hard to imagine a better role model than Taylor Swift. As for her economic acumen, the Kansas teacher is on target. I wouldn't be surprised to hear that Harvard or MIT has a case study or two for their next semester with Swift in mind.

 

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.

Stocks forged ahead this week, making new highs with technology stocks continuing to take the lead. Financial flows into equity buoyed the overall market despite some disappointing results in the U.S. government's Treasury auctions. 

 

Credit for the continued move higher must go to the number one AI stock in the world, Nvidia.

 

It was touch and go on Wednesday night as all eyes waited for Nvidia's earnings results. The Street was divided on which way the markets would go. It depended on whether this leading semiconductor company could beat estimates once again and deliver higher forward guidance on the world's demand for its artificial intelligence chips.

 

Both the Mag 7 and the AI 5 stocks spent the beginning of the week falling in fear that Nvidia results could not possibly top the results of the last two quarters. Strategists were warning that the entire market was at risk since the AI boom has been the main driver of the market's advance for more than a year. 

 

 The company's corporate earnings and sales not only fulfilled the hopes of the biggest bulls but super charged the price of every stock that was even remotely involved in the AI boom.   Nvidia hit a new high for the year on Thursday and Friday while triggering an almost 3 percent gain on the NASDAQ. The S&P 500 Index added close to 2 percent, although the Dow and the Russell 2000 small cap index did add far less.

 

And while stocks rallied, bonds did the opposite. The U.S. Treasury's 10-year bond yield has been climbing higher, reaching 4.319 percent. Bond buyers are insisting on higher returns, and they should, given the billions of dollars in bonds the Treasury is auctioning this quarter and next. In the recent past, this reaction in the fixed-income market would have put downward pressure on stocks, but not this week.

 

The need of the U.S. Treasury to sell more longer-dated bonds and fewer short-term notes is forcing the Fed into a quandary. While the Fed stands pat on raising interest rates any further, the Treasury auction sales are forcing yields higher anyway. If this continues, (and it will) at some point equity investors will start to pay attention. That would not be good news for the stock market. In an election year, this could spell trouble for the incumbent.

 

The Fed may be forced to somehow ease the situation, but how? They have already said that cutting Interest rates too soon might spark an upsurge in inflation. The obvious answer, therefore, would be to ease up on the pedal of quantitative tightening, which would inject more liquidity into the financial markets. That would be good for markets and presumably the President.  

 

But right now, momentum traders don't care about bond yields, the dollar, or even corporate earnings for the most part. As I explained to readers last week, we have entered a riskier period of the market that can deliver great gains and great losses in quick succession. The first half of the week saw stocks plummet in fear that one company's results would take the entire market down. Thursday and Friday delivered the opposite results.

 

The momentum in the U.S. stock market is beginning to catch on in global markets as well. Japan's benchmark Nikkei Index hit a record high this week beating the previous record set 34 years ago. Shares in Frankfurt, Paris, and Milan gained more than 1 percent while Europe's Stoxx 600 Index also hit an all-time high. Even China considered a basket case and the worst market around, has seen stocks gain over the last week or two.

 

This stock market rally is getting a bit long in the tooth. The last two rallies that occurred (between 2022 and 2023) lasted between 16 and 19 weeks, gaining 20 percent and 21 percent respectively. This present one is in its 17th week with a gain of 23 percent thus far. Could it run further?

 

Yes, technical charts say we can, even though we could see some short-term weakness ahead. It appears that financial flows into equity markets are still strong, so there is enough buying power available to fuel further upside. And so far, stocks have not fallen on good news, if this week is any indication. My first target remains 5,140 on the S&P 500 Index, and we are getting close to that level. A short-term pullback could be in the offing. 

 

But after that, a rally that extends into mid-March, or even April could see a few percentage points tacked on to this year's gains. Let's target 5,220 on the S&P 500 Index as a good guess.

 

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.

Valentine's Day has come and gone. About 92 percent of American consumers were planning to share chocolate and other candies for Valentine's Day this year, according to the National Confectioners Association, but the price tag for that heart-shaped box of chocolates may have left a bad taste in many a mouth this year.

 

Last year, chocolate sales exceeded more than $4 billion. It feels like I paid my fair share of that total. You see my wife, Barbara, loves chocolate, so giving a gift on Valentine's Day was easy. Along with flowers and a card, a generous amount of dark chocolate (but not milk chocolate) in any form — hearts, cups, dipped pretzels, bonbons, truffles — is sure to win the day. Her craving, however, transcends that one day, so chocolate is my go-to source for gift-giving on birthdays, and most holidays. As such, in this era of inflation, I have kept track of how much these sweet dark delights are costing me.

 

This year, I was not surprised to see candy prices continue higher. Retail chocolate prices have risen about 17 percent over the last two years, according to a report by CoBank, and I expect they will continue to do so. Why?

 

Cocoa, a main ingredient in chocolate, is responsible for much of the price rise. The price of cocoa hit record highs last week, just in time for Valentine's Day. Prices have doubled over the past year and are up 40 percent since January. This week cocoa futures prices continued higher to $6,030 per ton, another record high. The outlook for the 2024 growing season is worsening, which is leading to fears of a larger global deficit.

 

Cocoa, you see, is another victim of climate change. Poor weather and crop disease have afflicted the world's main cocoa-growing region, which is in West Africa. Massive rains followed by severe drought, coupled with wind, devastated the cocoa crop. Insects and disease followed shortly thereafter. This has led to the third year in a row where cocoa harvests have been coming up short.

 

But don't think that higher prices in the futures markets are making growers in Ghana and the Ivory Coast rich. Ghanaian farmers are receiving between $1,800 and $1,900 per ton and Ivorian growers even less ($1,600/ton), according to the Ghana Cocoa Marketing Co. In both countries, the government controls prices that farmers receive, which are based on prices that were current anywhere from 12 to 18 months ago. That is an unworkable system but that is another story.

 

It is the world's hedge funds that have reaped most of the benefits of this surge in prices. At the end of 2023, speculative traders began massing billion-dollar bets on cocoa futures contracts, gambling that this year's harvests would be poor as well. At this point, the hedge fund community has the largest risk exposure ever, according to the Commodity Futures Trading Commission, with more than $8 billion in futures positions.

 

Of course, with all these new traders jumping into the market, prices have soared, but so has volatility, making it even more difficult for processors to hedge their purchases. They need cocoa beans to make cocoa butter to supply chocolate makers. As a chocolate buyer throughout this period, I have noticed that big companies like Nestle and Cadbury have been raising prices consistently for the last two years.

 

Hershey, one of America's most loved chocolate makers, said product prices rose 6.5 percent in the fourth quarter, and 9 percent in all of 2023. The company is planning on cutting 5 percent of its workforce because price inflation is forcing consumers to pull back on purchases.

 

The bad news is that not only are cocoa prices continuing to rise, but so too are the price of sugar and wages. Both are key components in just about every chocolate factory including Willi Wonka's, where even Oompa-Loompas demand raises. I would expect that by Easter we will see yet another hike in chocolate prices and by Halloween, well, who knows? So, unless you discover a golden ticket inside your chocolate bar, I would buy it early.

 

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.

Forget fuel and food, auto insurance leads the way in areas where inflation is ramping higher. The rise in premiums has far outpaced the overall inflation rate and we could see further gains in 2024. 

 

Auto premiums are up 43 percent in the past three years and there is no sign the rate increases are over. In 2023 alone, auto insurance prices rose 19.2 percent, as registered by the Consumer Price Index (CPI). The January 2024 CPI data just released this week shows a 20.6 percent increase from last year. It is one of the greatest contributors to the inflation rate and exceeded the price gains in almost every other spending category.

 

Industry analysts' best guess is that we could see another 10 percent increase this year before prices plateau. As it stands, consumers are paying an average of $1,785 per year for full-coverage insurance, according to AAA. That is a big jump from the 2019 pre-COVID costs of $1,194. What is behind this spike in premiums?

 

Back in the pandemic lockdown period, insurance premiums fell. Many cars (mine included) sat for weeks in parking lots. For me, I used our second leased car so infrequently that I gave it back to the dealer. Accidents declined and the roads were empty.

 

For whatever reason, when people got back on the roads in 2020-2021, the accident rate skyrocketed, according to the National Highway Traffic Safety Administration. Nearly 43,000 people died on U.S. roadways in 2022 which was 6,000 higher than in 2019. Accidents, injuries, and fatalities continue to climb as drivers embrace riskier behavior behind the wheel. That behavior costs insurance companies a boatload of money.

 

And let's not forget car thieves. Motor vehicle thefts jumped 29 percent last year compared to 2022. Given the price of replacing a new or used car, insurance companies are paying out more than ever before. It has gotten so bad that some insurance companies have refused to cover certain coveted Kia and Hyundai models in select locations that have become hot-wire targets for droves of criminals. 

 

The profitability of the insurance industry has suffered. The Insurance Information Institute reports that auto insurers paid $1.12 in claims last year for every dollar they collected in premiums. In 2024, that should drop a little (to $1.09) thanks to premium price hikes, but it is still going in the wrong direction. There are even more reasons premiums are rising.

 

Thanks to supply chain disruptions, rising wages, and parts shortages, the costs of repairing or replacing a car damaged in an accident are much higher than it was in 2020. The good news is that the trend in auto body repair prices is reversing. From 12 percent gains in 2022, costs slowed to "only" 3.3 percent in 2023.

 

Add in the higher cost of paying out for car rentals. Throw in the additional costs of higher legal services, and medical care for injuries when required, and you are starting to get the big picture facing your insurance provider.

 

I'm not done. Natural disasters, many of which have been the result of climate change, are fueling higher premiums as well not just in states prone to hurricanes and wildfires. Rainstorms, hail, floods, blizzards — all manner of weather conditions — are causing more and more damage to our automobiles throughout the country. Insurers are resorting to more than price hikes to deal with these trends.

 

Many carriers are pushing customers to move from standalone auto policies to bundled coverage, while at the same time raising deductions in both homeowners and auto policies from $500-$1,000 to $2,500-$10,000. Underwriters are also getting pickier in vetting potential clients.

 

If you have had a claim over the last several years for water damage, for example, they may ask what you have done to mitigate future damage. Other companies are excluding family members from your auto policy who may have had more than one car accident in the past.

 

Insurance regulators are caught between a rock and a hard place. They are finding it difficult to keep insurance premiums low enough for drivers to afford them while keeping insurance companies solvent. And there are repercussions when regulators balk at granting premium increases.

 

There have been several instances where some large property insurance companies have simply stopped writing business in states such as California, Texas, and Florida. In some cases, this has affected the availability of auto insurance as well. Is there anything you can do to lower your bill?

 

You can shop around. Browse the internet. Talk to your friends to see what discounts are possible. Check out at least three companies, and maybe more, if you have blemishes on your record. Companies tend to penalize tickets and accidents differently, so you may get a wider range of price quotes.

 

Bundling your auto and property insurance is another way to go. Accepting higher deductibles can also lower your premiums but have a care if you go that route. Too little insurance defeats the purpose. Another idea is to opt-in to a usage-based program where an app monitors your driving and tracks things like distracted driving, harsh braking, or speeding. Switch auto insurance companies if it turns out you are overpaying, no matter how friendly you may be with your agent. 

 

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.