Geopolitical risk, inflation, higher for longer, rising bond yields, take your pick. There are several reasons for the stock market sell-off. The bad news for investors is that after a counter-trend bounce, the selling should continue.

 

There are at least half a dozen reasons why the markets were down again this week. If you have been following my columns, you know that I have been expecting this decline for weeks. The truth is that this pullback is long overdue. I believe it is a healthy, if painful, development that could last a few weeks.

 

I am not discounting the reasons for this decline. The attack on Israel last weekend was gut-wrenching. My next-door neighbor was in Jerusalem at the time visiting relatives, and spent Saturday night in a safe room, while we crossed our fingers and waited for some word from him while watching CNN with his wife.

 

All week investors have been waiting for the next shoe to drop. Thursday night Israel hit back, but with some restraint. Overnight stock futures tumbled, but by Friday morning regained their losses. I believe geopolitical risk will be with us for the next few weeks, keeping markets on edge.

 

As a result, the dollar, gold, and U.S. bond yields continue to rise. To make matters worse, this week Fed Chair Jerome Powell said the last three months of higher inflation data will likely delay interest rate cuts further. Some are even talking of a possible interest rate hike.

 

Pullbacks, corrections, sell-offs, call it what you will, markets are a self-correcting mechanism. One can predict easily that every year, there will be several declines in the stock average that can vary from a few percent to 10 percent or more. Since we haven't had a real pullback since October of 2023, this one may feel especially painful.

 

As readers know, I first started looking for this decline back in February, but the Fed's changing stance on when they might loosen monetary policy postponed the decline. In the first quarter of this year, Fed Chairman Jerome Powell, and his band of FOMC members, had lifted investors' hopes that there could be as many as three rate cuts this year if the data cooperated.

 

That set off a momentum trade in stocks that lasted well into March. As the weeks passed and stocks became more and more extended, I raised my target on the S&P 500 Index to my most bullish line in the sand, 5,240. The index surpassed that level by about 20 points about two weeks ago. Since then, we have sold down until today, the S&P is roughly 5 percent below the highs.

 

Stocks have dropped every day this week. The three main indexes are deeply oversold. The technical charts say that we should expect a counter-trend rally, commonly called a dead-cat bounce. Unfortunately, the probabilities indicate that a bounce will not signal the selling is over. I had been forecasting a 7 percent-10 percent decline and I am sticking with that forecast. That would bring the S&P 500 Index down to 4,820-4,850.

 

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.

If you haven't noticed, the price of large appliances continues to climb. What's worse, in a year or two, many find that the costly smart refrigerator, oven, or washing machine in your kitchen is suddenly plagued with all kinds of problems. What happened to the concept of quality?

 

In the last two years, my wife and I have had to purchase a new refrigerator and washer. The guy who delivered them warned me that it was just a matter of time before the dryer went as well. None of these items were more than 10 years old. I credit Rachel Wolfe of The Wall Street Journal for explaining why.

 

There seem to be three factors behind the shorter life span of these household goods. Computerization, an increase in the number of individual components that go into each appliance, and the quality of materials overall. Let's take the refrigerator, as an example.

 

Back in the day, I can remember my mom having to shut down the fridge every six months or so and scrape off the ice that had built up in the freezer. Those days are gone. Manual defrost gave way to frost-free refrigerators that came with a bunch of new parts like heaters, fans, and sensors to automate the defrosting process.

 

The dawning of the 2000s saw a breakthrough in both energy efficiency and precise temperature control by replacing thermostats with digital computer control. All that was required was to add another batch of components and parts, mostly electronic, such as relays, capacitors, and solder joints to the old ice box.

 

Another factor impacting all appliances, not just refrigerators, was the industry-wide transition to lead-free solder in 2006. Environmentally, the benefits are obvious, since it eliminates toxic lead, however, the new solder requires stricter control over manufacturing processes and better design practices to ensure long-term reliability. This has resulted in an entirely new series of challenges to your neighborhood repair person to figure out what parts need to be repaired while others may need to be replaced.

 

In the meantime, George Jetson would be proud of the advancements. Appliance manufacturers keep coming up with wonder after wonder. Icemakers, touchscreens, and chilled water dispensers are built into refrigerator doors. I fully expect my fridge to be able to sing Zippity Do Dah in its next reincarnation.

 

The same trend is occurring in other appliances. New smart ovens offer induction, convection, air fry, steam, dual-fuel, and touch control. Washers and dryers promise smart technology integration with features such as in-washer faucets, dirt level and fabric type sensors, steam closets, removable agitators, cold water wash technology, and even add-on filters for microplastic capture.

 

While all these features enhance functionality, the number of valves, pumps, electrical connections, electronics, and such make something created to keep things cold now takes a rocket scientist to figure out, let alone repair. I confess that I still can't figure out how to switch the icemaker from simply dispensing water to giving me a cup full of ice. What's worse is that a blip in the icemaker can cause a systemwide failure and put your fridge down for the count. It has happened to me.

 

I am not alone. My appliance repair guy said his industry is seeing a ton more items in need of repair. The Wall Street Journal article confirmed that and found that Yelp helped users request 58 percent more quotes from thousands of appliance repair businesses. American households spent 43 percent more on home appliances last year than 10 years ago, even though prices have declined during that same period. One of the main reasons for this discrepancy is there has been a higher rate of replacements. Twenty-five years ago, the average homeowner replaced appliances every 12-13 years. Today it is every eight to nine years.

 

As most readers know, getting someone to repair your appliance is an expensive and time-consuming process. House calls are roughly $250 per visit before any work is done. You can easily spend almost as much repairing an appliance as buying a new one. Manufacturers know that consumers are unlikely to invest in costly repairs. Therefore, many companies prioritize cost-effective production methods over repairability. Products that are not meant to be taken apart and fixed can be made cheaply with less expensive parts and materials.

 

In addition, replacement parts can be a game of brands. Premium brands tend to provide extensive spare parts support for their products, but even the best can require a week's wait or more. Cheaper brands, normally sold in budget stores and some box stores, often offer limited or no spare parts availability. They are designed to be disposable with your money back, or a new appliance if it is still under warranty. If not, you are out of luck.

 

In summary, the appliance market today "ain't what it used to be." One of my neighbors just ordered a dishwasher from Home Depot. They only drop it off. Now she needs to find a plumber to uninstall and cart away the old one and install the new one. There's not much anyone can do about it but if you still have that old freezer or fridge in the basement, I would keep it.

 

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.

"One's a dot, two's a line, three's a trend," is how the saying goes. When applied to the inflation data this week, it spelled bad news for the financial markets.

 

Over the last two months, inflation showed increases in both the Consumer Price Index (CPI) as well as the Producer Price Index (PPI). This week, the March CPI data came in warmer than investors had hoped (0.4 percent versus expectations of 0.3 percent). The PPI was slightly below forecasts, but the monthly core index matched expectations. Not good.

 

Economists might say the jury is still out on calling a backup in the inflation rate, but traders shoot first and ask questions later. Stocks fell on the CPI release. The U.S. Treasury Ten-year bond yield breached 4.58 percent and the dollar gained more than one percent. The data squashed any hopes that the Fed would cut interest rates in June.

 

Economists were forced to take a big step back from their rosy forecasts of an imminent loosening of monetary policy. It was a far cry from January when many thought we would see as many as seven interest rate cuts by the end of this year.

 

FOMC committee members have been giving speeches and interviews over the last two weeks. Some have been sounding the alarm. Their message was clear: fewer (if any) rate cuts could be expected unless there was further progress on the inflation front.

 

To be clear, Fed Chairman Jerome Powell has not changed his tune quite yet. He still expects to cut interest rates sometime this year, but exactly when would be data dependent.

 

The bulls, however, have not given up on their rate-cut thesis. They have just pushed back the timing to July or maybe September. I must wonder whether the exact timing of this rate cut, if it occurs, really makes a big difference to the economy.  I will go a step further and question whether the Fed needs to cut interest rates at all given the growth in the economy and the strength in the labor force. By cutting rates too soon, the Fed would create what most fear — a resumption of inflation. Remember, inflation is still out there. It is only the rate of increase that has declined.

 

Some believe that the fix is in. In an election year, the incumbent usually does everything possible to boost the economy. Cutting interest rates would help the cause, so the pressure will mount for the Fed to do something soon. That seems too easy to me. I believe the Fed will do what the Fed's got to do and be damned if there is fallout from the politicians.

 

As for the markets, I have been pleased by the performance of the "catch-up" trade I had predicted at the beginning of the year. Precious metals, especially gold, have hit new highs. Silver has also performed well. Basic materials, especially copper, and some soft commodities such as coffee and cocoa have soared. Energy, Industrials, and financials have also done better than the S&P 500 Index.

 

We hit a high of 5,264 on the S&P 500 Index back on March 28 (about 20 points higher than my target) but since then the averages have drifted lower. I expect markets to continue to consolidate over the next week or so with a good chance of further pullbacks if we break 5,140 on the downside.

 

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.

Recently, several studies, combined with macroeconomic data in both the private and public sectors, have revealed that immigration has benefited the economy in recent years. In a politically charged election year, the facts are often ignored as hyperbole takes over. 

 

In my last column, I reminded readers that demonizing migrants is nothing new in American history. In a country that is constantly looking for someone to blame for their troubles, immigrants stand the test of time. One prominent candidate has even claimed that migrants are "not people in my opinion."

 

In a recent Wall Street Journal national poll in late February, 20 percent of voters ranked immigration as their top issue. That places immigration as the nation's No. 1 or 2 issue. But concern over an influx of immigrants predates 2024.

 

 Back before the onset of COVID-19 in 2020, the flow of immigrants into the U.S. was slowing. The ebb and flow of government policy changes had once again turned against immigration. It was fueled by the changing mood of a vocal minority of Americans and the executive actions of a former president that resulted in roughly 1.5 million fewer working-age immigrants entering the U.S.

 

At the outset of the pandemic, as the country closed its borders, the number of entries fell further creating a shortfall of well over 2 million immigrants. At the same time, the U.S. economy was in freefall, unemployment rose to double digits, and the stock market swooned. It was left to a new administration to pick up the pieces and handle the COVID crisis. Fortunately, aggressive fiscal stimulus policies, coupled with the development of vaccines, and central bank easing were enacted to jump-start the economy.

 

It worked. But the sudden spike in demand outpaced the economy's ability to respond. The failure of global supply chains contributed to that dilemma. The labor force was not up to the task either. Millions of Baby Boomers retired. In addition, many workers were forced to stay home to take care of children. Some simply avoided the workplace to avoid getting sick.

 

In times like this, the shortfall in labor would be normally filled with migrant workers but because of past policies, many entry-level jobs went unfilled. Inflation skyrocketed. The new administration did what it could by rolling back many of the former government's immigration restrictions. 

 

Now four years later, we have discovered from a variety of public and private sources both legal and illegal immigration not only boosted the growth of the U.S. economy but may well have played a hand in reducing the worst impacts of inflation.

 

March's nonfarm payrolls data released last week showed a huge gain in employment. Economists' estimates were for 200,000 jobs gain, but 303,000 jobs were reported instead. Most analysts attributed the difference to immigration hiring. At the same time wage growth slowed from 4.3 percent to 4.1 percent as many of those jobs were in entry-level positions.

 

This comes as no surprise to those looking at the facts. The U.S. foreign-born labor force has been growing so fast that it has practically filled the labor gap that was created by the pandemic, according to the Federal Reserve Bank. Economists at the central bank considered immigration as instrumental to the astounding growth rate of the economy. Over the last year, about half of the labor market's recent growth came from immigrants, according to federal data analyzed by the Economic Policy Institute.

 

The Congressional Budget Office predicts the U.S. labor force will grow by 5.2 million people by 2033 due to net immigration. That surge will tack on another 2 percent of real GDP by 2034. Those immigrants will produce $7 trillion more wealth over the next decade than the country would gain without them. The data is so convincing that in a research note, Goldman Sachs recently upped its forecast for growth due to the increased number of immigrants in the labor force.

 

Goldman has raised its growth rate to 2.7 percent and argues that GDP was stronger in 2023 because immigration ran well above the historical average (by 1.5 million migrants) and will come in above trend in 2024 (by 1 million jobs). JP Morgan has also noticed the economic benefits of recent immigration claiming that immigration over the last two years accounted for a lot of the increase in U.S. consumption.

 

Of course, the benefit of immigration on the economy could reverse quickly, depending on the policies enacted after the elections in November. For example, many immigrants both legal and illegal are entering the country through an important loophole in the immigration laws. By asking for asylum, the U.S. is required to provide a form of legal protection for people who face prosecution in their home country.

 

There has been an enormous jump in asylum seekers since 2013 when only 76,000 migrants applied for asylum. Today, thanks to advice and instructions easily obtained through the internet and social media, more than half of the millions crossing our borders are asking for asylum. It is the migrant's "Pass Go" card into the country. Migrants are typically given the right to live and work in the country while going through the legal process of claiming persecution. The facts are that the U.S. is so swamped with applicants that a normal application could take four years to decide.

 

In the meantime, the migrant can work and even if his/her claim is denied, the chance of repatriation is low to non-existent. Sure, the migrant loses the right to work here but simply joins the underground economy that flourishes in every state. How is this rational?

 

I could go on and on. The point is that America has a long, long history of shameful and/or stupid immigration policies with a proven history of failure. From a historical perspective, when immigration policies were open, the nation prospered. When they were closed, we suffered.

 

What is worse, we never learn from our mistakes. So here we are once more, threatening mass repatriations, sealing borders, and building walls, with politicians on both sides of the aisle promising this century's version of eugenics to a populace looking for someone to blame.

 

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.

An important government inflation metric, the Personal Consumption Expenditures Price Index (PCE), for February came in as expected on Good Friday. Since the markets were closed, as investors celebrate the three-day Easter holiday weekend, Monday, April 1, should be interesting.

 

Core PCE rose by 0.3 percent from the previous month. Year-over-year PCE prices rose by 2.8 percent, easing slightly from the 2.9 percent increase in January. The PCE is the Federal Reserve Bank's favorite inflation indicator. As such, it carries a lot more weight when determining whether the central bank will stand pat or decide to cut interest rates in the months ahead. The February numbers will likely not change the current stance of the Fed.

 

Given that both the Consumer Price Index and the Producer Price Index came in hotter than expected in both January and February, investors had worried that the PCE could do the same. It did, but so slightly that next week traders will need another reason to either push equities higher or continue the recent trend of selling large-cap tech and buying other areas like financials, industrials, small-cap, precious metals, and cyclicals.

 

The plot thickens when we consider the changes that have been going on all week behind the scenes. The stock market has just finished another strong quarter. The S&P 500 Index was 10 percent, the largest first-quarter gain in years. As is often the case, pension funds, money managers, and other investors at the end of a robust quarter are expected to adjust their asset allocations to account for the outperformance by equities. As such, pension funds, for example, were expected to sell as much as $32 billion in stocks that had outperformed the most during the quarter and invest the proceeds in the debt markets.

 

At the same time, a large hedged-equity fund, the $16 billion, JP Morgan Hedged equity Fund that holds a basket of S&P 500 Index stocks, along with options on that index, is expected to roll over its options positions on Friday. Given the low market liquidity on this holiday, that rollover could exacerbate or suppress stock market moves on Monday.

 

This week also saw Donald Trump's social media company begin trading on the NASDAQ. The Trump Media & Technology Group's main asset is Truth Social.  Readers may recall that the social media platform was established by Trump following the Jan. 6 insurrection. It was at that time when the former president was booted off social media's mainstream platforms, including Facebook and Twitter. Since then, he has been reinstated on both but has stuck with Truth Social as his main avenue of social communication with his followers.

 

The stock (symbol DJT) of which Trump is the dominant shareholder (58 percent), has exploded in price in its first week in trading and has been called the ultimate Meme stock. Like most such stocks, it is losing money and has little in the way of financials.

 

Theoretically, most shareholders have a lock-up period of at least six months before they can sell their shares. Given Trump's need for cash because of legal proceedings that have gone against him, the company's Trump-friendly board of directors could waive or shorten the lock-up period.

 

That could turn messy, however, because a sale by the majority shareholder would likely depress the stock price. That would allow shareholders to show injury and give standing to lawsuits on behalf of public shareholders. More should be revealed in the weeks ahead.

 

In any case, stocks overall have continued to rise and have traded higher than my best-case forecast of 5,240 on the S&P 500 Index. On Monday, because of all this rebalancing and the outcome of the PCE data, we could see the markets react strongly one way or the other. The best I can say is that April Fool's Day may be nothing to fool around with.

 

By the way, my cataract surgery on my left eye came off without a hitch, which was why there was no column last week. I get my right eye done on April 3, so unfortunately no columns next week either. 

 

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.