Home About Archives RSS Feed

@theMarket: Is January's Action Preview of the Year Ahead for Stocks?

By Bill SchmickiBerkshires columnist
The stock market has been a chop fest over the last two weeks. Yet, that has not stopped the technology sector from making new highs and the S&P 500 Index is not far behind. Are there more gains ahead for the averages before the end of the month?
 
Yes, as I wrote last week, I think there is at least one more good bounce in the markets before all is said and done. After that, I suspect we will all have to pay the piper for a while.
 
Has anything changed in investors' thinking to warrant these erratic moves? Much of the volatility over the last two weeks can be explained by the rise in bond yields and the strength in the dollar. Both instruments have made an abrupt turnaround from their downward trends that supported equities since October 2023.
 
I can identify two major concerns weighing on markets. The direction of inflation, and whether the U.S. economy is heading for a hard or soft landing. Neither of these outcomes will be known for several months. Until investors have a definitive answer, I believe markets will make little progress from here.
 
From all I have read and heard, not even the Fed knows if they have inflation licked. Sure, we have made progress towards a 2 percent inflation goal, but are still 2 percent above that rate. I can commiserate with the Fed’s position every time I go food shopping.
 
As for the economy, we are still seeing strength, and while economists continue to predict a softening of growth, it has not shown up in the data. The bears believe growth will fall off a cliff in one of these quarters and unemployment will spike at the same time. The Bulls say it won't happen. They believe that the economy and employment will maintain its present course upward and, at worst, we may have a soft landing if they are wrong.
 
Few are talking about a middle course, stagflation. That is where inflation remains sticky or strengthens a bit, while the economy slows at the same time. That could happen, if inflation remains stuck, and the Fed simply maintains tight monetary policy as a result. The longer they do that, the harder the landing for the economy will be.
 
But wait, you may ask, what happened to the bond market's conviction that the Fed will begin cutting rates in March and then five more times before the end of the year? The last two weeks have seen the chance for a March cut dropping from 90 percent to about even now. The number of expected cuts is also dwindling.
 
What if the economy does begin to slow? In an election year, any guess on what the Biden Administration might do? In an extremely tight race where the economy is a central issue, a healthy dose of increased fiscal spending would be no surprise. That has happened many times in the past.
 
 In case you don't know, most of the growth in the economy over the last few months has been the result of government spending and not the private sector. There are still billions of dollars that are part of the Inflation Reduction Act that have yet to be spent. Believe me, that is no accident. It is one of the main reasons why the Republican House, in my opinion, has been so adamant about cutting fiscal spending now.
 
So where does all of this leave the stock markets? In the short-term, as I predicted we are in bounce mode until the end of the year. That would require both yields and the dollar to behave. If I were a short-term trader I would sell into that bounce. Profit-taking after the gains of the last three months would be a no-brainer.
 
I maintain my belief that sometime in the weeks ahead, probably February at this point, stocks will face a stiff pullback of 6-7 percent, possibly more. This consolidation period will linger through April and into May.  At that point, I could see a spring-into-summer rally that would recoup those losses if the Fed does cut interest rates, the election draws closer, and we have a better understanding of where the economy and employment are going.  
 

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.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Clark Art Presents Thematic Tour on British Art
Pittsfield Street Improvement Project: April 18-19
Pittsfield Woman Dies After Being Rescued From Structure Fire
Man Charged With Child Porn Posts $100K Bail
Suspect in High-Speed Adams Chase Arrested
BAAMS' Monthly Studio 9 Series Features Mino Cinelu
Arbor Day Celebrations Planned in Pittsfield
Low-Cost School Vacation Events in the Berkshires
Baseball in the Berkshires Exhibit Highlights Black, Women's Teams
Car Seat Installation and Inspection Event In Pittsfield
 
 


Categories:
@theMarket (482)
Independent Investor (451)
Retired Investor (185)
Archives:
April 2024 (2)
April 2023 (4)
March 2024 (7)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
Tags:
Stock Market Oil Banks Stimulus Fiscal Cliff Taxes Bailout Employment Commodities Metals Federal Reserve Stocks Euro Recession Election Europe Currency Interest Rates Economy Banking Jobs Debt Ceiling Crisis Markets Energy Retirement Pullback Europe Congress Greece Selloff Rally Deficit Debt Japan
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Propels Yields Higher, Stocks Lower
The Retired Investor: Immigration Battle Facts and Fiction
@theMarket: Stocks Consolidating Near Highs Into End of First Quarter
The Retired Investor: Immigrants Getting Bad Rap on the Economic Front
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift