ProActive Capital Management, Inc. Blog

How Wealth Management Services Unlock Multi-Generational Legacy Peace

Thu, 09 Apr 2026 00:44:51 GMT

Understanding the role of wealth management services in securing financial stability across generations and fostering family harmony through strategic financial planning is crucial in today's complex economic landscape. The ability to manage wealth effectively transcends beyond immediate financial gains, it traces the blueprint for enduring family legacy and cohesion. Wealth management services integrate various dimensions, such as financial planning, legal structuring, and tax efficiency, to create a balanced and forward-thinking strategy. As families aim to secure the future of successive generations, the role of professional guidance cannot be overstated. By leveraging informed insights, families can ensure not only the growth and preservation of assets but also the promotion of family unity and peace.

Comprehensive Frameworks for Asset Growth

Wealth management services offer a comprehensive approach to financial planning and advisory that caters to high-net-worth individuals and families. It combines several aspects of financial services to address the comprehensive needs of affluent clients for asset growth, preservation, and distribution. This discipline includes investment management, tax planning, estate planning, and often broader financial planning. The defining attribute of wealth management is its tailored service that meets the individual needs and goals of clients. Understanding each client's financial landscape allows for distinct, personalized strategies that meet the complex requirements of managing substantial wealth across generations. These wealth management services act as the foundation for long-term security.

Collaborative Approaches to Financial Success

Key players in wealth management consist of financial advisors, portfolio managers, tax professionals, and legal advisors who collaborate to offer holistic solutions. These professionals work together to ensure a client's financial plan is custom-tailored and adequately safeguarded across all fronts. Financial advisors understand client goals and develop investment strategies that align with risk tolerance and long-term objectives. Meanwhile, portfolio managers focus on handling the dynamics of investment portfolios to optimize returns. Together, with legal and tax advisors, they form a coordinated effort to ensure each component of wealth is strategically organized and efficiently managed. Integrating these wealth management services is the cornerstone of effective legacy building.

Integrating Legal and Fiscal Strategies

By integrating various disciplines, wealth management services create a comprehensive framework that addresses multifaceted financial concerns. This integration allows for seamless operation between crafting investment strategies, ensuring compliance with legal regulations, and maximizing tax efficiency. Such synergy is vital as it ensures that wealth is not only grown but is safeguarded against legal and fiscal adversities. Consequently, clients benefit from strategies that minimize tax liabilities while aligning with legal statutes, ensuring sustainable financial paths. A critical aspect of wealth management services is the customization of financial strategies to meet individual client needs. Each client brings a unique set of economic goals, risk tolerance, and future aspirations.

Adapting to Changing Economic Landscapes

Wealth managers consider these elements to tailor financial plans that are both effective and adaptable to changing circumstances. By doing so, clients receive a strategy that not only works in their best interest but is also robust enough to adjust to unforeseen financial landscapes. This personalized approach guarantees that wealth strategies are always in line with personal and familial aspirations. Comprehensive risk assessment is vital in wealth management services as it identifies potential threats and opportunities. By evaluating both, wealth managers can craft strategies that shield clients from economic downturns while capitalizing on growth opportunities. This process involves analyzing market trends, geopolitical dynamics, and personal financial habits.

Evaluating Risks for Legacy Security

Effective risk assessment is more than just avoidance; it's about strategic positioning that prepares clients to thrive in diverse economic climates. This forethought is indispensable in preserving wealth and ensuring legacy peace across generations. Long-term wealth preservation requires a mix of strategies involving investment, risk management, and estate planning. It is vital for families to pursue stable yet adaptable financial approaches to ensure continued economic security. Effective strategies often involve a diversified portfolio that combines various asset classes to spread risk and enhance growth potential. These wealth management services ensure that the investment portfolio remains resilient under various market conditions, providing a buffer against financial fluctuations.

Growth Objectives for Affluent Portfolios

Investment is a critical component of wealth growth. According to Passive Secrets' 2026 Wealth Management Report, more than 70 percent of wealthy individuals prioritize investing for expansion, whereas less than 6 percent focus primarily on creating income, which demonstrates a clear preference for increasing portfolio size among affluent investors. To stand the test of time, a mix of traditional and innovative investment approaches may be utilized. Long-standing techniques, such as value investing and dividend growth, offer stable returns, while modern approaches like technology-driven investments align with current trends. Such wealth management services are instrumental in shielding wealth from significant loss, thereby forming a critical component of legacy-driven financial plans.

Empowering the Next Generation of Heirs

To sustain wealth across generations, educating heirs on managing family assets is essential. Empowerment through financial literacy programs equips them with the skills and knowledge to make informed decisions. Heirs need to understand financial instruments, investment strategies, and the broader economic environment to effectively manage inherited wealth. By nurturing a culture of informed decision-making, families enable the next generation to preserve and possibly augment their financial standing. This investment in education ensures that heirs respect the financial values and strategies established by previous generations. Ethical and sustainable investing can reinforce a legacy by aligning financial strategies with family values, which is often facilitated by wealth management services.

Aligning Investments with Family Values

As concerns about environmental and social responsibility rise, families increasingly integrate these into their investment decisions. Sustainable investing not only aligns with ethical principles but also opens opportunities in growing markets focused on renewable resources and innovations that promote sustainability. It serves as a bridge between building wealth and creating a positive societal impact. By choosing such paths, families ensure that their investments hold broader value beyond financial gains, contributing positively to their legacy across generations. Clear estate planning is fundamental to protecting family wealth and ensuring harmony among heirs. Setting precise goals entails defining how assets will be distributed and establishing measures that reflect personal and familial values.

Tools for Effective Estate Distribution

Trusts and wills are powerful instruments in estate planning that ensure assets are distributed according to the founder's wishes. Trusts offer flexibility in managing and allocating assets while providing tax advantages and asset protection. They allow for control over asset distribution, protecting beneficiaries from misuse or poor financial decisions. Wills, on the other hand, specify how assets not placed in trust should be handled, thereby cementing the testator's wishes. Together, these tools provide assurance, security, and a structured approach to legacy planning. Transparent communication is vital in estate planning to mitigate family disputes and misunderstandings. Open dialogues allow for alignment among family members, addressing concerns and clarifying the rationale behind financial decisions.

Syncing Efforts for Holistic Management

Tax advisors offer essential services in wealth management by developing strategies that optimize tax liabilities. They analyze financial situations to identify opportunities for savings through efficient tax structures. By employing their skills, clients can maximize after-tax returns, contributing to long-term wealth preservation. Their involvement ensures compliance with evolving tax laws while leveraging advantages through deductions and credits. Strategic tax planning augments wealth growth, allowing for a robust financial model that spans generations. Selecting the right professionals is critical to the success of wealth management services. Families must assess potential advisors based on experience and alignment with family objectives. The right professional will not only meet technical qualifications but also resonate with the family's values.

Integrating professional guidance ensures comprehensive and adaptable strategies that withstand evolving economic landscapes. Family involvement in financial education and governance is key to sustainable wealth transfer and maintaining harmony. As families face the challenges and opportunities of multi-generational wealth, understanding and adopting a holistic approach become imperative. In navigating the complexities of managing diversified wealth, families find that consistent planning is the key to lasting success. For personalized assistance with your legacy goals, contact ProActive Capital Management, Inc today.

War, Private Credit, and More

Fri, 27 Mar 2026 15:45:22 GMT

By Cory McPherson

March 27, 2026

While my expectation going into the year was for a more volatile and choppy market, I did not expect the type of noise that we’ve gotten around the market with what’s going in the world. With bombs being dropped and missiles shot all over the Middle East, Americans here at home are fearful of what this conflict may turn into. This fear has obviously led to lower stock prices and much higher oil prices this month. Despite that, though, the selling that has occurred in the stock market so far has been controlled. We have not seen any type of “crash”-like behavior yet, which is what we saw around this time last year. In this newsletter, I’ll look at past world conflicts and how the market behaved, what is happening in private credit and why it is a concern, and other issues that may influence the market in the months ahead.

Looking at the S&P 500 chart below, the sideways consolidation we had been in has broken to the downside this month. We now sit below the 200-day moving average (red line) for the first time since last April/May. It is also sitting below the lows made in November last year. So far, though, this is just an ordinary pullback, sitting about 8% now below its all-time high. In order to stave off any trapdoor lower, it needs to start showing some strength soon and at the least get back up into the range that it was in to start the year. In my last newsletter, I showed how the large technology stocks that are the leaders of the market have been struggling for the last few months even while the market remained near its highs. Those stocks have continued to struggle and have not found any sustained rally and have begun to drag other parts of the market lower. Obviously, the fear of what is happening in the world has aided in that.

While it is easy to believe that any international crisis or war will lead the stock market lower over time, history doesn’t bear that out. The graphic below from InvesTech Research shows past conflicts going back to World War II and what the S&P returned the following month, 3 months, 6 months, and 12 months. The only thing that’s clear is that there is no clear pattern in how the S&P 500 will react over the next several months, even if this conflict drags on.

In most of these cases, the market continued the trend that it was already in before the conflict began. If you look at the last two similar events for our country, the 2003 operation in Iraq, and the 1991 Desert Storm operation, the market reacted positively over the next several months. But what you must remember is where the market was before those events. In 2003 we were coming out of the unwinding of the tech bubble that popped in 2000. The market had recently bottomed out and began its next uptrend until the great recession in late 2007. In 1991 we were beginning to come out of a recession and the market bottomed out in late 1990 and had begun its next trend higher. The market going into this current conflict did not have the same characteristics. In the short term we were trendless going sideways, and in a long-term uptrend going back now almost 17 years, not the beginning of a new uptrend. What this shows is, historically, wars or crisis events by themselves won’t make or break the market in the long run.

What has a better chance of breaking the market are economic and credit issues here at home. Issues in private credit have begun to create some headlines recently, but most everyday Americans don’t know what private credit is or what problems it is having. Private credit is money being loaned out by non-bank financial institutions, many by private equity and alternative asset managers to small and mid-sized businesses. These are businesses that for different reasons cannot borrow in corporate bond markets or from traditional bank loans. So, they look for an alternative from non-bank financial institutions for financing. Some call it “shadow banking”.

Since these are non-bank institutions lending money, it differs from how traditional banks lend money. Banks take short-term deposits and create long-term loans. These non-bank institutions like private equity firms raise long-term capital from investors, typically high net worth individuals and institutional investors like pension funds and insurance companies. They can then either purchase equity stakes in businesses or make loans to businesses, creating private credit. Private credit has grown rapidly since 2008, as the aftermath of the banking and financial crisis led to new regulations and tighter lending standards for traditional banks. Many businesses then had to turn to alternatives for financing. In just the last five years it has gone from $500 billion to $1.3 trillion. Why would someone invest in private credit? Much of its growth can be attributed to higher yields offered compared to traditional fixed income with historically lower volatility. That is beginning to change, though.

Access to participate in private credit funds historically has been limited to those high-net-worth individuals and institutional investors. Over the last few years, though, funds have lowered thresholds and opened up to “retail” customers to invest in private credit. What is beginning to make headlines is that these funds are limiting or completely restricting investor withdrawals from their funds. Typically, when you invest in private credit, access to your capital can be restricted to only certain periods to prevent any type of “run on the bank” scenario and you receive interest/dividends back over time. Here recently, many private credit funds are limiting what investors can take out during liquidation periods or not allowing any money out at all.

Why are investors wanting their money out? There has been a spike in defaults occurring and a markdown in credit quality in many of these funds. Historically defaults in private credit lending are 2-2.5%, but Morgan Stanely recently warned default rates could surge to 8%. Recent private credit fund managers that have curbed investor withdrawals include Ares Management, Apollo Global Management, Blue Owl Capital, and Cliffwater. Is this a risk similar to the mortgage lending that led to the financial crisis and great recession? It’s too early to tell, but something to certainly watch. How regular banks, especially the big banks of this country, are intertwined with these private credit funds will be important. Private credit problems can definitely spread and create a domino effect into other parts of the economy as it relates to liquidity and access to funding. Right now the talking heads on Wall Street and executives of these private credit funds believe any problems in private credit will be contained and won’t present a systemic risk similar to 2008. But remember, similar things were said in 2006-2007 in the lead up to the financial crisis of that period, and most of these folks will not be warning you of their problems.

Disruptions from A.I. have caused some of the problems in private credit markets due to businesses being upended by the technology. Other issues have been caused by interest rates. While the Federal Reserve has cut rates a few times over the last 2 years, the yield on the 10-year Treasury has not given much of any relief. It currently sits around 4.4% and has seen a rapid rise this month from 3.9%. This has caused the bond market to fall right along with the stock market since the beginning of March.

The Fed continues to be in a tough spot, as recent inflation readings and the price surge in oil and gas don’t suggest inflation will be reaching their stated 2% target any time soon. We had started seeing inflation begin trending higher in the last few months even before the price surge in oil. Expectations for any more rate cuts soon doesn’t look promising. The Fed also tends to follow what rates in the Treasury market are doing, and those don’t suggest the Fed should be lowering any time soon either. Looking at the economy/employment side of things though doesn’t suggest the Fed should necessarily be increasing rates either. A surprise rate increase this year is something markets weren’t expecting and would certainly reprice things.

The employment picture can be best described by what some have called it a “no hire, no fire” environment. Job creation has stalled and has averaged fewer than 5,000/month since January 2025. The trend over the last 4 years of revising previous monthly job gains lower has continued. Despite this, the unemployment rate remains relatively low at 4.4% and has had just a slow increase over the last few years. Weekly jobless claims also remain historically low as you can see below. Expectations for A.I. to disrupt employment and cause large job losses throughout the economy aren’t showing up at this time.

In summary, while crises and war can cause fear and panic and may move markets in the short term, they won’t make or break the market by themselves. There are more issues domestically I believe that in combination with what’s happening in the world can create a tail risk. Watching support and resistance levels on the indexes will continue to be important, and seeing what industries and sectors lead the direction. As always, reach out with questions or concerns.

Wealth Management Advisor Tips for Market Volatility Calm

Tue, 10 Mar 2026 13:16:48 GMT

Market volatility can be stressful, even for experienced investors. Fluctuations in stock prices, interest rates, and global economic conditions can make it difficult to stay focused on long-term financial goals. A wealth management advisor provides expert guidance to navigate these fluctuations, helping investors maintain perspective and make informed decisions. By relying on professional advice, investors can reduce anxiety and preserve their financial strategy during uncertain times.

Understanding Market Volatility

Market volatility refers to the frequent and sometimes dramatic changes in the value of investments. These fluctuations are influenced by a wide range of factors, including economic reports, geopolitical events, and market sentiment. A wealth management advisor helps clients understand the sources of volatility and the potential impacts on their portfolios. By providing context, advisors prevent reactive decisions that could undermine long-term growth objectives.

Recognizing that volatility is a natural part of financial markets allows investors to approach these periods with discipline. Wealth management advisors often explain historical trends to show that while short-term losses can be stressful, diversified portfolios typically recover over time, emphasizing the importance of a measured approach.

Maintaining Long-Term Perspective

During periods of market turbulence, it can be tempting to focus on short-term losses. A wealth management advisor encourages clients to maintain a long-term perspective, reminding them that investing is a marathon rather than a sprint. Staying focused on financial goals rather than daily market swings helps prevent emotionally driven decisions.

Professionals provide personalized strategies that account for the client’s risk tolerance, financial timeline, and investment objectives. They often review portfolios to ensure alignment with long-term goals, adjusting allocations only when necessary based on careful analysis rather than market panic.

Diversifying Investment Portfolios

Diversification is a key strategy for mitigating risk during volatile periods. A wealth management advisor recommends spreading investments across asset classes, sectors, and geographic regions to reduce exposure to any single source of risk. Proper diversification can help buffer the effects of market swings and stabilize portfolio performance over time.

Professional advisors use sophisticated tools to construct diversified portfolios tailored to individual needs. This strategy is not simply about spreading investments broadly but about strategically balancing risk and return in alignment with the client’s objectives and financial situation.

Rebalancing Portfolios Strategically

Rebalancing involves adjusting the composition of a portfolio to maintain the intended risk profile. A wealth management advisor monitors portfolios and recommends rebalancing when market movements cause certain investments to exceed or fall below target allocations. This ensures that portfolios remain aligned with long-term objectives despite market fluctuations.

Rebalancing also allows investors to capitalize on market conditions by selling overperforming assets and reinvesting in underperforming ones, a process that can improve risk-adjusted returns over time. Professional guidance ensures these adjustments are made thoughtfully rather than reactively.

Reducing Emotional Decision-Making

Market volatility often triggers emotional responses that can lead to impulsive decisions. A wealth management advisor provides objective insights, helping clients remain calm and make rational choices based on analysis rather than fear. Emotional discipline is critical to avoiding costly mistakes during uncertain periods.

Advisors may also implement communication strategies to keep clients informed and reassured. Regular updates and transparent explanations about market conditions help reduce anxiety and reinforce confidence in the financial plan.

Evaluating Risk Tolerance

Every investor has a unique risk tolerance influenced by financial goals, life stage, and personal comfort with uncertainty. A wealth management advisor assesses each client’s risk profile and designs investment strategies that match their capacity for risk. Understanding this balance is essential to weathering market fluctuations without unnecessary stress.

Professionals can also guide clients through hypothetical scenarios to illustrate potential portfolio outcomes under different market conditions. This proactive approach helps clients feel more secure and prepared when volatility occurs.

Monitoring Market Trends

Keeping track of economic and market trends allows a wealth management advisor to provide timely recommendations and adjustments. By staying informed on developments such as interest rate changes, political shifts, and industry trends, advisors can guide clients on prudent actions without overreacting to temporary disruptions.

Monitoring also helps identify opportunities during market downturns. Professional advisors can recommend tactical adjustments or opportunities to invest at favorable valuations, ensuring that clients make strategic choices based on data and analysis rather than speculation.

Preparing for Financial Contingencies

Financial preparedness is crucial during volatile periods. A wealth management advisor helps clients create contingency plans, including emergency funds, insurance coverage, and alternative income sources. Having a structured plan reduces stress and ensures that financial goals remain attainable even when markets are unpredictable.

Professionals provide comprehensive reviews of cash flow, debt, and investment liquidity to ensure that clients are positioned to handle unforeseen events without disrupting long-term objectives. This preparation fosters resilience during turbulent periods.

Communicating Regularly with Clients

Consistent communication between clients and their wealth management advisor is essential during market volatility. Advisors provide updates on portfolio performance, explain market movements, and address questions or concerns. This transparency reinforces trust and reduces the likelihood of panic-driven actions.

Regular meetings or check-ins allow clients to stay informed and confident. Professional guidance ensures that decisions are grounded in strategy rather than emotion, supporting long-term financial stability.

Learning from Historical Market Behavior

Historical market trends offer valuable lessons for navigating volatility. A wealth management advisor can provide perspective by reviewing previous market downturns and recoveries. Understanding past cycles helps investors recognize that periods of instability are often temporary and manageable with a disciplined approach.

Professional insight into historical patterns can also inform future strategy, allowing for proactive risk management rather than reactive decisions. This educational component strengthens investor confidence and reinforces adherence to long-term financial plans.

Reviewing Advisor Performance

Choosing the right wealth management advisor is critical to navigating market volatility effectively. According to Forbes' 2025 High Net Worth Survey, only one-third of high-net-worth individuals using advisors were completely satisfied with their performance over the past year. This underscores the importance of working with a knowledgeable professional who can provide guidance tailored to individual needs.

Regularly evaluating an advisor’s performance, communication, and strategies ensures that clients are receiving high-quality guidance. Seeking professional help from trusted advisors can improve outcomes, enhance satisfaction, and build confidence during uncertain market conditions.

Maintaining Tax Efficiency

Tax considerations can affect investment performance, particularly during periods of market fluctuation. A wealth management advisor ensures that portfolio decisions are made with tax efficiency in mind, optimizing after-tax returns and reducing unnecessary liabilities.

Professional advisors can employ strategies such as tax-loss harvesting, asset location planning, and long-term gain management to maintain financial efficiency. These measures help preserve wealth even when market volatility might otherwise erode investment value.

Reinforcing Financial Goals

During volatile markets, it is easy for investors to lose sight of their long-term objectives. A wealth management advisor reinforces financial goals by revisiting plans, updating projections, and ensuring that short-term fluctuations do not derail long-term strategies.

This ongoing guidance keeps clients focused on milestones such as retirement planning, education funding, or wealth transfer goals. Professional support ensures that investment decisions remain aligned with life objectives rather than momentary market changes.

A wealth management advisor provides invaluable support during periods of market volatility, helping investors remain calm, disciplined, and focused on long-term goals. From diversifying portfolios to maintaining a long-term perspective and reinforcing financial plans, professional guidance reduces the stress and risk associated with unpredictable markets.

Seeking expert advice ensures that strategies are tailored, responsive, and optimized for each individual’s unique financial situation. Connect with a wealth management advisor at ProActive Capital Management, Inc today to safeguard your portfolio and navigate market volatility with confidence.

The Market Generals

Thu, 19 Feb 2026 15:40:45 GMT

By Cory McPherson

February 2026

We’ve seen a tight sideways grind in the S&P 500 to start 2026, and not much change since late October last year. While this could be a consolidation pattern that leads the market to eventually continue the prior trend (up), the market leaders/big technology stocks are not acting the same way. Much of the stock market over the last 10+ years has been dominated by the big technology stocks. The “Magnificent 7” tech stocks make up such a large portion (over 30%) of the S&P 500 that such a small group of stocks can have a large influence on the direction of the broad market. They are the leaders, the generals of the market, but they have not been leading the way recently. I’ll get into the good and the bad with what we’re seeing with this group of stocks.

The “Magnificent 7” group consists of Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These names are among the largest market caps in the S&P 500 as well as some of the best performers of the last 10 years. Much of the broad market’s gains can be attributed to these companies. Because of their large influence on the market and S&P 500 index, it’s important to note what we’ve been seeing recently.

A simple way to look at these stocks together is through the exchange traded fund MAGS, which holds just these 7 stocks at an equal weight. You can see in the chart below how it peaked in late October and has since made lower highs on subsequent rallies. The second chart below is the S&P 500 over the same period. You can see it has made new highs since October even while trading in a sideways fashion. Currently, the MAGS fund is sitting just above its 200-day moving average. If it is about to turn around, this would be a logical place to start from. The S&P 500 meanwhile has poked below its shorter-term averages recently but has held its 100-day moving average and remains over 5% above its 200-day moving average.

The positive when seeing this is that while money is rotating out of some of the big tech stocks, it is finding a home in other parts of the stock market. This rotation has led to the broad index staying elevated while the big tech stocks turn down. Basically, the other 493 stocks are holding up while the top 7 have been struggling. Broad market rallies are much healthier and have more staying power typically than narrow ones, which would be a positive sign if this sideways consolidation results in an upward breakout soon.

Another way to look at this divergence between the big tech stocks and the rest of the market is through another ETF, an equal-weight S&P 500 fund. This uses the same stocks within the S&P 500 but has them each weighted equally. Whereas the S&P 500 index is weighted by the market cap of each stock. And as stated, the magnificent 7 stocks have over a 30% share of the weight. You can see below how this equal weight ETF has had a nice uptrend since November, and is off to a great start in 2026.

While some of the defensive areas of the stock market have benefitted from this rotation, we’ve also seen cyclical and economically sensitive areas perform well. Defensive areas of the market include sectors like consumer staples and utilities. The cyclical areas that have performed well this year include industrials, materials, and energy. Each of those sectors has been among the best performers to start 2026. The fact that the economically sensitive areas have been performing well gives evidence of the expectation for the economy to continue to grow and money continuing to be spent.

Now the drawback is, if these market generals don’t start to perform, their sheer weight can eventually drag everything down. They have been leaders to the upside, and also to the downside at times. We’ve seen periods like this in recent history where the broad market stays near its highs and the big tech stocks peak and begin to trend down beforehand. What starts out looking like healthy rotation ends up resulting in some sort of correction and drawdown in the indexes. We don’t even have to look back very far to see an example. The chart below shows that from just a year ago we saw the MAGS ETF peak in December 2024 and make a series of lower highs over the next 2 months. The S&P 500 meanwhile chopped in a sideways fashion before making a higher high in February last year. Of course, after that a broad selloff began resulting in an almost 20% decline in the S&P 500 from its peak.

While this ETF only goes back to 2023, we can also look at the individual stocks within the magnificent 7 and see that many of them peaked in late 2021 a few months before the eventual peak in the S&P 500 at the turn of the year 2021-2022. This preceded the bear market of 2022 with the S&P dropping about 27% over 10 months.

One of the concerns dragging some of these tech stocks down is the massive spending on artificial intelligence and the data center buildout. The high amounts of capital expenditure these companies are doing was at first celebrated in the last couple of years but is now a cause for concern. Especially as they now have begun to turn to the debt markets and financing to fund some of the spending. Investors are certainly more cautious now about what the end result and return on investment will be from this spending.

I highlighted at the end of 2025 some of the different things going against the market this year and those remain a concern. The lack of participation from these tech stocks to start the year is another red flag. Rotation within the market is healthy, but we still need participation from these leaders to keep the indexes trending in the right direction. Recent history shows the importance of the market generals.

How an Investment Advisor Can Help You Plan for Your Child's College Education

Mon, 22 Dec 2025 22:28:05 GMT

Planning for your child’s college education has never been more important—or more complex. Tuition costs continue to rise, and the financial decisions you make today will directly affect the opportunities available to your child in the future. According to the Education Data Initiative, 35% of families use a college savings fund, such as a tax-deductible 529 plan, to support education costs, underscoring the growing need for structured, long-term planning. An experienced investment advisor can help families prepare by building a comprehensive, flexible strategy tailored to long-term educational goals. From understanding savings options to managing financial aid and navigating market trends, the right guidance can make the planning process far more effective and less stressful.

Understanding How an Investment Advisor Supports Education Planning

A skilled investment advisor plays a central role in helping families understand how to prepare financially for future education costs. Their experience allows them to analyze your financial situation and craft a plan tailored to your unique goals and resources. Since no two families share the same income level, financial obligations, or college aspirations, personalized planning becomes essential. Advisors evaluate your household’s cash flow, debt, projected income, and long-term goals to design a strategy that reduces risk while maximizing savings potential.

Another area where an investment advisor adds value is in balancing long-term and short-term strategies. Long-term planning may involve college savings plans and tax-advantaged investments, while short-term planning may require liquidity for last-minute education expenses. This balanced approach helps safeguard your savings from market volatility while keeping you financially prepared as college enrollment approaches.

Case studies further highlight the benefits of proper planning. Families who follow structured savings and investment strategies, guided by a professional, often find themselves in a stronger, more confident financial position when the first tuition bill arrives. These success stories demonstrate how thoughtful, proactive planning can significantly ease the burden of rising education costs.

Building a Comprehensive Financial Plan for College

Creating a full financial plan for college starts with understanding your current financial standing. An investment advisor reviews your income, recurring expenses, assets, and liabilities to establish a clear foundation. Knowing where you stand today helps determine how much you can realistically save and what adjustments may be needed.

Once your baseline is established, the next step is estimating the future cost of college. Advisors use market trends, inflation data, and projected tuition increases to create accurate forecasts. This allows families to set appropriate long-term savings goals instead of relying on guesswork. With these projections in hand, advisors then help develop savings targets and a realistic timeline to reach them.

Savings alone may not cover all college expenses, which is why advisers incorporate student loans and financial aid options into the overall strategy. Understanding how loans work, how interest accumulates, and how financial aid eligibility is calculated is crucial. Advisors can also guide families through the Free Application for Federal Student Aid (FAFSA), ensuring forms are filled out correctly to maximize potential aid.

Exploring Tax-Advantaged Savings Options

Tax-advantaged savings programs are among the most popular and effective tools for college planning. One of the most widely used options is the 529 college savings plan. These plans allow contributions to grow tax-free, and withdrawals used for qualified education expenses are not taxed. The statistic from the Education Data Initiative—that 35% of families rely on college savings funds like 529 plans—highlights just how significant these tools are in education planning. An investment advisor helps you determine contribution amounts, choose investment options within the plan, and take advantage of any state-specific tax benefits.

Coverdell Education Savings Accounts (ESAs) offer another tax-advantaged opportunity. While ESAs have lower annual contribution limits, they provide greater flexibility, including the ability to use the funds for K-12 expenses. Advisors help families evaluate whether a 529 plan, ESA, or a combination of programs best fits their long-term objectives.

Custodial accounts, such as UTMA or UGMA accounts, may also be considered. Though not tax-free, they allow parents to save and invest for their child’s benefit with greater control over how funds are used. Advisors compare all available savings vehicles based on tax implications, contribution limits, flexibility, and financial aid impact to help families make the most informed decisions.

Diversifying Investment Strategies for Future Education Costs

Diversification is key to building a resilient education savings plan. Whether you are investing in stocks, bonds, mutual funds, or a combination of assets, spreading your investments helps mitigate risk. An experienced investment advisor explains how each asset class behaves, how risk levels fluctuate, and how to structure a portfolio that balances growth and stability.

Balancing risk and return is particularly important when saving for college. Families with younger children have more time to recover from market downturns, which may allow for more aggressive investments. As college approaches, however, portfolios often shift toward conservative investments to protect savings from short-term market volatility. Advisors help manage this gradual transition to ensure funds are available when needed.

Finally, maintaining flexibility within an investment strategy ensures families can adjust quickly if financial situations change. Whether reallocating assets or tapping into more liquid investments, advisors help build plans that remain adaptable throughout the college planning journey.

Utilizing Financial Aid, Scholarships, and Grants Effectively

Financial aid plays an important role in funding higher education, and navigating the process can be challenging. The FAFSA determines eligibility for many forms of assistance, including grants, loans, and work-study programs. An investment advisor can guide you through the application process and help ensure that your financial information is presented accurately.

Scholarships are another major funding source and can significantly reduce the overall financial burden. Advisors help families identify scholarship opportunities based on academic performance, extracurricular involvement, personal achievements, and financial need. They can also provide guidance for writing strong scholarship applications and organizing deadlines.

One often overlooked aspect of aid planning is understanding how family assets impact eligibility. Advisors analyze which assets count against aid calculations and offer strategies to legally preserve eligibility while still saving effectively. Balancing financial aid with personal savings ensures families maximize every source available.

Adjusting Your Plan as Life Circumstances Change

No financial plan remains perfect forever. Income levels change, college costs fluctuate, and unexpected events can disrupt even the most carefully crafted strategy. This is why ongoing reviews with an investment advisor are essential. Regular assessments allow advisors to adjust savings goals, reallocate investments, or modify timelines based on new financial realities.

Rising college costs may require families to increase savings contributions or explore alternative funding options. Advisors help reassess cost projections and adjust strategies accordingly.

Unexpected events—such as job loss, medical expenses, or family emergencies—can significantly impact education savings. Advisors help families remain resilient by exploring alternative funding paths and reorganizing financial priorities.

As children grow and their education goals evolve, advisors help adapt the plan to match new expectations, whether those involve out-of-state tuition, private universities, or graduate school.

Proper planning for your child’s college education requires a clear strategy, continual evaluation, and professional guidance. A knowledgeable investment advisor can help you understand savings options, minimize tax burdens, take advantage of financial aid, and adjust plans as life evolves. By taking a proactive, informed approach, you can create a strong financial foundation that supports your child’s academic future.
Start building a smarter, more confident college planning strategy today with ProActive Capital Management, Inc.

Wrapping Up 2025

Mon, 22 Dec 2025 21:35:42 GMT

By Cory McPherson

December 2025

After another year of positive markets in 2025, we now turn the calendar and wonder what 2026 will bring. While we saw plenty of cautionary signs this year, the stock market climbed its wall of worry to new heights. How long can this continue is the question on everyone’s mind as wall street and main street don’t agree on how things look. In this newsletter, I’ll review some important charts I’ll be watching and what may be in store for 2026.

Starting out, I wanted to review the S&P 500 chart over the last 12 months. As you can see, despite a near 20% drop early in the year, the market recovered and has made an abnormal year look normal. If we had stayed on the trend we were in to start the year, this is about the area it would have projected to finish the year at. It just took a very different route to get here with the sudden drop and rapid recovery from the first half of the year.

Momentum in the market has definitely slowed the last couple of months. It had a drop below its 50-day moving average in November for the first time since April, which ended up being a just short of a 6% pullback. It is now sitting just off its highs as it continues a sideways pattern of consolidation going back over 2 months. It’s hard to bet against the market right now, and if you are looking at this chart in a positive light going forward this period of consolidation could be viewed favorably and leading to a continued uptrend. You can also view it with the slowing momentum that we may be reaching a point of exhaustion in the near future and that the market is going through a topping pattern as it struggles to make new highs.

A chart that displays this possible exhaustion is this long-term chart of the S&P 500. From the 2009 lows when this long-term bull market began, the market has for the most part stayed in this channel between the blue lines. You can see in the second half of 2021 when the market went above this channel for a few months. That of course led to a period of weakness in 2022 when the market dropped almost 28%. We are now bumping up against this channel line. While we could see it push through for a period of time like in 2021, this will ultimately lead to some sort of corrective move lower at the least. The bottom channel line will also be important to watch in any future move lower. A sustained break below with a failure to get back above would signal a long-term trend change from this bull market that started in 2009.

As we enter 2026, this is the 2nd year of the 4-year presidential cycle which has historically been the weakest. The last two occurrences being 2022 and 2018, both volatile and weak calendar years for the market. According to Ned Davis Research, the 2nd year of the 4-year term has an average gain of 4.6% since 1948 and has posted a positive return only 58% of the time. Historically, though, things look better when it’s in a President’s second term which we have right now. You can also see from the chart below that the first half of the year is typically weaker with a rebound happening in the 4th quarter on average.

Barring a sudden drop in these last few trading days of the year, this will be the third year in a row of double-digit price returns for the S&P 500. The last time we had 3 years in a row of double-digit returns was 2019-2021, which of course then led to 2022 where it had a loss of almost 20% that year. Before that we had 3 years in a row of double-digit returns from 2012-2014 and then a small loss in 2015. Again, this is another sign of exhaustion in the market that could set up for a more volatile 2026. With that though, if we go back to the late stages of the tech bubble of the 1990’s, we had 5(!) years in a row of double-digit returns between 1995-1999. If we are truly in the middle of an A.I.-induced bubble similar to the late 1990’s tech bubble, then we may have more time before it ultimately pops.

Another cautionary sign continues to be margin debt. I highlighted a few months ago how margin debt is hitting new highs in different ways that it is measured. Margin debt is what investors borrow from their brokerage firm to be able to buy more stocks for their account, allowing them to invest more. Margin debt typically spikes and then begins to see a drop before important market tops. The last few months have seen margin debt continue to rise, so no drop yet that would signal a potential change in the market. We have seen margin debt increase by more than 42% in the past 7 months, and as the chart below shows, forward returns 9+ months out don’t look great when this has happened historically.

To show how wall street and main street don’t agree with how things look currently, the University of Michigan’s consumer sentiment survey below remains near its lowest reading. It is below levels seen during the great recession in 2008-2009 and near where it was in 2022 and in the high inflation period of 1980.

High prices continue to be a problem for everyday people and they continue to affect sentiment. This survey shows that with the only period of similar poor sentiment being the late 1970’s early 1980’s that was marked by high inflation and affordability problems. Could it be nearing a bottom and a turn around in sentiment? The chart below shows that year-ahead inflation expectations of consumers has come down over the last few months, even as consumers continue blaming high prices for poor personal finances.

We wanted to thank everyone for their continued trust in our firm as we continue to navigate uncertain times together. From our family to yours, we wish everyone a Merry Christmas and a happy and healthy New Year! We look forward to our continued relationships in 2026.

12 Important Questions To Ask Your Wealth Management Firm

Mon, 10 Nov 2025 22:27:18 GMT

Understanding the intricacies of wealth management is crucial for optimizing your financial future. When engaging with wealth management firms, it's vital to be informed and ask the right questions to ensure your financial goals are being prioritized. With the multitude of options available in today's financial market, selecting the right partner involves more than just reviewing performance, it requires a comprehensive evaluation of methodology, customization, transparency, performance, experience, and communication. Clients should ensure that their financial objectives align with the expertise and strategies offered by the firm while also building a relationship grounded in trust and collaboration. Working with professional wealth management firms can help individuals create clear, data-driven plans for success and build financial confidence over time.

1. Understanding the Firm's Investment Philosophy

When selecting among wealth management firms, understanding their investment philosophy is foundational. This philosophy shapes every financial decision, influencing risk levels, diversification, and long-term outcomes. Clients should explore whether a firm emphasizes growth, capital preservation, or a balanced approach. Understanding this alignment helps determine if the firm's core beliefs match one's financial objectives and comfort with risk. Reputable wealth management firms are transparent about their guiding principles, allowing clients to invest with confidence and clarity.

2. Evaluating How Strategies Are Tailored to Clients

Every investor's situation is unique, and top-tier wealth management firms recognize the need for customized strategies. Firms that take time to assess client goals, income sources, risk tolerance, and future aspirations tend to provide stronger, more targeted financial plans. A firm's ability to design personalized investment strategies reflects its dedication to understanding individual needs. Strong relationships with wealth management firms are built on collaboration and thoughtful analysis, ensuring that portfolios evolve alongside the client's life stage, goals, and market changes.

3. Exploring Diversification and Risk Management Methods

Diversification remains a central pillar of sound financial management. The best wealth management firms utilize diversification to protect against volatility and optimize growth. By spreading investments across various asset classes, such as equities, bonds, and alternative investments, firms can help clients achieve greater balance. Prospective clients should ask how their advisors determine which assets to include and what criteria are used to adjust holdings over time. Understanding a firm's risk assessment process reveals its adaptability in protecting clients' long-term financial interests, especially during economic shifts.

4. Understanding Fee Structures and Transparency

Clarity about fees helps clients make confident, informed decisions. Wealth management firms may charge hourly, flat, or percentage-based fees depending on the service structure. Clients should request a complete breakdown of costs and confirm whether fees are performance-based or inclusive of certain services. Leading wealth management firms are transparent about their billing cycles and itemized charges, ensuring clients always know what they're paying for. Clear and fair pricing builds trust and sets the stage for a transparent, long-term partnership.

5. Reviewing Performance Measurement Practices

Performance measurement is more than tracking returns, it's about assessing progress toward specific goals. The most trusted wealth management firms use clear benchmarks and performance indicators to evaluate portfolio growth. Clients should ask how frequently the firm conducts reviews, whether quarterly or annually, and how results are communicated. Strong firms provide actionable insights, explaining both successes and areas needing adjustment. This level of transparency reflects dedication to accountability and helps clients remain engaged and confident in their financial journey.

6. Examining Experience and Professional Track Record

Experience is a key indicator of reliability. Established wealth management firms often have proven track records of guiding clients through various market cycles. Clients should ask about the firm's history, industry recognition, and the credentials of its financial advisors. A team with certified professionals demonstrates commitment to education and ethical standards. Moreover, understanding how a firm performed during past economic downturns can highlight its resilience and strategic foresight. Working with seasoned experts allows clients to benefit from deep market knowledge and tested financial wisdom.

7. Assessing How Firms Communicate With Clients

Consistent, open communication is essential to a successful partnership. Clients should ask wealth management firms about their preferred communication channels, whether virtual, phone-based, or in-person, and how frequently updates are provided. A reliable firm offers ongoing insights about market changes, portfolio performance, and strategic shifts. By maintaining transparency, firms strengthen trust and empower clients to make informed decisions. Regular check-ins also help identify adjustments to investment goals as life circumstances evolve.

8. Learning About Customization and Service Flexibility

Wealth management firms that prioritize flexibility are best suited for long-term client satisfaction. Clients should inquire about whether services can be tailored to changing needs, such as retirement planning, estate management, or philanthropic giving. Comprehensive firms offer scalable services that grow with the client, starting from foundational financial planning to complex investment management. This adaptability ensures clients always receive personalized attention, no matter their stage of wealth development. The ability to evolve services as clients grow showcases a firm's commitment to lifetime value and support.

9. Analyzing Performance During Market Volatility

Periods of market uncertainty test the resilience of any financial strategy. Reputable wealth management firms have clear protocols for managing downturns and seizing opportunities during recovery phases. Clients should ask how their portfolios are adjusted in response to market disruptions. Firms that proactively monitor trends and assess portfolios demonstrate both vigilance and skill. By emphasizing data-driven decision-making and proactive communication during turbulent times, these firms reinforce their role as trusted financial partners guiding clients toward stability and growth.

10. Verifying Commitment to Continuous Learning and Innovation

Financial markets evolve rapidly, driven by technological advancements and global trends. The most effective wealth management firms invest heavily in ongoing education and innovation. Clients should ask how firms keep their advisors trained in modern financial strategies, regulatory changes, and emerging tools. Continuous learning ensures that clients benefit from the latest research and planning techniques. Firms committed to innovation often deliver superior insights and solutions, helping clients capitalize on market opportunities while maintaining prudent risk management.

11. Identifying the Firm's Ethical Standards and Client Protection Policies

Trust is at the core of every financial relationship. The best wealth management firms prioritize ethical conduct and transparent operations. Clients should confirm whether the firm adheres to fiduciary standards, meaning that client interests are always placed first. This principle helps ensure decisions are unbiased and made solely for the client's benefit. Firms that emphasize integrity and clear communication inspire confidence and long-term loyalty. Ethical practices serve as the foundation for enduring, mutually beneficial partnerships.

12. Evaluating Accessibility and Advisor Availability

Access to professional advisors can dramatically affect client satisfaction. Clients should inquire how quickly they can reach their financial team and what systems are in place for timely responses. Leading wealth management firms maintain open lines of communication and prioritize client accessibility. This responsiveness builds reassurance, especially for clients navigating complex financial milestones. Knowing that expert guidance is just a call or message away helps clients feel supported and secure at every stage of their financial journey.

Choosing the right wealth management firm requires thoughtful evaluation and meaningful dialogue. By asking about philosophy, customization, performance, fees, experience, and communication, clients can select a firm that aligns perfectly with their goals. According to data shared by Institutional Investor, roughly one-third of Americans currently work with a financial professional, a number that highlights the value of expert financial guidance. Engaging with knowledgeable wealth management firms gives clients the advantage of experience, insight, and stability. With professional guidance, investors can build a path toward long-term financial success, security, and peace of mind. For quality wealth management services, reach out to ProActive Capital Management, Inc today!

Are Auto Loans A Sign Of Trouble?

Fri, 31 Oct 2025 14:37:34 GMT

By Cory McPherson

October 2025

Troubling signs have continued to appear throughout this year on consumer debt. Automobile loans have been one of the main areas displaying the most stress lately. Re cent delinquency and repossession numbers have been on the rise. We’ve also seen some recent bankruptcy filings related to subprime auto lending. In this newsletter, we’ll take a look at some of these troubling signs and how it may affect the economy going forward.

I’ve highlighted the chart below on percentage of balances 90+ days delinquent by different loan types in previous newsletters. This is the most updated chart from the New York Fed from August. You can see over the last year the percentage of loans becoming 90+ days delinquent has continued to rise in credit cards and auto loans. Though from its previous report the percentage has stabilized somewhat. The student loan percentage of course has skyrocketed this year as the moratorium on reporting of missed payments to credit agencies ended. Auto loan delinquencies remain near levels seen in 2008-2009 and credit card delinquencies still below but not far from levels seen in 2008-2009. Ideally, these continue to stabilize and begin to trend down. A slowdown in the economy and recession would most likely force these numbers much higher, going well past what was seen during the great recession time period.

In looking at auto loans, car payments have become for some household’s one of, if not the biggest monthly expense. The average price paid for a new vehicle topped $50,000 recently for the first time ever. It is estimated that over 19% of all financed new-car transactions have a monthly payment of $1,000 or more, with the average monthly payment on an auto loan being $767. The average loan amount has increased by 57% over the last 15 years, which is a bigger jump than any other loan category. Obviously the price of cars, both new and used has climbed substantially in the last few years and so has the average interest rates on auto loans. The average auto loan rate from data in September was 7% for new cars and almost 11% for used cars. In total, Americans owe over $1.6 trillion in automobile debt. Higher costs have also led to longer loan terms from some lenders, which ultimately increases the overall cost.

While it is expected that “sub-prime” borrowers (those with lower credit scores/income) would be the area seeing rising delinquencies, it has actually recently been shown across all borrowers, even those labeled “prime” or “near-prime” as the chart below shows. The prime and near-prime groups have actually seen a bigger increase in delinquencies over the last year.

Of course, with delinquencies, comes increased repossessions of vehicles. According to data from the Recovery Database Network (RDN), there have been over 7.5 million repossession assignments so far this year. These are authorizations given to an agency to recover a vehicle on behalf of a lender. An assignment doesn’t equal a repossession though as all aren’t successful and recovery ratios have fallen in recent years. Despite that, it is estimated that over 3 million cars could be repossessed this year, a number not seen since 2009 during the depths of the great recession.

As people struggle with monthly expenses and fall behind on monthly payments, this affects the companies that loaned the money as they can’t get paid back. Over the past month we’ve seen some bankruptcy filings from those associated with auto lending and more specifically sub-prime auto lending. Last month, a company called Tricolor filed for chapter 7 bankruptcy. Tricolor was in the business of subprime lending, offering terms to those with low income and bad credit scores. It was disclosed earlier in the year that actually 68% of its borrowers had no credit score at all. There are reports of some fraudulent activity in the company as they’re now being investigated. This did cause losses for some well-known banks including JPMorgan, Barclays, and Fifth Third Bancorp. JPMorgan reported a charge-off of $170 million from the Tricolor bankruptcy and their CEO Jamie Dimon warned this event may be a sign of a broader issue in the auto credit market. There have been a few other recent bankruptcy filings related to the auto industry and auto lending that have continued to raise concerns.

As I’ve discussed before, the biggest concern with this is that it’s happening in what’s supposed to be an expanding economy. An eventual recession with a spike in unemployment just exacerbates the trouble for those with large household debt that are already struggling to get by. And it appears that group is growing larger. While economic data from the government has been limited during this government shutdown, it will continue to be important to follow the labor market numbers when they do start releasing data again.

Despite the fact that many things appear to be cracking, the stock market has continued its rise and should end the month of October positive. It is also entering a period of historical positive returns here at the end of the year. While the market is stretched and well above some of its long-term moving averages, it doesn’t mean it can’t continue. With that though, a chart that caught my eye recently is the S&P 500 along with total reported nonfarm job openings. Historically the number of job openings has trended higher over time along with the stock market. When job openings have declined over a period of time it has coincided with a recession. Which then of course coincides with the stock market coming down. So, the two have been positively correlated historically. Since 2022 that has not been the case and is shown in the chart below.

Job openings boomed after the pandemic as companies were struggling to find enough workers. However, since 2022 the number of job openings has continuously been trending down. While the stock market had a period of weakness in 2022, since the end of that year it has trended up and diverged with what the number of job openings has done. Is this another economic indicator that’s been broken? The surge in AI spending and rapid market cap increase in the mega-cap technology stocks are a big reason for the market’s climb while the underlying economy has weakened. The question going forward is- can that continue and for how long?

Margin Debt Showing Investors Going All In

Tue, 30 Sep 2025 19:45:46 GMT

By Cory McPherson

September 2025

Signs of market froth continue to appear, as margin debt has reached a new record high. That and other indications show investors risk appetite continuing to grow. The stock market has continued to stretch higher this month and continues to set records both in price and in some valuation metrics. While this is no reason to fight the stock market, it’s also not a great time to be going all in on the stock market. In this newsletter I’ll review some of the recent margin debt figures and some economic figures that continue to suggest caution.

Margin debt is what investors borrow from their brokerage firm to be able to buy more securities (stocks typically) in their brokerage account. This allows them to invest more than what they are able to with what they have in cash. The debt then is backed by the securities that they own. When stocks are going up this allows investors to earn more money. It is typical to see margin debt reach new heights as the stock market goes higher. You also see periods where it can almost go parabolic in the late stages before an important market top. Margin debt in dollar terms reached a new all-time high in August at $1.06 trillion according to the latest data from FINRA. That is almost 33% higher compared to one year ago. When adjusted for inflation (CPI) it is near levels seen in late 2021 as shown in the chart below.

There’s a couple of other ways to look at margin debt as well and where we are at historically. One is putting it relative to nominal GDP (gross domestic product). From the August numbers, margin debt relative to nominal GDP sits at 3.48%. The record high reading was 3.97% in October 2021. For historical context though, the peak in that ratio was 2.6% in the dot-com bubble days in 2000, and 2.5% in 2007 before the great recession.

Another way to look at is Margin Debt Carry Load. This factors in the interest being paid on the margin debt. The chart below shows the dollar amount of margin debt multiplied by the estimated margin rate, which is calculated as the major bank prime rate plus 2%. This is then put in % of nominal GDP. You can see we have now reached levels seen during the last stages of the dot-com bubble days in 2000. Margin debt, though, is definitely not a timing indicator. This can continue to get higher and higher, just as the stock market can. What it can do, though, is create violent downturns in the market. When an investor owns stock on margin and that stock goes down a certain amount, the brokerage forces the investor to sell, which can create an elevator down affect, similar to what we saw in April of this year.

A fundamental metric on the stock market has also reached extreme heights recently. The price to sales ratio is a valuation metric that compares a company’s stock price to its revenue. Basically, a measure of what investors are willing to pay for each dollar of sales from a company. In looking at the price to sales ratio of the S&P 500 (taking the market cap of the S&P 500 and dividing by the total sales of all companies in the S&P 500 over the past 12 months), you can see we’ve surpassed last year’s and 2021’s peak in the ratio. It is also way past the peak that was seen in the dot-com bubble days, which is thought to be one of if not the biggest stock market bubbles in history. Much of this is being driven of course by technology stocks and the AI boom we’ve seen over the last few years. Stock prices have got way ahead of actual sales. While overvaluation doesn’t cause market drops or bear markets, they do often precede them.

Earlier this month we also got some concerning economic data. Over the last few years while there has been economic data suggesting a slowing economy, jobs and unemployment data remained steady. But for the second year in a row, the Labor Department announced in their annual revision to nonfarm payrolls data a huge negative revision for the period of April 2024 to March 2025. They announced a drop of 911,000 jobs created from their initial estimates over that time period. This was the largest annual revision on record. Historically, revisions at these levels are seen at the end of recessions, as the data is backwards looking. The only other time close to this level of revision was 2009. It is odd to see this happening without any official recession. Job growth over the June-August period has also been slower, averaging a growth of about 29,000 jobs/month. We’ve also seen the unemployment rate reach 4.3% as it has slowly climbed higher over the last couple of years.

You can see in the chart above, historically when unemployment goes up it doesn’t stop until we go through a recession and it ultimately peaks. What’s odd about this time is that it is moving up slowly. In past instances it didn’t move up slowly for very long and ultimately rises in rapid fashion before peaking.

Another measure of the economy is looking at the leading to coincident economic index ratio, produced by The Conference Board. This ratio compares the leading economic index to the coincident economic index. The leading index is meant to provide an early indication of turning points in the business cycle and where the economy is heading in the near term. The coincident index is meant to provide a look at the current state of the economy. Historically, leading indicators always drop before recessions while the coincident index keeps going higher or remains steady. This leads to the ratio dropping as shown in the chart below. Leading indicators have been dropping for over 3 years now while the coincident index continues to climb. This has led to the ratio dropping to levels not seen since 2008-2009. Obviously as the chart shows, it is abnormal to see this drop without a recession having occurred. Is this time different? It certainly could be and these indicators don’t work this time. We could eventually see a rebound in these indicators and be able to stave off any recession. History wouldn’t suggest that, and if these indicators turn out to be right, it could be quite painful.

While warning signs remain abundant, you can’t argue with price. The trend higher for the stock market has continued from the bottom in April. Not even the month of September, which is historically the worst month of the year for the stock market, has been able to slow it down. Now it enters a period, the 4 ^th quarter, which is historically much more positive. Will an imminent government shutdown cause volatility and a market drop? So far there isn’t evidence that it will. The old saying that markets can stay irrational much longer than you can stay solvent, definitely applies.

11 Ways a Retirement Planner Can Help You Craft Your Dream Retirement

Fri, 12 Sep 2025 15:18:54 GMT

The journey to a fulfilling and secure retirement can often be fraught with challenges and uncertainties. Rising healthcare costs, fluctuating markets, and evolving tax laws can make it difficult to know whether your savings and investments will truly support your desired lifestyle. Without a clear roadmap, many people find themselves anxious about whether they’re adequately prepared for the future. Professional retirement planners can serve as both guides and partners as you navigate these complexities. These experts bring not only financial knowledge but also personalized insight, helping you define what retirement means to you and identifying strategies to achieve those goals. They look beyond simple savings targets to address factors such as risk management, estate planning, tax efficiency, and income sustainability. In this article, we will explore the myriad ways a retirement planner can assist you in crafting the retirement of your dreams. By utilizing advanced planning tools, analyzing your current financial position, and developing customized strategies, these professionals help ensure you are equipped to face the financial realities of retirement. Whether you’re just beginning to plan or are approaching retirement age, their guidance provides clarity, reduces uncertainty, and helps you make informed decisions at every stage.

1. Assessing Personal Lifestyle Aspirations

Retirement is a unique journey that varies greatly from person to person due to differing aspirations and desires. An important first step in this journey is assessing what you want from your retirement lifestyle. This involves envisioning your daily activities, hobbies, and overall lifestyle preferences during your retirement years. Retirement planners help you lay out these aspirations, clarifying your vision for the future. By understanding your ideal retirement lifestyle, planners can tailor their strategies to align with your personal dreams.

2. Identifying Short-Term and Long-Term Objectives

Developing a clear understanding of both your short-term and long-term retirement goals is essential in crafting a comprehensive plan. Whether you wish to travel extensively within the first few years or maintain a simple, relaxed lifestyle, defining these objectives helps shape your overall strategy. With a retirement planner, clients systematically identify and prioritize these goals to create a roadmap to follow. This approach not only aids in realistic planning but also helps in tracking progress over time. It’s key to establish milestones that ensure your objectives remain both attainable and well-defined.

3. Balancing Family and Personal Goals

Balancing personal goals with family expectations is another challenge as you plan for retirement. Family obligations, such as supporting children or grandchildren, can affect your financial plan and retirement vision. Retirement planners can guide you in organizing these aspects, ensuring that your personal aspirations do not get overshadowed by familial responsibilities. They help tailor a plan that accommodates your responsibilities while keeping your interests at the forefront. Finding this balance fosters harmonious relationships within your family while securing your own personal goals for retirement.

4. Evaluating Current Financial Standing

The foundation of any robust retirement plan is a comprehensive evaluation of your current financial standing. This process involves examining your income sources, recurring expenses, liabilities, and current savings. According to Statista, 50% of U.S. citizens who were 60 years old or older had some type of retirement savings in 2024, highlighting the importance of financial awareness as we approach retirement. Planners assist in assessing these elements objectively, providing a realistic view of where you stand financially. This evaluation acts as a springboard for all subsequent financial planning.

5. Creating a Detailed Retirement Budget

Once your financial standing is clear, the next step is to design a detailed retirement budget. This budget considers potential income streams and expected expenses during retirement, allowing for adjustments as your lifestyle changes. Planners help you allocate funds efficiently, taking into account anticipated costs such as healthcare, travel, and leisure, ensuring an equitable distribution of resources. With a detailed budget in place, clients can have a clear picture of their financial trajectory. It serves as a tool for promoting disciplined spending and preventing financial shortfalls.

6. Structuring a Sustainable Withdrawal Strategy

Creating a sustainable withdrawal strategy is a critical facet of retirement planning. This involves making informed decisions about how and when to tap into your retirement funds and determining an optimal withdrawal rate. Retirement planners ensure that your strategies do not deplete your resources prematurely, providing longevity to your savings. This requires careful analysis and planning, considering long-term market forecasts and personal longevity expectations. With structured advice, retirees can confidently manage distributions, balancing current needs with future security.

7. Diversifying Investments to Minimize Risks

Diversification forms the cornerstone of a robust investment strategy, aimed at minimizing risk while pursuing growth. A well-diversified portfolio contains a mix of asset types, from stocks to bonds, and potentially alternative investments. Retirement planners possess the expertise to diversify investments effectively, taking into account your risk tolerance and financial objectives. By doing so, they guard against the volatility of any single investment impacting the entire portfolio adversely. This approach ensures a balance between maintaining capital security and pursuing growth opportunities.

8. Adjusting Asset Allocation Over Time

As you progress through different life stages, adjusting your asset allocation becomes increasingly important to match your evolving risk profile. Initially, you might favor growth-oriented assets, but as you near retirement, a shift toward stable income-generating investments often becomes necessary. Retirement planners continuously manage and adjust your allocation strategy to ensure it aligns with your changing needs and market conditions. By doing so, they help maintain a steady income flow while mitigating risk exposure as you age. This strategic foresight is key to sustaining long-term financial health.

9. Monitoring Market Trends and Economic Indicators

Keeping abreast of market trends and economic indicators can inform better investment decisions and adjustments. A retirement planner meticulously monitors these trends, translating them into actionable insights for your portfolio. Whether it involves reacting to interest rate changes, inflation statistics, or geopolitical developments, they make timely alterations to uphold desired portfolio performance. This active management ensures that your investments remain resilient amid varying economic climates. Leveraging expert insights adds a layer of agility and foresight to your investment endeavors.

10. Timing Social Security Claims for Maximum Benefit

Optimizing the timing of your Social Security claims can significantly affect your overall benefit. Claiming too early reduces monthly payments, while delaying them increases the benefit. Retirement planners help analyze your unique situation, including life expectancy and alternative income sources, to recommend the best timing for claims. This ensures you receive maximum Social Security benefits over the long term. By leveraging their expertise, you effectively secure a vital component of your retirement income without unnecessary losses.

11. Understanding Pension Options and Vesting

Pension plans can offer a reliable source of income, but understanding the nuances of your options and vesting can be complex. Planners assist in navigating these complexities and explaining the implications for your income. They ensure you comprehend differences among annuities, lump-sum payouts, and other pension structures, empowering you to make informed decisions. Additionally, understanding vesting ensures you maximize entitlements without forfeiting any benefits. Proper pension management contributes significantly to securing long-term financial certainty. Drawing upon the expertise of a retirement planner can offer invaluable insights and support as you design and execute a plan for a comfortable and rewarding retirement.

By considering factors such as financial readiness, investment strategies, and life changes, you can partner with a retirement planner to navigate your path to your dream retirement. These collaborative efforts can yield peace of mind and financial security during your golden years. With personalized advice and strategic planning, you can confidently approach retirement, knowing that you are well-prepared for both opportunities and challenges. Embracing this guidance allows you to fully enjoy the freedom and fulfillment envisioned in your retirement years. Contact Proactive Capital Management, Inc today for help with your retirement plan.

The AI Spending Boom

Thu, 28 Aug 2025 18:44:54 GMT

By Cory McPherson

August 2025

In past newsletters when discussing the economy and our country’s gross domestic product (GDP), I’ve highlighted how consumer spending represents about two-thirds of what our GDP is. Basically, our economy’s main engine is run by our people’s ability to continue to spend and spend and spend. In this newsletter I’ll highlight how a new area of non-consumer spending has become more important to our GDP this year. I’ll also touch on the lofty valuations being seen due to this AI boom and how the S&P 500 continues its uninterrupted uptrend.

While consumer spending has continued to slow down this year, the big tech companies have spent so much on data centers in 2025 that their spending is now contributing more to economic growth than consumer spending. The main players investing at staggering levels to build and upgrade data centers are Microsoft, Google, Amazon, and Meta (Facebook). This is to support the demand for artificial intelligence (AI) computing power, with those 4 companies currently forecasting to spend $364 billion of capital investment in 2025. Analyst estimates from Renaissance Macro Research shows that so far in 2025, the value contributed to GDP growth by these capital expenditures has surpassed the impact from all U.S. consumer spending. The chart below highlights the increase in AI capital expenditure, shown as information processing equipment plus software, versus the slowdown in consumer spending.

Data from global management consulting firm, McKinsey & Company, projects that between 2025 and 2030, tech companies worldwide will need to invest $6.7 trillion into new data centers to keep up with AI demand. Spending has already been estimated to have grown 10-fold since 2022. The spending by the big tech companies has had an obvious impact on the economy. Without this spending, it’s possible the economy may have or would soon be in contraction. The money that has been flooding into AI infrastructure is also being diverted from other sectors and parts of the economy. Venture capital funding is mostly only going to AI projects now. The spending as a percentage of GDP is already larger than the peak in telecom spending during the dot-com bubble era of the late 1990’s and 2000.

So, while this has benefited the economy and kept GDP afloat, are there possible negatives to this AI spending boom? Aside from what one may think of AI in general and its eventual effects on humanity, there can certainly be unintended consequences, like that of capital being aggressively diverted from other places. This can lead to layoffs in the other sectors of the economy where access to capital dries up. There is already a fear, and a realized one for some, that AI will eventually replace a large portion of the workforce. It seems that it may very well drive job losses even before it has been widely deployed, in possibly sectors that one wouldn’t have thought would be affected. There is also the problem of the data centers and their expected ongoing cost and lifespan. The hardware is run at extremely high utilization rates and temperatures which continuously wears out the equipment. And with the pace of innovation being extremely fast, the actual hardware in the data centers quickly become obsolete. It’s estimated that the AI data center GPUs may only last 1-3 years. The next question then is, how do these data centers start creating enough revenue and become profitable with the amount of initial capital expense and expected ongoing expense? It’s unlikely these tech companies just continue to spend like this in perpetuity. They will also eventually need to have some type of return on investment. A recent report from the Massachusetts Institute of Technology found that 95% of organizations using AI are not making any money off of it despite the widespread promotion of the technology.

With this AI boom it has created lofty valuations for the largest tech companies in the stock market. The concentration into these companies also continues to grow. There are many ways to fundamentally value the stock market and valuations have been stretched for quite a few years now. The chart below shows a combination of different valuation metrics and their average percentile over time. Obviously where we’re at now doesn’t stand well when compared to previous periods when valuations have been this high.

In looking at stock market concentration, the largest tech companies have had a large share of the market cap for a quite a few years. It also continues to rise and reach lofty levels. The top 7 stocks in the S&P 500 make up about 35% of the market cap. Add in the next 3 largest, the top 10 stocks of the S&P make up almost 40% of the market cap. During the peak of the dot-com bubble, the top 10 made up about 26%. The earnings of the top 10 also make up a large share of the S&P earnings. Although you can see there is a disconnect between the growth of the top 10 and their earnings trying to play catch up.

With the high concentration and nosebleed valuations, does this mean the stock market has to come down? History tells us that eventually yes it will and we will enter a lengthy bear market. It doesn’t mean that it’s happening tomorrow or next month though. The timing part of it is anyone’s guess. Valuations and concentration can get even more extreme. The more extreme it gets though, the worse the eventual outcome will be.

As you can see above, the S&P 500 has continued its march higher over the last month. The sudden drop at the beginning of the month and the middle of the month was quickly bought up and price recovered. It continues to trend along its 20-day moving average (green line) and has spent very little time below it since late April. You’ll notice the trend of slowing momentum has continued even as price has stretched higher this month. September has historically been a weak period for the market and while the conditions are there for a correction, until price breaks any type of support it’s hard to bet against it continuing to trend higher.

We hope everyone has enjoyed their summer and will take time to relax on this Labor Day weekend. As always, reach out with any questions or concerns.

Continuing Upward

Thu, 24 Jul 2025 21:06:45 GMT

By Cory McPherson

July 2025

The stock market has continued its upward trend over the last month as the S&P 500 has reached all-time highs. It amazes me the extreme shift in sentiment in such a short amount of time going back just over 3 months. In this newsletter I’ll highlight some continued divergences with market momentum and the complacency shown and also touch on some of the changes coming with the recent bill passage in Washington.

My last newsletter highlighted the divergence in price in the S&P 500 with one of its momentums indicators (MACD) and the chart below highlights how that has continued. Price continues to go up while its momentum indicator has been trending lower for 2 months. Divergences can last for a while, so it’s not calling for an imminent breakdown, but these typically precede some sort of drop in the market. This won’t continue up forever and the higher it stretches without any pullback, the more dangerous it can become. A drop into support is still something I’d like to see and can set up an eventual continued march higher. Of course, it’s possible we continue to march higher without any pullback, but history shows the higher it stretches like that, the worse the end result will be. We’re in the heart of quarterly earnings season, with many companies reporting their quarterly results over the next couple of weeks. We’re also approaching a seasonally weaker period typically for the stock market in August and September. It doesn’t mean something has to happen, but past corrections have occurred during this time period including just last year in late July/early August.

As the stock market has stretched higher, there are signs of complacency being etched into the market. Investors begin to believe that this thing can only go up and forget what has happened in the past. There are different sentiment readings that show this as investors become more and more bullish. We’re also starting to see a return of “meme stock” mania. In 2021 this is what led to the rapid rise in stocks like Game Stop and AMC Theaters. Now it’s showing in stocks from companies like Kohl’s, Krispy Kreme Donuts, and Opendoor Technologies. These are stocks that have been trending down for the last few years, and in some cases, going down to just a few bucks a share. An example is shown below with Kohl’s, going back 3 years on its share price. These stocks have a high percentage of their shares being shorted, and in most cases for good reason as their businesses have struggled. Retail trading message boards push these stocks to try and drive the price higher making a quick profit and hurting the big institutions on Wall Street that are shorting these stocks. They become very volatile and for those that jump in too late, can cause a lot of pain. To me, this is just another sign of high-risk appetite and speculative nature that typically happens before some sort of top in the market.

Taking a look at gold, with the chart below of the exchange-traded fund (ETF) GLD that tracks the price of gold, you can see the uptrend has continued. This despite the last 3 months being a period of consolidation. This chart continues to look positive to me as sideways action like this at a high level typically leads to a resumption of the prior trend. I don’t view this as positive or negative for the stock market and economy, I just view gold as its own asset that doesn’t correlate to anything for an extended period of time. While this consolidation can continue and even reach lower and still be viewed positively, its momentum indicator has been starting to turn up, making it appear that gold may be ready to break out to the upside.

With the recent passage of the “Big Beautiful Bill” (OBBBA) in Congress earlier this month, I wanted to highlight some of the areas that may impact you. At its core, it makes permanent many of the provisions from the original Tax Cuts and Jobs Act that went into effect in 2018. The tax rates and increased standard deduction from that bill were made permanent and it also increased the standard deduction for 2025.

There was speculation of changes to taxes on Social Security at the federal level, but that did not happen. What this bill does is create a temporary increase in the standard deduction for those age 65+ from 2025 through 2028. It is set at an additional $6,000 for single or $12,000 for joint filers where both spouses are 65+. The deduction begins to phase out though for those with an income level over $75,000 (single) and $150,000 (joint). It completely phases out for those with an income over $175,000 (single) and $250,000 (joint).

The bill also created new tax breaks, including eliminating taxes on tips up to $25,000/year for individuals making less than $150,000. That tax break expires in 2029. It also eliminates taxes on overtime pay up to $12,500/year for an individual making under $150,000. That also expires in 2029. Taxpayers can also now deduct interest on auto loans that are used to buy American-made cars, up to $10,000/year. This new deduction can be taken in addition to the standard deduction.

Overall, like most bills, there’s some good and some bad. The main thing for most people is this made permanent the current tax rates that were set to expire at the end of this year and would have become higher for most households if nothing was done. This at least provides clarity moving forward. Also, like most bills recently, this will add to the deficit over time. The government continues to spend at unsustainable levels that will eventually matter. Do they cut spending in a meaningful way in a separate bill? It’s possible and would offset some of the tax cuts but even the smallest of spending cuts have already been met with a fight.

We hope everyone is enjoying their summer and able to spend time with family and friends as this year continues to fly by. As always, reach out with any questions or concerns.

Elevated

Fri, 20 Jun 2025 03:06:00 GMT

While the stock market continues to remain elevated and just a few percentage points off all-time highs (S&P 500), the economy also appears to continue to chug along. A lot of the noise of tariffs that caused volatility earlier in the year has dissipated for now as trade negotiations continue. That can obviously change in a hurry. Many that were calling for imminent recession back in April have backed off that call. It seems the market is getting back into its mode of climbing the wall of worry. We’ve had tensions overseas continuing to rise. So far, the bombs being dropped in the Middle East haven’t had much effect on the stock market. Even the recent Federal Reserve meeting this week was met with minimal volatility as they kept their benchmark interest rate the same.

While GDP (gross domestic product) in Q1 came in slightly negative, projections for Q2 show a rebound. The Federal Reserve Bank of Atlanta’s GDPNow model shows an estimated 3.4% increase currently for Q2. U.S. company’s reactions to tariffs and front-running with imports in Q1 were the biggest cause for the negative reading. The reverse effect of that with lower imports in Q2 will most likely be the main cause for the rebound. Normally, though consumer spending will be the most important factor to watch, as the large majority of our GDP comes from consumption.

Consumers for the most part have remained resilient over the last few years despite high inflation. One concern though is that they’ve racked up a lot of debt in the process to pay for it. Credit card debt has been at all-time highs for a couple of years now. That by itself isn’t necessarily a concern as credit card usage has never been more prevalent and a large number of households pay it off every month. The concern would be households not paying it off every month and eventually becoming delinquent on payments. The chart below illustrates how this has continued to rise.

Credit card delinquency is reaching levels not seen since the depths of the great recession. Same with auto loan delinquency. The big change in this chart recently is the student loan delinquency. Missed federal student loan payments were allowed to go unreported to credit bureaus through the end of 2024. Repayments resumed in September 2023 but a one-year “on-ramp” period prevented missed payments from affecting credit reports. With that one-year period being up it caused delinquencies to surface in Q1 data for this year and is expected to continue to increase.

The fact that this is occurring in the backdrop of historically low unemployment is concerning. Delinquency rates on credit cards and auto loans are reaching levels last seen when unemployment was nearly 10%. We currently sit at 4.2% as the chart below illustrates. What would happen if unemployment began to go up and started to reach 6% or more? Delinquency rates would most likely reach levels not seen in modern times. This would obviously not just affect consumer spending that our economy relies on, but many banks as well.

Jobs data will be important to watch moving forward with this backdrop. Initial unemployment claims and continued unemployment claims have ticked up some recently, but are not signaling an immediate slowdown. The number of job openings has been trending down since 2022, but have somewhat stabilized this year near levels seen in 2018 and 2019.

While there is evidence that consumers are getting stretched, that won’t necessarily affect the stock market on a day-to-day basis. The bounce back from the April lows has been quite impressive and as mentioned, the S&P 500 is not far off its all-time high from this past February. It has blown past some of the resistance levels I was watching but has begun to stall a bit. There is also some negative divergence with what price has done since the middle of May in comparison to some of its momentum indicators.

The market taking a breather soon would make sense and how that plays out will be important for how the rest of the year may go. A drop into support that holds can set up for a continued uptrend through 2025 into 2026. One that does not hold support can set up more fireworks like we saw earlier in the year and create a continued choppy and volatile market through the end of the year. Support levels will come in the 5,500-5,800 region as that is where the market began to initially bounce from back in March. Markets also like to fill gaps, and we have one from the jump higher in May with the bottom of gap support right around 5,700.

While the short-term picture has been more positive with the strength of this bounce, it has not improved the technical picture of the long-term chart. The indicator that went negative in April remains negative and diverging with price. It also remains at elevated levels indicating it still needs to reset at some point. Ideally, it does so with a high level of consolidation in price and not a sustained breakdown. The long-term uptrend, though, remains intact and the drop in April remained above the blue line. It’s important to note that long-term market tops, historically, are a process and take time. Whether that’s playing out now remains to be seen. The technical signals suggest it is possible but price is not there. As the old saying goes, markets can stay irrational longer than you can stay solvent.

We’ll continue to monitor our indicators and signals to manage risk accordingly. Please reach out with any questions or concerns. We hope everyone has an enjoyable summer and a safe and happy 4th of July!

Entering Resistance

Fri, 02 May 2025 02:38:00 GMT

What a difference a few weeks can make. While the financial media was expecting continued calamity and downside in the stock market in early April, the S&P 500 now sits at about where it was before the big drop that started on April 3rd. Does this mean we are out of the woods now and all clear? I don’t see it that way yet as it will have a lot to prove on a technical basis as the S&P 500 has entered the resistance zone I mentioned in my previous newsletter. While some charts suggest more upside is possible, others suggest continued caution.

You can see in the chart above the S&P 500 still sits below its 200-day moving average (red line). That area is where the market stalled in late March that eventually led to the big drop in early April. It is also the area where the market found resistance last July and August before pushing through. How it reacts from here will be important. It very well could slice right through and continue to push all the way to new highs. I would expect some volatility here though as it deals with this area of resistance. A drop that forms a higher low from where it was in mid-April would be a positive development and could lead to a new uptrend beginning. If not then it could very well have another leg down taking out the lows at 4800 later this year.

Some of the more aggressive areas of the stock market have started to catch a bid. We are in the middle of quarterly earnings season with most of the big technology stocks reporting quarterly earnings this week. So far we’ve seen positive reactions in price from most of them as they continue to beat estimates. This is a positive sign as investors begin to feel more comfortable taking risk. If the market continues to push higher we want to see the aggressive areas like technology and consumer discretionary lead the way. So far this bounce in the market from early April has not been led by the big tech stocks until recently.

An area of the stock market that continues to struggle is small caps. I’ve highlighted their importance before as it relates to market leadership and the economy. You can see from the chart below that it too has bounced since early April, but not to the degree that we’ve seen in the S&P 500. Small caps remain almost 20% from their highs last November. Its continued under-performance puts into question how much time is left in this economic cycle.

High-yield bonds are another area to watch. High-yield bonds, or what some may call junk bonds, are bonds issued by companies that have low credit ratings. So, they must offer higher yields on their bonds to entice investors to purchase their bonds despite the higher credit risk. The chart below shows an ETF (exchange-traded fund) of a high yield bond fund that holds a basket of those types of individual bonds. Prices often will mimic the stock market and right now it’s not far off of its highs from the end of February. If investors were concerned about the economy and markets you would expect this to be struggling. So far it has held up well and is a positive signal for the stock market and risk taking if it continues to push to new highs.

What the treasury bond market and interest rates have done this year has been unusual and not typical of a risk-off move. Rates on the long end of the curve have been almost as volatile as the stock market. The 10-year Treasury rate moved higher early in the year to over 4.8% before falling to almost 3.8% in early April. It then quickly jumped in just a few days back up to almost 4.5%. In a normal risk-off environment you see long-dated Treasury rates fall as demand goes higher for the safety of the U.S. government. During the panic in the markets in early April that was not the case.

The government certainly needs lower rates as it is estimated that $28 Trillion (!) of its debt will need to be refinanced over the next 4 years. While the Federal Reserve may want you to think they have control of the bond market and interest rates, they really do not. The short end of the curve they will have influence on with their benchmark rate. The farther out on the curve the less influence they have and the more market forces take effect. The problem the government has right now is its interest expense. They can attempt to control the deficit and spending but they can’t control what their interest expense will be. As new debt is issued at higher rates, more debt has to be issued just to service that debt (pay the interest). Obviously a cycle that will be difficult to get out of as tough decisions will eventually have to be made by politicians. Rates could continue to go up as investors demand a higher risk premium to hold these treasury bonds to maturity knowing the debt and deficit problems of this country.

With the stock market dropping quickly in early April, more and more headlines came out about recession being on the horizon. While a slew of economic indicators have been pointing to recession for going on 3 years now, the economy has just continued to chug along. Lots of economic data has come out over the last week including the first quarter GDP (gross domestic report) report. With the headline number coming in negative (-0.3%) it makes you believe recession is imminent. But when you dig into the reading it actually doesn’t necessarily portray that. Net trade is the main reason for the negative print. As businesses loaded up on imports in the first quarter to get ahead of tariffs, it resulted in a large drop in net trade (exports less imports). This caused about a 5% hit to the GDP number for the first quarter. You can see the different components to the GDP below. Consumer spending makes up most of the GDP calculation. While it has slowed it does remain positive but will be important to monitor along with the jobs market/unemployment.

Overall, I believe it is important to keep an open mind. This stock market has been resilient over the last 15 years as it has faced other extreme uncertainties and found a way to continue climbing the wall of worry and extending this long-term bull market. Could this time be different? The combination of what the technical signals are showing and some of the more fundamental expectations would advise continued caution, but we always must be prepared to pivot.

Market Update 4/7/2025

Mon, 07 Apr 2025 09:39:00 GMT

It is often said the stock market takes the staircase up and the elevator down. That has clearly been seen in the action over the last few trading days as the tariff news has served as a catalyst to the downside. The S&P 500 quickly approached what pundits describe as bear market territory when it gets to a 20% drop from its high. Is this long-running bull market coming to a close? Time will tell, but the long-term chart is showing some damage. Meanwhile, wild swings in either direction will continue until the market finds its footing. Just today, the S&P 500 traded in a 400-point range.

In the short term, with the speed and depth of this decline, a quick move higher wouldn’t be a surprise. Some of the technical indicators have reached levels last seen during the covid crash days of March 2020. It has fallen well below its moving averages. Any move higher on the S&P 500 will find resistance in the 5,500-5,800 area. That is where the market traded in a range for a few weeks before the washout began last week and a cluster of moving averages reside. I’ll look for that area as a spot to continue reducing risk across portfolios if that resistance does hold.

In my last newsletter, I pointed out the long-term monthly chart on the S&P 500 and how one of its indicators was about to cross negative. We did get that cross and it is shown in the chart below, 2nd panel from the bottom. This means any rally will be faced with headwinds from this long-term technical perspective. Best case scenario this negative cross is short lived and we see a strong enough rally over the next few months to turn it back positive. I’m not expecting it, but understand it is possible, especially if tariff news turns around. The problem for this indicator, though, is it is at very high levels, pushing past what was seen in late 2021. Even if we do see a rebound in this, I think it just delays a bigger drop to come as this indicator needs to reset.

The blue line on this chart, the 50-month moving average, will be important to watch over the next few months. This has been the support for this bull market on a monthly closing basis. A monthly close below signals a possible trend change and increases the odds we have entered a long-term bear market. That line currently sits at 4,656 on the S&P 500.

Overall, while an upcoming short-term bounce seems likely with the washout we’ve seen, the longer-term picture looks gloomy. A cautious approach will remain prudent as long as the long-term technical indicators are going against you. Please reach out with any questions or concerns. I know this is an emotional time as the market swings day to day are extreme as it reacts to every headline and announcement concerning tariffs. I’ll continue to use our charts and indicators and react to what the market gives us.

Long-Term Cracks Forming

Fri, 28 Mar 2025 04:24:00 GMT

It feels like spring has sprung here in Kansas, but it appears no one has told the stock market. Just a month ago in my previous newsletter I showed how the S&P 500 had been in a sideways pattern since November and waiting for a break either up or down. Not long after, it broke down and has failed to muster any sustained bounce. While the short-term looks murky, the long-term charts are looking weak as well. In this newsletter I’ll highlight a monthly signal that is on the verge of going negative for the first time since early 2022 and what that may mean.

Looking at the S&P 500 over the last 12 months in the chart below, you can see in early March it broke below the 200-day moving average (red line) for the first time since October 2023. As I said in February’s newsletter, the market was overdue for a test of that average. What’s concerning in the short term is the S&P’s inability to get back above it with conviction. You can see it traded above it for a short amount of time on Monday, March 24th and Tuesday, March 25th but was unable to hold. We are now back below it and with today’s action (Friday, March 28th) we’ve returned back near the point of where that attempted breakout began.

From the market peak in mid-February to the bottom in mid-March we saw about a 10% drop. Nothing out of the ordinary as it can be labeled as a market correction if the S&P can regain its footing. However, all bigger corrections/bear markets obviously begin with some sort of initial drop like this, and after a failed rally attempt continues to make lower lows. I’ll be watching the 5,800-5,850 area as resistance if the S&P starts another rally attempt. That would be about a 50% retracement of the 10% decline. Historically, when bigger draw downs occur that is the area of resistance for relief rallies. It doesn’t have to get there and we did get close earlier this week, but a failed attempt at that signals a weak market.

Looking at a long-term monthly chart on the S&P 500 below, the third panel shows an indicator (MACD) on a monthly basis that I follow, especially when the market begins to experience some turbulence. It’s a negative signal when the black line crosses below the red line. This only updates on a monthly basis, so without a surge here to end the month it very well could cross next week. Even if it doesn’t at the end of March, it will still likely turn negative at some point in the next few months. You can see that the indicator has reached a higher point than it did in 2021 and highlights the exhaustion to the upside we’ve had. Both of those peaks are much higher than the previous peaks since this bull market started post 2009. The vertical lines show the previous times where this has crossed which includes 2022, 2020, 2018, and 2015.

Since the S&P 500 made new all-time highs in 2013 following the great recession the blue line in this long-term chart has been support for the S&P on a monthly close. You can see after each negative cross in the MACD indicator the market came near the blue line (50-month moving average), sometimes piercing below but finishing at or above it on a monthly close each time. Right now, that line sits at 4,631 on the S&P. A lot of air exists between where we are now and that level. If we see continued weakness and a bigger drop playing out, that is the long-term support level to watch. I wouldn’t expect a direct drop to that area like what happened in 2020 during the Covid crash, but something similar to 2022 that drags on for a few months is possible. In that case there were periods when the market provided opportunities to reduce risk and exposure.

If a bigger drop and bear market is playing out, that blue line will be important. To me it would signal whether this is a cyclical (short-term) bear market, or we have a change in character and this is the beginning of a secular (long-term) bear market and the cycle that began post 2009 has completed. The top panel on the long-term chart above shows the RSI (relative strength index) which has peaked at a lower level each time the S&P has peaked at a higher level. This is a long-term negative divergence signal that I’ve highlighted before and similar to what the market experienced before the tech bubble popped in 2000.

This next chart shows the volatility index (VIX) over the last 4 years. In looking at it recently you can see the climb that it’s had, reaching as high as 29 earlier this month. But it did it in what may be considered an “orderly” fashion for this index. We never saw a sudden spike in volatility and ultimately peaked at a similar level as it did in December. I don’t see that necessarily as a positive though, and looking at 2022 can show why. The peak in the VIX occurred early that year in what can be considered a similar move. It then moved in a sideways range without ever experiencing a big spike to the upside, as the market continued to trend down for about 10 months.

Historically, the large spikes like we saw as recently as last August have been exhaustion points for sellers and marked bottoms. We saw it in 2020 during the Covid crash and even in 2015 and 2018. The 20 level on this index historically has been key. We’re near that level currently and if it stays near that level or below it for a period of weeks and months it can provide relief for the stock market.

Overall, there is a lot of uncertainty right now and anxious feelings, and that has been shown in various consumer and business confidence surveys. What’s odd about this is these readings typically are shown after the stock market has already taken at least a 25%+ drop and the economy is in recession. We’re less than 10% off the highs currently, and no official recession yet. Are concerns overblown and this will setup a rally to new highs, or are the concerns rightly justified and there is much more pain coming? What this means or foretells I won’t pretend to know or predict. To me, the charts and signals will tell the story, and I’ll continue to follow price. As always, reach out with any questions or concerns.

Sideways... For Now

Fri, 28 Feb 2025 04:09:00 GMT

In my last newsletter in January, I highlighted how the S&P 500 had been moving in a back-and-forth action without much gain or loss. The sideways action continued for the most part in February as well. We reached an all-time high in the S&P at 6,147.43 this month, yet we are closing in on the end of the month and it currently sits about where it started the year at. This choppiness has heightened volatility and uneasiness in the market. Sentiment on the market has soured as well, and I’ll highlight one survey that shows how bearish feelings have risen. Also, in this newsletter I’ll review some figures on the housing market that could be cause for concern.

Looking at the S&P 500 chart highlights the sideways action we’ve seen since November. Right now, we are near the bottom of this pattern and may be attempting to break down. A test of the 200-day moving average near 5,700 or lower may be in the cards soon if the sideways action doesn’t hold. If support holds, we could see another rally attempt to break out and make new all-time highs again before seeing a bigger correction play out.

On average the S&P 500 trades above its 200-day moving average for about 6-7 months before seeing at the least a test of that average. Currently, the S&P has been above its 200-day moving average since the end of October of 2023, going on 16 months now since it last traded below it. Obviously the market has been due for some sort of drop to that region for a while now. How it reacts in that region will be important. It could show a change in the character of the market if it begins to trend below it. In October of 2023 though, after spending a few days below the average, it quickly reversed higher and began this long uptrend we’ve been on since.

A recent investment survey from AAII (American Association of Individual Investors) shows how bearish investors have become recently. AAII surveys investment sentiment weekly by asking what direction members feel the stock market will be in the next 6 months. Bullish being positive and bearish being negative on the market. This week’s readings show bearishness in the market reaching levels last seen in 2022 when the market was down nearly 20%. Typically, extreme bearish readings are seen near market bottoms, not a few percentage points from a top. There may be good reason, though, for bearish sentiment and the market may have much further to fall. If not, and we see it find support, the bearish sentiment can fuel a squeeze higher as investors attempt to get back on the right side of the tracks.

Source: aaii.com/sentiment-survey

Some interesting data has come out recently on the housing market that is causing some concern for the economy. The general thought for housing over the last few years is a lack of supply and the need for more homes to be built. The lack of supply combined with ultra-low rates from a few years ago caused home values to skyrocket, especially in desirable locations.

Recent numbers show a continuing rise in completed new homes for sale after bottoming in 2021.

This is with the backdrop of continued weakening home sales. In order to avoid a glut of housing inventory, construction may need to slow down. Pending home sales in January were down 4.6% month over month after dropping 4.2% month over month in December. Year over year sales are down 5.2%. The chart below shows the pending home sales index remaining near the lows that were seen during the pandemic.

Source: Bloomberg

Home prices continue to squeeze out buyers, along with mortgage rates remaining north of 6%. National home prices were up 3.9% in December from a year earlier. The median sale price of a previously owned home in the US was $396,900 last month, according to NAR (National Association of Realtors) data. That is up 49%(!) from five years ago.

Will the increase in supply and lack of sales lead to lower home values? Obviously if you’re in the market for a new home that would be the hope, but as stated national averages have not stalled. Location matters and certain places may already be seeing that slowdown while others continue their trend.

The stock prices of homebuilders have begun to trend lower since last November. The chart below shows the SPDR S&P Homebuilders ETF. This fund experienced tremendous growth from late 2022 onward. This may be a sign of the expected slowdown in home building going forward.

Overall, I believe we’re near an important point in both the market and economy. While certain data points suggest this economy can keep chugging along like it has for a little while longer, others show growth may be hard to come by. The stock market is certainly nearing an important point. Will it be able to hold support and have another rally back to the highs, or do we finally see a breakdown and bigger drop play out? Time will tell, but we’ll be prepared for whichever scenario plays out.

Back and Forth Action

Fri, 17 Jan 2025 04:11:00 GMT

After a positive 2024 ended with a down December, the stock market has experienced back and forth action in the first couple of weeks of 2025. I think these up and down movements could become the norm for 2025 on a larger scale as the market digests the incoming administration and their policies, as well as Fed policy going forward. I’ll review some charts I’m watching and levels that are important for this bull run to continue. I’ll also take a look at interest rates, as they’ve gone in the opposite direction than what the Fed would like to see.

In looking at the S&P 500 chart below, right now the market sits at about the same spot it was the day after the election in November 2024 after some choppy action the last 2+ months. The long-term trend obviously continues to be up, while in the short-term the trend has been down since it peaked in early December. If we see continued weakness in the short-term, I’ll be watching the 5600-5700 area in the S&P as support. That coincides with a rising 200-day moving average (red line) that is approaching the 5600 level. A breach of that support zone could signal a change in character for the market. Overall, I expect 2025 to see exaggerated swings to both the upside and downside. Some may look back at the first year of the presidential term (2017 and 2021) for the last two cycles and expect smooth sailing like we saw in those years. I think conditions are quite a bit different, from valuations to interest rates to inflation as this four-year term begins.

Momentum indicators shown above and below the price chart have approached levels seen at previous bottoms over the last year. This would give an expectation that we will see some sort of extended rally in the near future. Sentiment has also reset in some indications with this recent weakness in the market. That is a bit surprising considering the drop in percentage terms has not been much but could add fuel to any rally that is seen.

In looking at small-caps below, a big bounce occurred the day after the election and brought small-caps to new highs not seen since the end of 2021. That breakout was short-lived, though, as you can see, it has since broken back down and has recently tested its 200-day moving average.

I’ve highlighted the importance of small-caps and their barometer for the health of the economy before. A continued breakout would have been a positive sign for stocks and the overall economy. I’ll continue to monitor to see if another attempted breakout occurs and can stick.

While the S&P 500 enjoyed a nice uptrend in 2024, gold experienced a nice uptrend as well. You can see below the chart on the exchange-traded fund GLD which tracks the price of gold. It has gone through a nice period of consolidation in the last few months after peaking in late October. It looks ripe to continue its uptrend in the near future even if this period of consolidation continues for a few more weeks.

Does this mean bad news for stocks? Or bad news for inflation? I don’t believe so, as 2024 certainly shows. Both gold and the stock market went up together and there’s been plenty of times in the past where that has occurred. It also, of course, went up while the rate of inflation was coming down last year. In fact, in 2021 and 2022 when inflation first really started to take hold, gold was not a great place to be and experienced a downtrend for most of 2022. What I’ve found historically is that gold does not correlate to much of anything but is great to use technical analysis with. If we eventually do see an important top in the market with a period of weakness, it’s certainly possible for gold to go down right along with it. It does not act as a hedge that some may believe.

Interest rates did not end the year as the Federal Reserve had planned. While the Fed reduced their benchmark rate 3 times before the end of the year, starting in September, rates on the long end of the curve went higher. You can see below the yield on the 10-year U.S. Treasury reaching over 4.8% recently. That is just below this cycle’s recent high of 4.98% in late 2023. When the Fed began cutting, the 10-year was just over 3.6%. With this move in interest rates, it puts into question how much more the Fed will cut, if any, this year. The 10-year yield has a big effect on what mortgage rates do and what loan terms businesses can get. Higher interest rates for a longer period of time than expected can continue to put pressure on the economy and the bond market.

With the move higher in long-term rates, and the reduction in short-term rates by the Fed, it has also caused an un-inversion to the yield curve. You may recall a few years ago when the yield curve inverted that it sent up warning signs for the market and economy. The yield curve inverts when short term rates become higher than long term rates, which is, of course, backwards from what you expect. In most measures, the yield curve has normalized or un-inverted, and below shows that relationship with the 10-year Treasury and the 2-year Treasury yield. When the black line went below the pink dashed line in 2022 is when the inversion occurred. You can see at the end of 2024 it went back above that line.

In the past, you can see the yield curve will un-invert before a recession occurs. Many confuse the inversion as the recession signal, but historically recessions don’t occur until after the curve normalizes. Of course, after many predictions for recession the last couple of years from economists never panned out, those calling for one this year are now hard to find.

In summary, I expect more volatility and swings up and down in 2025 than what we’ve seen recently. Watching support and resistance levels on the broad market will be important. While the broad market may go back and forth, there will still be sectors of the market and individual stocks that will have better charts to follow.

Wishing everyone a healthy and prosperous 2025!

Watching For Sentiment Extremes

Tue, 26 Nov 2024 04:39:00 GMT

As we roll into the last month of 2024, the stock market will look to close out a great year on a strong note. Now that we’re past the election from a few weeks ago, there’s been a sense of euphoria in parts of the market. Small Caps exploded higher to finally reach their highs from 2021. Bitcoin has nearly reached $100,000. Volatility readings have waned and returned to more normal levels. One thing I’ll be watching next year are sentiment readings and looking for levels in sentiment that have historically occurred near market peaks if this euphoria continues.

One measure of sentiment would be looking at margin debt. This measures the amount of money being borrowed in brokerage accounts to trade with. This allows an investor to magnify gains if a stock continues to rise. It can also, of course, exacerbate losses if a stock were to fall and an investor was to face a margin call and required to come up with additional cash. FINRA (Financial Industry Regulatory Authority) releases data on margin debt monthly. While it has been increasing steadily since early 2023, it is still well off its peak in late 2021 as you can see with the purple line in the chart below.

Historically, margin debt has peaked near or just prior to the S&P 500. That occurred in late 2021 when margin debt peaked in October of that year. If sentiment begins to get extreme and we have a return of “animal spirits” as market commentators like to say, you would expect margin debt to surge higher and possibly get above 2021 levels. If that’s the case, stocks could continue to stretch higher. November’s numbers will be interesting to see if investors started adding on margin after the election.

U.S. consumer confidence bounced back in October just prior to the election with data being released earlier this month from The Conference Board. One data point from their survey is expectations for the stock market. Consumers have become much more upbeat about the stock market, with 51.4% expecting higher stock prices in 12 months. That is actually the highest reading since the question was first asked in 1987. Only 23.6% expect stock prices to decline.

CNN’s Fear & Greed Index is another widely followed sentiment indicator on the stock market. While it’s in greed territory currently, it has seen much higher levels previously and typically reaches extreme greed before stocks peak. This also points to the possibility of higher to go.

With higher sentiment readings in the stock market, corporate insider selling has also gone up. Corporate executive stock sales have actually reached an all-time high in the ratio of sellers to buyers as shown in the chart below.

This doesn’t necessarily mean the stock market is about to peak imminently. Insiders can have all kinds of different reasons to sell, but with markets near all-time highs and looking frothy, they’ve decided now is a good time to start cashing in. The previous high in this insider selling ratio was in 2021 a few months before the market peaked.

A recent report from Bank of America in October highlighted that mutual fund cash levels are currently at their lowest point on record at 0.6% of assets under management. This was a decline from 1.6% the previous month, a significant change considering the average monthly change is around 0.20%. This is another indication of high bullish sentiment as fund managers are essentially “all-in” with a positive outlook for growth. This may seem positive, but with low cash levels in their funds, they will be limited in their ability to buy during any market downturn. It can also add fuel to any downturn if many decide it’s time to raise cash. For the most part, mutual fund cash levels have been declining for the last 15 years outside of a rise in 2022. Like interest rates from a few years ago, as something approaches zero, it will inevitably have only one way to go.

Overall, if an important high in the market is approaching in the near future, extremes to the upside in sentiment will most likely coincide. Some have reached extremes, while others have room to go higher. All of this coincides with a continued tense geopolitical backdrop, and an uncertain near-term economic picture as a new administration comes in. As always, we’ll follow the charts and watch our support levels to guide decision-making.

I want to wish you and your family a safe and happy Thanksgiving! As a reminder, our offices are closed on November 28th and 29th and will be back open on December 2nd.

Climbing the Wall of Worry

Fri, 18 Oct 2024 02:11:00 GMT

We are 3/4th of the way through 2024, and despite many things being thrown at it this year, the stock market has continued to trend higher. An old Wall Street saying that stocks climb a wall of worry definitely applies to 2024 so far. We’ve had a strange (putting it lightly) election season, higher interest rates for 2024 than expected, geopolitical tensions across the globe, and a weakening job market, just to name a few. Nothing has been able to knock it off its track, and some believe that nothing in the near future will. Even during this current 2-month period of September and October that is historically weak, stocks have continued to stretch higher.

As I’ve explained before, though, sentiment can be a funny thing with the stock market. Often when everybody is positive or everybody is negative on one side, the opposite of what everyone expects tends to happen. With the resiliency that the stock market has shown, there are signs of complacency and overexuberance. This isn’t any indication that the market is about to drop or any type of timing indicator. It can provide the fuel, though, for an eventual decline.

A positive development that has continued over the last year for the market is that the rally has been much broader based than what we’ve seen in some instances in the past. We’ve seen several periods where the mega cap tech stocks lead everything higher. Some of those stocks actually haven’t gotten back to their summer highs recently while many other areas of the market have carried the indexes higher. The number of stocks trading above their 50- and 200-day moving averages have been trending higher. The number of stocks recording all-time highs has been increasing. As seen below, the advance-decline line of the S&P 500 (bottom brown line) continues to trend higher with the price of the index (top black line). This measures the number of stocks in the index advancing minus the numbers of stocks declining. This is an encouraging sign of a healthy market as it confirms the upward trend of the S&P 500.

One area of concern that I’ve kept an eye on recently has been that of the VIX. This is the volatility index which measures options pricing on the S&P 500, based on one-month call and put options on the index. Typically, what I look for is how it relates to what the index itself is doing. The price of the S&P 500 and the VIX reading should be inversely correlated. A low or decreasing VIX comes with higher stock prices. A rising VIX typically comes with lower stock prices as investors grow concerned about the market. You want to see them moving in the opposite direction. The chart below shows the S&P 500 over the last 7 years and the different instances when the VIX is positively correlated and trending higher with the S&P. The top part of the chart is the S&P 500. The middle panel is the VIX reading. The bottom panel is the correlation measure between the two. When that measure is moving up, the 2 are positively correlated.

You can see there’s been different periods over the last 7 years where we’ve seen positive correlation. Crossing the zero line in that measure is when it’s time to start looking for possible trouble ahead. It doesn’t always lead to a decline in the market, as was seen early this year. You can see though we did have positive correlation going into the sharp drop at the beginning of August. Obviously, that decline was quickly recovered. The periods where we’ve seen correlation readings this high, though, have led to some type of drop in the market, including the eventual bear market of 2022. Ideally, we will see an easing of the VIX soon if the market continues to grind higher. The higher VIX reading could be due to the election as we march closer to that day, and how it reacts afterwards will be something to watch.

Another interesting area has been interest rates. As expected, the Federal Reserve cut their benchmark interest rate in September. The cut was expected, the size of the cut was the question, and they ended up cutting by 50 basis points (0.50%). Since the day the Fed cut, interest rates on the long end of the curve have actually gone up. This was a bit more unexpected. You can see below the jump in the 10-year U.S. Treasury yield since the Fed cut rates on September 18th. While the Federal Reserve can control short-term rates, they do not have much control over what long-term rates do.

You can see that the 10-year yield had been trending down since late April and bottomed at 3.62%. It now sits just shy of 4.1%, about a 13% increase. The 20-year Treasury yield has gone from 4% to 4.44%, and the 30-year Treasury yield has gone from 3.9% to 4.39%. Bond investors are either becoming more positive on the economy, expecting higher growth long-term, or they are concerned about inflation. If we see a repeat of the 1970’s and inflation reignites, that obviously puts a bind in the Fed’s plans to cut rates and reach their planned terminal rate of 3%.

With higher interest rates, comes higher interest expense for our government. The higher interest payments have exacerbated an already large budget deficit and can give reason for the Federal Reserve to attempt to keep rates low. The government’s budget deficit was $1.8 trillion in fiscal year 2024 (ended September 30th) according to preliminary analysis by the Congressional Budget Office (CBO). This is the third largest deficit ever recorded in nominal terms, only behind the pandemic years of 2020 and 2021. The deficit was 6.4% of GDP, larger than any deficit in records going back to 1930, except the years around World War II, 2008 financial crisis, and the pandemic. With this occurring during what’s supposed to be a strong economy and a non-crisis period is startling. It is also occurring during a fiscal year where Federal tax collections grew 11% to $4.9 trillion, topping the previous all-time high in 2022. Tax collections reached 17.1% of GDP, which is higher than the prior 20-year average of 16.6% of GDP.

The net interest expense on public debt was $950 billion for the fiscal year. Interest on our country’s debt is now the second largest federal government expenditure after Social Security, which costs $1.5 trillion. The other large expenditures are Medicare ($869 billion), and defense spending ($826 billion). Even with forecasts that project interest rates to lower over the next few years while counting on inflation to subside, the CBO projects interest payments as a percent of GDP to continue to rise over time as the country’s debt continues to grow.

The stock market has enjoyed the large fiscal deficits of the last few years, and the deficits are projected to continue basically forever without meaningful changes. It’s impossible to predict when this will matter to markets. Large deficits and spending can create liquidity that finds its way into the stock market pushing prices higher. If politicians ever wanted to tackle the deficit, they could cut spending or increase taxes, things that would probably be unfavorable to the market. As we near an election, though, neither political party talks much about the deficit or the debt or has any desire to cut spending. So, it’s hard to see this era of fiscal dominance coming to an end any time soon. For now, the party continues…

An Eye on the Labor Market

Fri, 23 Aug 2024 02:28:00 GMT

Since my last newsletter, the market has seen quite the roundtrip in price and volatility. A drop of about 8% in the S&P 500 over a 3-day period at the beginning of August sent volatility readings spiking. Since then, though, the market has erased that decline and is now nearing its highs from mid-July. Volatility is now back near levels it was prior to the drop. Market commentators have placed many different reasons for why that drop occurred, be it Federal Reserve policy, the Japanese markets and currency, or even the weak jobs report from July. Sure, those had an effect on the market, but overall, it was due for some type of drop or correction. Is all well going forward through the end of the year? The rally off the lows has been a bit of a mixed bag, with some signals showing strength and others being weak for this big of a rally. Seasonality wise, we are coming up on a typically weaker time period for the market in September.

As you can see above, September has been the weakest month of the year over the last 15 years, generating a positive return only 43% of the time and averaging a negative return. In fact, each of the last 4 years has seen a negative return in the month of September. October has historically been a weak month as well in election years. It has also been the month for surprises and market “events” in the past.

If we see a corrective phase continue for the market over the next 2 months, it could set up a post-election rally into year-end. That would be typical of an election year. The one thing that could throw a wrench into that would be the economy. The one part of the economy that has remained strong despite high inflation and high interest rates over the last couple of years has been the labor market. There continues to be signs, though, that it is cracking.

The July jobs report that came out on August 2nd surprised investors and economists, as job growth totals for the month were much less than expected and the unemployment rate edged higher again, to 4.3%. Job growth of 114,000 for the month was below the estimated 185,000. Previous months job growth numbers were also revised lower by 29,000, and 5 of the past 6 months have seen job numbers get revised lower after the fact.

As you can see above, the unemployment rate continues to trend higher. One thing that can be seen with the unemployment rate over the last 50+ years, is that when it begins to trend higher, it usually ends in recession. The rate does not stagnate and typically is either trending higher or lower. While 4.3% is historically very low, the trend is not our friend currently. One indicator to measure this trend and potential for recession is called the “Sahm Rule”. This rule is triggered when the 3-month moving average of the unemployment rate exceeds the lowest point over the previous 12-months by 0.5%. This was triggered with this latest increase in the unemployment rate, and each time it has triggered since 1960 it has resulted in recession.

A common criticism of the Sahm Rule and why some economists disregard it for today’s environment, is that it can be distorted by changes in the labor force participation rate. A larger share of the rise in unemployment than normal has come from re-entrants or new entrants into the labor force over the last year. This can be stripped out, though, by just looking at the rate of change in unemployed people. Historically, when the 3-month moving average of the change in unemployed people rises by over 10% on a year-over-year basis, it has resulted in recession. Currently, the year-over-year change is at 14.5%, above that threshold.

Another hit to the labor market was the announcement this week from the Bureau of Labor Statistics that it has revised down nonfarm payroll job growth for the annual period ending March 2024 by 818,000. A staggering revision that has only been outdone by 2009 during the great recession. This is part of its annual benchmark revision to the nonfarm payroll numbers, and this revision leads to a nearly 30% drop in job growth compared to what was being reported during that period.

As the labor market weakens, delinquencies have continued to rise. Below is an updated chart from the last newsletter showing the trend continuing higher in delinquencies on credit cards, auto loans, and mortgages. This continues to be a bad sign for the health of the consumer.

With the cracks appearing in the labor market, it gives the Federal Reserve the evidence it needs to begin cutting rates to support it. It is widely expected and being priced in by the bond market that they will cut in September by either 0.25% or 0.50%. Fed Chair Jerome Powell will give remarks from their Jackson Hole summit on Friday August 23rd and should give clues as to what the Fed is planning for September and moving forward. Those expecting interest rate cuts to be a boon for the stock market can’t be so sure. Market performance after rate cuts have begun boils down to whether the economy is in recession or not. The times where the Fed has been able to achieve a “soft landing” and reduce rates with no recession have been great periods for the stock market.

If the Fed is not too late in reducing rates, and inflation continues to abate, it could set up the stock market for another uptrend higher. As stated, though, we are coming up on a seasonally weak period for the market. A correction from here leading up to the election can be the fuel that leads to another post-election rally like we’ve seen each of the last 3 presidential cycles. The years 2000 and 2008, both election years, are the outliers where we didn’t get that post-election rally. The commonality between those 2 years obviously is that the economy was in recession. If we do not get that post-election rally and the market is in a down trending pattern, it could be that the economy has finally tipped into recession. If no recession, then this bull market could very well have another leg up. We will soon find out…

The Slowing Consumer

Mon, 01 Jul 2024 03:18:00 GMT

As we roll into the summer months of 2024, we are starting to see some evidence of a slowdown in the economy. One of the most important areas to monitor is consumer spending, as it accounts for almost 70% of GDP (Gross Domestic Product). Through the first half of this year, consumer numbers have weakened and some retailers are warning about a slowdown in spending. So far, the stock market has not been fazed by this, in hopes that a slowdown leads to lower inflation and lower interest rates from the Federal Reserve soon.

In looking at the U.S. consumer, economists over the last few years have pointed to excess savings from COVID-era policies as boosting spending even while prices have skyrocketed. With the chart below from the San Francisco Fed, you can see that those savings have been depleted.

Demand for goods and services over the last few years has remained resilient despite high inflation and high interest rates, and part of what kept some consumers going is what they had built up in 2020 and 2021. Savings being dried up though doesn’t necessarily mean we see a meaningful drop in consumer spending. The problem is, it appears more consumers are adding to credit cards and other buy now pay later schemes to continue to spend. In the chart below you can see credit card debt (red line) continuing to reach all-time highs and surpassing $1 trillion. The savings rate is the blue line which has dipped below levels seen prior to the pandemic.

In a January 2024 report from Bankrate.com, it was revealed that 36% of U.S. adults owe more money in credit card debt than they have saved. This is the highest rate Bankrate has found in its 12 years of polling Americans and an increase from 27% the year prior. The majority of adults (55%), though, do have more in emergency savings than they do in credit card debt. The number of card holders carrying balances month to month has increased, reaching nearly half of all credit card holders. This is obviously a concern as average credit card rates reach more than 25%.

Along with higher debt levels being seen, delinquencies are rising. And not just for credit cards, but also for auto loans. The chart below shows the rise in delinquency rates by different loan types from the end of 2023. Just the trend in rising delinquencies for credit cards and auto loans is more worrisome than the number. These lines have been increasing while the economy has been near full employment and asset prices have been high. Both credit card and auto loan delinquencies are reaching levels seen at the start of the great recession in 2007. Mortgage delinquencies, while they have risen, remain lower than before the pandemic.

Jobs and employment are clearly important going forward to keep consumers going. As long as people have a job if they want one, they will feel like they can continue to spend at their current levels. With the recent May jobs report, the unemployment rate did tick up to 4.0%. While still historically low, it is now 0.6% higher than its cycle low of 3.4%. Why is this important? Increases of 0.6% from a cycle low have preceded each of the last 12 recessions, with just one false signal in 1959.

Many retailers in the last quarter have warned about consumer spending during their earnings calls. Target reported same stores sales declined 3.7% for their first quarter. They remain cautious in their near-term growth outlook and that discretionary spending would remain under pressure for the coming months. Target is planning to lower prices targeting lower-end consumers this summer, something Walmart also announced they would plan to do. Walgreens also slashed its full-year earnings outlook and describes a “worse-than-expected” consumer environment. Nike recently reported quarterly earnings showing year over year revenues declining. They are planning a cut of $2 billion in costs and dropping 2% of its workforce.

Overall, retail sales in the month of May rose just 0.1% after being down 0.2% in April. If you take out automobiles, sales actually declined 0.1% in May. On a year-over-year basis retail sales were up 2.3%. The trend in the year-over-year change continues downward after the large boost from the post-pandemic era spending.

Despite signs of a slowing economy, the S&P 500 continues to march higher. Much of what has driven the market since early May has been the big tech stocks again, namely Nvidia. While there are signs of waning momentum and complacency in the market, price remains elevated and near all-time highs. We are coming up on a seasonally weaker period later in July that leads up to the election. A correction similar to last year’s late summer/fall period wouldn’t be surprising and would be healthy for the market after such a long run.

As mentioned, much of this recent charge higher in the market has been led by just a few stocks. Market breadth has been an off and on problem for the last few years now. Much of the initial rally off the lows in late October last year saw healthy participation. Things started to change in March as breadth measures began to weaken and have not recovered even as the market went on to new highs. This typically resolves by either seeing some type of corrective move in the index, or improvement in market breadth as money rotates into other areas and continues to support the index higher.

However, long term, whenever the high concentration begins to unwind, it will not be pretty for the overall stock market based on previous peaks. Previous high peaks of concentration in the stock market occurred in 2000 and 1929, not years the market wants to be associated with. This party may continue on for a while and concentration may become even more extreme. But it will eventually end at some point and there will be an unwind in the high concentration stocks. Ideally it would provide opportunities elsewhere.

One area of the market to watch is the transportation sector. I’ve highlighted in previous newsletters its importance as a market gauge of the economy. It peaked earlier this year in March and has been in a downtrend since. I would like to see this stabilize above its lows from last October and begin a rally to help support the overall market’s advance.

You can see from a longer-term perspective how transports have been in a choppy sideways pattern since 2021. It appears to be coiling up in anticipation of a move one way or another.

Another area of the market that I’ve highlighted before, small caps, continues to lag. Small caps need to begin to participate to give more confidence in a longer-term uptrend. Like transports, small caps remain below their March high, and still well below their 2021 peak. If we do see some type of corrective move lower in the next few months in the indexes, a broad-based rally afterward with small-caps leading would give confidence to a continuation of an uptrend since the lows in 2022.

In closing I wanted to share some personal news. As some of you know, my family welcomed our 3rd child on June 13th, a healthy boy, Walker Martin McPherson. Everyone is doing great and our family is adjusting to now being a family of 5!

We wanted to wish everyone a safe and happy July 4th! Our office will be closed on Thursday the 4th and Friday the 5th.

Higher Inflation Affecting Fed's Plans

Tue, 30 Apr 2024 06:11:00 GMT

So far 2024 has seen consistent higher than expected inflation numbers in several different readings. As mentioned in the newsletter at the end of 2023, the expectation was for the Federal Reserve to be cutting interest rates throughout this year as inflation continued to cool off towards the Fed’s preferred 2% target. Rate cut expectations/odds have decreased substantially this year. Some that were expecting up to 6 rate cuts this year are now expecting just 1, or possibly none. We’ll get to know more of the Fed’s thinking as they meet this week and will have any adjustments announced on Wednesday, May 1st.

The chart above shows the CPI (Consumer Price Index) starting to uptick so far in 2024 after the annualized rate stabilized around 3.5% in the second part of 2023. Annualized monthly readings so far in 2024 are approaching 5%. Other inflation readings, like the PPI (Producer Price Index), and the PCE (Personal Consumption Expenditures), also continue to print higher numbers than expectations. The PCE is known as the Fed’s preferred inflation reading. The chart below shows the uptick recently, with the 3-month annualized rate jumping to 4.4% for Core PCE. Core excludes food and energy items, which if you’ve been to the grocery store or gas pump, you know those prices have gone up as well.

This continues to put the Fed in a tough spot. While the economy continues to remain quite strong with low unemployment, the Fed thought going into this year that they would be able to achieve their proverbial “soft landing” of the economy. If they are forced to keep interest rates higher for longer, or even surprise everyone and possibly raise them even further, it will continue to put pressure on the economy. This would make it harder for them to achieve their “soft landing”.

Another area that could affect interest rates and policy here is actually foreign to the U.S., and that is the Yen, Japan’s currency. You probably won’t hear about it on the nightly news, but it is beginning to gain more traction in economic headlines. Currently the Japanese Yen is hitting its weakest levels relative to the U.S. Dollar in 34 years and has lost 11% against the dollar so far this year. Japan has had a zero-interest rate policy for many years, and with higher interest rates here in the U.S. over the last few years, it has created what’s called a “carry” trade. This is where you can borrow money in Yen and invest in U.S. Treasuries at a higher rate. Japan has been the largest foreign holder of our treasuries. A weakening of their currency has kept pressure on rates here to remain high.

What could play out is the Bank of Japan (BOJ) stepping in to try and support its currency. A weak Yen carries the risk of causing higher inflation in Japan. If the BOJ decides to begin raising interest rates and shift away from their zero-rate policy, you could begin to see an unwind to the carry trade and the selling of U.S. treasuries as Japanese begin to bring their money back home. The BOJ though has been reluctant to raise interest rates and have maintained a zero-rate policy.

As I’ve highlighted in newsletters over the last year, the banks continue to be a concern. The first bank failure of 2024 occurred this last weekend with Republic First Bank, a regional bank based in Philadelphia. The failure is expected to cost the deposit insurance fund of the FDIC $667 million. High interest rates and falling commercial real estate values continue to put stress on banks. The stock of New York Community Bancorp, which I highlighted last month, continues to languish near its lows. The regional bank ETF, shown below, remains off its lows from last year but is beginning to show signs of continuing its longer-term downtrend. It remains well off its highs from early 2022.

With tensions overseas heating up early this month, along with the realization of higher interest rates for longer, the stock market has seen a drop since the first of April. It sliced right through initial support but has since bounced to end the month on a better note.

Resistance for the market is near the 50-day moving average now in the range of 5100-5150. If it can conquer that area, then odds suggest this uptrend that started in early November can continue with higher highs to come. A failure from here, though, and this correction/drop has more to play out. There’s a lot of air between the current price and the 200-day moving average at around 4700. A drop to that area, similar to the correction last year in late summer/early fall, would not be out of the ordinary.

While there may be several risks in the current environment, the market often will climb the wall of worry. Which is why I continue to base decision making on the charts and what I see, rather than what I hear on the news or in headlines. Many times, an event will happen with the market reaction being the opposite of what the masses expect.

In closing, I wanted to announce the retirement of Jim Reardon. As many of you may have already heard, Jim is calling it a career and looking forward to spending more time with family and traveling. I’ve enjoyed working with Jim now for almost 7 years and grateful for all the knowledge and insight he has passed on. Our company’s history goes back to Jim’s decision to start his own independent firm called Peoples Wealth Management in 2003. It was his vision of managing risk through market cycles and commitment to “preserving capital and making it grow” that laid the foundation for where the company is today. We all wish Jim a happy retirement!

As always, reach out with any questions or concerns.

2024 Off and Running

Mon, 04 Mar 2024 09:33:00 GMT

The market has started 2024 off continuing the trend that ended 2023. Historically, having a positive January and February portends having a positive calendar year. That is illustrated in the graphic below showing S&P 500 returns over the final 10 months of the year and over the next 12 months after it was up in both January and February. We are also seeing a good start to the year from small caps as they attempt to break out. Continuing to watch their performance will be important. A return of volatility will occur at some point, though, and it can be violent if the sense of complacency and greed in the market continues to rise. I’ll look at some things diverging from price and problem areas for the market that remains.

In taking a look at the S&P 500 over the last year, divergences have been appearing in the short term since the end of last year. There are 2 different momentum indicators on the chart below, the RSI (above) and MACD (below). As the arrows show, as price has continued to grind and trend higher, the indicators have been trending lower and peaking at a lower point. While divergences can serve as a warning sign, they’re not necessarily a sell signal until support levels begin to break. Price can consolidate for a period while indicators reset without anything breaking and would be a positive for the market. So far this year, the market has just continued to trend higher without any consolidation or pause. And it’s certainly possible it will continue to do that for a longer period of time.

While short term divergences are appearing, longer term divergences have been with the market for an extended amount of time now. As shown below on a long-term monthly chart, the RSI on the S&P 500 peaked at the end of 2017. The RSI basically is a measure of speed and change of price movements, a measure of momentum for the market. The market has continued higher over the long term since then, but each peak in the market before a drop has seen the RSI peak at a lower point. Again, the divergence doesn’t mean the market is about to top and roll over, it does show that momentum has been waning for an extended period of time now. It illustrates to me how this has been a continuation of the bull market that started in 2009, and most likely not the early stages of a new long term bull market. I don’t see it as having a long runway like the market had in 2009 coming out of that bear market but would love for it to prove me wrong.

The chart below shows another long-term weekly chart but illustrating the market during the 1990’s and the end of that bull market. You can see the divergence on that chart as well between price and the RSI before price finally rolled over in March of 2000 at the height of the tech bubble. Many market commentators and analysts try to compare the period we are in now to that of the 1990’s. Some will argue we are nearing the peak of a bubble similar to 1999-2000. Some say this is just getting started and we are in the mid-90’s period with much further to go. Based on the diverging price and RSI, it would appear we are closer to the end than the beginning.

A potential problem area for the market and for the economy that I’ve highlighted before continues to be the banks. It was almost a year ago we saw multiple bank failures with the government and the Fed quickly stepping in to insure all deposits of those failed banks and attempt to bring confidence to the system. The bank that acquired the assets of failed Signature Bank was New York Community Bank (NYCB). A look at their chart shows investors’ concerns about more problems arising. As you can see their share price went from over $13/share last summer to now under $4/share.

A recent report from NYCB detailed “material weaknesses” in internal controls related to their loan reviews causing its big drop over the last 2 trading days. The initial drop though came from their 4Q earnings report on January 31st where they reported a loss of $252 million. This was due to a sharp spike in loan loss provisions, which were $552 million. Due to this, NYCB also had to cut its dividend by 71%. What’s striking to me, though, is this large loss was reportedly due to only two loans. It wasn’t a series of multiple bad loans, just two that caused that big of a loss. Commercial real estate (CRE) loans, which combined with the spike in interest rates the last 2 years, have been the problem for most banks. With NYCB, CRE loans account for just 12% of its total lending. There are many banks with much higher CRE exposure that could face even worse issues and this shows it doesn’t take many bad loans to cause major problems. While most of the struggling banks are classified as “regional” banks, NYCB and those that failed last year are still top-40 banks.

In summary, with a great start to 2024, history tells us the market could continue to have more upside this year. While that may be the case, divergences are appearing and can lead to an unexpected decline at some point. It will be important to remain alert and not to become complacent. As always, please reach out with any questions or concerns.

Interest Rate Cuts Coming in 2024

Thu, 21 Dec 2023 04:36:00 GMT

As we wrap up 2023, the Federal Reserve gave the markets an early Christmas present. During their December meeting they signaled an expectation of 3 interest rate cuts coming in 2024. Both the stock market and bond market exploded higher on this news in what investors view as a welcome relief from high interest rates. History tells us that interest rate cuts from the Federal Reserve aren’t always a boon to the stock market. In this newsletter, I’ll review past instances of interest rate cuts and when the stock market reacted positively and when it reacted negatively. We are also entering a presidential election year, and I’ll review how the market has done historically during those years.

How this economic and interest rate cycle will play out will depend on whether the Fed can achieve what they call their “soft landing” of the economy, or possibly no landing at all. The Fed now projects inflation continuing to cool and eventually hitting their 2% target in 2026. It seems the Fed is now more concerned about holding rates too high for too long and dampening the economy versus inflation beginning to rise again. The Fed projects GDP to continue to run in the 2% annual range, and unemployment to stay in in the 3.7%-4.0% range over the next 3 years. By 2026 they project their benchmark interest rate to be around 3% (it’s currently 5.25%-5.50%) and closer to their long-run neutral rate of 2.5%. If the Fed is somehow able to pull this off then this would be their soft landing, and that is what markets are hopeful of.

The expectation by the Fed and by the market is that they will be able to reduce interest rates gradually and smoothly over time. What history tells us, though, is that rate increases are typically done gradually over time. Rate cuts typically happen more quickly and aggressively. The last 2 cycles highlight this. After gradual increases in rates from 2015 to 2018, they were quickly cut in late 2019 and into 2020 when the pandemic hit, slashing rates to zero. From 2004 to 2006, interest rates were consistently increased by 0.25% at each meeting, eventually reaching 5%. In September 2007, interest rate cuts began as there were signs of the housing bubble popping and unemployment beginning to rise. By December 2008, interest rates were at zero.

The chart below puts the Federal Funds rate on top of the S&P 500 going back almost 40 years. The black arrows show whereas the Fed was cutting rates, the stock market dropped right along with it. Those times being in 2000, 2007, and even in 2020 for a period. The red arrows are what the market is hopeful of the Fed achieving this time. In 1995 and as well as in 1998, the Fed made minor cuts that led to the economy continuing its growth and the market going higher. In 2019 when rate cuts were beginning the market had a positive reaction until the pandemic began. Overall, the expectation that interest rate cuts are coming and the market has to keep going higher because of it is most definitely not a sure bet.

Chart: macrotrends.net

The chart below shows maximum drawdowns that have occurred during previous rate cutting cycles. It also shows forward returns 1 year after the final rate cut. As can be seen in the previous chart as well, some of the better returns and longest runways for the market happen after the Fed is done cutting rates.

A look at the current picture of the market, you can see the jump in the S&P 500 since the beginning of November. While we were expecting a rally, we were not expecting it to be of this magniture and at this pace. Many times when the market moves quickly in one direction, it can lead to a quick reversal or mean reversion. So far, we have seen just short pauses as the market continues to march higher.

Even if we do see it pullback, as long as it holds support in the 4400-4500 area, it appears it will continue to head higher and take out the all-time highs from two years ago. We very well could be in a melt-up phase in the market that sometimes signal blowoff tops. That will be something to watch in early 2024. The positives so far with this rally have been improved breadth in the market. We’ve seen small caps appear to be on the verge of breaking out finally.

As we move into 2024, we know that it is an election year and the 4th year of the presidential cycle. History tells us this can be a volatile year. But, despite the typical volatility in an election year, the average return for the S&P during an election year is still over 7%. As you can see below, much of the gains typically happen during the second half of the year.

History also tells us that some of the bigger market events have occurred during election years that typically have nothing to do with the election. We don’t have to look back far as the last election year coincided with the pandemic. The chart below shows maximum drawdowns that have occurred during election years as well as the return for that year.

Going forward, there still appears to be some room to run for stocks. If interest rates continue to fall, that would benefit most bond funds as well that have suffered through a few years of interest rates rising. Does the economy finally tip into recession in 2024? Nobody knows, but it’s interesting that many of the same experts that were calling for a mild recession to happen this year and were wrong are now calling for no recession next year. As stated, election years can provide volatility as well, and I don’t expect this next one to be any different. 2024 should be another interesting year.

All of us here at ProActive Capital Management want to wish you and your family a very Merry Christmas and happy holiday season. We look forward to continuing to work with you and serve you as we turn the page to 2024.

Still Waiting On That Year-End Rally

Thu, 02 Nov 2023 03:51:00 GMT

In my last newsletter I discussed some of the reasons why a year-end rally could take place in the stock market and the support levels I was watching. With where we stand today, a year-end rally may be starting this week after a further decline occurred in October. The support levels I was watching did not hold last month. Does it mean a year-end rally won’t happen now? Not necessarily, but it could change the outlook going forward in the near term.

As you can see on the S&P 500 chart above, the 200-day moving average (red line) did not hold, nor the support levels around 4200. The market did bounce from support to start October, but another selloff occurred, and this time made a lower low, breaking support. October ended up being the 3rd month in a row with the market down. The deeper drop than expected doesn’t mean we won’t get some type of rally, but it does raise the odds that a rally could ultimately fail to make a new swing high above the peak around 4600 from July. A lower high would put the S&P 500 into a confirmed downtrend and the bear market that began in early 2022 could be back in earnest.

Sentiment in the market has continued to crater, as levels of fear have grown. As I’ve pointed out previously, this can typically lead to a rally in the market as investors become overly bearish. You may have noticed the growing number of market prognosticators calling for an imminent market crash. This is fairly typical when the market is dropping, but they are rarely right. It can be another gauge of market sentiment and fear in the market.

Many are looking at the Q3 GDP (Gross Domestic Product) report of an annualized 4.9% growth as a great sign for the economy going forward. What you want to remember is that is a backward-looking number, and not necessarily an indication of where things are going from here. Much of the increase in the GDP came from growth in consumer spending on goods and services. Real disposable personal income though contracted during the quarter, putting into question how much spending growth can continue.

The increase in the GDP though did not influence the Federal Reserve into raising interest rates again. Yesterday, November 1st they announced their benchmark interest rate would stay the same as they await more evidence on the easing of inflation and the cooling off of the economy.

It remains clear the economy continues to be resilient despite high inflation and high interest rates. Does that mean a soft landing will occur? I don’t see how anybody knows that for sure. And even if that is the eventual outcome, it doesn’t mean the stock market has to go up. I outlined in the last newsletter some areas of the market that are more economically sensitive as showing weakness. That has continued over the last month. Small Caps, Transportation stocks, and Banking stocks have all continued down.

The chart above shows you how transports have continued their drop and have wiped out all gains for the year. Small caps recently dropped below their low from a year ago in October. Those continue to be negative signs for the longer-term outlook on the market.

One investment that has caught the eye of many investors and the financial press is the long-term treasury bond ETF (exchange-traded fund), TLT. This fund invests in U.S. government treasury bonds that are 20 years or longer in duration. With interest rates going up, it brings the value (price) of the bonds down. You can see that in the chart below of TLT.

Over the last 3 years it has dropped in price from about $150/share to almost $82/share. Many think of treasury bonds as a sort of “safe haven”. Treasury bond funds like this, especially those with longer duration, can be just as volatile as the stock market. In a rising interest rate environment, you do not want to hold duration and the chart above illustrates that. With the large drop that has continued to occur recently, it has led to many investors trying to catch the bottom in the fund. The bars at the bottom of the chart measure volume, and you can see over the last month the large increase in sustained volume on this fund as shown in the blue circle. The reason why someone would buy this fund is an expectation of a drop in interest rates coming, which would lead to this increasing in value. Is it a sign of investors expecting interest rates to drop? Or are they trying to catch a falling knife in an investment that’s down almost 50% from its highs only to find out it can go lower? We’ll find out over the next few months, and it very well could have an impact on the stock market.

Overall, the technical picture still favors some sort of a rally in stocks before the end of the year. The shape and structure of that rally should lend clues as to whether it will fail to make a new high from July or breakout and be on its way to a new high for the year. If the market rally points more towards a breakdown, then it would provide an exit point for more aggressive positions. That could lead to the bear market continuing and a return to much more defensive positioning needed. While some may have thought the bear market ended in October of 2022, if the S&P can’t get to new highs then the rally to 4600 earlier this year could be thought of as a rally within a long-term bear market. Many areas within the market need to improve for the long-term outlook to become more positive.

Year-End Rally Ahead?

Thu, 28 Sep 2023 03:03:00 GMT

As we begin to turn the page on another month, and another quarter, the market enters the final quarter of the year on shaky ground. As was outlined in our last report, September- a historically poor month for the market- has seen the drop in the market continue. It’s beginning to close in on levels in the S&P 500 that a typical correction would drop to. I’ll outline what I’m seeing, the important levels of the market, and what may lie ahead in the short term and long term.

This S&P 500 chart goes back 2 years, showing the 50-day moving average in blue and 200-day moving average in red. Clearly, the 50-day did not hold as a line of support earlier in the month and the market has taken a direct route towards the 200-day moving average. If the market continues to drop, the 4205 level (very near the 200-day moving average) on the S&P will be an important line of support. If the market continues to stay above that level, then it seems more probable that this has been a correction, leading to another rally higher.

If that level does not hold, then it could be signaling another important top in the market has been made from where it was in late July, and a possible resumption of the bear market from 2022. If that were to occur and the market would continue to drop below the 200-day moving average, then a retracement rally would be used to reduce risk. If a rally were to look corrective after such a drop, then it would be another signal that the market may have peaked in late July.

If the market holds support, then a push higher in the 4th quarter will first need to exceed the previous swing high, around 4600, and then will look to challenge the highs made in late 2021, around 4800. That will be an important area of resistance if it gets there.

What could fuel this next push higher for the market may be the shift in sentiment. In late July many sentiment indicators were showing extreme bullishness in the market. That has completely changed as sentiment in the market is becoming extremely bearish. As I’ve explained before, extremes in either direction can be dangerous and lead to the opposite of what the herd is expecting or preparing for. Activity in the options market reflect levels of bearishness typically seen near low points in the S&P 500. Many more traders are attempting to short the market than go long and, like other sentiment indicators, has seen a dramatic shift from positive to negative sentiment in just a couple of months.

Source: https://www.cnn.com/markets/fear-and-greed

Even with such a shift in sentiment, looking at the market longer-term, this still doesn’t appear to be the beginning stages of a multi-year bull market run with how this year has played out. One concern that I’ve pointed out before is looking at small caps. These smaller-sized companies are much more economically sensitive than the large cap companies of the S&P 500. Looking at a chart of a small cap index fund below, you can see it’s not far above its lows from last year.

It's possible to see the S&P push higher and make new highs while the small caps, and many other areas of the market, do not make new highs or even come close. That’s not a sign of a healthy market or one that is in the early stages of a longer-term bull market run. Because of that, a rally in the S&P to end the year may not be an all-clear signal.

Transports, an important part of the economy, has quickly given back the gains it made over the summer. As it began to break out in June, it was signaling improvement in the economy. It now may be signaling that was a false breakout, and a failed attempt to make a new high with its next rally would be another warning sign.

As you can see below, banks have continued their slide this month as well. This chart, of course, continues to look unhealthy. As interest rates remain high, it continues to put stress on banks and the banking system.

What came as basically no surprise last week, the Federal Reserve decided to keep interest rates the same. They signal the possibility of one more hike before the end of the year. Their dot plots of where they expect interest rates to be in the future would suggest that either they are done hiking interest rates, or they will have one more. They also expect less in rate cuts over the next 2 years than what expectations were, meaning the Fed now sees rates higher for longer as they have warned about before.

It’s hard to believe, though, in what the Fed projects for interest rates into the future, as their crystal ball isn’t as good/bad as anybody else’s. Remember in 2021 they were saying repeatedly that inflation was “transitory,” and delayed for many months any moves in interest rates. Even into early 2022 they were not projecting having to raise interest rates but more than a couple of percentage points. We all know how that has turned out. Their policy of where interest rates are set will continue to be based on inflation and economic/unemployment numbers, many that are backward-looking. If inflation remains elevated and well above their 2% target, the harder it will be for them to begin any type of cutting/easing program. As has been pointed out previously, this hiking cycle has been at a faster pace than ever before, and many of the lagging effects of interest rates will continue to be felt through the economy as time passes.

One concern that many have is the looming possibility of a government shutdown and its effects on the market. I am not sure, and no one can predict how that will play out, or how any other world “event” may play out. So, it’s not something to make decisions based on. We’ll use the charts and the ultimate indicator of price to help with decision making. Events can serve as a catalyst for a move one way or another, but using charts and indicators will help us in determining that, not a headline.

In summary, if the market can hold support lines in the short term, then it’s more probable we will get another rally that could take the S&P near its all-time high. On a long-term basis, I believe the picture remains quite cloudy. Because of that it will remain prudent to have active management. Just because a market index may struggle over the next few years doesn’t mean all parts of the market will. I believe we have the tools and indicators in place to help us navigate what could be a continuous bumpy ride.

An August Correction

Tue, 29 Aug 2023 08:45:00 GMT

The long-awaited correction in the market has been playing out as we near the end of August. So far as it’s played out, it appears to be just that- a correction. And not something deeper signaling another top in the market yet. Another push to new highs could be on the horizon, but historically the month of September can be tricky.

Taking a look at the S&P 500 chart, I find there’s a few different important levels to be watching. Resistance right now on the S&P is in the 4,490-4,500 area, which, as of this writing, it is bumping right up against. A sustained breakthrough above that level would signal the bottom of this correction being in place. If it cannot get above that level, then a drop below the 4465 region, which is near both its 20-day and 50-day moving averages, could signal a lower low occurring for this correction. Such a tight range makes this an important point in the short-term. A drop below 4,300 on its next decline could then occur and point it closer to its 200-day moving average, near 4,200. A drop to the 200-day moving average during an uptrend would be ordinary.

Volume in the market has also remained low over the last few months, which isn’t necessarily abnormal over the summer, especially the last few weeks of August. Typically, after Labor Day is when volume begins to pick back up. We’ll follow trends in volume to see if it lends any clues as to market positioning and leadership in the market.

In looking at the economy, it doesn’t appear much has changed recently. The Conference Board’s leading economic indicator, which we looked at in our last newsletter, continues to decline. Inflation continues to moderate, and the Federal Reserve is most likely near the end of their interest rate hiking cycle if not done. Initial jobs reports that come out each month continue to look strong. What’s interesting, though, is the continuous revisions occurring. And every revision this year has been negative. Each of the monthly payroll numbers in 2023 has eventually been revised lower. In looking at job openings, that also continues to be revised lower. The number of job openings, as seen below, has also seen its biggest 3-month drop since the middle of the pandemic in 2020. As you can see, though, it is still at historically high levels after such a dramatic rise following the pandemic. Looking at history also tells us that a continued drop in job openings precedes a rise in unemployment and weaker labor market. The question is, will this time be different due to the dramatic change in the labor market post-covid?

In our last newsletter we explored some of the extremes in sentiment, as investors got overly bullish and complacent. Looking at where some of those indicators are today, the greed in the market has eased off. The fear & greed index from CNN is now at a neutral reading and began to creep into the fear level last week. The VIX index, which measures volatility in the market, has stayed mostly subdued during this correction. Only seeing a slight bounce to 18 before receding again. So far it signals investors remain complacent and not concerned. A spike above 20 on the VIX could signal a shift in sentiment.

Even with a drop that low, it appears the overall structure of this drop from the 4,607 high will remain corrective. That area near the 200-day moving average could serve as solid support leading to another rally higher, possibly pushing it to new all-time highs. If a drop like that occurs, we will act accordingly by adding more risk where prudent.

The next stage higher of this market could look significantly different than what’s been experienced so far this year. As has been documented, much of the rally this year has been led by the big technology and A.I.-exposed stocks. The charts on some of those stocks look like they may have put a top in place, leading other areas of the market to most likely pick up the baton and begin to lead. Areas like healthcare, aerospace/defense, industrials, and even energy could begin to lead again.

Seasonality could play a factor in the timing of the next big market move as well. As you can see below, over the last 10 years the month of September has been the worst performing month for the market. Only 33% of the time has it closed higher than where it opened the month. August has been another weaker month for the market historically as has played out so far. A drop in September followed by a year-end rally would fit with what the market has done historically using seasonality.

Banks continue to be a concern to me. Not only in looking at the chart of regional banks, as shown below, but also because of sustained higher interest rates. Rates on longer-term treasuries have risen over the last few months, back to highs seen near the end of 2022. Higher interest rates, leading to a decrease in the value of bonds, are what initially caused problems in the banking sector earlier this year. Continuing to follow the banking sector will be important for the overall market and economy.

IN CONCLUSION

So far this drop in the market appears corrective in nature, which should lead to another leg higher in the short to intermediate term. Longer-term risks are still there that can topple this market. Using technical analysis and charting can help us in identifying those important turning points as we continue to rely on our indicators we’ve developed. The last few years have been a challenging market environment, and I don’t expect that to change anytime soon.

We hope everyone has had an enjoyable summer and look forward to cooler weather this fall. As always, please reach out with any questions or concerns.

Halfway Through 2023

Fri, 30 Jun 2023 03:20:00 GMT

It’s hard to believe, but yes, we are already halfway through the year. We have seen quite the change in 6 months compared to where things were at the end of 2022. Many economists and market pundits were predicting recession to come this year throughout 2022. Sentiment for the stock market was extremely negative and expecting that the worst was still to come. In just 6 months, though, that has all changed. It’s hard to find anyone predicting a recession to occur in 2023 now. Sentiment for the market has completely flipped to extremely optimistic and the belief for most is the bear market that started in January 2022 is over.

What spurred this change? It’s hard to find anything specific, and certainly the A.I. (Artificial Intelligence) craze has played a part. But, I believe the thing that’s changed the most to flip sentiment and economic projections is price. Simply put, the price of the indexes like the S&P 500 and Nasdaq. Many believe the market will only go up from here, after many believed it was only going to continue down at the end of 2022. A flip from one extreme to another in a short amount of time doesn’t happen very often. Extremes in either direction can be dangerous.

One way to gauge market sentiment is using CNN’s Fear & Greed Index that they publish. You can see below how it is currently in the extreme greed zone. Readings of extreme greed have historically been seen around market tops. Or, at least, short-term tops that lead to corrections in the market. As the old saying goes, though, markets can stay irrational longer than you can stay solvent. Sentiment can remain stretched in either direction for an extended period of time. These sentiment tools aren’t necessarily timing indicators, but can give a good gauge of when to be more prepared, watching for the beginning of sentiment to change in the market.

Another way fear in the market can be measured is using the volatility index (VIX). The VIX index calculation is designed to produce a measure of constant, 30-day expected volatility of the stock market. It’s derived from real-time prices of S&P 500 index call and put options. It is one of the most recognized measures of volatility in the market. When the VIX is climbing, that means higher volatility and more fear in the market. When it is falling, it means less volatility and a sense of calm in the market. Below you can see where the VIX is today, hovering around 13. We are at levels not seen since early 2020, right before the pandemic began and a high degree of volatility in the market. Like the fear and greed index, the VIX can stay low for an extended period of time. 2017 was marked by extremely low volatility, even getting near 10. It ultimately led to a volatility event in early 2018 that saw the market decline over 10% in a short amount of time, and an almost 20% decline in late 2018.

So, a low VIX reading can be both good and bad. It’s good that markets are more calm and experiencing less volatility. But that calm can ultimately lead to an unexpected volatility event sending stock prices lower and volatility higher. Again, this is not to be used as a timing indicator. But, if we saw the market begin to pull back with the VIX beginning to increase rapidly, then that would signal a shift in market sentiment.

A LOOK AT THE MARKET

Overall, in the stock market, what we like currently is that market breadth is showing signs of improvement. We outlined in our last newsletter how the mega cap technology stocks were pushing the indexes higher while everything underneath continued moving sideways or down. This has improved over the last few weeks, and we’d like to see it continue in the right direction. Looking at economically sensitive stocks specifically (energy, industrials, materials), many of those that have struggled for most of the year are showing some signs of strength.

The market did begin to move almost in a parabolic fashion in early June leading to a bit of a corrective pullback nearing its 20-day moving average. We are seeing it bounce again to end the 2nd quarter on a high note. The more it stretches to the upside, the more likely a deeper pullback will occur to get it back closer to its moving averages. How those pullbacks play out should give us an idea of how to adjust through the end of the year. Corrective pullbacks that find support along its moving averages can be used to add more exposure to the market. Impulsive declines could be signs of a more intermediate-term top that we would look to reduce exposure with.

Our long-term indicators that we follow continue to contradict each other instead of confirming each other. We’d like to see confirmation to have more confidence in this being the early stages of a new cyclical bull market. If this market continues to stretch to the upside with long-term signals still weak and negative divergences occurring with other indicators, then risk management will be even more prudent in what we do.

A LOOK AT THE ECONOMY

As with stock market sentiment flipping, belief in the economy has also flipped. It’s much harder to find someone predicting recession in 2023 than it was just a few months ago. The hope last year for many was that the Federal Reserve would be able to orchestrate what they call a “soft landing”. Bringing inflation down while causing a shallow recession and no terrible damage to the economy. Now many are expecting a “no landing” scenario. The economy continues to grow without a recession, while inflation comes down. The belief would be the Fed could then cut rates because of lower inflation, and not because of economic trouble.

This is despite some economic numbers continuing to decline. What continues to hold is the labor market. While weekly initial jobless claims were increasing in June, it was still not enough to signal the beginning of a change in the overall labor market. As we have stated before, as long as people have jobs, they can continue to spend money. The overall consumer has remained resilient throughout the past 2 years despite incredibly high inflation.

Meanwhile The Conference Board’s leading economic indicator (LEI) continued its decline with the numbers released in June. It has now declined 14 consecutive months, and 15 of the past 17. This is by far the longest streak of declines since it declined from June 2007 to April 2009. “The US LEI continued to fall in May as a result of deterioration in the gauges of consumer expectations for business conditions, ISM® New Orders Index, a negative yield spread, and worsening credit conditions,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The US Leading Index has declined in each of the last fourteen months and continues to point to weaker economic activity ahead. Rising interest rates paired with persistent inflation will continue to further dampen economic activity. While we revised our Q2 GDP forecast from negative to slight growth, we project that the US economy will contract over the Q3 2023 to Q1 2024 period. The recession likely will be due to continued tightness in monetary policy and lower government spending.”

Stock prices are used as a leading indicator for this. It was one of only 2 positive contributions (out of 10) to the index, along with new private housing building permits.

Many recession indicators have been flashing warning signs for several months going back to last year. We haven’t seen an improvement in those signals this year despite many economists now believing we’ll get through this period now without a recession. The belief, as is typical before recessions, is that “this time is different”. That very well could be true, many of the policies in 2020 and 2021 that injected incredible amounts of money and liquidity into the system could have distorted things. And even if we are of the belief that a recession is looming, it doesn’t mean the stock market has to see a big decline. Price is the number one indicator, and the market may not care about a shallow drop in the economy that may be isolated to just a few areas. There are countless possibilities from here, which is why we don’t try to predict things, we react.

One thing to keep in mind economically that may affect consumer spending, is the restart of student loan payments happening later this summer. This coincides with the recent strike down of the President’s executive order to cancel some student debt. About 40 million Americans carry student loan debt and for many, this will be the first time they make a payment on their debt since March of 2020. Combined student loan debt totals an estimated $1.7 trillion. Recent analysis from Barclays shows that the restart of monthly student loan payments could cause a $15.8 billion monthly headwind to consumer spending, with the average debt holder having a monthly payment of about $390. It’s estimated that those who took advantage of the pause and deferred payments for 39 months, had on average more than $15,000 in additional discretionary income during this period.

IN CONCLUSION

There are things about this market currently to get excited about, and things that signal caution. Both bulls and bears can present compelling arguments for why the market will go up or down from here, with many possibilities in between. We will continue to not pick a side to predict what will happen from here and instead rely on our risk management strategies. As always, we’ll do our best to keep clients apprised of what we’re seeing and how we’re reacting. Please reach out to us with any questions or concerns.

We hope everyone has a safe and enjoyable 4th of July holiday, celebrating this great country and its independence!

The Return of the Mega-Caps and Another Bank Failure

Tue, 02 May 2023 09:11:00 GMT

The week of April 24th saw many of the mega-cap stocks report earnings, with most of them posting impressive first quarter results that led to their stock prices moving higher. Microsoft, Alphabet (Google), and Meta (Facebook) all saw significant gains after their release of first quarter earnings

Market News - March 17, 2023

Fri, 17 Mar 2023 01:42:00 GMT

First, it was Silicon Valley Bank, now it’s San Francisco-based First Republic Bank taking a hit. Like Silicon Valley Bank, First Republic is another bank catering to “free-money” startups. First Republic’s shares are now down 86% from their peak in November of 2021.

Did Something Break?

Mon, 13 Mar 2023 02:08:00 GMT

The recent banking failures could be the beginning of what’s been called the most anticipated recession ever. A lack of confidence in the system can spread quickly. The fact that SVB failed in just a matter of hours was shocking and has never been seen before. The hope is the problem does not cascade to other banks and other parts of the economy.

Market News - March 10, 2023

Fri, 10 Mar 2023 01:49:00 GMT

The question everyone asked since last Thursday (3/9/23) has been “Why did Silicon Valley Bank go bust? And what does it mean for MY bank?” The best explanation is that Silicon Valley Bank (SIVB) was uniquely at risk because of its unusually low percent of individual depositors, and its unusually high portfolio of loans and securities backing up their deposits.

Market News - February 24, 2023

Fri, 24 Feb 2023 09:57:00 GMT

The Fed’s “preferred” inflation gauge (Personal Consumption Expenditures, or PCE) not only came in worse than expected, but the prior three months were all revised higher as well. “The whole thing throws a lot of cold water on the ‘disinflation’ hoopla,” observed Wolf Richter of wolfstreet.com.

The Fed's Challenge

Fri, 24 Feb 2023 05:13:00 GMT

The Fed has a tough challenge ahead of them with very few options. Most of the aggregate growth in the economy was financed by massive deficit spending, credit creation, and a reduction in consumer savings.

Market News - February 17, 2023

Fri, 17 Feb 2023 07:36:00 GMT

When it comes to getting the best ‘bang-for-your-buck’ when dining out, a recent survey by Stifel shows that most consumers feel they’re getting the best value from fast-food behemoths like McDonald’s and Taco Bell. At the other end of the scale, New York-based Shake Shack was rated the worst value.

Market News - February 10, 2023

Fri, 10 Feb 2023 07:32:00 GMT

Electric vehicles (EV) sales in California spiked by over 60% in 2022 to 285,199 new electric vehicles being sold, according to registration data. The overall market share of EVs nearly doubled to 17% of total new vehicle sales. Meanwhile, sales of traditional internal combustion engine (ICE) vehicles fell by 18% to 1.38 million—the lowest since 2011.

Market News - February 3, 2023

Fri, 03 Feb 2023 02:52:00 GMT

New data from the Census Bureau and the National Association of Realtors reveal which states have been the biggest winners (and which the biggest losers) as the nation’s population continues to shift.

Market News - January 27, 2023

Fri, 27 Jan 2023 04:20:00 GMT

The U.S. economy grew at a robust 2.9% annual pace in the final quarter of last year, according to the first report of fourth quarter GDP. However, economists aren’t expecting the strength to continue as rising interest rates weigh on growth and threaten to incite a recession.

2022 Market Review

Fri, 20 Jan 2023 09:20:00 GMT

The year 2022 ended with the stock market delivering its largest yearly losses since 2008. The fourth quarter of 2022 saw new bear market lows in the S&P 500 index, Nasdaq Composite, and Bloomberg Agg Bond Index.

Market News - January 20, 2023

Fri, 20 Jan 2023 03:58:00 GMT

It may be time to add podcasts to the list of trends that peaked in 2020 and are now returning to Earth. A multitude of media empires were created by podcasters such as Joe Rogan as audio giants like Spotify poured money into the industry. However, data from Edison Research shows the boom may be over.

Market News - January 13, 2023

Fri, 13 Jan 2023 02:54:00 GMT

The Consumer Electronics Show (CES), the world's largest technology trade show, offers a glimpse into products coming down the pipeline. This year, the ever-expanding field of products showcased everything from color-changing cars to an oven that prevents food from burning. In the latest data from the U.S. Patent and Trademark Office, 2020 and 2021 saw the most patents granted ever—with over 350,000 new patents being granted each of those years.

Market News - January 6, 2023

Thu, 05 Jan 2023 02:46:00 GMT

In 2022, investors faced one of the most difficult markets in decades as the Federal Reserve’s efforts to combat the worst inflation since the 1970’s sent stocks and bonds reeling. Just how bad was it? Jim Reid, head of thematic research at Deutsche Bank, shows that 2022 experienced the worst combined total return for both stocks and bonds at least back to 1872, as far back as comparable records reach.

Wrapping Up 2022

Wed, 21 Dec 2022 02:48:00 GMT

As the Fed continues its inflation fight, the economy continues to weaken. While the Fed may say they have a chance at a “soft landing” of the economy, history tells us the odds of that happening are not great. The economy will really begin to feel the effects of the rapid interest rate hikes early in 2023.

Market News - December 16, 2022

Fri, 16 Dec 2022 03:22:00 GMT

It is clear that the Federal Reserve is intent on bringing inflation under control with its series of rate hikes. However, what most people probably don’t realize is the rapidity with which the Federal Reserve has acted already. The Federal Reserve has hiked interest rates higher and faster than at any in the modern era.

Market News - December 9, 2022

Fri, 09 Dec 2022 05:38:00 GMT

As inflation and shortages of key components pushed the average price of a new car to all-time highs (if you could even get one), it is logical that prices on used cars would follow suit – and they did. However, the bloom is off that rose and wholesale prices of used vehicles reached their lowest level in more than a year last month as interest rate hikes raised borrowing costs and fears of an imminent recession continue to spread.

Market News - December 2, 2022

Fri, 02 Dec 2022 02:40:00 GMT

In a speech to the European Parliament this week, European Central Bank President Christine Lagarde stated, “We do not see the components or the direction that would lead me to believe that we’ve reached peak inflation and that it’s going to decline in short order.”

Market News - November 25, 2022

Fri, 25 Nov 2022 07:07:00 GMT

As mortgage rates continue to rise and home sales continue to slow, the next leg down of a slowing real estate market has begun—contract cancellations. The National Association of Home Builders (NAHB) has reported large drops in the traffic of prospective buyers in each of the last eight months.

Market News - November 18, 2022

Fri, 18 Nov 2022 03:39:00 GMT

One of the hallmarks of a recession is a rise in consumer credit defaults, inevitably resulting in a rise in 3rd-party collection activity. That has not happened yet – in fact, quite the opposite. 3rd-party collection activity is at a record low of 5.7% of consumers – well less than half the 14.6% level seen in 2008’s recession.

Market News - November 11, 2022

Fri, 11 Nov 2022 02:51:00 GMT

Real estate flipper OpenDoor made quite a splash when it went public via a SPAC merger in December, 2020. And why not? It was going to upend the real estate “flipping” market via its revolutionary AI-driven algorithms which it employed to buy and sell homes around the country. It has piled up losses totaling an astounding $2.2 billion through Q3, $923 million in Q3 alone.

Market News - November 4, 2022

Fri, 04 Nov 2022 02:38:00 GMT

The U.S. economy gained a surprisingly strong number of new jobs last month, a sign the nation’s labor market remains strong. The Bureau of Labor Statistics reported 261,000 new jobs were created, exceeding the consensus of 205,000. Although the increase was the smallest since April of 2021, it was still strong by historical standards.

All Eyes Remain on the Fed

Wed, 02 Nov 2022 08:25:00 GMT

The historic pace of Fed interest rate hikes this year continue to dampen markets. While there is room for a reflexive rally in the short-term, we believe this bear market has longer to play out. Over the next 6-9 months the effects of the spike in interest rates should begin to weigh on the economy. Higher borrowing costs and prices will ultimately start to force consumers to choose to spend less thereby slowing economic growth.

Market News - October 28, 2022

Thu, 27 Oct 2022 02:14:00 GMT

If you are more comfortable discussing a Single Malt Scotch or French Bordeaux than some obscure tech stock or cryptocurrency, you are not alone. Billionaire investing legend Warren Buffet says investors should stick to areas they know when they are deciding what to invest in.

Market News - October 21, 2022

Fri, 21 Oct 2022 01:45:00 GMT

Social media and “tech” companies who rely on advertising dollars to be profitable have been under considerable pressure lately—to put it mildly. SNAP was the first major advertising-dependent social media company to report earnings this week, and it was a bloodbath. SNAP shares plunged 26% following its report to its lowest price since 2019—just $7.88.

Market News - October 14, 2022

Fri, 14 Oct 2022 08:34:00 GMT

Following World War 2, the United States was a global industrial behemoth with more than 40% of all private sector jobs in manufacturing. Today, that number is less than 10%. However, the latest jobs report shows “made in America” is at least attempting to make a comeback.

Market News - October 7, 2022

Fri, 07 Oct 2022 02:03:00 GMT

REITs, or Real Estate Investment Trusts, are considered by many to be an essential holding in a well-diversified portfolio. However, many REITs, especially those specializing in commercial real estate such as office buildings, have been horrifically damaged by the dramatic drop in demand for office space throughout the US.

Market News - September 30, 2022

Fri, 30 Sep 2022 06:47:00 GMT

NFT’s, which stands for “non-fungible tokens”, are cryptographic digital assets that exist on a blockchain with unique identification codes and metadata that distinguish each from all others. Unlike cryptocurrencies, like Bitcoin, that are identical and, therefore, can serve as a medium for transactions, NFTs are unique and intended to represent some real-world asset like a work of art, music, photos, etc.

Market News - September 23, 2022

Fri, 23 Sep 2022 06:43:00 GMT

In a widely-anticipated move, the Federal Reserve hiked interest rates 75 basis points this week. Despite the move being widely expected, financial markets plunged the remainder of the week. So what was the catalyst?

Surging Stocks Are the Last Thing the Fed Wants

Mon, 19 Sep 2022 05:13:00 GMT

The reversal of the bear market from mid-June to mid-August provided relief for many and hope that the worst was over. However, while the rally was pushing stocks towards positive territory, encouraging an increase in equity exposure, we remained increasingly concerned about the challenging monetary policy and economic backdrop as well as our stubbornly negative market indicators.

Market News - September 16, 2022

Fri, 16 Sep 2022 06:06:00 GMT

Analyst Wolf Richter at wolfstreet.com did a deep dive into the details of this week’s inflation report and what he found wasn’t pretty. While the headline CPI and even the core CPI weren’t worse than expected, Richter found that the CPI for ‘services’ was a “nightmare”, which “spiked relentlessly” to its highest increase since October of 1982.

Market News - September 9, 2022

Fri, 09 Sep 2022 07:20:00 GMT

In October of 1973 the members of the Organization of Arab Petroleum Exporting Countries, led by Saudi Arabia, proclaimed an oil embargo targeted at nations that had supported Israel during the Yom Kippur War. The embargo led to the price of oil rising nearly 300% in the United States, and the formation of the Strategic Petroleum Reserve (SPR) an emergency stockpile of petroleum maintained by the Department of Energy.

Market News - September 2, 2022

Fri, 02 Sep 2022 07:46:00 GMT

As bad as inflation seems in the U.S., it is much worse in the Eurozone where inflation jumped 9.1% in August - a new record for Eurozone data that goes back to 1997.

Market News - August 26, 2022

Mon, 29 Aug 2022 01:38:00 GMT

Once a company has reached such prominence that its very name becomes the verb for its service, it generally has staying power (feel free to “Google it”). Not so much with video-conferencing platform Zoom. This week Zoom reported its slowest quarter ever of revenue growth, with sales rising just 8% over the past year, sending its stock plummeting (another) 16%.

Market News - August 19, 2022

Thu, 18 Aug 2022 01:38:00 GMT

U.S. stocks gave back a portion of last week’s strong gains after St. Louis Fed President James Bullard, typically a “hawkish” policymaker, appeared to dampen hopes that inflationary pressures had peaked. “The idea that inflation has peaked is…not statistically really in the data at this point,” Bullard asserted in an interview.

Recession: Good News Or Bad News?

Sun, 14 Aug 2022 03:36:00 GMT

When is the bad news of inflation actually good news for investors? It's when an oncoming recession appears likely to push interest rates down and crush problematically high inflation. Recessions have a cleansing effect on inflation, debt, leverage, and excessive exuberance.

Market News - August 12, 2022

Fri, 12 Aug 2022 04:28:00 GMT

Over the past year nearly every essential good or service has escalated in price, but for those renting, costs have often skyrocketed.

Market News - August 5, 2022

Wed, 03 Aug 2022 02:52:00 GMT

The popular definition of an economic recession has traditionally been “two consecutive quarters of negative real gross domestic product (GDP) growth”, but economists at Bank of America’s Global Research team aren’t expecting an official ‘recession’ call anytime soon. They note that the National Bureau of Economic Research (NBER), which is the official arbiter of recessions, doesn’t use that “popular definition”.

2022 Mid Year Report

Fri, 08 Jul 2022 05:18:00 GMT

While the trendlines continue to slope downward, we will continue to use any rallies to raise cash, reduce risk, and rebalance allocations accordingly. We will continue focusing on keeping market losses relatively small until the slope of the red channel flattens out and the bottoming process can begin. We trust our market indicators to help us determine market direction and guide us in our measured response to changing market conditions

Market News - July 1, 2022

Fri, 01 Jul 2022 05:34:00 GMT

It’s not just housing—the average transaction price of new vehicles sold in June hit a new stratospheric record high of $45,844, up 14% from a year ago. As automakers continue to struggle with shortages of key parts and semiconductors in particular, inventories remain near historic lows.

Market News - June 24, 2022

Fri, 24 Jun 2022 13:33:00 GMT

It turns out that Americans spend more on pharmaceuticals than any other country in the world—and not just more—a lot more. The OECD reported the average American spends $1376 per year on medications, while Sweden spends just $540.

The Retail Inventory Bullwhip

Tue, 21 Jun 2022 15:56:00 GMT

For much of the last 14 months, the economic headlines have been all about inflation and the 40-year highs we have been consistently seeing now for many months. What’s now starting to be seen and shown by recent earnings reports and forward guidance from retail giants Walmart and Target, is that an inventory bullwhip effect is taking place that will have a deflationary impact on certain consumer goods.

Market News - June 17, 2022

Fri, 17 Jun 2022 14:21:00 GMT

After 27 years, Microsoft’s support for its once dominant internet browser ‘Internet Explorer’ (IE) has come to an end. At one point, IE’s market share was estimated to be as high as 90%.And while Microsoft has tried to push its current browser “Edge”, it’s had little success there as well—currently holding only about 4% of market share.

Market News - June 10, 2022

Fri, 10 Jun 2022 06:50:00 GMT

If you’re in the market for patio furniture, appliances, large electronics, or other expensive household items you might be in luck. Big retail’s loss might become your gain. America’s biggest retailers, Walmart and Target, have a new problem to go along with supply chain issues and a tight labor market—too much inventory.

Market News - June 3, 2022

Tue, 07 Jun 2022 14:07:00 GMT

The Biden administration is at once demanding that U.S. oil producers pump more in order to lower prices at the pump, while at the same time the administration is blasting U.S. refiners and producers for “gouging” and looking at punishing them with a “windfall tax”.

Market News - May 20, 2022

Fri, 20 May 2022 14:17:00 GMT

The U.S. gross national debt has now reached $30.4 trillion, following a massive $7.0 trillion spike since the coronavirus pandemic took hold in March 2020. Every one of these debt securities had to be purchased and held by an entity such as a bank, a pension fund, a foreign government, or even an individual investor. So, who exactly is holding $30.4 trillion of Treasury securities?

Market News - May 13, 2022

Fri, 13 May 2022 14:29:00 GMT

Usually it’s a newsworthy event when the price of a well-known tech company falls by more than 10% in a week’s time. However, in the last few weeks almost every single day has seen multiple major technology bellwethers taking double-digit losses. So, how bad can this get?

Market News - May 6, 2022

Fri, 06 May 2022 13:49:00 GMT

On Thursday the NASDAQ Composite Index fell 5%, its biggest one-day decline since 2020. However, looking beneath the surface reveals problems in the tech-heavy index that have existed for quite some time. Out of the 192 large stocks in Technology and Communication Services, over 160 are down this year.

Market News - April 29, 2022

Fri, 29 Apr 2022 13:46:00 GMT

April was a difficult month for the markets everywhere. In the U.S., the Dow Jones Industrial Average finished the month down -4.9%, while the Nasdaq plunged -13.3%--its biggest monthly decline since October 2008.

Bull Or Bear Market?

Thu, 28 Apr 2022 05:09:00 GMT

It’s been a challenging 2022 so far in the markets. In our latest situation report we outline what we’re watching and cases to be made for this bull market to continue, and cases to be made that we could be shifting to a bear market.

Market News - April 22, 2022

Fri, 22 Apr 2022 13:48:00 GMT

For the second time this year Netflix shares went into absolute freefall. NFLX is the worst performing stock in the S&P 500 this year, and is down about 65% from its all-time high. Netflix shares lost more than a third of their value just this week after reporting not just a slowdown in growth, but an actual drop in subscriber numbers for the first time ever. The streaming giant lost over 200,000 subscribers in its latest quarter—and it’s expecting even more in coming quarters.

Market News - April 15, 2022

Fri, 15 Apr 2022 13:44:00 GMT

On a single day earlier this month – and for the first time ever - wind power was the second-largest source of electric generation in the country, behind only natural gas. The Energy Information Administration reported on March 29th that wind turbines produced more energy than both coal and nuclear power.

Market News - April 8, 2022

Fri, 08 Apr 2022 13:41:00 GMT

The COVID pandemic and its subsequent mandatory lockdowns led to greater isolation, greater stress, and less time outside. What better way is there to brighten such a dark time – and occupy bored kids - than to get a puppy! The online pet food and pet supply company Chewy saw its market cap quadruple from the beginning of the pandemic to its peak.

Market News - April 1, 2022

Fri, 01 Apr 2022 15:44:00 GMT

As the pandemic winds down, life in many respects is almost back to normal—except for one area—office space. According to building security provider Kastle, which monitors the use of security and ID cards in office buildings, the “Kastle Barometer” of average weekly occupancy for offices is still just 40% of pre-pandemic levels.

Market News - March 25, 2022

Fri, 25 Mar 2022 16:27:00 GMT

It wasn’t widely known to the general public before recent days, but Russia is one of the world’s largest producers of many of the commodities necessary for modern society. Inflation was already on the rise, but since Russia’s invasion of Ukraine the price of gasoline has soared. That’s because Russia is the second-largest crude oil exporter globally, only behind Saudi Arabia.

Market News - March 18, 2022

Fri, 18 Mar 2022 13:44:00 GMT

‘Help Wanted’ signs are a common sight in towns and cities across the country. According to conventional wisdom, the shortage of workers (aka “missing workers”) is due to older workers, after enjoying outsized gains in their stock portfolios and real-estate holdings, exiting the workforce. However, a deeper look into labor force data from the U.S. Census Bureau shows this isn’t exactly the case.

Market News - March 11, 2022

Fri, 11 Mar 2022 15:25:00 GMT

The S&P 500 is down about -12% for the young year. About a quarter of the stocks in the S&P 500 are up so far, and three-quarters are down. Energy is the only sector enjoying a good start to 2022, up about 40%.

Is Russia's Invasion of Ukraine the Preamble to a Second Cold War?

Wed, 09 Mar 2022 07:39:00 GMT

This market has been far more resilient than many investors ever thought possible. That suggests whatever craziness we have experienced can continue for some time. Fundamentals sometimes don’t seem to matter much in this environment. The viruses will likely recede; our government and economy are still running; companies will continue to earn profits under most conditions; and as the owners of those businesses, long term investors will continue to benefit.

Market News - March 4, 2022

Fri, 04 Mar 2022 15:25:00 GMT

It is well known that Russia is one of the world’s largest producers of energy, both natural gas and oil. So as gas prices continue to hit new highs across the country, just how much of the world’s oil does Russia produce?

Market News - February 25, 2022

Fri, 25 Feb 2022 17:12:00 GMT

Confidence among the nation’s consumers dipped this month as higher inflation weighed on sentiment. While the smaller-than-expected decline in consumer confidence was a good sign in the report, respondents stated they were worried about high inflation. Fewer people plan to buy homes, cars, autos and appliances in the next six months, the survey found.

Market News - February 18, 2022

Fri, 18 Feb 2022 15:26:00 GMT

According to the Bureau of Labor Statistics’ Consumer Price Index (CPI), rents rose 3.8% across the country last year. But one state in particular scored six of the top ten cities with the highest average rent increase.

Market News - February 11, 2022

Fri, 11 Feb 2022 15:14:00 GMT

Following another sharp increase in consumer prices, the US inflation-rate climbed to 7.5% - a 40-year high. Big increases in the cost of rent, food, and energy drove the consumer price index up 0.6% in the first month of the new year. The increase greatly exceeded Wall Street's forecast of a 0.4% gain. The 7.5% surge in the cost of living in the past 12 months is the biggest since February 1982.

Market News - February 4, 2022

Fri, 04 Feb 2022 15:55:00 GMT

Along with gasoline and rent we get to add orange juice to the ever-expanding list of prices expected to skyrocket throughout the year. The January forecast for the U.S. citrus harvest is looking especially bleak for Florida orange growers. One of the results of the meager harvest would likely be rising orange juice prices.

Market Update

Tue, 25 Jan 2022 14:50:00 GMT

With the start to 2022 almost 1 month in, it’s become clear this year won’t be like the previous one. We continue to let our indicators and the charts guide our decision making. We’ve become much more cautious with what we’re seeing, but will be ready to deploy cash and reposition portfolios as indicators change. Risks affecting the market continue to rise, and we’ll see if the market can eventually get back to climbing that wall of worry.

2021 In Review

Mon, 24 Jan 2022 07:29:00 GMT

In our latest Situation Report, our Chief Investment Officer Jim Reardon breaks down a 2021 year in review. He dives into major topics of the past year such as inflation, supply chain problems, the worker shortage, cryptocurrency, and ESG Investing.

Market News - January 28, 2022

Sun, 23 Jan 2022 15:05:00 GMT

The confidence of the nation’s consumers slipped this month as the spread of Omicron and higher prices for just about everything weighed on consumer sentiment. The Conference Board reported its Consumer Confidence Survey fell 1.4 points to 113.8 this month. Economists had forecast the index to pullback to 111.7. During the pandemic, the index reached a high of 128.9 last summer during a lull in the pandemic to a low of 85.7 at the onset.

Market News - January 21, 2022

Fri, 21 Jan 2022 15:06:00 GMT

Stunningly higher shipping costs are yet another element of the nation’s supply chain problems. Shipping costs have skyrocketed as shortages of trucks, truck drivers, warehouse workers and others constrict the shipping pipeline and raise costs.

Market News - January 14, 2022

Fri, 14 Jan 2022 15:06:00 GMT

The value of a dollar has plummeted lately with the recent ravages of inflation, but the loss of value is just a more severe and considerably steeper continuation of the long-term decline in the value of a dollar. As measured by the Consumer Price Index (CPI), the dollar has lost about 40% of its purchasing power just since January 1, 2000. Once called the “almighty” dollar, it seems that adjective is hardly warranted now.

Market News - January 7, 2022

Fri, 07 Jan 2022 15:06:00 GMT

Applications for first-time unemployment benefits rose slightly last week to 207,000, the Labor Department reported. The reading remained near its more than 50-year low, suggesting that the soaring number of Omicron cases isn’t having much effect on layoffs. Economists had expected initial jobless claims to total 195,000.

Market News - December 31, 2021

Fri, 31 Dec 2021 15:06:00 GMT

The number of people filing new unemployment claims declined last week, remaining near 52‑year lows. The Labor Department reported 198,000 people applied for first-time unemployment benefits last week. Economists had expected a reading of 205,000. The extremely low number of people applying reflects the reluctance of businesses to lay off workers when qualified labor is so hard to obtain.

Market News - December 17, 2021

Fri, 17 Dec 2021 15:06:00 GMT

Borrowing money to buy stocks adds buying pressure during a move up, but can be catastrophic on the way down. One of the worst phrases a trader will ever hear is ‘margin call’—when a broker demands more cash to cover a losing position or else have it forcibly liquidated. In down markets, these forced liquidations contribute to the crashes that often occur near bottoms

Market News - December 10, 2021

Fri, 10 Dec 2021 15:06:00 GMT

American workers continued to quit their jobs at a record pace, giving rise to what experts are calling “The Great Resignation”. The Labor Department reported 4.2 million workers quit their jobs in October following a record-setting 4.4 million in September. The chief reason the majority of people are quitting is because they are finding better or higher paying jobs.

Market News - December 3, 2021

Fri, 03 Dec 2021 15:07:00 GMT

The U.S. gained a meager 210,000 new jobs in November, a disappointing increase that shows the worst labor shortage in decades is still weighing on the economic recovery. The increase in hiring was far below economists’ forecasts. The consensus was for 573,000 new jobs. The U.S. jobless rate, meanwhile, fell to 4.2% from 4.6% and touched a new pandemic low.

Year-End Review of the Market

Thu, 02 Dec 2021 17:55:00 GMT

While the stock market is entering a very strong calendar period historically, it has been a turbulent and highly volatile past week. December has historically been one of the best times to be in the market, as we get what many market commentators call a “Santa Claus Rally.” According to data from Bespoke Investment Group, the S&P has had a positive return in December 74% of the time since 1928, higher than any other month.

Market News - November 26th, 2021

Fri, 26 Nov 2021 15:07:00 GMT

U.S. stocks declined in the holiday-shortened week as news about the emergence of a new, potentially more contagious, coronavirus variant in South Africa triggered a sharp sell-off in equities around the world. The Dow Jones Industrial Average declined 703 points for the week closing at 34,899, a decline of -2.0%.

Market News - November 19th, 2021

Fri, 19 Nov 2021 15:07:00 GMT

Homebuilders grew more confident this month, as demand for housing remained strong despite continued pressures from supply and labor shortages. The National Association of Home Builders (NAHB) reported its monthly confidence index rose three points to 83 in November. It was the highest reading since May.

Market News - November 12th, 2021

Mon, 15 Nov 2021 15:08:00 GMT

Optimism among the nation’s small business owners hit a seven-month low as they continued to struggle to find both people willing to work and supplies. The National Federation of Independent Business (NFIB) reported its small-business confidence index fell 0.9 points to 98.2 last month. It was the lowest reading since March. Businesses are facing one of the worst labor shortages since World War II. More than 4 million people left the workforce during the pandemic and haven’t returned.

Market News - November 5th, 2021

Fri, 05 Nov 2021 14:08:00 GMT

The average price of a new vehicle has spiked about 25% since the start of the pandemic, from about $35,000 to a whopping $44,000, according to auto data firm J.D. Power. Shortages of key materials, such as semiconductors, have not only limited the number of vehicles being produced, but also incentivized automakers to build only the most expensive, highest-trim versions of their vehicles.

Market News - October 29th, 2021

Fri, 29 Oct 2021 14:08:00 GMT

The number of Americans filing for first-time unemployment benefits fell to a new pandemic low as companies continue to work with the employees they have and seek to hire more. The Labor Department reported new jobless claims fell to 281,000 last week—the lowest since March of last year and better than economists’ estimates.

Market News - October 22nd, 2021

Fri, 22 Oct 2021 14:08:00 GMT

With inflation in the United States now more than double the Federal Reserve’s stated target of 2% inflation, economists have been at odds on whether this is ‘transitory’ or just the beginning of a new monetary trend. With the vast majority of the developed world instituting economic lockdowns and massive government stimulus to combat the COVID‑19 pandemic, it makes sense that this would fuel inflation in modernized countries with just-in-time supply chains, negligible spare capacity…and then sudden injections of massive stimulation from governments.

Market News - October 15th, 2021

Fri, 15 Oct 2021 14:08:00 GMT

U.S. stocks built on the previous week’s gains, helped by some strong economic reports and positive earnings surprises. All of the major indexes finished solidly in the green. The Dow Jones Industrial Average rose 1.6% to finish the week at 35,295. The technology-heavy NASDAQ Composite rebounded 2.2%, closing at 14,897. By market cap, the large cap S&P 500 gained 1.8%, while the mid cap S&P 400 and small cap Russell 2000 finished up 2.2% and 1.5%, respectively.

What Keeps Driving the Market?

Fri, 27 Aug 2021 08:07:00 GMT

While we are seeing conflicting signals, many of our overall short and long-term indicators have remained positive. With that being the case, we have continued giving the market the benefit of the doubt. We’ll continue to monitor market conditions, ready to make changes when the market inevitably comes under pressure.