Personal finance insights: Market sentiments, investment strategies, and economic trends
By YBB Personal Finance
SENTIMENTS
AAII Bull-Bear Spread +16.2% (above average)
NYSE %Above 50-dMA 50.13% (positive, barely)
Delta MSI 49.0% (negative)
ICI Fund Allocations (Cumulative)
OEFs & ETFs: Stocks 60.59%, Hybrids 4.53%, Bonds 17.88%, M-Mkt 17.01%
INTEREST RATES
CME FedWatch
FOMC 7/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 9/18/24+ cut
Treasury 3-mo yield 5.48%, 1-yr 5.09%, 2-yr 4.71%, 5-yr 4.33%, 10-yr 4.36%, 30-yr 4.51%
Real yields 5-yr 2.09%, 10-yr 2.08%, 30-yr 2.23%
FRNs Index 5.305%
US Savings I-Bonds, Rate from 5/1/24 – 10/31/24 is 4.28%; the fixed rate is 1.30%, the semiannual inflation is 1.48%.
For current banking rates, see
www.depositaccounts.com/
MARKETS
This narrow US RALLY may stumble badly in Summer. The mega techs are leading, while cyclical DJIA, equal-weight SP500 (RSP), small-caps (IJR, IWM) are lagging. That isn’t a healthy market. The risk is that investors overstay with expensive mega techs.
But value has been a losing bet – look at WBA, LUV, NKE, etc. However, there is hope for catch up in selected areas. Several fallen SOFTWARE stocks are showing signs of rebound – ADBE, CRM, NOW; ETF IGV. SMALL-CAP growth (SLYG) bottomed in mid-June & the bounce may have staying power. ENERGY (XLE, IYE) may provide good diversification for tech (XLK) or semis (SMH); XLE bounced off its 200-dMA & its crossing 50-dMA would confirm this up move.
Global SHIPPING (BOAT, BDRY) rates have surged. First, it was the pandemic, then, the continuing conflicts in the Middle East. There are new ships, but not enough shipping containers. There may be strikes by dockworkers in the US. All of this isn’t good news for inflation.
After election jitters & Prime Minister MODI’s coalition government, the INDIAN stocks are at new all-time highs. Among the emerging markets (EMs), India is always expensive. The Indian rupee is weak. There are several India ETFs that trade in the US: INDA, INDY, NFTY, FLIN, PIN, EPI, GLIN (growth), SMIN (small-caps), INCO (consumers), DGIN (IT), INQQ (IT). Several Indian companies are also listed on the US exchanges (HDB, IBN, INFY, WIT, RDY, etc).
A pullback in BRAZIL provides another chance to jump in (ETF EWZ; fwd P/E 7.2). President LULA is pushing back the goal for primary surplus to 2026 (from 2025); debt service is 30% of the budget (primary budget excludes debt service). He is also locking horns with central banker NETO. With current rates at 10.5%, but inflation +4%, rates may be cut & that would be bullish for Brazilian bonds.
Battered FRENCH stocks (EWQ) look attractive, according to David HERRO (OAKIX, OAKGX). French CAC40 sold off after a sudden call for elections (June 30, runoffs July 7). However, large companies aren’t affected much by the domestic economy or politics. Among the foreign markets, Herro is underweight JAPAN.
IT/TECH
WEARABLES (smart watches, bands, rings) now provide important medical alerts to patients & doctors. They can monitor heartbeats, blood glucose levels, oxygen levels, falls, etc. The FDA requires tests & certifications for clinical-grade (vs consumer-grade) medical devices. It’s no longer necessary to make clinical or hospital visits for many of these diagnostic tests. These developments are possible with the cooperation between device makers (AAPL, GOOGL, Samsung Electronics, etc) & medtech specialists (IRTC, DXCM, ABT, etc).
DRONE deliveries & FLYING CARS are taking off in CHINA. These eVTOLs fly at low altitudes of 3,200’-13,000’ & avoid commercial & military airspaces. Chinese government has identified these as key emerging industries & government funding is available for R&D. Related infrastructure is also being developed – air-traffic management, communications, landing facilities, etc. There is competition from Japan, Australia, UK. The US is focused on restrictive legislation such as Countering CCP Drones Act.
INCOME
Better times for income investors are ahead as the Fed may be cutting rates soon/later.
Cash: BIL, SGOV (or, simply, T-Bills)
T-Notes/Bonds: SHY, TLT (also, IEF)
TIPS: VTIP, TIP (or, 5-yr TIPS)
MBS: DLTNX, MBB, VMBS
Preferreds: PFF, FPEI
Dividend Funds: VYM, SCHY (also, VIG, SCHD)
Real Estate: VNQ
Pipelines: AMLP, TYG
Utilities: XLU, UTG
Munis: VMLTX, MUB
Others: MDFIX (discounted CEFs), JAAA (CLOs)
ECONOMY
This HOMEBUYING season has been forgettable. Existing home sales are the slowest since 2011 (NAR data). Home affordability is poor. Mortgage applications are the lowest since 2000. Buyers are frustrated, sellers are unmotivated – there is a disconnect on pricing. The new home sales have been better – in fact, these aren’t priced much higher than comparable existing homes. Homebuilders’ stocks are struggling (ITB, XHB). Lower rates may jump start housing in 2025.
Susan WACHTER, Wharton/Penn, said that higher rates have cooled HOUSING a bit but not the housing prices. The CPI includes owners’ equivalent rents (OERs) & those are rising. The OERs are a blend of owner-occupied homes & existing & new rentals with different dynamics, so they change slowly. There is also lag from data measurements & reporting. So, the OERs & inflation may not go down without a recession. Lower rates do benefit housing affordability.
The trends in economic data favor a rate cut by the FED in 2024. But 2 aspects of the JOBS report are diverging significantly – the nonfarm payrolls are flat or gradually rising, but the household employment surveys are showing declines. The discrepancy is explained by the undercounting of immigrants by the BLS. There may be 4 million undocumented immigrants in the US, & most may not show up in the BLS household survey data.
Paolo ZANNONI, Prado Holding, said that more BANK FAILURES & rescues are coming. Since the 2008 GFC, 500+ US banks have failed. Unusually, in 2023, only 3 US banks of medium size failed. The public should understand that bank failures are normal, & some failing banks will be rescued. The business of taking short-term deposits & lending long-term using high leverage is inherently unstable. Think of bank rescues as a social safety net without which most bankers won’t be in this risky business. So, a fresh point of view is needed for the banking cycle from flourish to perish.
RETIREMENT
What should retirees sitting on humongous gains in tech stocks do? Be aware that outsized gains of doubling or tripling in a few months are very rare. A common financial advice is to limit individual stock positions to 4-5% of the portfolio. You don’t have to follow this rigidly but become concerned if a stock position becomes 10% or more of the portfolio & consider taking some off the table. Beware of the risks of severe declines & that you won’t have as much time to recuperate from those losses. Leave high risk taking to younger generations.
FUNDS
SILVER is more attractive than gold or Dr Copper. Silver is both an industrial & precious metal. It’s used in semi chips & electronics & is getting boost from AI. Demand from solar industry is at a record high. ETFs are bullion SLV & miners SIVR, SIL, SILJ, SLVP.
The infamous annual RUSSELL index rebalancing happened at the market close on Friday, 6/28/24. It was all preannounced to happen on a single day at the market close, so anyone could front-run the changes. Most Russell indexes will now get more AI tilt because that is where big market-caps are. (We have just been through a strange SPDR tech XLK rebalancing).
Blake HAXTON, Paralympian (canoeing, rowing), Analyst for BGHAX (global HY) & BCCAX (global corporates), said that high yield (HY) spreads vs Treasuries are low, but defaults are also low. HY has a place in the fixed-income portions of many investors. He finds attractive credits in energy, homebuilding, metals & mining. His disability developed suddenly when he was of college-age, both of his legs were amputated, but he overcame health difficulties to finish college & law school, developed career as a fund analyst & is also a Paralympian headed to the 2024 Paris Paralympics in 2 months.
For more information, see ybbpersonalfinance.proboards.com/
