Perspective: countervailing short-term and narrow thinking

When it comes to investing, we sometimes get so caught up in the short-term and in the minutiae, that we lose sight of the most important thing that stocks, as an asset class, accomplish for investors—building long-term wealth. Examples of such “short-termism” and narrow thinking are captured in questions like these: How did stock X…

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The Yield Curve: A primer and the current inversion

The yield curve, also known as the term structure of interest rates, is an important reading on economic health. Think of it as something akin to your resting heart rate or blood pressure readings. Just as your resting heart rate or blood pressure can be an important indicator for your future medical health, the yield…

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Market Breadth is Improving

For the last three months, the total return of the S&P 500 Index and the equal weighted S&P 500 Index are nearly identical, with the equal weighted index at times exceeding the return of the cap weighted version (see chart below).  This is a healthy sign, particularly since we are 80% way through the earnings…

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Corporate Earnings: Growth and Optimism amid the AI revolution

We hear so much in the financial media about inflation, slowing economic output, and the Fed’s inflation fighting efforts, that it’s easy for people to become overly pessimistic. We are even hearing about the threat of the 1970’s bugaboo “stagflation.”  While it is true that we still have persistent inflation and economic growth isn’t as…

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Pullback or Something More?

This current market sell off is the first material pullback in the US stock market since it began advancing in the Fall of 2023. You can see from the chart below, until the recent pullback, the stock market, as measured by the S&P 500 Index, was on a tear. The recent sell-off has taken the…

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Inflation dynamics in one chart

Last week inflation was updated for the month of March. In short, inflation progress has stalled both on the Consumer Price Index (CPI) and the Producer Price Index (PPI). We’ve been saying that inflation is primarily a consequence of money supply and policies that affect money supply. The chart below shows three series: 1) the…

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Competing Policies and Forces

We’ve dedicated a considerable amount of attention within our weekly written missives addressing inflation. Of late, inflation has stalled even while Federal Reserve policies remain restrictive. Here’s what the two Fed tools of interest rates and balance sheet assets looks like: As can be seen, the Fed has been forceful and relentless in its pursuit…

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That’s a wrap!

First Quarter 2024 Market Recap The first quarter of 2024 is in the books. For the US Equity markets, it was the strongest first quarter since 2019. Immediately below is a chart of the major US Indices. We see the S&P 500 Index leading, and closely followed by the NASDAQ Composite Index. The Russell 2000…

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Why inflation stays stubbornly high

Inflation Update Last week we received two updated inflation readings. The consumer price index is stubbornly holding steady at slightly over 3% year-over-year. Please see the chart immediately below. Meanwhile, the more volatile producer price index (commodities) is trending higher. See the image immediately below. What are we to make of these readings? Foremost, the…

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Market Breadth: Is a Transformation Underway?

The narrow nature of market returns over the past year is well documented. In summary, the largest capitalization tech stocks (the so-called Mag 7) have dominated market returns since the market correction bottomed out in late 2022. Directly in the chart below is how the various index returns looked since October 2022. The S&P 500…

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Animal Spirits?

Animal spirits refer to the emotional and instinctive factors that influence human behavior in investment decision-making. It encapsulates the irrational aspects of human psychology such as optimism, fear, and herd mentality, which can drive market trends and deviate from rational economic models. Essentially, the basic idea supporting the role of animal spirits in asset pricing…

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Priced for Perfection

Immediately below are a series of stock market index returns for the year-to-date period ended February 23, 2024. The S&P and NASDAQ are in a dead heat lead while other indexes lag. Here are the big takeaways from the chart below. 1) The equally weighted S&P 500 Index lags the S&P by 4.5%. This is…

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