By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group
After a little reprieve earlier this week, investors are back in "buy" mode. The Magnificent 7 (Apple, Google, Amazon, Meta, Microsoft, Nvidia, & Tesla) also took a breather before heading higher later this week. The probabilities of relief to the consumer has also blossomed this week. This serves as the inspiration for this week's musings, "Have Yourself A Merry Little Christmas," originally recorded by Judy Garland in 1943. Here's some trivia about this beloved song:
- This song was written by Hugh Martin, specifically for the movie, "Meet Me In St. Louis" starring Garland. The original lyrics were rejected before filming began as Garland, her co-star Tom Drake, and director Vincente Minnelli thought the lyrics were too dark. The story goes that Garland added some of the lyrics sung by her in the film.
- The song peaked at #27 on the Billboard charts in 1944, selling more than 500,000 records in the U.S. and more than 2 million worldwide.
- The song was played overseas during the Christmas of 1943 and 1944 bringing comfort to U.S. soldiers fighting in World War II.
- Successful covers of this song have been recorded by the likes of Frank Sinatra, James Taylor, Luther Vandross, Keyshia Cole, and Michael Buble.
"Have yourself a merry little Christmas
Let your heart be light
Next year all our troubles will be out of sight
Have yourself a merry little Christmas
Make the yuletide gay
Next year all our troubles will be miles away
Once again as in olden days
Happy golden days of yore
Faithful friends who are dear to us
Will be near to us once more
Someday soon we all will be together
If the fates allow
Until then we'll have to muddle through somehow
So have yourself a merry little Christmas now"
Here's what we've seen so far this week...
We Muddled Through Somehow. If Recessionistas had their way, the market would have cratered long ago. Back in March of this year, some had recession odds at 64%. Even early this morning, some said the recession was about to begin (assuming UE hit 4%, which it didn't). Yet, in reality, we've just had one of the best Novembers for stocks on record and have seen December get off to a good start. The point is that it's better to try and react to a recession, rather than try to predict one. Since the market began to rally on October 27th, we've seen better participation across the board from equities. That typically is a sign of strength, not weakness. For example, the "Magnificent 7" have been all the rage this year. Since Oct 27th, the S&P 500 Index (Equal-Weighted) has out-performed the S&P 500 Cap-Weighted Index by nearly 100 basis points. In addition, Small Caps have out-paced the S&P 500 by 360 basis points and Mid-caps have out-paced the S&P by 370 basis points. The High-Low chart for the NYSE Index of equities shows that market breadth continues to improve. When the index is in the red (below zero), that means there are more stocks making new lows than making new highs. Currently the index is in the blue area (above zero) and continues to move higher, which also means it's not just the "Magnificent 7" moving the market higher. Recessions can come out of no where (see COVID). But more often, they develop over time and the market is typically ahead of the curve when a recession is on the horizon. If we look at the VIX (volatility) prior to a recession, we see that markets are usually ahead of the curve. In 2007, prior to the beginning of the 2008 Financial Crisis, the VIX spiked to 30.8 by August 16th. That was 55 days before the S&P Index made it's ultimate peak on October 9th. Contrast that to where we are today. Currently, the VIX is near it's year-to-date low of 12.7. The S&P 500 is at 4,585, having come off the lows of 2022 and has yet to surpass the previous high of 4,796 on January 3, 2022. Until we see a spike in the VIX approximate to what we saw in August of 2007 (+48%), it's reasonable to assume that we aren't at the gates of disaster like the Recessionistas would have us believe.
Next Year All Our Troubles Will Be Out Of Sight? While the markets are cooperating right now, that doesn't mean the outlook for 2024 is all rosy. I've seen predictions ranging from bear market to all-time new highs for equities. However, aside from taking out the magical ball from the Swamie and guessing as to what 2024 will bring, the economic data still looks solid at the moment. This morning it was revealed that the market added nearly 200,000 new jobs in November, which was higher than forecast. More importantly, the Unemployment Rate dropped to 3.7% after rising to 3.9% the previous month. If we analyze that further, the Participation Rate (the number of people either working or looking for work) rose in November and is at 3-year highs. The Participation Rate plummeted during COVID as many businesses closed and people were out of work for some time. However, we have yet to reach the pre-COVID level of participation - meaning the economy can handle more workers. There are still 8.7 million jobs available (well above the historical average of 5.2 mil), according to the recent JOLTs reading, so for the time being, consumers will have money in their pockets. A lot has been made recently of shoppers utilizing "buy now, pay later" practices during the holiday season. While that's not an especially good practice long-term, consumers seem able to handle the debt at this time. Balances, those levels were much higher in 2007 and 2019 when the economy was about to slip into recession. We are 30-40% lower in Loan Delinquency today versus those pre-recessionary periods. In addition, while Credit Card Delinquencies are up, Auto Loans and Mortgage Delinquencies are not corresponding to Credit Cards, as was the case in both 2007 and 2019. So, the consumer overall seems to be in a better financial situation. That is certainly subject to change, but for the moment, the consumer is in a position to push economic growth higher.
Here's the holiday classic for your enjoyment....
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