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Time After Time Thumbnail

Time After Time

Market Musings

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group


There are positives to take away from some of the economic data and there are some negatives.  Technical data is also a little misleading these days.  But, like may things in life, there's a pattern or rhythm to things that we should be watching.  The 1983 song "Time After Time" is the inspiration for this week's musings.  Here's some trivia about the song:

  • This song was featured on her debut album "She's So Unusual" and was her first Number 1 hit single, topping the U.S. Billboard charts on June 9, 1984.  The single also sold more than 7 million copies.
  • The title of the song was inspired by the science fiction movie "Time After Time", but that's where it ends, as the movie's subject of Jack the Ripper stealing a time machine has nothing to do with the lyrics of the song.
  • The song was written by Lauper and Rob Hyman of the band "The Hooters," who also sings backup on the track.
  • Lauper worked with producer Rick Chertoff who had helped record the majority of the album when he suggested to Lauper that they needed "one more song."  Lauper and Hyman went to work and wrote "Time After Time" in a little more than a day.  And, it paid off.

"Sometimes you picture me
I'm walking too far ahead
You're calling to me
I can't hear what you've said
Then you say, go slow, I fall behind
The second hand unwinds

If you're lost, you can look and you will find me
Time after time
If you fall, I will catch you, I'll be waiting
Time after time"

Here's what we've seen so far this week..

Too Far Ahead.  Over the last few weeks we've written about how things are a bit out of whack in the markets.  When we see divergences like this, we need to be mindful of what has happened in the past.  If we look at current equity valuations, not only are U.S. equities at the top end of the range, but far above the 90th percentile.  Even if we back out highly-priced tech names, U.S. equities are running far above normal valuations.  Other markets such as Japan, Europe, and China are not so far out of whack.  If we dive a little further into an asset class that is typically out-of-favor, the Utilities sector is running far above its normal range.  The Utilities sector is generally considered a safe haven during periods of economic uncertainty - primarily because everyone still needs to turn on the lights in their home and keep their house heated/cooled regardless of the economy.  Well, due to the excitement of AI, the draw on basic utilities by super-computers and servers needed to generate and maintain AI engines has made this sector a bullish trade.  However, if we look at the performance of the sector relative to its 200-day moving average, there are not many periods where the price of sector is as stretched as it is today.  Likewise, investors are not eyeing risk as carefully as they might typically.  The High Yield Option-Adjusted Spread Index measures the difference between Treasury bond yields and High Yield bonds.  When the index is as low as it is currently, that means there is very little risk in defaults on corporate bonds in the lower-grade credit quality space.  Today, the index is at a 17-year low, not seen since 2007.  When the index reaches a prolonged low, it typically bounces higher, meaning that risk among high yield bonds rises.  This doesn't mean that trouble is in our immediate future, but again, these types of dislocations should make you say, "Hmmm."

Time After Time.  As I stated at the beginning of this post, there's some conflicting economic data to consider.  The latest projections by the Atlanta Fed show the the potential for a strong GDP print for the 3rd quarter.  Currently, the Fed is projecting +3.4% GDP for the most recent quarter.  In addition, while it's early in the corporate earnings season, multiple companies - Citigroup, Goldman Sachs, Bank of America, & Netflix - beat earnings expectations for the 3rd quarter.  This would suggest a strong economy and support the recent surge in equities.  But what must accompany higher earnings by companies is a strong consumer.  The report for September Retail Sales was stronger than expected.  Sales were up 0.4%, which was higher than expected and stronger than August's metric.  However, if we look at the year-over-year growth, the trend is lower.  Since peaking in January of this year, year-over-year sales are down to +1.7% from January's +5.3%.  In fact, a recent survey shows that consumers are beginning to max out credit in order to stay afloat.  Nearly 2 in 5 cardholders have maxed out a credit card or come close, according to the survey conducted in early October.  Another conflicting data point is this week's Jobless Claims release.  After last week's surprise shift higher in claims, this week's report was lower.  However, the previous week's poor report was revised slightly higher, which is not comforting.  In addition, when we look deeper at the report, we can see that even if we take out anomalies, the trend is still higher for claims.  The states recently affected by damage from hurricanes Helene & Milton - FL, GA, NC, SC, TN - certainly have higher jobless claims than other states.  However, even when we remove those states from the initial claims number, the movement is higher and near the peak in June of last year.  The housing market is also giving off some strange signals.  When the Fed initiated its first rate cut in several years in September, the interest rate on a 30-year mortgage dropped to 6.08% in response.  However, since then, the rate on the 30-year has increased to 6.44%, equal to the August level.  The last three weeks, mortgage applications have dropped and this week, applications were down more than 17%.  So what can investors take away from all of this?  They say that history doesn't repeat, but it rhymes.  If history provides any sort of lesson, it's that diversification is a good way to prepare for market dislocations.  That doesn't necessarily mean that investors can out-perform the market during these types of periods.  However, diversification will be rewarded if markets decide to correct one way or another.

Time after time...
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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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