February 2024 Market Update

The Mag Mile on Michigan Ave or The Mag Seven on Wall Street

When we lived in Chicagoland, one of our favorite things to do was to walk the “Magnificent Mile,” shop at overpriced opulent shops, eat some overpriced Garrets Popcorn, and enjoy each other’s company.  It was worth a little extra spending, and arguably, Garrets is a significantly better popcorn experience than any other popcorn on the planet.  The experience and time together was more than worth a few extra dollars.  Perhaps seven magnificent companies are worth a spot in certain portfolios.

A top question is, will the Magnificent Seven companies lead the way higher for another year? Indeed, they have continued to do so except for Tesla for the first month.  The thing to remember about these vast companies is that they were largely immune to the Federal Reserve’s increases in interest rates because they had plenty of cash and low-cost credit access to get through it.  The other side is that they also benefit when rates are reduced.  So, they can outpace competitors in just about any market.

As earnings continue to come in, even some of the Magnificent Seven seem to be losing their luster as expectations of perfection are not entirely met.  Keeping that in mind, aside from a bit of sell-off, these companies continue to race ahead of the overall pack with little standing in their way and plenty of fuel to continue on.

Recession or “Soft Landing”

Many, including myself, felt we would see a recession at some point in 2023, and that never did materialize.   If you look at history, a recession happened on average 23 months after the Fed started to tighten.  While it seems that it has been longer the reality is that we hit month 23 right about now.  Lets take a quick look at on the one hand and on the other hand

• Market expectations of a rate cut were dashed on the last day of January. Yet, the market quickly recovered today, February first, indicating positive sentiment is in control.

• Consumer delinquencies and repossessions are on the rise, yet the data shows the consumer is confident and still flush with cash.

• Global turmoil remains a significant risk and drag on worldwide economic growth. Yet, energy prices remain reasonable, and Europe’s catastrophic natural gas shortage seems to have been largely averted as the U.S. ramps up its production.

• While headline economic numbers have been looking good, the revisions have not been quite as rosy but those get less press.

• Employment and wages remain robust; however, earnings thus far may indicate lower margins due to increased labor costs.

• Housing costs remain historically high; however, mortgage demand and housing starts are steady and rising.

I remain optimistic as I look at all the data and plot some trends.  Having largely exited the energy space a few months ago except for nuclear, we are already beginning to see some signs of a recovery in this sector.  Economic stimulus in China and more fiscal stimulus here in the U.S. that is its way through the election year madness should stave off any unrest about rates remaining higher for longer.  We believe the overall consumer remains strong and employed, which means they are likely to go shopping, and that is the gas pedal that drives the U.S. economy.

We continue to see increased opportunities in certain Asian countries, particularly India, Indonesia, and Japan.  Despite the possibility that China’s massive stimulus could propel that market higher, we question whether the reward is worth the risk.

As always, a single event can change the course of things, and the rest of earnings season will likely show where some of the weaker spots are.  We expect the market to remain strong overall and likely broaden away from the magnificent seven as mentioned above.

Remember Cash Flow Not Cash, is King

During an exciting bull market, it is tempting to over-allocate to whatever the headlines say is the next “hot thing.”  Remember, especially if you are nearing retirement, that maintaining proper exposure to income-producing investments remains paramount, as is overall diversification.  Also, keep in mind that income-producing investments do not necessarily mean traditional bonds or fixed-income securities.

Consult with an investment professional to help you see any blind spots you may have and keep in mind there is more to preparing for and living in retirement than your investments.  Structuring your accounts the right way can save you thousands in taxes.  Making sure you are properly protected on all fronts and not overprotected can also save you thousands of dollars.

If you would like to learn more about how to create your own paycheck protection program in retirement so you are not worrying about running out of money or not being able to live your best life, reach out to us at the Contact Us section of Guardianrockwealth.com or by texting the word LIFE to 321-421-5213

This note is not investment guidance; it is information and opinion only.

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Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal investment advice.

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John

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John Browning, MBA, and CSA®

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