DIASTOLE ECONOMIC AND MARKET COMMENT
April 8, 2024

There’s an eclipse today! Yay! And we’re supposed to get 90.1% of totality where I live, so I’m typing fast. Soon it will be dark and cold, and I will have to huddle in a cave with my laptop while wild animals go crazy outside. Or maybe not. But just in case, I’m typing fast.

Stocks were down last week on fears that the Federal Reserve would not cut interest rates as soon or as often as we thought the week before. And that fear was reasonable, given that the Fed is talking out both sides of its mouth. Chairman Jerome Powell said that recent strong inflation news would not change the Fed’s expectations of falling inflation and rate cuts. But Fed Governor Neal Kashkari (not a voting member this year) called the January and February inflation numbers “a little bit concerning” and speculated about the possibility of no rate cuts at all in 2024. Ouch. And Fed Governor Michelle Bowman said that, “While it is not my baseline outlook, I continue to see the risk that at a future meeting, we may need to increase the policy rate further should progress on inflation stall or even reverse.” Double ouch. Members of the Federal Reserve Board of Governors do not speak out of turn, so it is assumed that this messaging was approved. (You will remember that the PCE index was 2.5% in February for the trailing 12 months, after a reading of 2.4% in January.)

But stocks were up on Friday after a gonzo jobs report. 303,000 net new jobs were created in March, versus about 200,000 expected. Total job creation for the previous two months was revised upward. (Total job creation during the current administration now exceeds fifteen million.) Unemployment fell from 3.9% to 3.8%, and wages rose by 4.1% year-over-year. Luckily, it was a good news is good news situation.

Bonds, by contract, are sliding slightly in price, sending yields higher, on the same expectations/concerns that the fed-funds rate will stay higher for longer. If bond yields rise too high, they will encourage investors to pull money from stocks and put it into those attractive bonds.

With all of the press coverage that the Magnificent Seven stocks (now the Fab Four) have received, it might surprise you that, over the past ten years, value stocks have slightly outperformed growth stocks. Growth stocks are high-flying, high P/E, companies that are expected to outpace the market - often tech stocks. Value stocks are old-fashioned, dividend-paying, companies with average to below P/Es, which chug away year after year. This is a good reminder of why we at Diastole maintain careful asset allocations for our clients: nobody can predict the short-term ups and downs of the market, or what will be in favor next.

Oil prices are up 23% so far this year, while gold has also been making new highs. Oil prices are responding to global uncertainty, because war uses a lot of oil and potentially hinders oil deliveries. Gold is traditionally a safe-haven holding in turbulent times, but some investors, anticipating interest-rate cuts, also think gold might outperform bonds. Over time, the Standard & Poor’s 500 results have beaten both energy and gold, although over the past two years, gold is up more than the S&P.

Egg prices are rising again, thanks to the avian flu. The biggest egg producer in the U.S., Cal-Maine Foods, said that 4% of its flock is affected. But one person in Texas was reported to have contracted bird flu last week, after contact with infected cattle. This is only the second human ever to have bird flu. Luckily, cattle recover from avian flu, and pasteurization kills the virus in milk. Unluckily, infected chickens must be destroyed. In 2022-2023, there was a bird-flu outbreak that pushed egg prices up to $4.82.

Medicare just implemented a change to its claims-processing system, which added two extra digits to dollar amounts, expanding the fields from eight to ten digits. That will allow Medicare to bill and pay amounts up to $99,999,999.99, or just shy of one hundred million. Health care is expensive, but really? $100,000,000.00? Those are some amazing aspirin!

For the week ending on April 5th, the S&P 500 finished at 5,204, the Dow Jones Industrial Average at 38,904, and the Nasdaq Composite Index at 16,248. The yield on the ten-year Treasury Note closed at 4.39%. U.S. crude oil cost $86.91 per barrel, while N.Y. gold cost $2,345.40 per ounce. One Euro was worth $1.08.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here were gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Business Insider, Yahoo Finance, Axios, Morning Brew, Barron’s, The Economist, MarketWatch, Forbes, Fortune, The Wall Street Journal, The New York Times, The Washington Post, USA Today, CNN, CNBC, Reuters and The Associated Press. If you have questions, please call us at 203.458.5220.

A Boeing 737, yes, you read that right, had to turn around and go back to Denver after an engine cover blew off on takeoff yesterday. I have no words.

The cicadas are coming. Soon! Apparently cicadas have a very strong urine-flow rate (weird), and are subject to an STD which turns them into zombies. Birds that eat the zombie cicadas have hallucinations. (Don’t know how that can be confirmed.)

Be careful out there! Wear your stupid-looking eclipse glasses!

DIASTOLE ECONOMIC AND MARKET COMMENT
April 15, 2024

Today is tax day. Whether you file a return or file an extension, the government wants your money. Unless you live in Massachusetts or Maine, in which case the government wants your money two days from now, after Patriot Day and Emancipation Day. It’s complicated. Not reason enough on its own to move, but still.

Stock and bond markets were both down last week on lots of news. Bond yields rose, because bond prices and yields move in opposite directions.

The first reason for the move was a couple of sticky inflation numbers - “sticky” in this case meaning stubbornly not falling. The Consumer Price Index (CPI) for March showed that prices rose 3.5% over the past year, which was higher than watchers had wanted or predicted. From February to March, prices for some groceries as well as used cars and trucks, dropped dramatically. The Producer Price Index (PPI) which measures prices at the wholesale level, rose 2.4% - the highest move since September.

But, hey, here’s an idea: the Fed could stop watching the CPI and could instead just watch the PPI. Look - it’s almost at the Fed target of 2.0%. Yay! Job done! Go ahead and cut rates!

Or not. Anyway, markets reacted to the idea that the Fed would take longer to cut interest rates, and would limit, or even cancel, rate cuts for later this year. So, bond yields rose to stay competitive, and stocks fell because Christmas (rate cuts) might not come this year (and because bonds may look more attractive by comparison).

Also hurting stocks last week were global events, especially the anticipated Iranian attack on Israel. Iran, claiming that Israel had earlier attacked an Iranian complex in Damascus, Syria, was widely expected to strike back. And, in fact, when the missile strike launched toward Israel, 99% of incoming missiles and drones were downed by America and other Israeli allies. Iran now says there will not be additional attacks as long as Israel does not react aggressively. Benjamin Netanyahu warns that Israel will strike back. The American government is lobbying Netanyahu to take the draw as a win and go home with his ball.

Despite all that, however, stocks are still riding pretty high. The Standard & Poor’s 500 was down 1.52% last week, but is 7.9% higher year-to-date and 27.2% higher for the trailing 12 months. One little-talked-about reason why stock prices keep rising (Google the chart! It’s fun!) is that there are fewer publicly-traded companies today than there were in the past. In 1996 there were 7,300, and today there are only 4,300. At the same time, the population grows, pension accounts grow, and more money chasing fewer stocks inevitably pushes prices higher.

The classic investment portfolio of 60% stocks and 40% bonds goes in and out of favor. Right now it’s doing well, with a track record of 17% in the past year. This allocation is not for everyone. Your allocation is for you!

JP Morgan CEO Jamie Dimon, almost as famous for his annual letter to shareholders as Warren Buffett of Berkshire Hathaway, wrote recently that he thinks a recession is not out of the question. “Markets seem to be pricing in at a 70% to 80% chance of a soft landing. I believe the odds are a lot lower than that.” He also warned against rising interest rates: “Huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world and the restructuring of global trade - all are inflationary.” Not all voices agree with Dimon, but his is surely one of the loudest in the investment world.

There’s been much talk about banks of late. Primarily of how higher interest rates benefit them, but secondarily of how that benefit may be eaten up by the higher yields banks are starting to pay to depositors. The business model still works for now. Big banks can borrow at the fed-funds rate of 5.25% - 5.50% (or less, if we’re talking about depositors receiving 3% - 4%) and then loan on mortgages at 7%.

For the week ending on April 12th, the S&P 500 closed at 5,123, the Dow Jones Industrials at 37,983, and the Nasdaq Composite Index at 16,175. The yield on the ten-year Treasury Note finished at 4.52%. U.S. crude oil cost $85.66 per barrel, N.Y. gold cost $2,375.10 per ounce, and one Euro was worth $1.06.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Axios, Morning Brew, Barron’s, MarketWatch, Yahoo Finance, Business Insider, Fortune, Forbes, CNN, CNBC, The Wall Street Journal, The New York Times, The Washington Post, USA Today, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.

The cost to attend some Ivy League schools will be more than $92,000 next year. Yes, that’s for one year. Harvard, your safety school, will only cost $82,866.

Europe’s largest volcano, Mount Etna, is trying out a new kinder, gentler ad campaign, focused on the fact that it is now blowing smoke rings from its newly-formed crater. (Google the video! It’s fun!) The rings are in fact formed of pulses of gas and vapor which are squeezed out of the circular vent. Don’t try this at home.

DIASTOLE ECONOMIC AND MARKET COMMENT
April 22, 2024

Happy Passover! Happy Earth Day! Where did our stock-market rally go! Oh, wait, that last one should have had a sad face instead of an exclamation point.

Stock prices were mostly lower again last week as Federal Reserve Chairman Jerome Powell (JaPo to his friends) discussed how interest-rate cuts would be longer in coming, and investors worried about what that would mean to their holdings.

And apparently what they decided was that value stocks would weather the ratepocalypse better than growth stocks. (Ratepocalypse being a relative term compared to the more serious ratemageddon.) The Dow Jones Industrials, full of old-fashioned value stocks which are considered less sensitive to interest rates, actually finished the week barely up, while the Nasdaq Composite Index (down 5.5% for the week) and Standard & Poors 500 (down 3.0% for the week) both suffered from the short-term fate of growth stocks (largely tech companies) which are stressed by higher rates because they carry more debt on their balance sheets).

Bond prices also fell on the week, pushing yields higher. And the yield curve remains inverted, with the ten-year Treasury paying 4.6% while the two-year yield approaches 5%. Why does this happen? Bond buyers believe that interest rates will remain near 5% in the near term, while over the longer five-year period, yields will fall slightly. And that’s pretty much what JaPo is saying, too.

OIl prices, which often rise during periods of global unrest, have remained steady in the face of Israeli-Irani skirmishes. And while the world stood by and watched, the quid pro quo on the battle lines settled down after one quid and two quos, and the atmosphere quieted.

Managers of large pension funds, which have benefitted from the recent run-up in stocks, have changed course and are now selling out of stocks and investing in bonds, apparently convinced that both stock prices and bond yields are near short-term highs. Remember that when interest rates fall (as we now expect later this year), it will cause bond prices to rise.

While interest rates were near zero, investors used to be satisfied with earning almost nothing on their deposits, but now that yields are 5%+, those same investors believe they should be better compensated, and are moving deposits to bank CDs to get a better yield. If this is you, please remember to read the fine print to make sure that when and if your CD rolls over into a new CD, your yield continues to be competitive.

Last week we learned that retail sales for March were stronger than anticipated, while February retail sales were revised upward. This might be a reflection of the fact that wages have lately been growing faster than prices, and/or consumers are getting used to the higher prices and are no longer waiting to buy at cheaper levels. If the latter, this is exactly what the Fed was worried about. Consumers who accept higher inflation may cause higher inflation.

This points to one explanation for why Americans, when faced with the strongest economy in the world, still think conditions here are bad. As New York Magazine writer Jonathan Chait put it, “People [may] consider higher wages something they earned and higher inflation something that happened to them.”

Also we have real estate <sigh>. Almost every week we comment on the homebuyers who are sitting in homes they would like to sell, but feel they can’t because their NEXT mortgage would be so expensive. So, we have mortgage rates AND house prices at high levels as the inventory of homes for sale remains small. And mortgage rates have just risen above 7.1% for a 30-year loan, according to Freddie Mac. (7.4% according to a sample size of one in my morning’s emails.) But at the very top of the luxury-home sector, prices are beginning to fall. In March, the share of $5 million-plus homes with asking-price cuts was at its highest level since 2017 when realtor.com began collecting data. Perhaps the sellers of these homes are going to pay cash for their next home, or perhaps they can afford the current mortgage rates. Overall, U.S. existing home sales fell 4.3% from February to March

If your porch is awash in smiley boxes, you already know this, but for the rest of you: Amazon Prime is taking over the world. 180 million shoppers were subscribed to Prime in the first quarter of this year - that’s 75% of eligible adults. And it’s the highest percentage ever recorded (in the ten years that records have been kept) and is up 8% over the same period last year. Remember that it’s Earth Day today - recycle your cardboard!

For the week ending on April 19th, the S&P finished at 4,967, the Dow at 37,986, and the Nasdaq at 15,282. The yield on the ten-year Treasury Note closed at 4.615%. U.S. crude oil cost $83.06 per barrel, N.Y. gold cost $2,377.00 per ounce, and one Euro was worth $1.06. Bitcoin, which “halved” on Friday night into Saturday (depending on your time zone) was slightly higher this morning at $65,959.70.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, The Washington Post, USA Today, Business Insider, Yahoo Finance, Barron’s, MarketWatch, Axios, The Economist, Fortune, The Associated Press, and Reuters. If you have questions, please contact us at 203.458.5220.

Scientists have been busy. In England, a father and daughter discovered a six-foot long jawbone now identified as belonging to a marine reptile (member of the family ichthyosaurs or sea dragons) which was believed to be more than 80 feet long - or twice as long as a city bus. And in India, scientists recovered 27 vertebrae from the “largest snake ever to have existed” - which was up to 50 feet in length but probably not poisonous. Because it would scare you to death.

And finally, British farmers have discovered that if they spray their rams with Axe Body Spray they are far less likely to fight. Hey, if it works on sheep….

DIASTOLE ECONOMIC AND MARKET COMMENT
May 6, 2024

Tonight is the annual Met Gala, which raises funds for the Metropolitan Museum of Art’s Costume Institute. Tickets are $75,000 per person, but even if you can afford it, you cannot attend unless Vogue Editor-in-Chief Anna Wintour personally approves of your presence. Ergo, I am NOT hurrying through my work today in order to get to my stylist, makeup artist, and fashion designer sponsor. But I hope that you are. Text me! The elaborate ensembles of the attendees are supposed to be based on a short story (The Garden of Time by J.G. Ballard) that explores the lengths to which the landed aristocracy will go to avoid dealing with peasants. Gee, culturally insensitive much, Anna?

Last week was a good one for stocks and bonds, and full of news. First, on Wednesday, the Federal Open Market Committee announced its 100%-expected decision to leave interest rates untouched in a range of 5.25% to 5.50%. More importantly, the jobs report, which was released on Friday, showed a decline in net new jobs created from March’s figure of 315,000 to April’s 175,000. Traders rejoiced at the bad news, which is actually good news if you are hoping that the Fed will get around to interest-rate cuts this year. The soft landing is still on!

Job openings fell to the lowest level seen in three years as 8.5 million jobs went begging for workers in March. This slight softening of the otherwise-strong labor market was another sign that pleased investors hoping for a rate cut.

At Fed Chairman Jerome Powell’s press conference after the rate decision, he said, “It is unlikely the next policy move will be a hike.” From your mouth, JPo. Bond prices rose in response, pushing yields lower. Except for mortgages. For the fifth week in a row, the rate on regular 30-year mortgages rose - with mortgage rates now around 7.2% - back to levels last seen in the fall.

In a related story, all of the older, comfortable homeowners, who are either sitting in paid-off houses or low-rate mortgages, are continuing to spend in the face of higher prices, keeping those prices higher for longer. Prices will only come down when people stop buying inflated-price products, as is now being reported by Starbucks and McDonald’s.

Current interest rates are not high by historical standards, but certainly are compared to the recent history of near-zero rates engendered by the pandemic. But there are two sides to every story, and even though borrowers are paying more for the privilege of renting someone else’s money, savers earned four times as much interest on their deposit accounts in 2023 ($315.4 billion) compared to 2022 ($78.7 billion), according to Lending Tree.

Inflation figures released recently came in higher than expected, with the Personal Consumption Expenditures price index (the PCE) - which is the Fed’s preferred inflation measure - at 2.7% for the trailing twelve months as of March. February’s reading was 2.5%. Our gross domestic product (GDP) grew at a 3.4% annualized rate in the first quarter, versus 2.5% for the full year of 2023.

Meanwhile, wages and salaries rose 4.4% year-over-year in the first quarter, compared to 4.3% annualized in the fourth quarter. As you can see from the paragraph above, wages are growing faster than prices, resulting in a real gain for working families. That’s another thing (beyond wealthy-boomer house hogs) that is causing consumer spending leading to inflation.

We learned recently that Chubb is the insurer of Baltimore’s collapsed Francis Scott Key Bridge. It is preparing to pay $350 million to the state of Maryland for the overwhelming damage to the bridge. Repair costs are expecting to top one billion dollars. So, we learned today that underinsuring property is a really bad idea.

We have written before about sand, which, believe it or not, is the most-used commodity on the planet after only water. Sand is used to make glass, asphalt, and concrete, which is used to make everything else. Desert sand is too smooth, and sea sand is too salty to make really good concrete. River, shoreline, and lake sand is very desirable, which leads to its being over harvested. According to think tank Global Financial Integrity, the illegal sand trade was the third-biggest global crime after drugs and counterfeiting. Maybe next time you’re at the beach, you’ll want to use your kid’s bucket for some illicit sand harvesting. And then you’ll have to reach out to some shady organized-crime outfits to sell it. With “new” sand expected to run out by 2050, the world will have to turn to recycled building materials, as in Germany, which recycles 87% of household and industrial waste. (Thanks to The Hustle for details.)

For the week ending on May 3rd, the Standard & Poor’s 500 finished at 5,127, the Dow Jones Industrials at 38,675, and the Nasdaq Composite Index at 16,156. The yield on the ten-year Treasury Note closed at 4.50%. U.S. crude oil cost $78.11 per barrel, N.Y. gold cost $2,308.60 per ounce, and one Euro was worth $1.08.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Axios, Yahoo Finance, Puck, The Economist, Barron’s, The Wall Street Journal, The New York Times, The Washington Post, USA Today, CNN, CNBC, Fortune, The Financial Times, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.

The Kentucky Derby ended with a thrilling three-horse photo finish, with Mystik Dan taking home the top prize of $3.1 million. Experts say that the horse ran well and the jockey, Brian Hernandez, Jr., was exceptional. You know the only thing that might have made Mystik Dan run faster? Taking the 126 pounds of jockey and gear off of his back.