It was one of those weeks. A gauntlet of data had investors working overtime to figure out where stocks and the economy were going. At the same time, the Fed told investors that a March rate cut was off the table. And then the job data was announced.

 

The non-farm payroll report for January came in at almost double market expectations. Economists were expecting 185,000 gains, but the U.S. economy created 353,999 jobs. That was a blowout number that had traders torn between selling the market (because of the inflation implications) or buying it due to what it might say about future growth.

 

Strength in the job market and wages would mean the Fed will delay cutting interest rates while further growth in the economy could be good for future earnings. The Wednesday FOMC meeting illustrated that dilemma and what the Fed planned to do about it. In one word — nothing — no rate hikes, and no rate cuts either. The outcome was a disappointment.

 

I thought Fed Chairman Jerome Powell did a good job explaining the present state of the economy and the reasons the Federal Reserve wants to wait a little longer to ease monetary policy. He expects the economy to continue to grow and at the same time the progress toward reducing inflation will continue. The Fed has been watching the labor market for signs of weakness but slowing wage growth is more important than the number of unemployed workers. Given the huge gain last month in the payroll data, his decision to wait for the data to confirm the Fed's next move seems correct to me.

 

I had warned readers that those bulls who were expecting a March interest rate cut by the Federal Reserve Bank were roaring up the wrong tree. And yet, going into the meeting, almost half of the market was betting on a cut. The news triggered a wave of selling that sent all three main averages down by more than a percent. Since I was not on the side of any Fed cut until May or even June, the sell-off felt overdone in my opinion. We regained much of those losses by Friday.

 

Beyond the Fed, the most important event was the fourth quarter earnings reports of five of the Mag 7. By Friday's close, the scorecard stood at three wins and two whiffs. Microsoft had decent earnings, but the stock sold off anyway at first, while Google disappointed investors. Meta and Amazon scored, and Apple whiffed.

 

Last week, I warned readers that all these stocks were priced for perfection and only stellar earnings and guidance would be able to justify further gains. Three out of five did just that and the markets reacted by hitting new highs.

 

There was good news on the U.S. Treasury financing front as well. The government announced it will need to raise less money via Treasury auctions this quarter. The mix between short-term notes and bills and longer-term bonds is tilting a little more toward the long end. That should keep the yield on U.S. Ten-year bonds supported. 

 

I expect stocks will continue higher, but the journey will be marred with sharp pullbacks. My target is still 5,000 -plus on the S&P 500 Index. Stepping back, however, I see these gains as part of an interim topping process that will end at some point this month or next in a stiff pullback.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The economic condition of the country has convinced a minority of the population that the only person who can save the country from economic ruin is Donald Trump. The growing budget deficit and persistent inflation are two areas of growing concern for that bloc of voters.

 

However, more and more Americans are paying attention to those areas as we head into 2024. Last week, I pointed out some areas of economic contention between Trumpers and those against him such as illegal immigration. Inflation is another major gripe for Trumpers. That seems to fly in the face of economic facts.

 

The inflation rate has dropped in half over the last year, according to government statistics, but most voters ignore that data. Their main inflation gauge is how much it costs to feed the family and the price of gas at the pumps. Unfortunately for them, inflation continues to thrive at the check-out counters in the supermarket and gas stations. As we know, inflation hurts those within the lower-income groups, many of whom are Trumpers, far more than it does higher-income earners. 

 

The Federal budget deficit is also a major concern. Trumpers and many hard-right congress members are demanding a 30 percent decline in spending. Notice too that continued support for Ukraine and the Israel wars has also fallen by the wayside. For 40-plus years we have been hearing how important it was to finance unending conflicts around the world in the name of Democracy. Many of those Americans who fought and bled in those wars have had enough. To them, the questions continue to be "What about me and mine." Trump, despite his background, answers that question in ways that many can identify with and support. 

 

Of course, the spending cuts they are demanding are in areas that reflect Republican arguments — some traditional, like reducing the size of government, cutting waste, etc., and others directed at the counterculture. However, with the size of the federal debt continuing to climb, many Americans are also beginning to worry that spending should be reduced as well.

 

The overwhelming support for fossil fuels in the face of the obvious impacts of climate change is another area that stumps Trumper critics. It shouldn't. To me, it is all about jobs. About 8.1 million people are employed directly in the energy industry. Countless more receive ancillary benefits from the fossil fuel sector.

 

The top five energy-producing states are Texas, Wyoming, Pennsylvania, Louisiana, and West Virginia.  Any guess who most of those states support? No matter the impact of drought, floods, hurricanes, tornados, etc., for workers in fossil fuels, there is no contest. Losing one's job will take precedence over climate change.

 

Many are so fearful of losing their livelihood that climate change itself becomes deniable. Any threat to their livelihood will be voted down again and again no matter how many initiatives are tabled, or disasters occur. And yet none of us have come up with a viable plan to transition workers into good-paying alternative jobs in different industries. Sure, there are programs available that can retrain and transition workers, but this takes time. Who feeds the family in the meantime?

 

Do these differences make Trump voters bad people? No, it doesn't. The simple fact is that their career paths and life experiences in America have been radically different from your own. There are some areas that both sides can agree on like our debt load and inflation.

 

But face it: forty years or more of widening inequality in America have left a large segment of the population on the sidelines. They have not been able to share or experience the benefits of democracy, and certainly not capitalism.

 

It is not lost on these voters that President Biden was elected to the U.S. Senate in 1972. He, and many like him, governed through countless wars, the exportation of U.S. jobs to Asia, the creation of the Rust Belt, and the death of manufacturing. To this segment of the population, he is part of the problem and has little creditability no matter what he says or does.

 

Biden, on his part, is doing a lot on the economic front. He has staked his re-election bid on "Bidenomics." His administration is spending billions of dollars in public investments while focusing on assisting middle-income workers, rejuvenating the rustbelt, and hiking investments in manufacturing capacity. Those efforts are being ignored, or worse, ridiculed by those against him. Some may forgive him and politicians like him, but none will forget.

 

Some say that over time our democracy swings like a pendulum from right to left and back again. Sometimes, it swings too far (think the 1930s, and again in the 1960s). Over the last four decades, the pendulum has swung to one of those extremes again creating excesses like billionaires in this country whose wealth rivals several countries' GDP. I expect the swing to the right, and towards populism, is just beginning. How volatile it becomes will be up to all of us and how we handle differences. Economics is a good place to start. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Strong growth in the economy in the last quarter of 2023 helped support equity markets this week. The U.S. economy grew 3.3 percent in the fourth quarter, which was much higher than the estimates of 2.2 percent growth. For last year overall, the economy grew 2.5 percent.

 

At the same time the core personal consumption expenditure price index, which excludes food and energy, increased by 2.9 down from 3.2 percent from the prior month, and moved below 3 percent for the first time since March 2021. Investors liked those numbers enough to keep the S&P 500 Index making new highs.

 

Technology continued to lead stocks higher. The Magnificent Seven (Apple, Amazon, Alphabet, Microsoft, Nvidia, Tesla) garnered the lion's share of buying. Tesla, however was the downside exception. This has been the trend for most of last year and continues to be the case so far in 2024. Six of the seven accounted for 80 percent of the SPX gains in January, Nvidia and Microsoft alone represented almost 50 percent of that move.

 

The problem with this action is that with only a few stocks pushing the averages higher, I question the underlying health of the markets overall.

 

Under the market's hood, rotation into one sector and out of others for a day or two says to me that most of the market is going nowhere. The bears argue that this kind of action can't continue much longer. My answer to that is the Mag Seven carried the market for most of last year and continue to do so at least into February.

 

That does not mean I would rush in to buy more of these big-cap tech stocks. They are "holds," right now. Most investors already own these seven stocks in their portfolios anyway. In addition, they are top holdings in hundreds of exchange-traded funds and mutual funds. As such, they represent a huge portion of U.S. investments. The entire market capitalization of the small-cap, Russell 2000 Index, for example, is less than the market value of Apple or Microsoft. These large-cap, liquid stocks are supporting the markets.

 

There have been times in the past, for example, in the latter half of 2022, when these darlings were out of favor. When they are, this usually leads to a sell-off in the overall market. Could this happen again? It certainly can.

 

Take Tesla as an example. For years, this electric vehicle pioneer could do no wrong. But sentiment has changed. The mounting competition of dozens of EV manufacturers entering the market is reducing prices and causing profits to decline. Recently, one Chinese company, BYD, has dethroned Tesla as the leading EV company in the world. Tesla's stock price has plummeted in recent weeks and earnings were disappointing.

 

Most of the Mag Seven companies will be reporting earnings in the coming week or two. Thus far, fourth-quarter earnings have been pretty good. About 25 percent of the S&P 500 Index have reported. Overall, 70 percent are beating estimates by about 7 percent. Given how high these individual stock prices have been bid up, most are priced for perfection. Netflix earnings did surprise to the upset, while Tesla did the opposite. The Bulls are hoping the remaining five surpass expectations.

 

Next week, we will also be treated to another Federal Open Market Committee (FOMC) meeting. Investors expect the Fed to hold the line on interest rates. No rate cuts or hikes are expected. Possibly even more important than the Fed will be the U.S. Treasury's quarterly refunding announcement on Jan. 31. The more long-term Treasury bonds the government plans to sell at upcoming auctions, the more pressure there will be on bond yields to rise. That will have consequences for the equity markets.

 

We are still in that last move up that I had been forecasting. And it is not over yet. How much higher could we go? The S&P 500 could climb 100-200 points higher to 5,000-5,100. My timing for this market's short-term top was off a bit. I was expecting that we would have already hit the top by now. However, it still looks like a pullback in February into March before moving higher sometime in the spring. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Inflation, government spending, immigration, jobs, and fossil fuels are just some of the areas that are motivating partisan politics as we enter 2024. Both sides are adamant that their approach is correct. Is there a common ground? 

 

In this land of deep divides, neither side seems willing to listen or understand the position of those who disagree. Today, I am giving my two cents on explaining why former President Trump's supporters believe their positions are best for the country and them. The hope is by deepening your understanding of the "whys," the willingness to compromise might also be enhanced.

 

The former president has the backing of 67 percent of registered Republicans, 71 percent of conservatives, and 55 percent of those who do not have a college degree, according to a recent CNN poll. By overwhelming numbers, they believe Trump will do a much better job running the economy. Given those numbers, I ask myself, how can so many people be wrong? What motivates these pro-Trump voters on the economic front?

 

For years, I have been writing about the increasing inequality in this country. For decades, as governments and politicians lauded the benefits of global trade, American jobs were exported overseas. The country's middle class was whittled down. The Rust Belt grew wider and the divide between the haves and have-nots became frightening and apparent to everyone. I warned that the consequences of this trend would lead to great change.

 

Enter Donald Trump and the advent of populism.

 

Liberals tend to dismiss Trumper's stance on many issues as not worth discussing. Starting with their leader, Trumpers are enmeshed in a tangle of racism, bigotry, outright lies, and conspiracy theories. Their anti-immigration position, for example, is the result of racism, even though many who back that position are black, Asian, and Latino.

 

Was the anti-immigration movement simply motivated by a desire to preserve American jobs while reducing crime? Over the last several years, as immigration policies have been tightened by both the Trump and the Biden administrations, the unemployment rate has dropped to historical levels. Whether that trend is coincidental or connected is immaterial to more than half of those Trump supporters without college degrees. To them, it is simple — immigration down, employment up.

 

Corporate America bemoans this trend. Scarce labor has driven up wages, and jobs for even the least educated have been plentiful. And it is not just for white people. More job opportunities for minorities, women overall, and single mothers have been climbing as have jobs for teenagers. All of them have been beneficiaries of the tight job market.

 

Better still, due to labor shortages, companies are even reconsidering college degree requirements in certain positions. So, while the 10 percent of the highest income earners may complain about the higher costs of nannies and gardeners, meat packers, farm workers, drivers, and other manual laborers can now buy gas and feed their families.

 

There are other areas where Trump supporters have major beef with the economy. Inflation, the Federal budget, and fossil fuels come to mind. In my next column, I will examine those areas and more. If this column has raised your ire and your fingers are just twitching to send in a rebuttal buttressed by the facts, you are missing the point. 

 

We need to know what drives the differences between us. Today, your facts mean nothing or everything depending on the source and who is listening. Take the time to understand the other side and find common ground. Otherwise, we are all on a train to nowhere and none of us will like the last stop.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The stock market has been a chop fest over the last two weeks. Yet, that has not stopped the technology sector from making new highs and the S&P 500 Index is not far behind. Are there more gains ahead for the averages before the end of the month?

 

Yes, as I wrote last week, I think there is at least one more good bounce in the markets before all is said and done. After that, I suspect we will all have to pay the piper for a while.

 

Has anything changed in investors' thinking to warrant these erratic moves? Much of the volatility over the last two weeks can be explained by the rise in bond yields and the strength in the dollar. Both instruments have made an abrupt turnaround from their downward trends that supported equities since October 2023.

 

I can identify two major concerns weighing on markets. The direction of inflation, and whether the U.S. economy is heading for a hard or soft landing. Neither of these outcomes will be known for several months. Until investors have a definitive answer, I believe markets will make little progress from here.

 

From all I have read and heard, not even the Fed knows if they have inflation licked. Sure, we have made progress towards a 2 percent inflation goal, but are still 2 percent above that rate. I can commiserate with the Fed’s position every time I go food shopping.

 

As for the economy, we are still seeing strength, and while economists continue to predict a softening of growth, it has not shown up in the data. The bears believe growth will fall off a cliff in one of these quarters and unemployment will spike at the same time. The Bulls say it won't happen. They believe that the economy and employment will maintain its present course upward and, at worst, we may have a soft landing if they are wrong.

 

Few are talking about a middle course, stagflation. That is where inflation remains sticky or strengthens a bit, while the economy slows at the same time. That could happen, if inflation remains stuck, and the Fed simply maintains tight monetary policy as a result. The longer they do that, the harder the landing for the economy will be.

 

But wait, you may ask, what happened to the bond market's conviction that the Fed will begin cutting rates in March and then five more times before the end of the year? The last two weeks have seen the chance for a March cut dropping from 90 percent to about even now. The number of expected cuts is also dwindling.

 

What if the economy does begin to slow? In an election year, any guess on what the Biden Administration might do? In an extremely tight race where the economy is a central issue, a healthy dose of increased fiscal spending would be no surprise. That has happened many times in the past.

 

 In case you don't know, most of the growth in the economy over the last few months has been the result of government spending and not the private sector. There are still billions of dollars that are part of the Inflation Reduction Act that have yet to be spent. Believe me, that is no accident. It is one of the main reasons why the Republican House, in my opinion, has been so adamant about cutting fiscal spending now.

 

So where does all of this leave the stock markets? In the short-term, as I predicted we are in bounce mode until the end of the year. That would require both yields and the dollar to behave. If I were a short-term trader I would sell into that bounce. Profit-taking after the gains of the last three months would be a no-brainer.

 

I maintain my belief that sometime in the weeks ahead, probably February at this point, stocks will face a stiff pullback of 6-7 percent, possibly more. This consolidation period will linger through April and into May.  At that point, I could see a spring-into-summer rally that would recoup those losses if the Fed does cut interest rates, the election draws closer, and we have a better understanding of where the economy and employment are going.  

 

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