Sipping the Market Soup
It's a 'Goldilocks' market – for now... The latest inflation data... No cuts, no problem... More concerns at Boeing... Of course, there's no guidance... Prepare for a Super Tuesday 'surprise'... Don't miss Marc Chaikin's free election briefing tonight...
The 'Goldilocks' market is here – again...
Not too hot, not too cold. The temperature of the economic soup is just right – at least when it comes to the Federal Reserve's interest-rate policy status quo...
Back in September, I (Corey McLaughlin) wrote that investors were increasingly believing that "the pace of inflation is continuing to come down and will continue to do so... while the labor market remains strong."
Thus, the Fed "pause" in interest rates, which began last summer, would continue. That's a bullish macroeconomic signal for the markets. It means the economy isn't cratering, nor is 40-year-high inflation the problem it was.
All of this has proved true...
Did we know it would mean Nvidia (NVDA) shares would be up another 75% in the past four months? No, but we knew it meant a potential bullish backdrop for stocks.
Just right, even if it feels like everything is wrong...
As True Wealth editor Brett Eversole shared last year, if history was any guide, we could expect U.S. stock gains of around 20% during the year after a Fed "pause" began.
This time, the market has been almost exactly on pace... The benchmark S&P 500 Index is up 11% in the seven months since the Fed's last rate hike on July 27 and today traded less than half a percent from an all-time high set on Friday.
In September, we warned that a recent rise in energy prices could upset the "Goldilocks story" – and it did briefly, along with tensions and disruptions in the Red Sea...
But, in general, as we'll show in a moment, the longer-term trend of the pace of inflation continues to come down from its peak in 2022... even with an uptick the last few months.
Now, that's not to say that everything we buy today doesn't cost 20% more than it did a few years ago. It's just that prices aren't rising as fast today as they were previously. But they're still expensive, and your dollars are still being devalued.
At the same time, we haven't seen the job market fall to pieces, as many observers expected would happen when Fed-dictated interest rates rose as quickly as they did in 2022 and 2023 to "fight" said inflation created in part by in response to the pandemic.
Right now, if we believe GDP numbers – and we're skeptical, but enough investors believe them, so it matters – the U.S. economy is humming along just fine, with a (recently revised) 3.2% annualized growth in the fourth quarter of 2023 and projected growth for about the same in the first quarter of 2024.
That's not to say there aren't concerns – like wars in the Middle East and Ukraine, or our country and corporations staring up at a wall of debt, and... Congress – but for now, enough investors aren't afraid to sip the market soup.
Today's inflation data...
Fresh economic data released this morning all but confirms that the Fed will hold rates steady at its next meeting in March...
In January, the Fed's preferred gauge of underlying inflation rose at the fastest pace in nearly a year. Core personal consumption expenditures ("PCE"), which doesn't include volatile food and energy data, came in as expected, showing a 0.4% increase from December.
On an annual basis, core PCE rose 2.8%, in line with initial estimates and continuing its late 2023 downward trend from 3.4% in October to 2.9% in December.
The broader PCE price index rose 2.4% annually and 0.3% for the month. That's down from 3% headline growth in October and 2.6% in December, but up from the 0.1% monthly growth in December.
Services inflation (the prices of things like hotels, child care, or hiring a plumber) remains "sticky"...
This metric saw its largest increase since March 2022, rising to 0.6% month over month. And overall services spending continued to rise, highlighting higher prices for housing, utilities, and health care.
Now, the data also did show some signs of a weakening economy...
Today's PCE report also showed inflation-adjusted spending dropped for the first time in five months while real spending fell to its lowest point in more than a year.
Additional data released this morning revealed an uptick in unemployment applications and a rise in continuing unemployment claims, to its highest level since November.
The odds, the action, and what to watch next...
Overall, the highly anticipated PCE readings have further cemented Mr. Market's expectation that the Fed will hold off on rate cuts until later in the year.
The CME Group's FedWatch tool shows 97.5% odds of a continued Fed "pause" in March, up from the 93.5% we highlighted just a week ago. Fed-funds futures traders aren't betting significantly on rate cuts (with around 40% odds) until the central bank's meeting in July.
The major U.S. indexes traded slightly higher again today, continuing a week of mostly sideways action for stocks within a longer-term uptrend since the end of October.
Any change to the Fed's federal-funds rate range next month would come as a big surprise given the stickiness of recent inflation data, even as the longer-term trend of the pace of inflation is down.
However, there are a couple of dominos left to fall... and they could stoke some volatility. The February jobs report, with an updated unemployment rate, comes out next Friday. The next consumer price index report, covering February, will come out on March 12.
While we don't expect either report to change the Fed's March decision, they will likely affect the Fed's forward-looking statements at its meeting a week later. We'll keep you updated.
Switching gears, to more trouble at Boeing (BA)...
We want to follow up on a story we reported on last month, when a panel of an Alaska Airlines passenger jet blew out – leaving 177 frightened people staring at the gaping hole and night sky – shortly after takeoff from Portland, Oregon.
Luckily, no passengers were killed, nor was anyone on the ground injured when the piece of plane – a door "plug" installed in place of an emergency exit – landed in someone's backyard in Oregon.
But as we wrote in the January 8 Digest, the incident was another big stain for Boeing, one of the world's two major commercial aircraft manufacturers. Boeing built the Alaska Airlines 737 Max 9 jet in question and has had a generous share of mishaps and bad press over the past few years. As we wrote...
The jet maker also had a pair of Max crashes in 2018 and 2019 that killed nearly 350 people and grounded the jets for 20 months... and had net income losses of $2 billion in the past year. (In October, the company also reported losing more than $2 billion alone on a pair of new Air Force One planes commissioned by former president Donald Trump since construction began in 2018.)
In 2019, Airbus displaced Boeing as the largest aerospace company by revenue due to the 737 Max groundings. Now, the 171 Boeing 737 Max 9 airplanes that had been flying have been grounded by the U.S. Federal Aviation Administration's [("FAA")] pending investigation.
In the ensuing days, United Airlines found loose bolts around the same sections of the door plug on at least five Boeing-manufactured planes. It wasn't a reassuring sign that the Alaska Airlines flight "blowout" was simply a one-off incident.
Then earlier this month, a preliminary National Transportation Safety Board investigative report found that four bolts used to prevent upward movement of the door plug were missing on the Alaska Airlines jet.
This week, U.S. regulators piled on with more concerning reports...
A panel appointed by the FAA recently conducted a review of thousands of documents and interviewed more than 250 employees to complete a scathing report on Boeing's safety protocols... and issue a looming ultimatum aimed at improving quality control.
The report released on Monday found that not all Boeing employees understood the company's safety-management systems and were confused by the complex and ever-changing procedures.
Even more damning, investigators found that the company lacked a consistent and clear method of reporting safety concerns. The panel went as far as to suggest the systems in place may discourage employees from reporting safety concerns. It also suggested what happened in the air above Oregon has to do with the culture of the company.
In total, the report identified 27 findings and provided 53 recommendations for review. The FAA has set a 90-day timeline for Boeing to provide a plan to improve its quality control. Production increases for the company's 737 Max will be halted until regulators are satisfied with the quality-control improvements.
So what does this mean for BA's bottom line?
The company isn't saying...
Right now, FAA inspectors are still in the middle of a six-week audit of Boeing's manufacturing facilities in Washington and Kansas. Earlier this month, Boeing Chief Financial Officer Brian West said the audit is focused on Max jets and has slowed the production line.
Boeing's leadership has publicly reassured investors that its 2025 and 2026 financial targets for $10 billion of free cash flow remain unchanged, though West acknowledged that the "timing is further to the right."
However, Boeing has shied away from 2024 guidance with CEO Dave Calhoun stating on the company's fourth-quarter earnings call in January that this is "not the time" for financial targets. (Oh, really?) Calhoun said the company will instead focus on "every next airplane while doing everything possible to support our customers."
Boeing's next earnings report is scheduled to be released before the market opens on April 24. We expect to see a much clearer picture of how this slew of issues has impacted the U.S.'s top airplane manufacturer then.
In the meantime, there are better buying opportunities elsewhere.
Boeing shares have plunged nearly 20% in the wake of the Alaska Airlines incident and were down 1.5% today. The stock's Stansberry Score rating is 56 with a "D" in capital efficiency. Not good.
Finally, don't miss this election-year briefing...
In less than two hours, our friend Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, is going live with a brand-new free presentation you don't want to miss.
In short, Marc says we're about to see a critical election-year event.
Few have studied how political events can influence the stock market like Marc has over his career, which dates to the 1960s... when Marc came up with the early forms of technical indicators many on Wall Street still use today.
Even fewer market veterans have the ability and willingness to share the important details with everyday investors. But Marc has made a habit of it since he founded Chaikin Analytics more than a decade ago, after seeing so many folks burned by the great financial crisis.
Over the last few years alone, Marc warned about the broad market sell-off in 2022... then encouraged folks to get more bullish later that year, another prescient call... and he predicted a "run on the banks" in 2023. We didn't see anyone else do that.
Prepare for a Super Tuesday 'surprise'...
Tonight, Marc is going to share details about an election-night "surprise" that he has tracked with 90% accuracy using his powerful Power Gauge tool. This doesn't have to do with the results in November. Instead, it's about the unique nature of election years...
Without giving too much away, Marc says he expects an event to blindside unsuspecting investors in the days surrounding Super Tuesday, which is coming up next week on March 5, when primary voters in 15 states and one territory head to the ballot boxes.
So, check out what Marc has to say...
His free presentation kicks off at 8 p.m. Eastern time tonight. Here's a sneak peek of some more details you can expect, as our Dr. David "Doc" Eifrig shared with subscribers in a note yesterday...
We're facing yet another tumultuous presidential election year...
The S&P 500 is hitting new all-time highs...
Thousands of workers are continuing to get laid off...
And meanwhile, AI stocks are giving the market dot-com bubble déjà vu.
Now, I understand it may be tempting to want to sell all your stocks and move to the sidelines today...
But as Marc will show you tomorrow, that may be the biggest mistake you could make with your money in 2024.
Marc says that acting on the information he'll be sharing [tonight] could mean the difference between seeing multiple 100%-plus gains in 2024... OR devastating 30-50% losses (which he predicts most folks will experience).
Especially if election-year volatility continues to spike.
In addition to sharing his exclusive outlook and how to prepare for election-year volatility, Marc is also going to share his top buy and sell recommendations for 2024 during the event – 100% free of charge.
Those might be worth tuning in for alone. Last year, he issued similar free recommendations when he shared his 2023 market forecast... Anyone who followed his advice could have seen a 52% gain in Netflix (NFLX) and avoided a nearly 60% loss in Tesla (TSLA).
Now, Marc is about to do it all over again... You can get those company names and tickers free if you tune in tonight... along with a whole lot more. But time is running out to register. To make sure you don't miss a minute, click here to sign up for free right now.
New 52-week highs (as of 2/28/24): Abbott Laboratories (ABT), A.O. Smith (AOS), Atkore (ATKR), American Express (AXP), AutoZone (AZO), Brown & Brown (BRO), CME Group (CME), Costco Wholesale (COST), Pacer U.S. Cash Cows 100 Fund (COWZ), Copart (CPRT), Dell Technologies (DELL), Enstar (ESGR), Diamondback Energy (FANG), Comfort Systems USA (FIX), Fortive (FTV), W.W. Grainger (GWW), Home Depot (HD), ICON (ICLR), IQVIA (IQV), iShares U.S. Aerospace & Defense Fund (ITA), JPMorgan Chase (JPM), Linde (LIN), VanEck Morningstar Wide Moat Fund (MOAT), Motorola Solutions (MSI), O'Reilly Automotive (ORLY), Ferrari (RACE), Sprouts Farmers Market (SFM), Sherwin-Williams (SHW), ProShares Ultra Financials (UYG), Visa (V), Veeva Systems (VEEV), Advanced Drainage Systems (WMS), and Walmart (WMT).
In today's mailbag, another insurance-business success story... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"So, in 1999 I married into a family who started the first insurance company in their state... A great, great grandpa literally was THE pick and shovel guy. He opened an emporium in [a mining town] when it first started and built his first fortune which he used to buy many well-known businesses [in the area] which the family eventually pared down. Their 'little' family insurance company recently merged with an international giant. The 'little' company sold insurance to the wealthy elite for many decades. Those people are always good on their payment to make sure their jets and yachts can get replaced if damaged or stolen, and they hardly ever file any claims..." – Anonymous subscriber
All the best,
Corey McLaughlin with Tyler Jarman
Baltimore, Maryland
February 29, 2024