Welcome to The Predictive Investor Market Brief for April 21st, 2024!
The VIX hit a 6-month high on geopolitical tension in the Middle East. The market is also pricing in fewer rate cuts, which is why interest rate sensitive sectors like tech and small caps faced the heaviest selling.
With the situation in the Middle East seeming to calm down for now, next week’s focus will be on earnings, with Microsoft, Google and Meta all reporting.
Of the S&P 500 companies that have reported so far, 72% have beat expectations. And while we’ve been warning about a correction for a few weeks, we think this pullback is a buying opportunity. Here’s why:
Consumers are still consuming
Jobless claims came in at 212k, below the 215k that was expected and essentially flat for the last two months. (Read)
It’s no surprise then that March retail sales came in much higher than expected: +0.7% vs. 0.3% expected. February retail sales were revised higher to +0.9% from +0.6% that was reported previously. Excluding auto sales, March retail sales increased by 1.1%.
We’ve long maintained that the job market is the key to growth in this economy, and is one of the reasons we turned bullish early last year. Based on the above we continue to believe the current turbulence in the market is nothing more than short-term noise.
The economy is doing fine without rate cuts
Fed Chair Powell indicated rate cuts would likely come later than expected, confirming the higher for longer scenario we warned about last fall. The market is now expecting just one rate cut this year down from the three that were previously expected. This triggered a rise in yields, which put pressure on equities.
With solid earnings and a strong labor market, there really is no reason for the Fed to cut rates now. The economy is doing just fine as it is. Some analysts even believe the Fed might have to raise rates to get inflation closer to its 2% target.
Either way, we still think investors should avoid long term bonds, in favor of TIPS and Treasury bills.
Investors are still betting on growth
There was a story circulating that corporate insider net purchases are at a 10-year low. No surprise there. The SPX is up 20% over the last year, and insiders tend to buy when the market sells off. But don’t let that fool you. Investors are still betting big on a bright future.
VC firm Andreessen Horowitz announced a new $7.2 billion fund focused on gaming, AI, and other growth areas in tech. (Read)
What caught our eye is that some of this money is going toward companies aligned with the American national interest.
The government incentives to reshore supply lines and boost domestic manufacturing are working. It’s more important than ever to have a system that allows you to see through the noise to make profitable investments. If you’re not on board with a paid subscription, you know where to find us.
Risk remains in real estate
A high interest rate environment still brings some challenges, especially with real estate.
We first talked about the risks in commercial real estate last summer. Business Insider is now reporting that commercial real estate foreclosures have jumped 117% over the last year. (Read)
Many investors have taken large write-downs on office buildings and REITs remain well below their 2021 highs. But we’re not convinced all the coming fallout has been priced in.
If you own REITs, now would be a good time to review their office building exposure. We are still very bullish on industrial, manufacturing and health care properties.
Market Technical Analysis
S&P 500 (SPX)
The SPX closed the week about 6% below its all-time high set in March. The 3/28 AVWAP remains as near-term resistance. RSI is near oversold territory, so we may get a brief bounce, but the question now becomes what is a potential downside target. We think 4,800 is a key level for the index. This aligns with the AVWAP from the October 2023 low, and the market top in 2022, which is now a critical support level.
