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Since bottoming at the end of October, the Standard & Poor’s 500 (SPX) rose approximately 22%, over the milestone 5,000 level at the end of last week. Now, after a fantastic run, you knew that some profit taking would take place. We are just never certain from what level a short-term top would begin. I usually like to say that we were a market looking for an excuse to pull back. We got that excuse yesterday when the Bureau of Labor Statistics (BLS) released January’s CPI report. Year-over-year CPI of 3.1% came in hotter than 2.9% than was expected from the so-called economist intelligentsia. Setting aside what I know about poor histories of economic forecasts, the markets got their excuse and wobbled. The Federal Reserve told us that rate cuts were going to be pushed out further than Wall Street hoped for. Now we know why.
What I could not stand on Tuesday from the media was: i) the crocodile tears being shed over the pullback for a market which needed a correction, and ii) the focus on the Dow Jones Industrials (INDU), a laggard amongst market indexes rather than the more important SPX.
Source: Telemet
So what are you supposed to do?
Remember that we are concerned not so much about where the market came from but where it is going. It is what I call the Wayne Gretsky school of investing. Rates will begin to move lower as the year progresses. So far, fourth quarter earnings, especially from the largest capitalization companies, have been better than expected, as was future guidance. New buybacks and dividends were announced from companies such as Meta (META). Expect Alphabet (GOOG / GOOGL) and Amazon (AMZN) to follow suit. My year-end target of 5,267 for the SPX is still a respectful 6.34% higher.
The housing market remains tight which means that prices are holding steady or moving higher. Lower mortgage rates and lack of supply are helping. Maybe, by the spring more inventories will become available as rates drop further.
I am as guilty as any other money manager, watching one or two recent purchases give up gains but that is also to be expected at near-term market tops. Of course, I bought those positions after taking some well-deserved profits from other investments. Don’t forget that discipline trumps emotion. How deep will the pullback be? Maybe another 3% or so, but not below last December’s closing level of 4,769.83.
After hours, Lyft (LYFT) shares rose nearly 16% after reporting strong earnings and an upbeat guidance. This helped to lift shares of Uber Technologies (UBER) which reported results last week.
Finally, my forecast of the Detroit Lions winning the Super Bowl was dashed on an epic collapse in the 4th quarter of the NFC Championship. Despite that I backed Patrick Mahomes and the Kansas City Chiefs in the big game. I may be talking my book, but Las Vegas was the perfect setting for Super Bowl LVIII and I expect more such spectacles will return to Sin City in the future.