Market Update for the Week of November 27th, 2023
Investors have been reminded in the past couple of years that the stock market is not the economy, nor is a stock totally representative of its associated company. The two are certainly tethered, but not one and the same. As wisely said by Benjamin Graham and David Dodd in their Security Analysis book in the early 1930s, “the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion. Hence the prices of common stocks are not carefully thought-out computations, but the resultants of a welter of human reactions.” Despite being written nearly 100 years ago, the basic principles of that statement remain true and are surprisingly relevant today.
From a real estate perspective, the housing market has been in flux because of the rapid rise in interest rates. A 30-year fixed rate mortgage rate is roughly 7.5%. The higher interest rates have had the Fed’s desired effect to some degree. Existing home sales hit their lowest level since 2010 and are down 14.6% on a year-over-year basis. Traditionally, one would assume that housing prices would have substantially fallen with this data, however, the median home price is up 3.4% since last year due to the unique economic backdrop. While demand has taken a hit due to affordability, the lack of supply of existing homes has buoyed home prices. There were 1.15 million homes for sale last month whereas before 2020, there were about 2 million. For those who already own a home, the higher interest rates have acted as a deterrent to selling their house since their mortgage rates are about half of what they are today (source: Reuters). Simply said, sellers who want to sell their homes might feel like they can’t because it would require them to pay a much higher interest rate. Since the existing home market is so tight, demand for new homes is very high and we’ve seen very positive technical attributes from the homebuilders.
From a retail sales perspective, according to a recent report by Deloitte, “for the second year in a row, holiday sales growth is expected to slow, with retail sales predicted to increase between 3.5% and 4.6% this year compared to last year’s holiday season. The projections represent more moderate growth than last year when holiday sales increased 7.6% and reached $1.49 trillion. E-commerce sales are anticipated to rise between 10.3% and 12.8% year over year, which could push online holiday sales to between $278 billion and $284 billion.” As a backdrop, Deloitte expects that inflation’s impact will moderate, and shoppers will have less pandemic-era savings left in the bank (source: retaildive.com).
The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 38.73% & U.S. Equity Core = 95.77%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, Money Market must be 50% or above and U.S. Equity Core must be 40% or below.
Source: Nasdaq Dorsey Wright
Below is the most recent DALI (Dynamic Asset Level Investing) Indicator showing Commodities, International Equities, and Domestic Equities continuing to jockey for position.
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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.
Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.