October 2nd, 2023
All Atlas Clients –
Last quarter was a 2nd half Market Outlook for 2023 and so far things have been progressing as expected. September is historically the worst month of the year and October is the 2nd worst month. A Government shutdown was averted (at least for 45 days and without funding for Ukraine). There are many headwinds for the markets immediately and for the next 3-6 months we will address later in this newsletter. Right now, each of you has your own portfolio allocation and duration (timeline for retirement and/or to live off income). So, let’s get into it and figure this out together.
The top 7 stocks in the S&P 500 Index are responsible for 80% of the returns this year. The “equal weighted” S&P 500 is now negative for the year. Most people, including myself see the headlines which are controlled by editors to get you to read their articles (and view their Ads). Focus on the specific content and more importantly the “facts”! There are many opportunities to take advantage of the market in the next 3 – 6 months and truly grow your portfolio. We will be discussing that with you on a one-on-one basis. This newsletter will go over some things that you may have not heard too much about and how it is impacting our economy.
Credit Card Balances (monthly carry over) breached $1T recently. When we published our 2023 Market Report in December and reviewed Credit Card Balances, it was around $925B. Also, Credit Card Interest Rates that averaged between 16% – 18% APR spiked last month to 21%. That is A LOT of just either minimum payments and fees that the Credit Card companies (i.e. banks) are collecting from consumers. What about “Consumer Advocacy”? Why are the politicians not getting involved to control this as this is probably the one factor in our opinion that is underreported and should be getting a lot more attention. If people are worried about paying their credit card payments (even the minimum) how can they support their families and continue to live in the matter they want that ultimately fuels our economy.
Student Loan Payments (begin again October 1st). We have been mentioning the 3-year moratorium on Student Loan Payments for almost a year now. It has been estimated the average payment is $400-$500 per month. A question that I have not been able to get answered is , “What percentage of that group also has Credit Card debt”? We aren’t sure either, but we can agree there is some significant overlap. The current administration has been working on a “full court press” to get some of this debt eliminated as they know the affect these Student Loan Payments will have as far as possible defaults.
The Rest of the World is struggling too. Many European countries are and/or have been in a recession for several months. The old saying is, “When the United States sneezes, the rest of the world gets a cold”. Perhaps everyone around has the sniffles and we are just consuming a lot of zinc (that is a pun, but you understand). At some point we will feel those effects.
Un/Employment has been truly the strength and resilience of our economy. Hovering around 3.8% (the September number will be released on Friday, October 6th), this has kept millions of people employed and of course, spending their earnings to prop our economy up. All the easy money printed in the last 3 ½ years has injected Trillions into our economy. The issue is the following;
1 – Consumers are spending, not saving. The “Savings Rate” is near an all-time low.
2 – The U.S. Dollar value has been sinking due to the dilution of printing so much money.
3 – Our Debt is at an unconscionable level. The interest alone is one of the top 3 biggest checks the government writes annually outside of Entitlements (i.e. Social Security, etc.), Military and Healthcare (Medicare and Medicaid).
Bond Market Volatility has been rampant over the last 1-2+ months. The 10-year Treasury has been identified over the decades as the “North Star” of the market and will show the way of the economy. The 10-year Treasury is at a 16 year high around 4.5% and will probably get to and above 5%. If the Fed does raise rates in November, which we expect they may at .25bps, this could be the final catalyst to another leg lower in the markets and a retrenchment in employment. They won’t say it, but the Fed essentially wants to slow down the money flowing to the consumer so they can bring down Inflation. Watch the Unemployment Rate. If it ticks up above 4%, towards the 4.5% – 5% level, that means the economy is probably troughing and economic growth is right around the corner.
The LEI (Leading Economic Indicator is reported from The Conference Board at the end of each month for the prior month)
CLICK TO ENLARGE
The LEI is one of the best indicators of economic health, trending major economic factors, business sector strength and predictor of recessions. Essentially the LEI has been in a steep downward trend for the better part of the last 18 months. Depending on where you are in your retirement cycle or if you are retirement, you should better understand how this impacts (if at all) and how to work through it. Meaning, are you emotional about money and are you losing sleep thinking about it. If you are, then you need more than just discussing it. Or, do you just focus on the long-term and just let things progress without worry. I’ve done a lot more in-depth analysis on the LEI, but will spare you the details. Right now, only Energy sector has been trending upward as you probably knew that already by what you are paying for gas. The experts that we follow are looking at $100+ oil with a possible top end of $115 – $125 per barrel. If that is the case, look for more pain at the pump and even more of a retraction of consumer spending, which is 70%+ of our economy.
We know that this newsletter has some ominous overtones, but we are bullish on the future and the 2nd half of 2024 and into 2025. We just want to be honest and forthright to give you the facts and our honest (and unvarnished) opinion and analysis. With the Student Loan Payments starting up again, gas prices soaring (and will continue to soar) and Credit Card Balances at a stratospheric level, this will have a significant impact on the economy and will begin to widen the cracks in the economy and should see it in the unemployment rate end of Q4 2023 through beginning of Q2 2024.
The bond market will continue with volatility, but if you have a long-term view, it won’t matter on the “asset price” of the Bonds or Preferred Stocks as the yield return increases in your favor. You will let the Bonds mature and receive full asset price and the Preferred Stocks will get bought back by the backs at some point at par (most of you have the retail shares which Par is $25). Until then, enjoy the yield and income!
As we mentioned above, if you see the Unemployment Rate go above 4% and closer to the 4.5%-5% level, that’s when you “leg out of the conservative and some fixed-income positions” and move to more of the growth-oriented positions if you are still looking to grow your portfolio. This scenario may happen by Q2 or Q3 2024 the latest. Until then, stay the course as we are following this closely.
As always, please reach out to share your thoughts. Be safe and healthy!
With Best Wishes,
Ronald E. Lang, Principal and Chief Investment Officer
Atlas Wealth Management, LLC
PS> Check out our Podcast. Go to YouTube.com and search for “Cents of Things”.