Is There a Cure for the Summertime Blues?
Sometimes I wonder what I’m gonna do
Cause there ain’t no cure for the summertime blues…
–Eddie Cochran, “Summertime Blues”
I know what you’re thinking. The first day of spring was only about three weeks ago, so why I am leading off today with the notion of “Summertime Blues”?
Well, in addition to being one of the great songs in rock history, and one whose popularity was taken to the next level by the likes of The Who, RUSH and Alan Jackson, the notion of upcoming summertime blues is what we could be looking at in financial markets this year.
Indeed, we’ve already seen the chatter go from “sell in May and go away,” to “sell now and go away.” And while selling now might be a strategy that serves some well, particularly if you’ve been in tech stocks in 2023, the better approach in my view is to let the data decide.
In today’s issue of my morning briefing, Eagle Eye Opener, we took a look at what conditions/market events would be required to keep markets from suffering the summertime blues, and what conditions/market events would need to take place that would usher in a big bullish summer party bash.
Let’s take a look at these right now, starting with the current macro drivers.
The current situation for markets is that regional banks have stabilized, there continues to be “dovish” Fed policy expectations, still-elevated inflation, mild deterioration in the labor market and slowing growth. The current market environment largely reflects the divide between what the market thinks/wants to happen (stable banks and less-hawkish Fed) and what is actually happening (inflation sticky, growth slowing).
As long as the market sees its “wish list” come true (a big ask), then current levels on the S&P 500 are justified. However, if those wishes aren’t granted, markets are over their skis by at least 5%.
For things to improve from the current situation, i.e., the so-called “better-if” scenario, we would need to see regional bank stress continue to subside and/or disappear. We also need the Fed to confirm dovish expectations, core CPI needs to drop towards 5.0% (it came in at 5.6% today), the labor market must deteriorate and economic growth needs to gradually moderate.
This situation would confirm the market’s positive hopes about the banks and the Fed and add to it disinflation and a normalizing economy and labor market — and in effect deliver the “soft landing” just about everyone wants. In this environment, stocks should rally hard, and rightly so as multiples and earnings should rise. If this environment were confirmed it would signal the end of this bear market, as this environment would be “Goldilocks” for stocks and bonds.
Now, for things to descend into the summertime blues, i.e. the “worse-if” scenario, regional bank risks need to re-emerge, the Fed hikes rates by 25 basis points in May and signals more hikes are coming, Core CPI stays sticky, or worse, disinflation reverses and the labor market and economic growth remain resilient.
This would truly be a worst-case, summertime-blues scenario for stocks, and it’d dash the hopes of investors that have underpinned the recent rally and open up the possibility of a substantial decline in stocks. This environment would be “stagflation” with the added stress of regional bank failures and a Fed powerless to help. The S&P 500 at 3,300 (about 19% lower from here) should be thought of as a “worst case.” But given market momentum, a technical-driven violation of that level can’t be ruled out if contagion gets a lot worse. This is pretty much a nightmare scenario for stocks.
So, by this summer, we should have all the data necessary to give us a read on whether the better-if scenario is upon us, or if that aforementioned nightmare scenario is the order of the day. If it is the latter, then we’ll all be lamenting that there ain’t no cure for the summertime blues.
If you want to get market insight like this on a daily basis, then I invite you to subscribe to my Eagle Eye Opener today. For the price of a daily cup of coffee, you’ll be armed with the intelligence to help you avoid any summertime blues.
ETF Talk: Pursuing Personal Gains in Personal Finance
With the current banking crisis still ongoing, the finance industry has been rough sailing as of late.
But like any storm, this one will assuredly not last forever. And when it comes to investing, a short-lived storm might be the perfect time to invest, especially when a market sector is expected to rebound.
Such is the case with the iShares U.S. Financial Services ETF (IYG). Established in 2000 by Blackrock, IYG invests in a market-cap-weighted subset of U.S. stocks that consists entirely of financial service firms.
All of the stocks IYG is composed of come from the Dow Jones U.S. Financial Services Index, featuring a broad spectrum of financial services, including the bank, asset management, consumer finance, specialty finance, investments service and mortgage finance industries. IYG’s index is reconstituted annually and is subject to quarterly reviews.
IYG only contains U.S. stocks, with more than 72% percent of its assets in finance, and around 26% percent in the commercial sector, offering pure exposure to the financial services segment of the market. Top holdings include JPMorgan Chase & Co. (JPM), Visa Inc. Class A (V), Mastercard Incorporated Class A (MA), S&P Global, Inc. (SPGI), Wells Fargo & Company (WFC), Bank of America Corp (BAC) and American Express Company (AXP).
Chart courtesy of StockCharts.com.
Like many assets in the financial sector, IYG has had lackluster performance of late, with minimal returns. As of April 12, IYG is down 2.32% in the last month, 9.22% in the past three months and 4.80% for the year to date (YTD). However, the fund has a relatively inexpensive expense ratio of only 0.39%. With the finance sector likely to rebound when the banking crisis finally recedes, getting in while the prices are low might prove to be a fruitful investment.
Even then, it’s important to consider your individual financial situation and goals carefully before making any investment. Investors are always encouraged to do their due diligence before adding any stock or ETF to their portfolios.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.
In case you missed it…
As the Legal ‘Storm’ Ravages On
Watching the historical indictment and subsequent arraignment of a former president of the United States was indeed shocking. Yet, given the goings-on in Washington over the past eight years or so, and the hyper-destruction of norms we had hitherto taken for granted, I guess it shouldn’t be all that surprising.
For the past few weeks, the Donald Trump-Stormy Daniels hush-money payment has been front and center in the minds of even the most casual news observers. And while I would love to have never heard about this sordid issue again, reality dictates differently.
Interestingly, this morning, I heard from one reader (Sam S.) who reminded me that he liked my take some years ago on the deeper issue involved when someone doesn’t keep their word, whether it’s a former adult film actress or a group of people who want to breach the agreements made by the Constitution and its citizens.
Frankly, I hadn’t even thought of what I had written nearly four years ago to the week. But as a refresher, I reread The Deep Woods issue that Sam reminded me of. Today, I want to republish that piece for you, as what it said about the sacrosanct concept of “word is bond,” and the failure of so many to live that principle in earnest, is one of the deepest wounds afflicting society. And those thoughts still very much apply to current events of the day.
So, the following is my article, “The Recent Storm of Contract Dysfunction,” which was originally published March 28, 2018, (all references therein apply to that time period)…
Word is bond.
That’s the phrase that keeps coming to mind for me amidst the two most prominent political stories of the day — the Stormy Daniels affair and the latest push to restrict gun rights.
Now, “word is bond” is urban slang shorthand for the longer phrase “your word is your bond,” meaning that if you give someone your word, then you also are giving them your solemn promise.
In the case of Stormy Daniels, the former adult film actress gave her legal promise (which included the signing of a non-disclosure agreement, or NDA) that she would not reveal the details of her alleged affair with Donald Trump. In exchange for that promise, Daniels would receive the sum of $130,000.
That payment was made, yet Daniels still talked.
Her recent appearance on “60 Minutes” was just the latest violation of the word-is-bond ethic.
Now, I want to go on record here as saying that I think the whole Stormy Daniels/Donald Trump incident is repugnant on many fronts. And I am most definitely not arguing for the propriety of Mr. Trump and his associates in this matter.
I also am not an attorney, so I can’t attest to the relevance of any lack of signature on the agreement by Donald Trump via an alias, or to whether that legally invalidates the contract. These legal intricacies are all extraneous to my ethic.
What I am saying is that when you make an agreement with another party, and then you violate your part of the agreement, you are guilty of what I consider the most serious ethical breach… i.e., the breach of “word is bond.”
In my own business career, I have signed many NDAs having to do with the trade secrets, methods and practices of my employers. And if I were to violate those agreements, I would rightly deserve the social and legal scorn coming to me.
Call me old fashioned, but I believe the principle that “word is bond” is sacrosanct.
I also believe that when it comes to our rights as Americans, the word-is-bond ethic also applies.
That’s why it’s been disturbing to me to see the latest push for a restriction of our Second Amendment rights.
The March for Our Lives protest last weekend in Washington, D.C., and in dozens of cities around the world, has focused attention on ending the horrific gun violence and mass shooting incidents that afflict our society.
And while I sympathize and agree with the need to make our society safer for all Americans, I also can’t help but think that the focus on restricting gun rights is a violation of the word-is-bond ethic in the United States Constitution.
You see, the Founding Fathers were intent on creating a nation free from government tyranny.
That’s why it is no accident that the ability to speak freely (the First Amendment) as well as the means by which to protect oneself from government-initiated physical force (the Second Amendment) are bedrock foundations of a tyranny-free state.
I see the Constitution as a kind of word-is-bond agreement between the Founders and future generations of Americans. A word-is-bond agreement that ensures and safeguards our liberties better than any other document in world history.
Now, however, there are those who wish to essentially default on that agreement because they think it will make society safer.
Indeed, even a former Supreme Court justice thinks we should alter our Constitutional bond, arguing that the Second Amendment is a “relic of the 18th century.”
Of course, part of the brilliance of the Constitution is the provisions in it that allows Americans to alter that agreement provided there is enough consensus.
So, if we want to have that debate, then we should have it.
If we do, I suspect we’ll discover the true wisdom in the concluding text of our Founders’ promise, “…the right of the people to keep and bear Arms, shall not be infringed.”
Word is bond.
Ben’s Got Wisdom
“If you want to bring the cynics out of the woodwork, just succeed.”
Singer/songwriter/multi-instrumentalist Ben Harper is, in my opinion, one of the best musicians out there today. He has been making great songs for more than two decades, and if you don’t know his work, I recommend you check it out.
In this quote, Ben shows he’s got wisdom along with his musical prowess, as he reminds us that success and achievement will always be criticized by those who lack it. Hey, let’s face it, it’s easier to sling an arrow at someone than it is to build a fortress. So, don’t sling arrows. Rather, put your efforts into building your own successful fortress. Much more satisfaction, pride and happiness will come to you that way.
The Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,