January 8-12, 2024

Tactical Signal 9

The S&P 500 took a 4-day hiatus in momentum from recording consecutive weeks of gains to start the new year. This is before last Friday’s steady job growth in December and ahead of this Friday’s anticipated cooling inflation report. Our technical indicators currently remain in full position (100%).

After a good and memorable year in 2023, market gains were brief as the start of 2024, 4-days in sputtered, with the S&P 500 losing -1.5% on the heels of Technology and Consumer Discretionary stocks declining by -4.18% and -3.29%, respectively. With the state of strong U.S. employment – Unemployment rate of 3.7%, Nonfarm payrolls exceeding consensus of 216K, and above consensus hourly earnings of 4.1% yoy, bond yields widened as the 20-yr and 30-yr yields gapped up to 4.37% and 4.21% respectively resulting in the Bloomberg US Aggregate and Long-Term Treasuries also declining by -1.20% and -2.73% YTD.

Amidst the Magnificent-7 stocks retreating last week, healthcare stocks took center stage, rising by +1.76%, led by Eli Lilly (+6.1%) and Moderna (+11.7%) on Lilly’s anti-obesity narrative and Moderna’s possible cancer vaccine.

As we step into 2024, the 4th quarter earnings season will kick off this week with Financial Services stocks as some of the largest banks release earnings: JP Morgan, Bank of America, and Wells Fargo Bank. In other important releases, attention remains on the Fed and inflation as CPI and PPI reports will be released later this week.

“There has been a lot of pessimism about the economy that is really proven unwarranted… What we are seeing now I think we can describe as a soft-landing, and my hope is that it will continue.” – U.S. Treasury Secretary Janet Yellen, CNN, Jan 5, 2024.

A Fine Time to Leave Me Lucille – Student Loan Forgiveness

Breakups and broken hearts… it just seemed like the right tagline. However, it might just be the “fine” time for student loan forgiveness despite one’s view and feelings about the concept. Last December, the Biden White House approved another $4.8 billion in student loan debt cancellation. Joseph Politano of Apricitas Economics writes that the end of student loan forbearance has affected spending from this group. Still, that effect has been quite muted due to all forms of student loan disposal, including student loan forgiveness.

Politano supports and concludes that former students are and have missed their minimum payments and, unfortunately, with the forbearance over, at a rate higher than pre-pandemic. This is the heart of the issue for that cohort and, to some extent, the growth of the economy. A pragmatist would have to agree that student debt needs to be understood and its long-term impact on what can, over time, affect a broad part of the population.

It makes us question the cost of college education, more so the colleges that cost so much that a loan is required, and then the value of that degree in its ability to repay the loan. A more nuanced view in California is the enormous success of lower-cost Community and State College systems, contrasting the higher-cost University of California system (U.C.) and its financial woes.

With nearly $2 trillion of outstanding Federal student debt, the current few years have shown a record number of loans being forgiven: $ 130 billion most recently and almost $200 billion since 2021. In fact, Joseph points out that for the “first time in decades,” growth in aggregate student loan balances is decreasing. This must be why spending for this group has not contracted as one might predict despite the renewed loan repayments.

So, it’s hard to argue that loan forgiveness hasn’t helped the economy. But it’s not all roses for Lucille as she leaves her debt behind; loan forgiveness is currently deemed taxable income by the IRS so that the government will get some of that money back.

It will be interesting to see Politano do some research on how many of those students live at home today, helping them preserve their Starbucks and Uber spending!

Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.


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