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WEEK AHEAD
December 4-8, 2023
Sowell’s technical indicators have remained constructive, albeit divergent at times, enduring the volatility of the previous three months. The signals of confidence have consolidated, witnessed by November’s solid gains. As such, the TAP models remain grounded in full position (100%).
Last week, equity markets extended the November rally to close the month on a solid footing. More importantly, it sent a compelling message to the recession pundits: actions are louder than words, with the S&P 500 gaining 9.13% during November, wiping out the previous three months of cumulative losses. A departure from earlier gains that Technology and the Magnificent Seven led, this recent bullish rally was broader and deeper, as showcased by the S&P 500 Equal Weighted Index, which also gained 9.14%.
The breadth of the gains was assisted by Consumer Discretionary (+11.4%), Financials (+11.0%), Industrials (+9.2%), Real Estate (+12.2%), and Materials (8.7%).
There are clear signs that interest rate-sensitive sectors are softening due to the Fed's restrictive policy. Still, there are also clear signs emerging of consolidating the strength of the U.S. economy. Bullish reports on better-than-expected Consumer Confidence (+102), GDP (+5.2%), Personal Spending (0.2%), and Construction Spending (+0.6%) gave investor confidence as reflected by the breadth of the equity gains.
In the fixed-income space, November marked the most significant monthly gain Year-To-Date for bonds, returning +4.53%. This gain was partly attributed to narrowing long-term yields by approximately 50 basis points, driven by expectations that the Federal Reserve will initiate rate easing early next year. However, in a recent communication, Federal Reserve Chair Powell cautioned against premature expectations, suggesting a potential source of increased volatility in the near future.
The outlook for the week and month ahead remains constructive, building on November's bullishness. The weeks leading up to the last FOMC meeting on Dec. 13 will continue to gain validation in the upcoming jobs reports; the economy is softening but resilient.
Aside from the various jobs reports, other key economic measures this week include Factory Orders, Wholesale Inventories, and Consumer Credit.
"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so."
— Chair Jerome H. Powell, At a Fireside Chat at Spelman College, Dec. 1, 2023.
Bi-directional Charging Will Energize Your Future
Tesla has undeniably proven that electric vehicles (EVs) are not just a fleeting trend, but they are reinventing the auto industry model that dominated the 20th century. In fact, if it weren't for "range anxiety" — the fear of an EV running out of battery power or recharging time, EV sales would undoubtedly be double if not triple the sales to date.
At the other end, given the success of Uber, advancements in autonomous driving and battery technology, and now bi-directional charging, "transportation" could be subsidized if not a by-product of energy management and storage. Particularly when we handle energy produced from PV or photovoltaic, commonly known as solar.
At this point, you might be questioning the direction of this narrative. Before we lose you, picture an electric car as a massive battery on wheels and that this ample energy storage is now mobile. The advent of bi-directional charging is the first step in the democratization of the production and use of energy.
Soon enough, if you own a Ford F-150, your mobile battery could be a dynamic force, impacting both your home and work environments, including remote work setups. With bi-directional technology, individual cars or entire fleets (think buses, planes, etc.) could store solar energy from personal panels or shared sources, utilizing it for personal use or feeding it back into the grid.
Why would anyone need bi-directional charging? The advantages span from providing backup power during unforeseen power crises, lowering energy bills using stored electricity during off-peak hours, and redefining the art of tailgating or food trucking. More importantly, this V2G technology allows the thousands, if not millions, of "commuters" to work in concert to create a real and expansive distributed energy system that supports the world's power grid—potentially using all modes of transportation to democratize power usage by developing a method of "mobile" energy storage. For those concerned about reducing fossil fuel usage, this technology can completely integrate renewable energy sources and take a big bite out of our dependence on fossil fuels to power our world.
Lastly, consider the complexities of solar generation and its effect on power generation and the revenues that drive power generation. For those who want to understand the conundrum of overgeneration from solar power, California's "duck" curve highlights the extreme swings in demand on conventional power plants due to solar energy's unique production profile.
Ironically, without the prospect of bi-directional charging, a real threat to solar penetration is the threat of overgeneration.
Yup, you heard it correctly: solar production can be, and is, too good. So, the next time you gaze at your Tesla, know it is a battery on wheels rather than a car.
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.