July 1-5, 2024

Tactical Signal 9

As the stock market’s momentum propels to new highs, investors scanning for signals of a potential Fed rate cut may find themselves in murky waters. The path forward remains elusive, but the confidence in market resilience is undeniable. Our technical indicators stay in support of a fully invested position (100%).

June clocked in another solid month of gains, with the S&P 500 index returning +3.59%, yielding a 6-month YTD gain of +15.29% during a month of stable economic environment, strong labor market, moderating inflation, and the Fed keeping rates unchanged.  All “Magnificent 7” stocks, led again by NVIDIA, posted positive gains during June, outperforming the S&P 500 index as a whole.

Mag 7

Taking aim at the market gains continues to show a disparity in the market’s momentum, predominantly dominated by Technology & Communication Services (TCS) stocks. TCS stocks in June outperformed all market segments, including the remaining nine sectors, value stocks, small-mid stocks, developed markets, and emerging markets. Equity markets continue to lack breadth, evidenced by the S&P 500 Equal-Weighted, which declined in June by -0.45%. On the brighter side, this concentration and disparity gives rise to prospects for the S&P 500 to extend its gains should other market segments begin to be recognized.

In the final week of June, bond yields modestly widened in reaction to the Fed leaving rates unchanged.  However, bond yields narrowed for the month on moderating Core CPI and Core PCE rates, resulting in the Bloomberg US Aggregate Bond index gaining +0.95%.

As investors await companies to prepare for Q2 earnings reports and the highly anticipated FOMC meeting on July 31, the outlook for the short week in observance of Independence Day will emphasize manufacturing.  Key releases for the week include ISM Mfg PMI, Construction Spending, Factory Orders, and the important Unemployment Rate. Company earnings will kick off on July 11.

Wishing everyone a Happy July 4!

Society pours hundreds of thousands of dollars into elite students, gives them the most prestigious launching pads fathomable, and they are often the ones talking most loudly about burning the system down.”

New York Times Columnist David Brooks, The Sins of the Educated Class, June 6, 2024.

Car Sales Moving to the Slow Lane…

A couple of weeks ago, we wrote about the undue influence that auto insurance has had on current inflation, but maybe that was the “cart before the horse.”  The more frustrating new paradigm coming out of the pandemic was the huge increase in car prices and the multitude of factors that still factor into the soaring prices. A recent CNBC piece highlighted some insiders who believe that we’re “never going back to the old normal” regarding car prices.  As noted in our auto-insurance piece, just the cost of car parts and the labor alone used to build those cars. We can see that car prices are at a new secular high.  The chart below shows the dramatic increase in the average transaction price of a new car, even with the recent modest pullback.

Even so, car supplies are up as the most recent Cars Commerce May Industry Insights Report affirms about 2.32MM new vehicles in May on the Cars.com marketplace.  The report highlighted that new car inventory rose 4% month over month and year over year, as did used car inventories.  This is leading to 67 days’ supply versus a low of 49 days’ supply a year ago. Unfortunately, despite this growth in new car inventory, there does not appear to be any price relief on the road ahead.  Pent-up demand for new cars remains high.  If you are like me, then we ask ourselves, how about a used car?  Much like new cars, there has been some easing in used car prices, but inventory is still low, keeping prices high.

If supply wasn’t enough of a problem, financing is another factor that has created friction in the auto-upgrade cycle.  Worse, when it comes to used cars, the interest rates are double that of a new car purchase.  This often leads to a used car being the same price after financing a new car.  And lastly, that evil auto insurance expense skyrocketed, up over 20% in May.  Trade-ins are no help like during the pandemic's tail end as trade-in values are coming back down.

Interestingly, the data involved EVs, most notably Tesla, versus all others. Given Tesla’s stock price collapse, a Cars Commerce study found that Tesla wasn’t among the fastest-selling models. Audi and Toyota took the top spots in the new car space, and Rivian and Chevy Bold took the top three spots for fastest-selling used car, despite Tesla being the most searched used EV.

2024 may still not be the best time to buy a car, but the trends are looking better for buyers.  That said, I’ll still be taking Uber and waiting for the right time to buy a used Porsche, “There is No Substitute.”

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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