November 27 - December 1, 2023

Tactical Signal 9

Sowell’s technical indicators have steadily accrued momentum and strength, helped by the gains witnessed in November. As the TAP models remain in full position, this robust foundation provides a cushion as we navigate into the expanse of December.

Last week, the markets graciously extended their November season's greetings, delivering a gift that keeps on giving, with the S&P 500 index adding 1.02% to its repertoire, propelling the year-to-date gain to an impressive 20% given all the drama. Beyond the holiday cheer, softening inflation pressures performed a tandem dance with a restrained durable goods orders report, aligning harmoniously towards the Federal Reserve's inflation objective. A symphony of economic factors unfolded as manufacturing took a breather, prompting defensive sectors to take center stage in the rally. Notable performers included Healthcare (+2.19%), Consumer Staples (+1.49%), and Communications (+1.24%), shouldering the market's momentum.

In the realm of fixed income, bond yields maintained a rare moment of tranquility, concluding the week with a modest -0.09% adjustment—a welcome respite amidst prevailing volatility. Yet, peace eludes the bond market as geopolitical imbalances persist, awaiting the last FOMC meeting on December 12th, coupled with ongoing global conflicts that cast a shadow over any hope for sustained serenity in yields.

Anticipating the week ahead, the sentiment is poised to be uneventful, with 3rd quarter earnings releases expected to yield modest results. The stage is set for major economic reports, including housing releases, GDP figures, and ISM manufacturing reports, all aligning to affirm the prevailing economic deceleration. However, a potential plot twist awaits, as personal spending may emerge as the unexpected protagonist, surprising investors with results surpassing expectations, fueled by consumer enthusiasm capitalizing on holiday deals. As November draws to a close, the markets remain a dynamic landscape, navigating through economic nuances with a blend of caution and optimism.

“I just think If you’re not having fun, what is the point, really.” - Ina Garten “Barefoot Contessa,” Dec. 22, 2022.

Consumer Spending is Here to Stay

Navigating through airports and checking into hotels these days can feel like going to a Taylor Swift concert —full flights, above-average hotels, and lines at restaurants that could rival any social media sensation. AAA projected a total of 55.4 million travelers over this Thanksgiving week with over 4.69 million traveling by air, a 6.6% increase over the last year. Before you start thinking this is just a momentary glitch in the matrix, let me break it down for you.

First, blame it on the grand opening after the pandemic. Then came the transition from fully remote to hybrid-remote work, even for the big dogs in the business world. And now, brace yourself for the return of business travelers and the unleashing of pent-up demand for conferences and trade shows. But wait, there's more to this show!

Enter the backstage stars: 1) young adults setting up camp in their parents' homes, and 2) the elusive affordable housing. According to the 2023 U.S. Census and Pew Research Center, a whopping 32.9% of young adults aged 18 to 34 are enjoying the comfort of their childhood bedrooms. Why? Well, blame it on the high cost of living, the allure of remote work, the desire to hoard money like a dragon hoards gold, and, of course, the cosmic joke that is the cost of housing, both for rent and for sale.

For a reality check, let's turn to Atlanta's Fed, the maestro conducting the national housing affordability index. Spoiler alert: the numbers are not in our favor. As of August 2023, the index is waltzing at its all-time low of 67.3. In layman's terms, it means that for many, the dream of owning a home is like trying to buy front-row seats to a sold-out concert with pocket change.

Now, here's the plot twist: with housing prices reaching for the stars and affordability crashing to the ground and high mortgage rates, guess what's left in the hands (and wallets) of consumers? Disposable income, my friend! And what do consumers do with disposable income? They spend it faster than you can say "economic boom."

Sure, rising interest rates are trying to play party pooper by putting a damper on housing demand and the mortgage market. But remember, for every action, there's an equal and opposite reaction. So, if you were crossing your fingers hoping that the post-pandemic spending spree would fizzle out, I hate to be the bearer of good news—this story may keep going and going!

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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