Mar 6-10

Sowell’s tactical signals remain muted in neutral position (60/40) as we approach the completion of the first quarter in anticipation of market events reporting in the Spring.

Major markets for stocks and bonds tamed the negative trend by posting gains for the weeks returning 1.96% and 0.12%, respectively, on overall business activity slowing. Although retailers like Costco, Target, and Walmart released positive Q4 earnings, their forward outlook was gloomy, resulting in losses for the week. While the market continues to react favorably when bad news is good news, on top of 30 yr. mortgage rates tipping above 7% this week, the Biden Administration turned up the volume in regulating U.S. investment abroad (i.e., China), especially in advanced sectors considered national security risks.

Flying below the radar, Amazon continues to reshape the healthcare industry this week by acquiring One Medical, a chain of 150 primary care clinics nationwide, building out its telehealth platform Amazon Clinic. In 2018 Amazon also purchased the online pharmacy Pillpack giving them access to distribute prescription medication to 45 states. Amazon is on the path to becoming a major disrupter of the healthcare industry, but it remains to be seen if it can improve the cost of healthcare.

The anticipation for the week ahead rests on key economic reports related to jobs, jobs, and jobs: Unemployment, Participation Rate, and Payrolls. On the manufacturing front, Factory Orders and Wholesale Inventories will provide further guidance on the pace of the Fed’s interest rate policy. While Fed Chairman Powell testifies this week before Congress, expectations are largely priced in.

Mortgage rates peak at 7% as total U.S. home values drop.

A recent February report from Redfin confirmed that higher mortgage rates had slowed home sales growth and even started declining home prices. This result is not too unexpected, as high inflation has forced the Federal Reserve to raise interest rates dramatically. However, recently in December, the Redfin article noted that mortgage rates at 6.36% are off the peak of 7.08%.

As in the past, these housing market gyrations give color to the submarkets and cities around the nation and the relative price action in these regions. This time, the report shows that the Florida housing market has been stable for the last year, and this may be due to the continued influx of people, affordable prices, and wellknown zero state income tax.

On the other hand, the tech-heavy San Francisco Bay area has taken the biggest hit. The Redfin study found that the total value of San Francisco homes has fallen by 6.7% over the past year, leading all U.S. cities in declines. That said, it seems like a small price to pay in an environment of high inflation and what might be viewed as extreme interest rate hikes by the FED. In fact, most other declines were minimal and compared to the dramatic boom in housing during the pandemic, this seems surprising if not palatable.

Other trends highlight a reaction to the current environment, again representing the segmentation we see in housing demand. For example, suburbs did hold stronger than cities as homebuyers factored in “work from home” and continued emphasis on affordability. Lastly, and due to dramatically low mortgage rates during the pandemic, millennials have done quite well these past years.

Redfin states that the “total value of U.S. homes owned by millennials rose 26.7% year over year to $5.6 trillion in the third quarter of 2022”. Given the timing of these purchases and the low rates, not just millennials but Gen X and Boomers still carry quite a lot of value in their homes despite the rise in mortgage rates. As inflation eases, and with supply still very low, housing values will be the backstop to preventing a deep recession like we saw in the past.

“Art teaches you to see the world through the eyes of another, often a person who sees more deeply than you do” – David Brooks, Op-ed columnist for the New York Times, The Power of Art in a Political Age, March 2, 2023.

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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