June 26-30, 2023

Tactical Signal 9

Sowell’s technical signals remain in full position (100%) despite last week’s brief pause. Although market sentiment remains mixed and conventional leading indicators are negatively positioned, core fundamentals, including jobs, services, moderating inflation, and consumer spending, continue to provide the bedrock support for the time being.

Equity markets took a pause on its condensed 2023 rally with the summer approaching and as investors grasp the Federal Reserve’s narrative “that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time.”  Last week, the S&P 500 index decreased by 1.37% while the Bloomberg Long-Term Treasuries index gained 0.60% on recession fears. At a YTD glance, the equity markets rally has been narrow and mixed as technology stocks have gained +38.41% while financial and industrial stocks returned -1.6% and +7.5% in a brief period of 174 days. Economically sensitive stocks including small-cap stocks and value-oriented stocks have largely been overlooked in this current rally and defensible because of the economic uncertainty due to rising interest rates. Although the S&P 500 and Nasdaq have gained +14.19% and +29.47% respectively this year, last week’s Conference Board Leading Economic index, historically a predictive gauge of the economy, declined for the 14th consecutive month by -0.7%. Yet the housing market continues to defy analyst expectations as consumers continue to purchase homes despite higher interest rates.

This week will continue to search for economic certainty as releases from GDP, Durable Goods Orders, Wholes Inventories, Housing reports alongside Fed Chair Powell as he speaks at the European Central Bank forum. Another anecdotal economic bellwether heading into the summer is the state of the movie box office with upcoming block buster releases of Indiana Jones, Mission Impossible, and followed by Barbie. This year’s domestic box office has grossed $4.3 billion in receipts, on track to outpace 2020’s $2.1 billion gross receipts but trail the pre-pandemic annual average of $11 billion between 2015 to 2019, reported by IMDB.

We should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy. A central mission of the Federal Reserve [is] to maintain financial stability and reduce and contain systemic risks. This mission is an extension of our monetary policy. Our country cannot enjoy the long‐run “maximum employment and stable prices” objectives we are given for monetary policy if the financial system is unstable.”

– Fed Chairman Alan Greenspan, “The Challenge of Central Banking in a Democratic Society,” Dec. 5, 1996.

The Destiny of Movies

Movie TheatreIn 2022 Steven Spielberg has publicly stated Tom Cruise’s Top Gun Maverick movie alone has saved the moviegoing business.  Now with no end in sight for Hollywood’s current writers’ strike, movie studios and movie theaters are trying to bounce back from the headwinds of the pandemic and video streaming services to keep theaters filled.

As the industry struggles to draw people to theaters, empirical data is pointing to a consumer shift as adult dramas perform poorly at theaters and better on streaming, while big budget action movies find better attraction at the theaters. Despite the darkest days of the pandemic and competing viewing platforms for consumers, movie box office receipts are actually on track to meet or exceed pre-pandemic historical averages and defying the odds with lower attendance and at higher average ticket prices. 2023 has already grossed over $4 billion in domestic box office receipts helped by movies likes Avatar, Spider-Man, and Super Mario Brothers ahead of the highly anticipated summer blockbusters coming forth as American movie goers head back to the theaters. Movie theaters, much like the travel industry, are benefiting from the post-pandemic return with a vengeance thanks to the lock-up. And when you compare that to a 1-day admission ticket at Disneyland Park of +$150 per person that could cost a family of 4 in excess of $600 not including parking, food, and travel, going to a movie is still relatively affordable and easy.

With cable television and now video streaming the demand for original content and movies has never been greater. But the movie theater industry faces many headwinds. How will big screen theater owners compete with the technology of big screen home streaming as habits change? Will the shuttering of shopping malls also impact theater screens to downsize? How these will change the formula for Hollywood studios production remains to be seen. Time will tell and until then, the balcony is closed.

Select Indices
June 26-30 reports

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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