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  • Scott Poore, AIF, AWMA, APMA

Some Kind Of Wonderful




The worries over inflation and a delay in Federal Reserve rate cuts reignited this week, as equity markets flirt with the first negative week in the last five weeks.

Investors are worried about something in the future, but are largely ignoring what's right in front of them. The 1987 movie, "Some Kind of Wonderful" serves as this week's inspiration. This movie was a moderate hit at the box office, but was made in response to another movie by the same writer. Here's some trivia about the movie:

  • The budget numbers for this film were difficult to locate, but it apparently was about $9 million.  The box office was rather paltry at just $18 million in ticket sales.

  • This movie was written by John Hughes in direct response to his hit the previous year, "Pretty In Pink."  In the original version, Hughes had Andie get together with Duckie at the end of "Pretty In Pink."  However, executives at Paramount forced Hughes to change the ending so that Andie and Blaine get together.  In retaliation, Hughes made "Some Kind of Wonderful" to retell the story of best friends getting together, only with the genders of the main characters switched.

  • Hughes originally wanted Molly Ringwald to play the role of Amanda Jones in "Some Kind of Wonderful," but she refused and Hughes took it personally.  This effectively ended their working relationship.

  • Lea Thompson, who plays the role of Amanda Jones, would later go on to marry the director of this film, Howard Deutch.

  • Chynna Phillips, of the band "Wilson Phillips," has a brief cameo in the movie, which was just 3 years before their self-titled album in 1990.


Here's what we've seen so far this week...


Looking At The Future. Markets are always looking to the future, not last week, not this week. Uncertainty always throws a wrench in the works of investors' plans.

A strong earnings report by Nvidia after the bell on Wednesday, helped calm markets that the recent rally, especially for AI-related names, is still justified. Nvidia beat on Q1 earnings estimates and revenue estimates, in addition to offering an upbeat Q2 guidance. On Thursday, the preliminary report on S&P Services PMI showed a considerable bounce for April versus May's pullback. This stoked inflation fears. As a result, the futures for September's Fed decision (widely considered the launch point for the first rate cut) declined, with no change in rates now the odds on favorite. November and December still show a higher probability for a rate cut, but the market sold off, regardless, on Thursday (-0.8%).


Meanwhile, the Fed's own model for inflation (NowCast) shows a very mild move in CPI for May. In fact, the Fed's preferred measure for inflation, the PCE Price Index, also is expected to be quite mild at +0.11%.

The latest estimate for GDP for Q2 by the Atlanta Fed is at +3.6%. That's not exactly a reason to panic or fear the future. We continue to see very mild Jobless Claims and consumers continue solid spending habits. Investors should take comfort for now that the data points to a continued growth in 2024. When you become too focused on the future, you miss what's in front of you. In Some Kind Of Wonderful, the main character Keith has no desire to attend college despite his father's obsession over it. Finally, he spends his college money that he has saved on some diamond earrings for his girl and says, "You look good wearing my future."


You Can't Tell A Book By Its Cover. Many are wondering when we will reach the top of the equity market. A quick Google search will pull up any number of articles that say the market is over-valued or in a bubble.


A historical perspective would disagree. As of last week, the US Equity Market Bubble Gauge created by hedge fund manager Ray Dalio would indicate that we are not at his measure of a "market bubble" and we are currently sitting at a measure almost half of the peak in 2000.


What's more, the Levkovich Index, which measures the sentiment of investors has not yet reached the level of "euphoria" and is well below the levels seen in 2000 and 2021. The reality is that we had a growth recession in 2022 without the jobs recession and the recent craze in AI involves companies that were already established - Microsoft, Advanced Micro Devices, Palo Alto Networks, et. al. - that have been around for years and have earnings, a strong balance sheet, and capital. Conversely, in 1999 & 2000, internet-related names were relatively new companies with little proven track record and skeptical balance sheets.


We've recently crossed over the 100th day of 2024. When the S&P 500 Index is up more than 10% on Day 100, the probabilities are high that the rest of the year will be positive. Going back to 1950, when the S&P is up more than 10% by day 100, the market is higher 85% of the time, with an average return of 8.8% the rest of the year. If that were to pay out, perhaps the market would end up higher between 17 and 19% for 2024. In "Some Kind of Wonderful," Keith says, "You can't tell a book by its cover." To which Watts replies, "No, but you can tell how much it's gonna cost you." Investors who follow the "Sell In May And Go Away" philosophy this year may pay a cost to be out of the market.


The classic scene where Duncan crashes the party...


 

Disclosures


The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.


Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.


Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.


Past Performance does not guarantee future results.

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