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  • Scott Poore, AIF, AWMA, APMA

Walkin' On Sunshine




Perhaps the Fed read our blog post from last week (just kidding - they have better things to do), but Chairman Powell channeled his inner dove this week and gave markets a boost.

The 1985 song, "Walking On Sunshine" serves as this week's inspiration. This song was the band's most successful single and made it's way into several films. Here's some trivia about the song:

  • Pre-internet, this song was highly successful, selling more than 2 million copies worldwide. The song peaked at #4 in Australia, #9 in the U.S., and #8 in the U.K.

  • The song was written by the lead writer for the band, Kimberly Rew. He was one of the original members of the Waves, before Katrina Leskanich joined, and actually wrote the song years earlier. The song appeared on their self-titled album in 1983, but was only released in Canada. The song did so well that they re-recorded it in 1985 and released it worldwide.

  • The song was originally written about a girl who realizes her long-distance relationship is real and that she knows her man will show up at her door one day and they will live happily ever after.

  • The song has some ties to Wall Street as it appears in the Michael J. Fox movie "Secret of My Success." It also appeared in "American Psycho," "High Fidelity," and "Herbie: Fully Loaded."


"Now I'm walking on sunshine, whoa-oh

I'm walking on sunshine, whoa-oh

I'm walking on sunshine, whoa-oh

And don't it feel good

Hey, all right now

And don't it feel good

Hey, yeah"


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


Markets Are Walking On Sunshine. Just a few nice words from the Fed, a couple of disappointing economic data points, and markets are back in bull mode. A GDP print that missed last week, and the Jobs Report that missed this week gave the market hope that rate cuts will actually happen this year.


While the Fed meeting this week was largely uneventful - no rate change and little change to the public statement, Powell's press conference was taken as dovish by the market. On Wednesday he stated, "unlikely that next move will be a hike." The market breathed a sigh of relieve as fears of a rate hike had increased of late. In additional, Powell stated, "unexpected weakening in labor market could warrant cut."


This morning, the Jobs Report came in lighter than expected, as only 175,000 jobs were added in April, versus the 238,000 expected. We usually get a miss or two during the year for payrolls - see November, 2023 and March, 2021 - so we shouldn't fret about the miss today. However, given Powell's comments about the labor market and how it could warrant a cut, the futures for a September cut increased from 57% one week ago to 69% today.


Since Powell's presser on Wednesday, equities are up more than 3% and are flirting with a 2nd consecutive week of gains. In addition, the yield on the 10-year Treasury is down about 19 basis points over that same period as the market perceives the Fed tapering QT (quantitative tightening) as a sign that yields are too high. So for now, market's may keep walking on sunshine.


And Don't It Feel Good? Like we saw back in March, equities are rotating in favor of less appreciated asset classes. While the S&P 500 Index is up about 0.5% this week, Small Caps (+1.6%), Mid-caps (+1.1%), and International Equities (+1.1%) are out-pacing the broad index. This is healthy for the current Bull market cycle.


The blackout window for corporate buybacks ended this week, with the current window extending until the middle of June. According to Goldman Sachs, they expect buybacks to cause an increase of 30% in daily trading executions. This will support the current rally.


And why shouldn't corporations buyback their stock when net profit margins are healthy. In the first quarter, so far, profit margins for S&P 500 stocks are higher than the previous quarter and the same as Q1, 2023.




Both the Chicago Fed's National Financial Conditions Index (more than 100 contributors) and the St. Louis Fed's Financial Stress Index (more than 15 contributors) are at negative or "loose" levels and no where close to pre-recessionary warning levels. In fact, the National Financial Conditions Index shows more than 91% of the internal indicators are looser than average. Until there is considerable movement in multiple economic indicators, investors should stick to their long-term investment strategy. As the permabears will likely pull out a single economic data point or two to make their case, for them to be right at this point would mean that we will witness the shortest bull market since World War II. I'll stick with the historical averages, for now.


A trip through 1980s memory lane...


 

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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