A cold beer and a new record high. What else do you need? A cold beer and a new record high. What else do you need? http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\pier-naples-small.jpg January 26 2024 January 26 2024

A cold beer and a new record high. What else do you need?

The market continues to move higher, but more breadth would be welcome.

Published January 26 2024
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You need sunshine! There was lots of warmth and laughs as I tooled around Florida again this week. At an annual client event in Naples I was warmly introduced as the lady with “amazing shoes.” My Jimmy Choos were fabulous, but I was amazed that Louis Vuitton bags are everywhere (including over my shoulder)! In Punta Gorda, our advisor host halted a rousing discussion at a client dinner announcing, “We’re lowering fees!” (Nope.)  A Naples advisor shared his client survey of whether one should invest to leave money to the children or let the last check bounce. Survey response: 50/50! Another chimed in: “Corona Light, a lime, and flip flops. What else do you need?” But conservative investors here are very concerned about the election. Whoever wins, presidential election years are generally positive, with the S&P 500 rising 20 of 24 times since its inception. Piper Sandler notes that the beginnings of election years are generally bullish before stabilizing mid-year. Speaking of mid-year, a bill currently before Congress would provide election-year stimulus to the economy, with $135 billion this year and $70 billion next along with, as Strategas notes, perhaps an additional $150 billion via outstanding claims for the Employee Retention Tax Credit.

“Let’s trim,” was the investor call an advisor in Sarasota received as the market made new highs this week. And in Naples, another advisor marveled, “Over 30% of people’s accounts are in money markets!” The retail share of the equity market has grown in recent years to 41%, up from 35% in 2012. These retail investors are likely crowded in megacaps. Market breadth continues to be an issue, with almost half (!) of this month’s S&P 500 gains coming from Microsoft and Nvidia. Semiconductors have been on fire and they are flush as well, with more cash as a percentage of assets than any other group. But narrow breadth combined with dollar strength and rising bond yields may portend consolidation, Fundstrat says. Unfortunately, small caps continue to be left out in the cold in this rally. RBC maintains that earnings growth at the “Magnificent Seven” stocks is likely to continue to outpace the broader market – but less dramatically than in 2023. Importantly, Fed liquidity continues to help equity markets. Reserve balances at the central bank rose by $450 billion in 2023, with $158 billion of that coming last month alone. But Wolfe Research warns that this liquidity source may be drained before long. The market has finally surpassed its prior peak of January 2022, but this time around earnings expectations are higher and valuations are lower. Meanwhile, sentiment has become less bullish and more neutral despite the rally. Furthermore, 77% of S&P 500 stocks still trade below their January 2022 price. The equal-weighted S&P 500 is roughly 5% below January 2022, and it’s negative thus far this year. Bargains for stockpickers!

The drumbeat is getting louder among investors worrying about the ballooning government debt and wages. A veteran advisor remarked, “Capital has been in charge of labor for years, and now labor’s in charge of capital.” His client is in the business of new construction homebuilding management, where a new hire who “doesn’t know anything” is paid a $100k-120k salary, which was $60-80k pre-COVID. A retiree complained, “When I started working, I was paid just $85 a month to serve in the Army.” Bloated wages and bloated government debt. The structural deficit in the U.S. stands above 5% of GDP (vs. 2% for the period 1973-2007), higher than any major economy except Japan. Deficits pile on debt, and the U.S. government’s debt-to-GDP ratio is now 106%, vs. 80% a decade ago. “When will this all blow up?” I’m often asked. No-one knows, but positioning for such an event would be risky. As Empirical Research points out, with the S&P 500 offering a 21% return on equity and an 11% free cash flow margin, this is not the time to bet on turmoil. Instead, may I suggest a cold beer (or wine) plus sunshine!


  • Never underestimate the consumer GDP grew at a surprisingly strong 3.3% annual rate in Q4, well above forecasts, indicating that Q3’s 4.9% jump was not just a blip. Personal consumption powered the growth in both quarters. Consumer spending beat expectations, propelled by goods spending. Consumer incomes rose 0.3%, meeting consensus, a touch lower than November’s 0.4%.
  • The consumer wants a home Pending home sales jumped 8.3% in December, as mortgage rates fell. New home sales rose 8% in December from the month before, less than the expected 10% increase although new home prices fell 4%.
  • A two handle! Inflation as measured by the core PCE grew 2.9% from one year ago, the first sub-3% reading since March 2021. Forecasts called for a 3% gain. On a month-over-month basis, core prices rose 0.2% as expected.


  • Mixed signals around the world Export orders from Taiwan fell 16% in December from the year before, vs. an expected decline of 1%. Taken together with soft export figures in South Korea and Singapore, the news casts doubt on the strength of global trade. S&P Global’s flash U.S. Composite PMI came in above expectations, with both manufacturing and services above the 50 mark that signifies expansion.
  • Factory freeze The Kansas City Fed and the Richmond Fed both reported declines in their manufacturing surveys. Last week the New York Fed and the Philly Fed reported similar slowdowns in their regions.
  • Maybe next month Meanwhile, durable goods orders were flat in December, vs. an expected rise of 1.1%, although weakness in historically volatile transportation orders was the culprit.  

What Else

Dotcom 2.0 Per Yardeni, the Information Technology and Communication Services sectors together account for 37.4% of the market cap in the S&P 500. Sounds high, but if this tech bull continues, it could go higher yet. The forward P/E of Information Technology is 26.2 right now. This compares to 50 in early 2000 when the tech bubble burst.

January barometer, really? Some say January sets the tone for the year—but does it really? Over the past 20 years, January and the year it commences have only been on the same page 11 out of 20 times.  

China’s juggernaut, not Fewer than half as many children were born in China last year as in 2016, when the country dropped its one-child policy. The country is aging rapidly (median age in China is 40, vs. 30 in India). Furthermore, China’s retirement age is among of the lowest in the world, 60 for men and as young as 50 for women.

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Tags Equity . Interest Rates . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Magnificent Seven: Moniker for seven mega-cap tech-related stocks Amazon, Apple, Google-parent Alphabet, Meta, Microsoft, Nvidia and Tesla.

Stocks are subject to risks and fluctuate in value.

Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks.

Personal Consumption Expenditures Price Index (PCE): A measure of inflation at the consumer level.

Issued and approved by Federated Equity Management Company of Pennsylvania

Due to their relatively high valuations, growth stocks are typically more volatile than value stocks.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.