Market Update: February 13th, 2024

Market Pushes Higher and Higher past 5,000!

US Indexes continue to push higher as they are proving more resilient to the rest of the world’s problems. The job situation in the US continues to surprise for the better, which gives the US Federal Reserve all the power to keep rates this way for longer.

‍Topics

Market Performance

Jobs in the US and Canada

Inflation US

Good News vs. Bad News

Market Performance

The market has got off to a running start this year with the S&P 500 going on 71 trading days without a negative 2% drawdown in a day. This normally happens in about 8-9% of all trading days or about 1 out of 11. In 2022, this seemingly happened every other day therefore this is a welcomed surprise. 

This will correct and the market looking very heavy right now. Following the Shiller PE Ratio chart we are getting into the outrageous territory. 

This is the third highest peak since 1871 or about 150 years. The two other peaks were in the Dotcom bubble of 2000 and the Zero Interest Rate COVID bubble. This can continue to go higher but both times the fall has been painful. In both those times, it was “new” technology leading the charge, 2000 was the internet and 2020 was EVs and work-from-home stocks. This time it appears to be Artificial Intelligence, but does it have the ability to do what the others have not?

Our concern would be this ratio has never come down from these heights because earnings catch up to prices but rather prices come down to meet earnings. 

Jobs in the US and Canada

The US has done well adding about 700,000 jobs over the past two months. Not as strong as Dec/Jan of 2022 or of 2023 but still impressive considering they continue to keep their unemployment percentage down.

In Canada, there was a great headline number of 37,000 jobs in January and a decline in unemployment to 5.7%. But looking at the numbers it is not as good as it seems. There were about 11,000 lost full-time jobs and 48,000 gained part-time jobs. While we added 126,000 to the population, only 18,000 of those entering the labour force. These are disappointing numbers.

Separate from the US Canada is seeing a rise in unemployment as a percentage, and this will continue to grow as population growth exceeds new jobs. We will most likely see a rise above 6% very soon.

Inflation in the US

Inflation came in hotter at 3.1% for January. Economists were expecting 2.9% but this is still a decrease from 3.4% in December and still steadily lower than a year ago.

Services and Shelter led the charge in January rising more than expected. With the Federal Funds rates at 5.25%-5.50% a 3% CPI print still warrants cuts this coming year. But they will be cautious until inflation proves flat or declining.

Good News vs. Bad News

There have been many good news surprises to the upside in the past 30-45 days. The US bond auction went well in January, this kept interest rates from really driving higher. The US jobs continue to impress, and a soft landing appears to be in the future. The wars don’t seem to be affecting inflation and people are sitting on the edge of their seats waiting for the first rate cut. 

The bad news, there appears to be very little the market is taking in as bad news lately. This is concerning, we are becoming more and more complacent with everything going on. One thing we all know is that the market does not go up forever. The times we are most fearful is when nobody is talking about the bad news.

Summary

We are due for a correction, but the economic numbers in the US keep impressing and pushing up valuations. But high valuations do not stop a market run, based on valuations there could be another 10% upside to the 2021 highs. There will need to be a change or bad news events that stop it. The problem is the higher the valuation, the more painful the correction. We remain cautious because of this and prefer to remain in safer assets with better downside protection.

Sincerely,

Justin, Konrad, and Merriel

More articles and information are available at www.knowprotectgrow.com 

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by the author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions, and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

These estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

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