Mr. Market

January’s toast. How’s your money doing?

If you’ve got stock exposure, especially American, time to smile. This has been a boffo month.

The benchmark S&P 500 – the only index in the world that really matters – is ahead just under 4% since 2024 started thirty days ago. For the last 12 months it’s gained more than 22%. The Dow has grown 2% in January and 14% over a year. The crazy, tech-laden Nasdaq is fatter by 5% this month and 36% over the past twelve.

On Bay Street, more of a struggle. The gain over the past year just equaled inflation, but the index has added 2% in the first month of the new year, triggering hopes the January Effect will be in evidence.

Whazzat?

It’s a market harbinger of sorts. Investors sell dog stocks for tax-loss purposes at the end of the year and deploy capital when the next one starts. So, in general, Januarys are pretty good. But when they’re hot – like now in America –  hope springs that this performance will influence the whole year.

Why are we in a bull market? (It actually began in October of 2022 when stocks touched bottom. The advance since then is approaching 40% for the S&P.)

Well, as President Hotlips Clinton famously said, it’s the economy, stupid.

America is in great shape. The latest GDP number of 3.3% (annualized) for the last few months of 2023 beat expectations. So did the 3.9% in the quarter before that. In fact the IMF said this week  global growth will surpass 2% in 2024 – despite the mess in China, two hot wars and a sequins deficit caused by the Eras tour – largely because of what’s going on in the States.

Inflation has dropped from over 9% to 3.4%. In a few months it will have a 2-handle. Unemployment in America is amazing – under 4% now for two full years. Job vacancies are on the rise again. Corporate profits are forecast to turn sharply higher this year. And all of that despite the most aggressive rate-tightening cycle in living memory by the Fed. Soon those rates will be coming down with Mr. Market still believing three, maybe four, cuts will occur by December. And then there’s AI. It’s like the Internet, only more powerful and impactful. It will change everything, forever altering the nature of work and the structure of society while making investors a pot of dough.

These are some of the reasons the bull is running. Folks with balanced, diversified portfolios who refused to be spooked when central banks got frisky and stocks careened have been rewarded. More to come, too.

But let’s not be Pollyanna. There are risks. What could go wrong?

Well, the wars could get worse, spread, and draw the US into more direct conflict with Russia or the Arab world. That’s possible, but Mr. Market is only marginally concerned. Wars are usually economic stimulators and Washington at this point is being very careful about conflict creep.

Odds of this disrupting the bull: slight.

How about debt? The mortgaged rabble figure with over $30 trillion in borrowings, the US must be living on borrowed time, and all these debt ceiling crises (another’s coming in March) will eventually push that economy into default.

Odds: zero. The world’s currency is the US dollar, and guess who prints those? The American economy can shoulder far more overhead. Your grandkids should maybe worry about this. Not you.

So, what about the November election? This is a contest between two close-to-80-year-olds, one a lefty career pol and the other a court-proven sex offender facing 91 felony charges. Can Biden last another four years? Can a guy who tried to overthrow the government after he lost last time be trusted? If Trump wins he promises to be protectionist and isolationist, which will be music to Putin’s ears. If he loses, will he deny it and foment a civil war? Is there any good outcome here?

Odds: completely unknown. But Mr. Market actually doesn’t care right now. Trunp and Biden are known quantities. Stocks survived them both.

Well, what’s the greatest risk?

Inflation erupting, of course, pushing CBs to goose rates once again. That would be a major disappointment leading to a sell-off on the assumption a recession’s coming. Job losses would push the unemployment rate higher, the GDP would contract for at least six months – maybe a year – consumer confidence would go into the loo as debt service charges swelled, and corporate profits would be spanked.

The chances? Not zero. But not even a three out of ten. An oil spike could cause concern, however energy prices are notoriously volatile and central bankers routinely strip them out to determine more important core inflation data. We probably need to travel north of $100 a barrel, and stay there for a while, to see a change in Fed policy. As stated, that’s a stretch.

How to invest in stocks?

An ETF, of course. Using an exchange-traded fund diversifies exposure, reduces the risk and mirrors a broad index. Tesla or Ford could blow up, and you’d still be okay. An ETF is just as liquid as a stock, trades the same way, the imbedded management fee is weensy and you can prevent being a cowboy. That, in itself, is a worthy life goal.

About the picture: “Thanks for the insight, “steady as she goes” advice, and entertainment in your blog,” writes Rodney. “I tell anyone who will listen that I know exactly where real estate prices are going in the next 12 months….Up, Down, or Flat. Anybody who tells you they know more than I do is guessing. I have been right for 50 years. Leni is our Pandemic Puppy. The difference is that we didn’t return her post pandemic. A beautiful 3 year old dog now.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.