Stock, the economy and the Fed for 2023

[We'llBeDoneIn15Minutes]

Because timing the market is so difficult, the best thing to do is buy and hold good stuff and buy more with each dip.

Maybe. Maybe not.
What worked yesterday isn't guaranteed to work tomorrow.

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[Dr. Rude]

Because timing the market is so difficult, the best thing to do is buy and hold good stuff and buy more with each dip.

Define “good stuff”.

 

[linkin06]

Define “good stuff”.

VTI VXUS

 

[We'llBeDoneIn15Minutes]

Define “good stuff”.

Stuff that when looked back upon after the fact did good 😂

 

[nimbus]

The past….

 

[NITRAS]

Yay! Shoulda bought bitcoin. . . . .. .

 

[RadOncDoc21]

GameStop!

 

[We'llBeDoneIn15Minutes]

WOW, Cramer actually sucks a lot more than any of us realize. It is just about physically impossible to pick 14 stocks from the market lows in October and do any worse than this. Probably a less than 0.1% chance of doing worse by picking names out of a hat.

14 Stocks “About To Pop” According To Jim Cramer: In Retrospect

In this article we will discuss the 14 stocks Jim Cramer recommended back in October 2022, and how they have fared since then. If you want to explore similar stocks, you can also take a look at 5 Stocks “About To Pop” According To Jim Cramer: In Retrospect. 2022 was one of the worst years […]

finance.yahoo.com

 

[BLADEMDA]

I listen to Cramer to hear what stocks are RED HOT on WallStreet and the stocks they currently hate. He is a terrible stock picker but does let me know the current trend/feelings on Wallstreet. I typically DVR his show and fast forward a great deal. If you want to lose money then listen to Cramer's picks as he has cost me a lot of money in the past.

The best stock show on TV is "Fast Money" where they analyze stocks and the market with quite a few guests that are negative on the market. It is a much more balanced and informative use of your time.

Subscribe for Investing Club

www.cnbc.com

 

[BLADEMDA]

 

[Z-Qualizer]

I still think we’ll get one more significant pull-back this fall/winter - right before election season gets into full swing.

 

[nimbus]

S&P500 now 4450. Up 16% over the past 6months. ATH was just under 4800 in Jan 2022.

Unemployment remains low in the 3-4% range.

Inflation down to 4%.

Housing market remains stable despite higher mortgage rates.


Banks stabilized.


Are we getting our soft landing?

 

[epidural man]

S&P500 now 4450. Up 16% over the past 6months. ATH was just under 4800 in Jan 2022.

Unemployment remains low in the 3-4% range.

Inflation down to 4%.

Housing market remains stable despite higher mortgage rates.


Banks stabilized.


Are we getting our soft landing?

I saw a graph that showed that EVERYTIME the feds start to lower interest rates, the market falls (significantly).

Past results don’t predict future - but it was a compelling graph.

Also, the feds goal is 2% inflation. Not sure how inflation keeps dropping without raising rates more.

But it does seem like a soft landing so far.

 

[RadOncDoc21]

Won’t be a soft landing until my feet are on the ground! It’s been too much of a bumpy ride.

 

[sevo00]

BUY! BUY! BUY!

 

[nimbus]

I saw a graph that showed that EVERYTIME the feds start to lower interest rates, the market falls (significantly).

Past results don’t predict future - but it was a compelling graph.

Also, the feds goal is 2% inflation. Not sure how inflation keeps dropping without raising rates more.

But it does seem like a soft landing so far.

Interesting

 

[nimbus]

BUY! BUY! BUY!

3 years late

 

[BLADEMDA]

BUY! BUY! BUY!

This means we will get a correction in August or September. The markets are way over-valued on a P/E basis. That said, the correction is to be bought not sold as we head to 4800 in 2024. I am a BULL for 2024 but I doubt we get back to 4800 without one more correction.

 

[BLADEMDA]

Treasury Yield Curve​

 

[BLADEMDA]

Yes, I'm Bullish on 2024 so when we get a small correction don't panic but stay the course. They may be a mild recession this winter but I bet the market looks past it to some degree in terms of P/E multiples. I'd like to buy equities 10% lower from here but I don't know if Mr. Market will give me an S and P of 4,000.
I still predict S and P of 4800 in 2024 with a new all time high at some point in 2024.

 

[vector2]

 

[pgg]

I wonder what Jim Cramer thinks I should do.

 

[Dr. Rude]

I wonder what Jim Cramer thinks I should do.

 

[BLADEMDA]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

 

[Dr. Rude]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

Individual TIPs held to maturity are where I have been putting a chunk of money.

 

[epidural man]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

I’ve been buying t-bills for the first time in my life after they reached >4.5%. They are now almost 5.5%

 

[Dr. Rude]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

The yield curve is deeply inverted to there is no reward for extending maturities. Sweet spot is under a year. Corporate and Junk to Treasury spreads are still low by historical standards. Also if we do get a crisis these assets don’t hold as well when stocks go on sale. I have almost all of my fixed income in Tbills and individual TIPs that I plan to hold to maturity. I have been extending maturities of TIPs recently. Bought a chunk of the 10 year auction last week. The Tbills are for stuff going on sale.

 

[BLADEMDA]

Investing in Bonds in 2023​

• Begin to lengthen duration in second-half 2023.
• Monetary policy: One last rate hike will conclude this tightening cycle.
• Long-term interest rates projected to be at, or near, their peak and will decline going forward.
• Credit spreads on corporate bonds provide adequate margin of safety for downgrade and default risk.

Over the second half of 2023, interest rates may vacillate as economic and inflationary metrics are released, but our forecast is that the interest rate on 10-year Treasuries will generally follow a downward trend which will continue into 2024 and 2025. Falling interest rates will push up long-term bond prices and help bolster fixed-income returns over the underlying yield carry.

While short-term interest rates are currently higher than long-term interest rates due to the inverted yield curve, we think investors should begin to lengthen their duration over the next 12 months. Once the market begins to price in the Fed switching to an easing monetary policy, short-term rates will quickly begin to subside.

We project the fed-funds rate will average 4.15% and 2.15% in 2024 and 2025, respectively.

 

[BLADEMDA]

U.S. Treasury Interest-Rate Curve​

 

[Dr. Rude]

Investing in Bonds in 2023​

• Begin to lengthen duration in second-half 2023.
• Monetary policy: One last rate hike will conclude this tightening cycle.
• Long-term interest rates projected to be at, or near, their peak and will decline going forward.
• Credit spreads on corporate bonds provide adequate margin of safety for downgrade and default risk.

Over the second half of 2023, interest rates may vacillate as economic and inflationary metrics are released, but our forecast is that the interest rate on 10-year Treasuries will generally follow a downward trend which will continue into 2024 and 2025. Falling interest rates will push up long-term bond prices and help bolster fixed-income returns over the underlying yield carry.

While short-term interest rates are currently higher than long-term interest rates due to the inverted yield curve, we think investors should begin to lengthen their duration over the next 12 months. Once the market begins to price in the Fed switching to an easing monetary policy, short-term rates will quickly begin to subside.

We project the fed-funds rate will average 4.15% and 2.15% in 2024 and 2025, respectively.

1. Who is "We"
2. What were "We" predicting 1,3, 5, 10 years ago, etc. and how did that go?
3. The best predictor of tomorrow's yield curve is today's yield curve. Therefore don't extend maturities unless rewarded to do so. How many smart CFOs and risk departments who work at Banks needed to be bailed out in the last two years because they took duration risk.

 

[dumbmedstudent]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

Which bond funds do you like?
Relatively new to purchasing bonds, but certainly interested now given the high rates.
Am on the younger side

 

[epidural man]

An inverted yield curve has preceded all of the most recent recessions.

But - something I can't find....how many times in the last 50 years has the yield curve inverted without a recession following it?

 

[BLADEMDA]

In 1986, Harvey published a dissertation that linked inverted yield curves to recessions after closely studying four major economic downturns from the 1960s to the 1980s. All nine recessions since 1955 have been preceded by an inverted yield curve according to research from the San Francisco Fed—except in one case. The time between an inverted yield curve and a recession has ranged from six to 24 months. As soon as the yield curve begins to invert, economists and investors begin to turn their heads.

What To Know About The Yield Curve—And Why It May Predict A Recession

The term has been used for decades, and while it can predict recessions, it hasn’t always.

www.forbes.com

 

[BLADEMDA]

An inverted yield curve has preceded all of the most recent recessions.

But - something I can't find....how many times in the last 50 years has the yield curve inverted without a recession following it?

An inverted yield curve is a classic signal that a recession is on the horizon. “In fact, since 1978, the yield curve has inverted six times (not counting the current inversion period) and has preceded a recession each time,” Megan Horneman, chief investment officer at Verdence Capital Advisors, wrote in a recent note.Jul 7, 2023

 

[Dr. Rude]

I am going to start moving large sums of cash into bond funds. I think this is a good time to reestablish a larger portion of my portfolio into bonds. Interest rates are near their peak with the Fed only likely to raise rates maybe 1 or 2 more 1/4 points. Historically, buying bond funds after the Fed finidhes raising rates leads to outsized bond fund returns. Anyone else interested in Bond Funds? Ill likely begin to move from Treasury and Money Markets to Bond Funds this week and next. While my bond funds may underperform 6 month T bills over the next 6 months I believe they will outperform in 2024 and 2025. Even if I am wrong the Bond Fund is still likely to return 3.5-4%. Opinions? Comments?

Hope that you didn't start yesterday. Bonds selling off as rates are rising today.


New indicator:

 

[BLADEMDA]

Corporate bond yield spreads to Treasury yields may not suffer as a direct result of yield curve inversion. In fact overweighting corporate securities may be the right strategy to combat the inverted yield curve environment. Finally, shortening portfolio duration may not always be the right strategy for maximizing cash portfolio returns with an inverted yield curve. When an inversion is relatively mild, one can expect that investing further out along the yield curve provides return advantage over shorter maturity targets.

 

[BLADEMDA]

Hope that you didn't start yesterday. Bonds selling off as rates are rising today.


New indicator:View attachment 374882

Bond Market needs to price in 1 more rate hike and no Fed rate cuts until mid/late 2024. The market is doing that this week.

From an investment perspective, Haworth notes short-term bonds can offer a more competitive alternative to other types of cash-equivalent investments. However, he also recommends for investors to consider longer-term bonds, with far more attractive yields today than they were at the start of 2022. “Investors who have been keeping money out of long-term bonds may want to position assets back toward a more normal allocation into that end of the market,” says Haworth.

 

[epidural man]

Hope that you didn't start yesterday. Bonds selling off as rates are rising today.


New indicator:View attachment 374882

I have never understood this - the pundits write about this as if it matters. There even was a ridiculously stupid article written about it recently on Zero Hedge.

If I buy a t-bill or bond with a 5% return, let's say a 1 year coupon, who cares what the price of it is today? I'm gonna get my 5% return no matter what the current price is, or what other "traders" are doing with that bond. (unless the bond issuer defaults of course).

 

[Dr. Rude]

I have never understood this - the pundits write about this as if it matters. There even was a ridiculously stupid article written about it recently on Zero Hedge.

If I buy a t-bill or bond with a 5% return, let's say a 1 year coupon, who cares what the price of it is today? I'm gonna get my 5% return no matter what the current price is, or what other "traders" are doing with that bond. (unless the bond issuer defaults of course).

It depends on what you consider the role of fixed income in a portfolio.

Most common responses to this question:


1. Dampen the volatility of an all equity portfolio.
2. Maintain a store of value to buy equities or things when they are on sale.
3. Live on a stream of income.

That said, one wants to maximize return for the least amount of risk.

Biggest risks:

1. Credit risk. E.g. bond issuer might default. Or the market is worried about it in case you want to sell.
2. Duration risk. E.g. you buy a long term bond and interest rates rise. That makes the price of your bond go down.
3. liquidity risk. Market shocks. Look what happened to the price of muni bonds and corporates during the early weeks of the Covid crisis and in 2008. Even Treasurys were stressed, but not nearly as much.
4. Inflation risk. Any bond holders in the last two years got educated on this issue.

Your question about buying a one year 5%bond. Yeah, you might not care if interest rates go up over the year. But let’s say you buy a ten year 5% bond and interest rates go up. The value of your bond if you want to sell has dropped considerably.

 

[BLADEMDA]

Which bond funds do you like?
Relatively new to purchasing bonds, but certainly interested now given the high rates.
Am on the younger side

I like 5 star rated, low risk Bond funds as rated by Morningstar.com. Bond funds are meant for lower risk, steady income so more of a high percentage batter getting on base than a homerun hitter like Nvidia. Look at Vanguard Bond Funds- low cost and typically risk averse. I like Doge and Cox income for Intermediate Bonds and that is one I am buying into next week. Vanguard offers tax free bonds, corporate bonds, high yield bonds etc, but again why take risk with a bond fund? That's not why you buy bonds. I am not going to be buying a lot of the long end of the curve but I do think intermediate bond funds make a great long term hold at this point of the cycle.

 

[BLADEMDA]

 

[BLADEMDA]

I think a mild recession is a real risk later this year; so I am treading carefully by avoid junk bonds due to risk of default. I think high quality corporate bonds and a solid intermediate bond fund are good investments for the next 3-5 years.

Morningstar.com:

Further, according to our U.S. economics team, we project that longer-term interest rates are at or near their peak and will begin to decline over the next six to 18 months.

Another factor that supports extending out further on the yield curve is our expectation that the rate of economic growth will slow. While the stock market has risen from the undervalued levels we saw at the beginning of the year, stocks are now trading near our fair value. With stocks no longer undervalued and earnings under pressure from slowing economic growth, further gains in the stock market will likely be muted in the second half of this year.

 

[BLADEMDA]

Magnificent Seven Responsible for Almost Three-Quarters of Market Gains​

 

[BLADEMDA]

 

[BLADEMDA]

XBIL | The US Treasury 6 Month Bill ETF | US Benchmark Series

US Treasuries made ETF Easy. XBIL aims to provide exposure to the current US 6 Month Treasury Bill, with the ease and efficiency of an ETF.

www.ustreasuryetf.com

This is so convenient but the cost is 0.20% vs a regular 6 month T bill. Still, the convenience is likely worth it to me. I have been buying a lot of 6 month T bills then rolling them over. This ETF offers me a fast, convenient way to manage T bills of all durations.

ETFs | Invest in the US Treasury Market | US Benchmark Series

The US Benchmark Series of ETFs make it easy to invest in the US Treasury Market. Learn more about your investing opportunities with UTEN, UTWO, and TBIL

www.ustreasuryetf.com

 

[BLADEMDA]

If you want to lock in a good 5 year rate then 5 year T bill looks pretty good vs a CD. The T bill is also more liquid than the 5 year CD.

Online CDs Page | Barclays

www.banking.barclaysus.com

________________

Certificates of deposit, or CDs, are a great way to earn solid returns on your money safely, especially given the Federal Reserve’s interest rate hikes over the past year. But with some CDs already paying out more than 5% — you can see some of the best CD rates you may get now here — can we expect rates to rise even higher?

“They probably won’t go up much more than where they are now. I actually expect longer term CD rates to begin falling as investors look out into future years where the Federal Reserve is widely expected to make interest rate cuts,” says certified financial planner Chris Diodato at WELLth Financial Planning.

 

[linkin06]

XBIL | The US Treasury 6 Month Bill ETF | US Benchmark Series

US Treasuries made ETF Easy. XBIL aims to provide exposure to the current US 6 Month Treasury Bill, with the ease and efficiency of an ETF.

www.ustreasuryetf.com

This is so convenient but the cost is 0.20% vs a regular 6 month T bill. Still, the convenience is likely worth it to me. I have been buying a lot of 6 month T bills then rolling them over. This ETF offers me a fast, convenient way to manage T bills of all durations.

ETFs | Invest in the US Treasury Market | US Benchmark Series

The US Benchmark Series of ETFs make it easy to invest in the US Treasury Market. Learn more about your investing opportunities with UTEN, UTWO, and TBIL

www.ustreasuryetf.com

I'm holding USFR, which holds mostly 0-3 month treasuries.

 

[We'llBeDoneIn15Minutes]

Stocks are cheap in decade plus long trend channels. Currently large caps I own are still low in their upward channels (see pics).
Yet stock valuations are historically high as well (see next post).

 

[We'llBeDoneIn15Minutes]

The market is extremely high valued by about any historical measure you choose. My conclusion is Blade Theory will hold up, that is the Fed will prop up this bloated pig by any and all measures necessary not letting stocks fall back to more reasonable fair values, but at some point a huge crisis, war pandemic financial etc, has the potential for a massive drop out of the clouds that the markets currently enjoy. Keep both in mind as you venture forward.

 

[BLADEMDA]

I agree that P/E ratios are too high so be careful adding to equities here. I am very cautious and would be buying large value or small caps even with a 10% pullback in the market. My large cap growth is too frothy for example, META doesn't have the same appeal in 2024 as Zuck spends like a drunken sailor once again on the Metaverse. Apple is way over-valued with a P/E of 31-33. NVIDIA is stretched out into 2025. I own all of these and more but I wouldn't buy any of them at today's prices.

But, timing the market is jus too difficult so I buy and hold. But, I won't be adding to any of the high multiple stocks.