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Weekly Economic and Stock Market Commentary: April 4, 2022


Weekly Economic and Stock Market Commentary: April 4, 2022Nasdaq Dorsey Wright Chart of Returns to 4/1/22

As for the stock market specifically:

It appeared investors took the week off as the first quarter came to a close. The Dow Jones Industrial Average and the Standard and Poor’s 500 each finished the week essentially unchanged. We had slight gains for the Nasdaq Composite and international markets.

The prior two weeks turned the quarterly losses from significant to modest, with the exception of the Nasdaq Composite, which had a difficult quarter, and serves as a proxy for large cap growth holdings.

I had a marketing piece come to me from an investment company discussing why one should not have invested money that year for the past 30 years. The purpose of the piece was to show that no matter why calamity the world happened to find, it was a great time to be invested in the stock market.

The piece had closing values for the Dow Jones Industrial Average, S & P 500, and Nasdaq Composite for 1991 and 2021.

I then did what I like to do – math problems. Overall, each index showed a performance in the range of about 8.5% per year. The accurate term is Compound Annual Average Growth Rate. I don’t know what other asset classes did during that time.

Now, few people were 100% invested in stocks during the entirety of that span. Many fair- minded people will agree that using a full stock market return is not reasonable as a comparison to being 60 or 80 percent in the stock market (ex a 60/40 or 80/20 stock to bond percentage allocation).

Maybe this will be clearer than the last paragraph. If you were invested 80% stock and 20% bond for those years, your return was somewhere in the neighborhood of 7% per year.  If you were 60% stocks, your returns were in the mid 5% range.

Many years ago, when I first entered this endeavor, “long-term” performance of stocks from 1929 until 2000 was 12%. That is a far cry from the approximately 8.5% described in the marketing piece.

There are at least 3 points of the preceding 6 paragraphs to remember. The first is that we should not expect a full market return if we are not fully invested. The second is that we don’t know when “the long-term average” will deviate from one era to the next, and what the magnitude of the deviation will be.

In other words, drive only as fast as you can see.

Each of the risk assessing bullish percent indicators moved up at least 1 percentage point last week. The short-term indicators took a beating, but I don’t make major moves based upon those.  The nature of the evidence says to continue with WEALTH ACCUMULATION strategies at this time.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of April 1, 2022 (Courtesy Dorsey, Wright, and Associates).

Indicator Overview of NYSE, OTC and Optionable Bullish Percents

On a general note:

The Department of Labor announced the US economy added 431,000 jobs in March. This was about 60,000 fewer than economists anticipated. The unemployment rate dropped to 3.6%, and the labor participation rate rose to 62.4%. The revisions for January and February showed each month gained more jobs than announced in the prior months. The number people working is still below the level at the end of February 2020. The labor force participation also is lower than February 2020. However, this was the 11th consecutive month with job gains exceeding 400,000. That last occurred in 1939.  The report noted average hourly earnings moved up 0.4% in March compared with February. Average wages are up 5.6% since March 2021, but inflation is running higher, offsetting the pay gains.

In a related report, the Commerce Department announced the Personal Consumption Expenditure index. This measure of inflation, which excludes food and energy, rose 6.4% for the 12 months ending in February. That, to reiterate a phrase that has become very common, was a 40 year high.

Any questions about this week’s Economic and Stock Market Commentary? I am happy to answer them, just contact me.