Read about financial developments and other topical relevant information to you.

Weekly Economic and Stock Market Commentary – February 13, 2023


Weekly Economic and Stock Market Commentary – February 13, 2023

NOTE: US investment markets, and my office, will be closed Monday, February 20th in honor of the President’s Day holiday. Normal operations resume Tuesday, February 21st.

As for the stock market specifically

Sellers took control overall during the chaotic trading week. There were several mornings where I saw the futures pointing toward negative days, but investors changed their minds during market hours and changed the overall direction to green. Unfortunately, the down days more than counteracted the positive. In fact, last week was the worst week for the Standard & Poor’s 500 during 2023.

With the conclusion of the football season on Sunday night, it is time for the annual review of the “offbeat” indicators for 2022, and what some of these say for 2023.

Let’s start with Super Bowl Indicator. This indicator has a better track record when the NFL/NFC team wins, vs. when an AFL/AFC team wins.

Last year saw a matchup between the LA Rams and the Cincinnati Bengals, which both existed prior to the AFL and NFL merger, so it was true to the definition. The Rams, the NFC team, won the game. Historically speaking, that predicted a good year for the stock market. Obviously, that didn’t work to form.

This year, the Kansas City Chiefs played the Philadelphia Eagles. Once again, this contest was between teams that were in existence in the former AFL, and the current NFL, respectively.

I will let the sports reporters and commentators discuss the plays from Sunday night, while I speak to what I do for a living. As nearly all of us know, the Chiefs won the game. Since they are from the AFC/AFL, that suggests this year will be a down year.

Going to the 3 versions of the January barometer, we had 2 of the 3 versions indicate trouble for 2022. The versions that predicted trouble – how the first trading week finished, and how the month finished – both suggested a down year. They were the winners.

In 2023, all versions of the January barometer point to a good year for investors, as all were positive.

The next offbeat indicator to examine is the Presidential Election Cycle. This indicator posits the notion that each of the 4 years of a presidential term has its own peculiar pattern. The second year of the cycle was 2022. This indicator suggests the second year of the term results in the worst stock market performance of the four years of the term. This indicator also has a history of finding the third year of the cycle is the strongest for the stock market. This suggests a very good year for US stocks since we are in the third year of the cycle.

What we have at hand is two offbeat indicators suggesting a good year, and the other saying it will not be so good. We will have the result in 9 ½ months. Stay tuned.

The next indicator I like to examine is the hemline indicator. This one contends the market rises and falls with the hemline on ladies’ dresses. Unfortunately, I have not seen enough ladies in skirts and dresses to make an intelligent assessment.

While I had a little fun with these offbeat predictions, and there is a reasonable amount of historical accuracy with them, I don’t invest client money based upon them. If you have been reading this column for at least six months, you know my recommendations are based solely upon the irrefutable Law of Supply and Demand. There are times when my research coincides with the offbeat indicators, and there are times when they go in opposite directions. I will stick with the irrefutable Law of Supply and Demand.

The bullish percent risk indicators I use for client accounts had a bad week. It wasn’t bad enough to change my recommendation based upon the evidence, but they each declined by at least 2 percentage points. The weight of the evidence puts us squarely in WEALTH ACCUMULATION mode for client money.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of February 10, 2023 (Courtesy Dorsey, Wright, and Associates).

On a general note

The Department of Commerce announced the US Trade Deficit in 2022 rose to a record $948.1 billion. This was a 12.2% gain from 2021, which, too, was a record high. For December, the trade deficit was $67.4 billion, up from $61 billion in November. The report I saw did not break down the changes of imports and exports during any time frame.

The Congressional Budget Office announced the budget deficit for the first third of fiscal 2023 rose to $522 billion from $259 billion in the fiscal year 2022. The Treasury collected $43 billion less from October through January and spent $220 billion more. The lower collections are due to smaller amounts of individual taxes paid to the government, which I see as a sign of coming economic weakness (we aren’t in trouble yet). Another source of declining revenues came from the Federal Reserve not sending money to the Treasury because its operations no longer are generating interest for the government. Also, interest payments by the Treasury department rose by $58 billion during the time frame.

In a related story, the Treasury Department paid $261 billion in interest from October through January. As mentioned in the prior paragraph, it was $58 billion more than the same period for Fiscal Year 2022. This represents an increase of 33%.

As is usual in Washington, the annual deficits and accumulated debt are the result of “the other party’s” largesse, while “my party” is the source of fiscal responsibility.

While it is only February 2023, the 2024 election has a great fiscal issue at hand. There are two very large fiscal programs coming to an end at the end of 2025, should nobody act. One program is the idea of one party, and the other law scheduled to end is the current tax code, enacted by the other party. Hold on tight!

In my opinion, and if I were a betting man, the spending party will win, no matter which side blathers on regarding fiscal responsibility, and how “the other party” will continue “to harm our children and grandchildren.”

If you want more information or have any questions about this week’s commentary, please contact me.