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Weekly Economic and Stock Market Commentary – February 5, 2024

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As for the stock market specifically:

The stock market ended January on a strong note, and the domestic major market averages had record highs during the week.

The Federal Reserve met last week and decided to keep short-term interest rates flat. They also disappointed the “free money” crowd by saying there is little chance they will lower interest rates at the March meeting. Stay tuned, sit tight and await the media stories coming later this year where any potential rate changes will likely subject the Federal Reserve to charges of political influence.

The Federal Reserve’s actions led to the stock market undergoing a large decline, only to reverse that drop the next day.

I am going to recap the “offbeat indicators” for 2023 this week, and then come back with an analysis I can back with real data, so let’s have some fun.

In 2023, all three components of the January indicator pointed to a good year. That indicator held true, as we know.

In 2024, the first two legs of the January indicator point to a loss for the year, but the last part suggests a gain for 2024. You are on your own with this one.

The Presidential Election Cycle indicator states the third year of the cycle is the best for the stock market. I don’t know how 2023 could have been better. The fourth year of the indicator suggests the year will be positive, but not as strong as the 3rd year.

The Kansas City Chiefs, a team from the American Football (League) Conference, beat the Philadelphia Eagles from the National Football (League) Conference. This suggested that 2023 would have been a losing year. That one was wrong in a big way last year.

This year, as most of us know, will see the Chiefs go against the San Francisco 49ers. I don’t have a rooting interest on a football basis for either team, but the Super Bowl Indicator wants San Francisco to win.

Last week I saw a new offbeat indicator. It is the Groundhog Indicator. After reading about it repeatedly for 10 minutes, I came to the conclusion that I have no idea how it works and won’t attempt to explain it here.

There is a fellow who uses astrology to make investment selections. I won’t use it, since it doesn’t have mathematical rigor behind it. That said, he does have a reasonably successful track record with this method.

My favorite indicator is the hemline indicator on skirts. This indicator holds that the stock market goes in the direction of skirt length. I haven’t spent enough time in public to get a sense of direction on this one, so I can’t give a stupid comment.

We had fun for the week, and now it is time to get to some concrete analysis.

The market went to record levels last week despite being on defense, and despite fewer stocks carrying the load (the bullish percent indicators). Another negative aspect that I saw last week is that fewer stocks are keeping up with the market (relative strength). This is very similar to 2023 where 7 stocks carried the load. For those who have been with me for decades, you’ll recall a similar situation where only 4 or 5 stocks carried the market back in the late ‘90’s. Ultimately ending with the crash in 2000.

The bullish percent indicators fell for the week, but not enough to change the split recommendation of WEALTH ACCUMULATION for OTC stocks, and WEALTH PRESERVATION for NYSE companies.

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

Below is where our indicators stand as of February 2, 2024 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Labor announced the US economy was able to add 353,000 jobs in January. That was double the anticipated amount by economists. The unemployment rate rose to 3.7%. In a change from recent trends, the revisions to the two prior months showed gains of 120,000. Average hourly earnings rose 4.5% on a year-over-year basis. The only bad part of the report that I saw showed that while average hourly earnings were up, average family earnings were down. That suggests that people are taking part-time jobs to maintain their lifestyle.

The House of Representatives passed a bill affecting the tax code. It was ostensibly a bill aimed at renewing portions of the tax code that expired at the end of 2023, as is a common event. It serves as a way to avoid breaking the 10-year budget forecasting requirement. This particular bill removed a significant portion of work requirements for those attempting to qualify for certain child tax credits. Once again, the “Spending Party” wins.

Please contact me is you have any question or if you want more information about a particular stock or mutual fund.