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Weekly Economic and Stock Market Commentary: March 21, 2022



As for the stock market specifically:

All the volatility last week went in the good direction, and I don’t think anyone will complain too much. Each of the market averages listed in the table at the top of the page gained in a week what should be, under normal conditions, what markets do in a quarter to six months. Of course, movements similar to what happened last week can occur the opposite direction, and have done so. Nevertheless, last week’s moves were the largest weekly gains going back to November 2020.

We are nearing the end the 1st quarter. At the end of the quarter, I will analyze the relative strength of growth vs. value, and large vs. small to illustrate what has been going-on under the hood of the stock market since we began the new year, and for many of you, will help explain a great-deal of the transactions made in our advisory accounts over the quarter.

We know from the basketball tournament last week that as unlikely as it may be, a 15 seed can, and did beat, not only a 2 seed, but also a 7 seed. That doesn’t occur very often, and history cautions me about placing large bets on non-favorites (ie: lesser ranked positions whether it be in sports betting or with our investments).

Excessive Risk

In English, I prefer to lose opportunity with client money than take “excessive” risk when relative strength is against stocks. If you disagree with me on that point, you are free to contact me, and have a reasonable conversation.

There is no question that last week was enjoyable, and, from the perspective of supply vs. demand, there were good things, too. I am looking forward (hopefully) to confirmation by our Relative Strength indicators moving to a positive nature.

It was a great week for the risk assessing bullish percent indicators. Each gained at least 8 percentage points That puts us in WEALTH ACCUMULATION mode.

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

Below is where our indicators stand as of March 18, 2022 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Labor provided a report on February Producer Prices. For the first time in a while, the anticipated number was higher than the actual rate of inflation of 0.8% from January to February. On an annual basis, the report showed inflation of 10 percent for the third consecutive month, which is a record in the 12-year history of the report.

The Commerce Department announced February retail sales were up 0.3%, which was slower than the 4.9% gain of January. We finally have an answer about how inflation influences the report. The answer is that this report has no inflation factor. As you may imagine, much of money at retail outlets was in the form of gasoline purchases at the expense of online shopping. Retail sales fell 5.3% when gasoline sales were removed from the report.

The National Association of Realtors told us existing home sales in February fell 7.2% to a seasonally adjusted annualized rate of 6.02 million units. The average home sales price is $357,300, which represents a 15% gain from February 2021. Mortgage rates are about 1 percentage point higher now than in February 2021. There was an increase of 2.4% of inventory in February, but it remains down about 16% compared to February 2021. The current inventory sits at a 1.7 month supply at the current sales pace.

As an FYI, with the rare exception of buying a box at a Super Bowl party, I don’t gamble on sports.