Another holiday-shortened week of trading.
Maybe we needed a break as the Dow has been down for three straight weeks and the S&P 500 stock-index has been down for two weeks.
There is always something that runs counter the trend as we have witnessed with Bitcoin climbing up 15% so far this year, trading near $25,000. Some credit the recent pullback to strong economic data.
Last week the Producer Price Index followed the Consumer Price index jumping higher than expected.
This was on the back of stronger than expected job numbers.
This doesn’t lend itself to an environment where the Fed will stop raising rates next month. Many expect a 25-basis-point-increase, but now there is thought of a 50-basis-point jump.
I see the 25 basis point followed by the same rate increase in May.
That will move the Fed Fund’s rate up to 5%.
It will also give the Fed more time to evaluate economic data. It takes time for these rate increases to have a real impact.
I will say, though, that you are hearing more conversation about the benefits of moving some of your savings into interest-bearing instruments.
I moved some last week at Schwab into their bank purchase or money market that pays 4.4%.
With inflation still at around 6.5%, I am not covering inflation, but it is much better than what my bank would pay. Be careful when you start chasing yield.
A friend called to ask my opinion on some corporate bonds. The problem is that the bonds were sold over par.
This means that at the point of redemption, the bond will pay only $1,000 per bond.
If you paid a premium, then you lost that amount. The premium is due to the fact that coupon on the bond is higher than the going interest rate.
You get a higher rate until redemption then you pay the price of admission.
I make it a basic rule never to pay more than a $1,000 per bond.
There are many who trade bonds and never see maturity, but that is not why I buy bonds. I look for a good yield on the investment.
This is the reason that stocks have performed so well over the last several years - there is no competing bond yield to pull money off the table.
This situation is beginning to change. You have to realize that for over a decade investors have seen nothing but zero interest rates.
There are young investors who believe this is normal. I am sure there are many of you that distinctly remember double- digit interest rates in the 70s.
I find it amusing that some see 5% Fed Funds rate as unreasonable and express the need for rates to drop back to previously ridiculous low levels.
I was starting to work in corporate life in the 70s and was following the markets.
It was like Chinese water torture every day.
The market went down a little bit day after day. You couldn’t find a positive thought.
It, of course, rebounded but there was no V-shaped bottom. It took years to recover.
We are in a different environment today.
Investor time horizons are much shorter and, in my opinion, unrealistic.
It seems that we can work our way through these rate increases and end the year with the S&P 500 stock-index near 4400.
That is not to say we won’t head south in the interim but it is never straight up or down.