24 Mar 24th March 2025
Index Movement Last Week
| S&P500 | +0.5% |
| Nasdaq | +0.2% |
| Aussie ASX200 | +1.0% |
The big news of last week was the Fed and Powell’s speech. They kept rates on hold, as expected, but opened the door for two, and maybe more, cuts later this year.
We also got the Fed’s projection of economic indicators and that fired the starting gun for buyers.
They changed their forecast for inflation from 2.5% to 2.7% and they lowered their forecast for GDP from 2.1% to 1.7% this year. The market liked this because the higher inflation offsets the lower growth.
More good news was they have not changed their forecast for interest rates nor employment.
Similar to every other category of forecaster, the FOMC is also grappling with uncertainty. Powell noted that it was an “admittedly challenging exercise” to forecast what is coming. He said a “good bit” of the increase in expected inflation was due to tariffs, but that he sees this as short-term and will therefore “look through the impacts”. It means the Fed is looking out past the initial impact of tariffs and will therefore not react to any short-term increases.
The market reacted positively to his words. Bond yields dropped, stocks jumped, gold pushed higher and the dollar weakened.
That is the market’s way of saying “we believe you Jerome and we are confident your actions will support stock prices”
This might just be what the market needed. After putting in an important low last week we now have a catalyst to change sentiment.
I think we have seen the low. I better not say that or I might jinx it. Let’s go with, get out there and buy things now, instead.
This talk of recession is ridiculous. Don’t fall for the headlines. Do the right thing.
The American Consumer
Markets have grown choppy due to the increasingly difficult nature of predicting future US economic conditions. No one is quite sure how the tariffs will impact things and as a result businesses are holding back on making decisions. Hiring is slowing and capital spending is also slowing. Except maybe on AI semiconductors. Powerful AI chips are more in demand than a cold beer in Sydney last Sunday.
There are some concerns over a slowing economy as can be seen in the Walmart share price. It is down about 20% from all-time highs. Amazon is also down 20%. When these two bellwether consumer stocks enter a bear market, one must question the health of the US consumer.
But, stock prices are not economic data. As shown below, for both stocks, drawdowns of similar size have been prevalent since each one was included in the S&P 500, and those declines usually don’t align with recessions.
As you can see. There are times when a 20% decline co-incides with a recession. But there are many times it happens outside of recessions too. So we can’t really look at this as a signal for a future bear market.
Might well be a nice time to buy the stocks though.
Walmart is interesting. It managed to transform itself from bricks and mortar into an online beast. It has started to make deliveries faster even than Amazon because it already has the shops as a warehouse network. Every town has a Walmart, so Walmart can deliver online shopping to every town very easily. Amazon works from large purpose built warehouses, further from towns and with longer delivery times.
Very pleasing to see the old school fighting back.
I’m going to dedicate the rest of this week’s catch-up to this theme
Just Keep Buying
Napoleon Bonaparte:
“A genius is a man who can do the average thing when everyone else around him is losing his mind”
Warren Buffett:
“Be fearful when others are greedy and greedy when others are fearful”
Did you know there is a book called “Shut Up and Wait”?
After every bear market, there is a great bull market
Last week I mentioned how confidence is a contrarian indicator…….well……
Last one, again, from Warren Buffett
"You can’t predict what stocks will do in the short term but you can predict that businessees will do well over time. Just take the 20th century, the Dow Jones went from 66 points to 11,497 points and you had two World Wars, a Great Depression, flue epidemics, … American businesses will do fine over time. The only person that can cause you to get a bad result in stocks is yourself."
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.