CWS Market Review – April 5, 2024
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” – Charlie Munger
Is the bull market coming to an end? It’s too early to say, but there are some warning signs.
First, let’s take a step back and consider how remarkable this rally has been. Through last Thursday, the stock market gained 26.7% in just five months.
What’s even more amazing was how steady that rally has been. During that entire five-month stretch, the S&P 500 never had a drawdown of more than 2%, based on daily closes.
In other words, every drop was immediately reversed. It’s as if the bears never had a chance.
That could be starting to change. On Thursday, the S&P 500 dropped over 2% from its intra-day high. We haven’t had a negative intra-day reversal that large in over a year (notice the red bar at the far right.)
To be sure, all bull runs must come to an end. Mind you, I’m not preaching doom and gloom. Rather, I’m urging caution. Bull markets breed silliness, and I’m seeing a lot of that on Wall Street these days (and Wall Street can be a very silly place).
There’s also a growing sense that the Federal Reserve may be stricter with interest rates than was originally thought. Wall Street still expects rate cuts this year, but that may only happen in the latter half of the year.
Next week, we’ll get the latest official inflation data from the government, but we can see evidence around us that the battle isn’t over. The price for oil, for example, recently hit $87 per barrel. Gold and silver are up, and long-term interest rates recently touched their highest point this year.
That’s not what’s supposed to happen if inflation is fading away. It’s as if getting inflation from 9% to 3% was easy, but getting it from 3% to 2% is proving to be very difficult.
In this week’s issue, I’ll go over what’s happening. There’s a reasonable chance that we’ll only get one rate cut over the next four Fed meetings.
I also have some Buy List updates for you. Little Miller Industries just announced a $25 million share buyback. That’s good to see. The stock is up 140% for us in 18 months, and it just touched a new all-time high. Also this week, Abbott Labs won approval from the FDA for one of its heart-valve devices.
There’s a lot to get to, so let’s start with the recent PCE report, which is telling us that inflation is going in the wrong direction.