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Thank you for opening this week’s newsletter. I hope you enjoy it! |
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| INFLATION COOLS: The Consumer Price Index (CPI) did not increase in October compared with a month earlier. This follows a 0.4% rise in September. Over the last 12 months, the CPI has increased 3.2%, a sharp drop from September’s 12-month reading of 3.7%. The Fed closely watches the “Core” CPI which excludes energy and food due to their volatility. That index rose 0.2% in October, and the 12-month number was 4.0%, a small drop from 4.1% of a month ago, but the lowest reading in over two years. |
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| RETAIL SALES STALLED IN OCTOBER: Overall, U.S. retail sales fell 0.1% in October from a month earlier. This followed a 0.9% increase in September. October’s sales were 2.5% higher than a year ago. Investors are going to be watching the holiday spending numbers closely. Are consumers catching their breath after spending a lot over the summer, or is this the beginning of a slowing trend? It is way too early to tell, but most of the media responses to this data were seeing it as a sure sign of a cooling economy. |
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| U.S. STOCKS RISE FOR THIRD WEEK IN A ROW: Strong corporate earnings reports and positive inflation data pushed stock prices higher for the third consecutive week. Investors were jumping back into “risk”. Small cap stocks outperformed large cap stocks. The Russell 2000 was up over 5%, approximately doubling the output of the S&P 500. ARK Innovation, a fund that invests largely in unprofitable but fast-growing technology companies jumped by nearly 10%, showing that investors are warming back up to risk in their investment portfolios. Overall, it seems that much of the current surge reflects a sentiment that the late-Summer/early Fall drop in stock and bond values went too far, and we are seeing a positive correction. |
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| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
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| THE BELEAGUERED SMALL CAP STOCKS: The higher interest rate environment we have all been enduring has hit small cap stocks hard. Investors have been concerned that small-cap balance sheets could not withstand higher interest payments. In addition, investors have been drawn to large cap companies’ ability to profit off of new innovations such as AI and anti-obesity drugs. Often, however, smaller companies are in a better position to capitalize on transformative technologies. Small caps have been beaten up for a while. Will they begin to catch up soon? Below you can see that the S&P 500 has wildly outperformed small cap stocks in 2023. Small cap stocks outperformed large cap stocks last week. |
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| PREDICTIONS: According to Goldman Sachs, which has been more optimistic than most, the U.S. economy will grow by 2.1% in 2024. The consensus prediction by economists surveyed by Bloomberg is 1%. According to Goldman economist David Mericle, “The conditions for inflation to return to target are in place, and the heaviest blows from monetary and fiscal tightening are well behind us.” |
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| CLEAN ENERGY IS STRUGGLING: Clean energy companies and funds have had a good run, but generally they are struggling this year. Raising capital for both public and private clean energy projects are getting more challenging. According to David Foley, who leads Blackstone’s energy group, “The irrational exuberance, all the excitement about clean energy is clearly getting squeezed out.” Siemens Energy AG, a German wind energy company, recently announced it was canceling plans to build a wind turbine plant in Virginia. It’s stock is down 45% this year. Earlier this month, Orsted, a Danish wind energy company, cancelled two large offshore wind projects in New Jersey. It cited problems with supply chains, higher interest rates, and a failure to obtain the amount of tax credits the company wanted. Orsted stock is down 55% this year. Nextera Energy Partners LP, the world’s largest renewable energy producer, is down 67% this year. All is not bleak. State Street runs an exchange traded fund that invests only in companies that exceed the minimum standards of the “Paris-Aligned Benchmark,” whose principal objective is to limit the increase in the global average temperature to well below 2 degrees Celsius above pre-industrial levels. That fund, ticker NZAC, is up 15% year to date. |
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| A RATE DROP?: According to CNN, the financial markets are currently pricing in a 25 basis point (one quarter of one percent) drop in interest rates by the U.S. Federal Reserve by early summer of next year, and a full one percent decrease by the European Central Bank in 2024. |
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| MY BIRTHDAY GIFT!: My birthday is in the summer, and my sons gave me the present of being able to participate in a golf event at Citizen’s Bank Park! It was scheduled for last Friday night. That’s me lining up a shot at the Liberty Bell (not really). It was a blast! Happy Birthday to me! |
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Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
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Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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“There are costs and risks to a program of action, but they are far less than the long-range risks and costs of comfortable inaction.” John F. Kennedy
“Wisdom is a shelter as money is a shelter, but the advantage of knowledge is this: Wisdom preserves those who have it.” Ecclesiastes 7:12 (NIV)
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SOURCES:
INFLATION COOLS: https://www.bls.gov/news.release/cpi.nr0.htm
A RATE DROP?: CNN.com AND gritcap.io
PREDICTIONS: https://www.goldmansachs.com/intelligence/pages/2024-us-economic-outlook-final-descent.html?chl=em&plt=briefings&cid=1117&plc=body
THE BELEAGUERED SMALL CAP STOCKS: https://www.goldmansachs.com/intelligence/pages/the-case-for-a-small-cap-rebound.html?chl=em&plt=briefings&cid=1117&plc=body
CLEAN ENERGY IS STRUGGLING: https://www.npr.org/2023/11/01/1209986572/offshore-wind-energy-new-jersey-orsted AND YCharts.com AND https://robertbryce.substack.com/p/the-alt-energy-bloodbath-in-10-charts
RETAIL SALES STALLED IN OCTOBER: https://www.census.gov/retail/sales.html AND https://www.wsj.com/economy/consumers/what-to-watch-in-the-retail-report-is-spending-cooling-as-holidays-arrive-2b84b403?mod=economy_feat1_consumers_pos1
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| (c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved |
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*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets. |
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Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.
SDG
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