Goldilocks, Cheap and Expensive Stocks, and "Engine Fail!"


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November 5, 2023


“The stock market is a device for transferring money from the impatient to the patient.” Warren Buffett

A MORE TEPID MONTHLY JOBS REPORT: In October the U.S. economy added just 150,000 new jobs, about half the amount of last month’s report. Due largely to strike activity, manufacturing jobs decreased, while increases occurred in leisure and hospitality, construction, health care, government and social assistance. The unemployment rate moved from 3.8% to 3.9%. The Labor Force Participation Rate decreased from 62.8% to 62.7%. This data indicates a cooling economy, which of course currently encourages investors as it is fodder for the Fed to stop increasing rates. The market reacted positively in a week that was already seeing sharp gains.

WAGE GROWTH SLOWING: Average hourly earnings for U.S. employees rose 4.1% from a year ago. That is down from 4.3% last month. Wage gains have been slowing since March 2022 when the annual increase was nearly 6%.

THE FED HELD RATES STEADY: On Wednesday, the Fed announced that it was holding its key interest rates steady for the second consecutive meeting. Rising bond yields was one of the factors cited by Fed Chair Powell for keeping rates in place. Significant tightening of financial conditions in the economy was another factor. U.S. stocks jumped on the news, and kept rising for the rest of the week.

BEST WEEK IN A YEAR: Increasing bond yields (and falling bond values) have been putting significant pressure on stock values of late. That trend reversed last week as the yield on the U.S. 10-year Treasury note lowered from 4.85% to 4.56%, a steep drop. The Fed held its key interest rate steady, and the jobs report was in the “Goldilocks” range, lower but not too low. An economy slowing enough to tame inflation but not so much to make a recession certain, cheered investors last week.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

STOCK VALUATIONS: If you look at trailing price to earnings ratios (P/E Ratios) of S&P 500 companies, stocks remain historically expensive. The average P/E Ratio since 1960 is 14.8 and it is currently in the 20 range. Other equity valuations for the S&P 500 show a similarly pricey valuation for stocks. But, that does not mean all stocks have expensive valuations. The Russell 2000 (small U.S. companies) has a historic average P/E ratio of about 18. Currently, the Russell 2000 companies have a P/E ratio of 12.8. Similarly, U.S. mid-cap stocks carry valuations that are below historic norms.

HEAVY TRUCK SALES: Generally, sales of heavy trucks (trucks more than 14,000 pounds) decline prior to a recession. In October, sales were 475,000, down from 502,000 in September, but almost exactly the same as October of 2022. This number has come down in the last couple of months, but not yet enough to show a decisive trend. But we watch closely.

GENERATIONAL WEALTH: As the “Traditionalist” generation passes on, Boomers continue to control most household net worth, but Gen X is gaining. The vertical axis is in trillions of dollars.

DO I PUMP GASOLINA OR GASOLEO?: We were in Portugal the week before last with another couple. My friend Scott and I switched off driving responsibilities. One day when I was driving, I stopped for gas, and Scott politely offered to pump the gas. He looked at something like the picture below (these are the choices at a Portugal gas station).. They all say “gas.” Anyway, he filled the tank, and I started driving. We were on a highway, and we were going down a very long decline (Portugal has lots and lots of hills and mountains). Suddenly, all the dash lights started coming on, including one that said, “Hybrid Engine Fail.” I was getting nothing from the gas pedal, but we were still going fast due to the decline. They were all chatting, and it wasn’t until the third time of me saying, “the car is not working” that I got their attention. As I steered the gliding car toward an exit, I said, “Scott did you put diesel in this car?” As it turns out, he unknowingly did, but as you can see from the picture below, it is pretty confusing. Beware of this if you ever go! Gasoleo is diesel and gasolina is petrol or gasoline.

TUESDAY NIGHT: I kind of scared my grandkids. Not sure why.

Have a great week!

Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“Your net worth is a lagging measure of your financial habits.” James Clear, Atomic Habits

“Our people must learn to devote themselves to doing what is good, in order to provide for urgent needs and not to live unproductive lives.” Titus 3:14 (NIV)

GENERATIONAL WEALTH: Eventide, Haver Analytics, Bank of America Global Research.
STOCK VALUATIONS: Eventide Asset Management, Bank of America Merrill Lynch Small Cap Research dated 10/5/2023, FactSet, Bank of America Small/Mid-Cap Valuations, 1985-9/30/2023, Report as of October 5, 2023.

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*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.

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.




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    Doug MacGray

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    November 6, 2023


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