Trade The Journey

Trade The Journey

Weekly Update

Top of the Morning! March madness began last Thursday, and so far, the games have been entertaining. I have no particular team I’m rooting for; I want to see competitive games. There’s been a couple of overtime games and more than a few close games.

College basketball has been a polite distraction to some of the economic strains and international conflict. The Ukraine/Russia conflict continues, with Russia finding it more challenging to take Ukraine than it imagined. With international aid continuing to Ukraine, their unrelenting belief that Russia will not take over has led them to mount an inspiring stand to Russia.

With international sanctions levied upon Russia, reports have circulated that it has reached out to China for assistance. China and Russia have denied these reports. As Russia becomes desperate, especially Putin, I wonder, like many, how far Putin is willing to go because he has essentially crippled the economy for years to come.

Here in the US, the Fed raised rates a quarter-point. According to the latest report, all Fed members favored rate hiking to a quarter-point with one member dissenting, favoring an increase of fifty basis points. In May, the Fed intends on reducing its balance sheet, including treasuries, agency debt, and mortgage-backed securities.

All remaining meetings are forecasted to include rate hikes. There are six remaining meetings for the year. 1.9% is the forecasted rate for the year’s end. All committee members expect the Price Consumer Expenditures index to increase. The Fed’s intention, above all else to restore price stability.

Mortgage application volume decreased for the week, as did the refinance index, while the purchase index rose. “The purchase index provides a picture of the number of potential home sales for the recorded week.” It does not measure homes sold or mortgages closed.

Rates rose again for mortgages, and the MBA report stated that mortgage rates will remain volatile due to the FED and geopolitical events. Building permits fell from the previous month but are still above the 2021 levels. Housing starts are still above January levels and remain higher than the last several years. Completions also came in higher but below the previous month.

The construction price index for 2021 showed the most significant price percentage increase at 11.6% since the 1970-80 period. As home prices and rates continue to rise, are we close to seeing an epic slowdown in the housing market?

Prices for goods and services show no sign of slowing down, and consumers may not be able to afford a higher mortgage payment or down payment.

The retail sales report showed a modest increase. The retail information does not adjust for inflation. The inventory to sales ratio measures how many months of inventory a business has to meet sales came at 1.13 for retail and 1.30 for businesses. These numbers indicate that retail has slightly over a month of inventory to meet sales. The same with the business inventory.

When inventory builds up to higher levels, that could indicate a slowdown or recession, as businesses no longer need a larger workforce to meet demand.

For February, industrial production increased across the board, except for automotive products and utilities. Capacity Utilization increased slightly.

PPI for final demand increased 0.8% from the previous month but is up to 10.0% from last year. The increase is largely attributed to energy. Fresh and dry vegetables alongside meat moved lower. Services remained unchanged. I included an excerpt of the explanation of the PPI process below given from the Federal Reserve.

Since the late 1970s, the Producer Price Index (PPI) has employed the Stage of Processing (SOP) system as its primary form of data analysis. The SOP system is composed of price indexes for goods and organizes these data by type of buyer and level of fabrication. Goods destined for households or capital investment fall under the finished goods SOP, while processed and unprocessed goods for business demand (excluding capital investment goods) fall under the categories for intermediate materials, supplies, and components or crude materials for further processing.

Bonds

Bonds reacted to the Fed’s increase in rates, inverting at the shorter part of the curve. Rates for the five-year bond rose above the ten-year bond, indicating a possible slowdown. It also signals that the Fed may have a hard time engineering a soft landing. With the ongoing conflict in Ukraine and the consensus that the Fed is behind the curve, the Fed may be more aggressive than initially planned.

Sectors and Indices

Commodities pulled back from their highs over a week ago, with energy going to less than $100 a barrel, although it did not stay below $100. Nearly all sectors showed a strong rebound except Utilities which ended the week slightly down.

 

Russell 2000

The Russell broke through its 50 sma and closed slightly above its sideways trend. The resistance of the sideway trend was at 2081. The following reference level above is 2139. Barring any developments, the Russell could test this reference level, a strong support/resistance level for the Russell.

S&P 500

Although the S&P 50 sma crossed the 200 sma recently, it managed to close above its 50 sma. It broke through the 4430 reference level and is on its way to testing another reference level at 4481.

Dow Jones

Although the Dow 50 sma crossed the 200 sma recently, it managed to close above its 50 sma. It broke through the 34519 reference level and faces resistance at the 200 sma before testing the next level at 35517.

Nasdaq

The Nasdaq recovered nicely and closed slightly above its 50 sma. The following reference level above is 14177.

The markets recovered nicely, with the “buy the dip” mentality still intact. Many stocks were selling at discounts, although many companies still seem to be facing supply chain challenges and higher input costs. Crypto also recovered as Biden moved to regulate the industry, adding legitimacy and staying power to cryptocurrency.

The Fed has indicated that it is experimenting with the idea of issuing a digital currency as China is in the process of rolling out its digital currency. The market will remain volatile, although investors had a risk-on attitude as the Fed moved to tackle inflation this past week. My personal opinion is that the Markets are fragile, and the forecast of slowing growth and rising prices in the economy only adds to the fragility.


Cash-flow for the past week:

This past week, cash management was at the forefront of my spending activity. With gas prices close to six dollars, my available cash flow for purchases outside of travel decreased. With gas prices slated to go higher, I’ll have to ensure that I have cash on hand to meet any emergencies, saving any extra money I earn.

Grade: C

Reason: Maintained a good level of savings.

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