Welcome to the March 2024 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.
Summary
Jason Zweig of the Wall Street Journal writes, “If you invested $1,000 in Nvidia stock at the beginning of this year, it would be worth more than $75 million now. I’m kidding, of course–but it might feel that way if you don’t own Nvidia. Nvidia stock is up 59% in the past nine weeks–after gaining 239% last year.”
The point of Jason’s article was to calm everyone down who does not own Nvidia. Jason notes it is OK to lick your wounds if you missed out, but if you do, you should also rejoice in all the stocks you did not buy high that went on to have a 50% drop in their price, or more, in the past 10 years. No one is going to be a 100% winner and also a 0% loser. So be happy we are all making money in 2023 and so far in 2024. The stock market does not always go up, but mostly it does. Play the long game, focus on diversification, keeping costs low, plan for taxable accounts to be tax efficient, and sleep well every night.
For 2024, our belief is there will be no recession this year, inflation will continue to slowly drop towards 2%, and unemployment will stay low. We should have a decent year in the 2024 stock market so long as corporate earnings come in as expected.
Quote of the Day
Thomas Jefferson
Jefferson (April 13, 1743 – July 4, 1826) was an American statesman, diplomat, lawyer, architect, philosopher, and Founding Father who served as the third President of the United States from 1801 to 1809. He was the primary author of the Declaration of Independence. As President in 1803, Jefferson promoted a western expansion of the nation with the Louisiana Purchase from France. This doubled the nation’s geographic size. He is consistently ranked among the top five US Presidents of all time.
Jefferson once said, “Never spend your money before you have earned it.”
Does this mean we should not sign up for an eight-year auto loan? YES! Would a six or seven-year auto loan be, OK? NO!
Dave Ramsey recommends only paying cash for cars and trucks. That’s a tough stand to take. Suze Orman says never borrow money for longer than three years to buy a vehicle. OK I can go along with that. But if you find you can’t afford the high payments on a new car if you only borrow for three years, what to do? Well, you have two choices, either save up a larger down payment to lower the monthly payments or buy a lower-cost car. Our recommendation is to stick to borrowing for no longer than three years for a new or used vehicle. Just remember, homes appreciate but vehicles depreciate.
Pop Quiz
The S&P 500 Index is up 5,5250.% since 1978. Back then the index averaged 96. On March 1, 2024, the S&P 500 closed at 5,137. Over the same time period, in percent, how much has Berkshire Hathaway A shares increased (BRK-A)? Hint, in 1978 the stock price averaged $335.85 a share and has never split.
The answer is at the bottom of the newsletter.
The Economy
Employment
Total U.S. nonfarm payroll employment rose in January by 353,000. The official unemployment rate, U-3, remained unchanged at 3.7%. The November 2023 and December 2023 combined employment numbers were revised up by 126,000.
Chart 1 below is based on the Bureau of Labor Statistics official unemployment rate, U-3.
In chart 2 below, even though the two-year trend of employment growth has slowed, there is now a 3-month trend of higher growth.
The Job Openings & Labor Turnover Survey (JOLTS) showed little change with 9.0 million open jobs across the country as of the last business day in December. The 10-year chart below shows the recent downward trend in open jobs.
The seasonally adjusted Total U.S. Unemployment Rate, U-6, increased in January to 7.2% vs 7.1% last month. There were 6.8 million people unemployed in December, age 16 and older. Last month it was 5.9 million people unemployed.
January Unemployment Rates by Education Level
| Less Than High School Diploma | 6.0% |
| High School Graduate, No College | 4.3% |
| Some College, Associate's Degree, or Skilled Trade Degree | 3.3% |
| Bachelor's Degree or Higher | 2.1% |
Average hourly earnings of all employees on private nonfarm payrolls were up 4.5% in January compared to a year ago. This was 0.4% higher than last month.
Leading Economic Indicators (LEI) sponsored by The Conference Board
The LEI for January dropped by 0.4%. This was the 22nd month in a row with a decline.
The Conference Board’s spokesperson said, “While the declining LEI continues to signal headwinds to economic activity, for the first time in two years, six of the ten components were positive contributors over the most recent six-month period. As a result, the LEI currently does not signal recession ahead. We are no longer forecasting a recession in 2024!”
Gross Domestic Product (GDP)
The Bureau of Economic Analysis said the second estimate for GDP in the fourth quarter of 2023 rose at an annual rate of 3.2%. GDP for the first quarter 2023 was 2.2%, 2.1% in the second quarter and 4.9% in the third quarter.
The increase in real GDP reflected increases in consumer spending, exports, and additional government spending.
Labor Productivity
Nonfarm business labor productivity increased 3.2% in the fourth quarter of 2023 as reported by the Bureau of Labor Statistics. In the same quarter a year ago, the increase was only 2.7%.
Third quarter 2023 data was revised down to 4.9% from 5.2%. Artificial intelligence over the next 10 years will tend to increase productivity going forward.
Inflation
Annual inflation decreased to 2.4% as measured by the Personal Consumption Expenditures (PCE) index in January. The Core PCE index, which excludes food and energy, dropped to 2.8% in January from 2.9% the previous month.
The peak Core PCE inflation this cycle was 5.4% in February 2022. Lower inflation is reason for optimism for the economy as a whole and for the Federal Reserve to begin lowering interest rates later this year.
Mortgage Rates and Existing Home Prices
As of February 29, 2024, the average 30-year fixed-rate mortgage had an interest rate of 7.15%, compared to 6.75% last month. Also, the average 15-year fixed-rate mortgage had an interest rate of 6.64%, compared to 6.18% last month.
The median existing home sale price in January rose to $379,100. That is a 5.1% increase from January 2023 according to the National Association of Realtors. The inventory of existing homes for sale remains low with only a 3-month supply.
The U.S. Public Debt as Issued by the Treasury Department as of February 29, 2024, was:
$34,414,000,000,000.
Last month it was $34,154,000,000,000.
Important Dates in March
March 3 – The Missouri Compromise was passed by Congress in 1820.
March 5 – Super Tuesday. Citizens from 16 states will be voting in their presidential primary.
March 8 – International Women’s Day.
March 10 – Spring ahead! Set your clocks ahead one hour.
March 14 – at 1:59 (both AM and PM). Celebrate the constant Pi! The date and time reflect the value of Pi to six significant digits: 3.14159
March 15 – The Ides of March. On this day Julius Caesar, leader of the Roman Republic, was stabbed to death in the Roman Senate in 44 BC by Brutus, and the Roman Empire began. With poetic license, Shakespeare suggested Caesar asked as he lay dying on the floor, “Et tu, Brute?” – “You too, Brutus?”
March 15 – Quad Witching Day. This is when individual stock options, stock index options, stock index futures, and options on stock index futures all expire. Quad witching is on the third Friday of March, June, September, and December. Volatility tends to be higher on these days.
March 17 – St. Patrick’s Day observes the death of St. Patrick, the Patron Saint of Ireland.
March 19 – The First Day of Spring or the Spring’s Equinox for the northern hemisphere. An equinox is when the plane of the earth’s equator passes through the center of the Sun. The earth has two equinoxes: typically, March 19 and September 22.
March 19 & 20 – The second Federal Open Market Committee (FOMC) meeting of 2024. The Fed is expected to keep interest rates the same.
March 25 – Medal of Honor Day.
March 28 – Major League Baseball’s Opening Day in 2024. There will also be a two-game match between the Dodgers and Padres in Seoul, South Korea, on March 20 and 21.
March 29 – National Vietnam War Veteran’s Day.
The Stock Market
Commentary
Stephanie Link
Link is the Chief Investment Strategist and Portfolio Manager at Hightower’s Investment Solutions Group based in New York City.
On Tuesday, February 13, 2024, with the S&P 500 down 1.15% by noon that day due to a higher-than-expected inflation report that came out in the morning, Link said, “We are having good economic growth and that is why we are seeing stubborn and stickier inflation. But I’ll take better growth and progress-on-inflation any day.”
“The reason why is because corporate earnings are coming in better than expected. This is because companies have pricing power, they are having productivity increases and their inflation has come down as company’s supply chains have been fixed.”
“I feel pretty good about corporations having double digit growth this year. Therefore, I believe days like today are buying opportunities!”
What Did Warren Buffett Have to Say in 1987?
In his letter to shareholders on February 27, 1987, Buffett wrote, “Occasional outbreaks of those two super-contagious diseases, fear, and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.
Stock Market Valuation
On February 20, Goldman Sachs raised their S&P 500 Index 2024 year-end target to 5,200 from 5,100.
Last month UBS said, “We are increasing our 2024 S&P 500 target from 4,850 to 5,150.” On February 22, UBS issued two potential outcomes by year end. Their S&P 500 Index base case is now 5,200 and their best case is 5,400.
Monthly Performance of the S&P 500 Index
2023 Annual Performance of the S&P 500 Index
VOO, the market cap weighted S&P 500 Index ETF, was up 26.3%.
RSP, the equal weighted S&P 500 Index ETF, was up 13.7%.
Recommended Action for Your Stock Portfolio
Even Lorenz Financial is subject to a shark attack! During mid-February, Lorenz Financial was solicited to sell our clients a multisector bond fund.
The name of the fund is Rational Special Situations Income Fund, RFXIX. Their strategy is to “focus their investments on non-government agency mortgage-backed securities on residential and commercial properties with no limitation on securities rated as junk”.
So, what makes this fund so suspicious?
- Morningstar’s analyst ratings range from Gold, Silver, Bronze, Neutral and down to Negative. This fund is rated Negative.
- The annual expense ratio is a whopping 1.77%. Our favorite junk bond fund is Osterweis, OSTIX. Its annual expense ratio is 0.86%.
- RFXIX’s average annual return for the past three years has been 2.86%. OSTIX has an average annual return of 3.74% over the past three years and has been up 4.12% over the past three months.
Lorenz Financial has no plans to offer RFXIX to our clients or to buy it in our own account. Just remember there are sharks in the water, and they smell your money.
·Not FDIC Insured ·No Bank Guarantee ·May Lose Value
Financial Markets Vocabulary
The Rule of 72 is a mathematical guideline used to approximate the number of years it will take for a given investment to double in value. The number of years to double an investment is calculated by dividing 72 by the expected annual rate of return. For example, an investment expected to earn 9% annually will double the investor’s fund in 72/9 = 8 years.
OK, Now What Do I Do?
For those who want to climb Mount Everest, perhaps the most important personal attributes they need to have are a high level of training, persistence, stamina, and courage. For a rodeo clown, they better be quick and have a bucket full of courage. For a stock market investor, its courage and patience.
Let’s look at some of the recent bad years in the S&P 500 Index.
Unfortunately, the early 2000’s made a lot of people just give up. But for those with exceptional patience and courage, they were later rewarded. See the recent best years in the S&P 500 below.
The stock market does not always go up, but mostly it does. Even when the market goes down for two or even three years in a row–hang in there! If you are still working, keep contributing to your retirement fund as you are buying low in the down years. There is nothing better than buying low except a great cup of coffee and having a special dog. By using patience and courage, stock market investors are eventually richly rewarded.
As of February 23, 2024, the 10-year average annual return of Vanguard’s S&P 500 Index fund, VOO, is 12.77%
We are not sure if an investor who exhibits courage and patience is the turtle or the hare, but that investor is surely going to be the winner.
Our Financial Bad Boys This Month
Edward Jones
Edward Jones is a financial services firm headquartered in St. Louis, Missouri. Their 15,000 locations serve clients in the U.S. and Canada. The company has nearly 8 million clients with $1.8 billion in assets under management. The firm offers clients three different types of account structures – all of which are expensive. See below.
Edward Jones Select Account
This type of account is for the investor who is hands-on and desires to make his own buy and sell decisions. The Edward Jones advisor will offer some guidance as requested. The fees for this type of account are:
Edward Jones Guided Solutions Account
This type of account has the advisor making specific recommendations to the investor. The investor decides to agree or not on each proposal.
Edward Jones Advisory Solutions Account
With this account type, the advisor helps the investor select a portfolio model based on the investor's situation and will invest and manage the account on behalf of the client. These clients typically desire only a semi-annual or annual summary and don’t want to be bothered with every buy and sell decision. Therefore, this type of account is more expensive than the Guided Solutions account.
Almost all investors with an advisor do not know, how much their advisor charges. These are the perfect client for Edward Jones. But investors should know how much their advisor is charging them! There are certainly lower-cost financial services firms than Edward Jones available to investors, including Lorenz Financial.
The Bond Market
Commentary
The most recent release of meeting notes by the Federal Open Market Committee (FOMC) said officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices. While the inflation data had indicated significant declines in the second half of 2023, participants observed they would be carefully assessing incoming data in judging whether inflation was moving down sustainably towards 2 percent.”
Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy. A stable economy, which grew at a 2.5% annualized pace in 2023, has encouraged FOMC members that the succession of 11 interest rate hikes implemented in 2022 and 2023 have not substantially hampered growth.
Members also brought up the bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasuries and mortgage-backed securities to roll off.
Recommended Action for Your Safe Money
Our recommendations for an investor’s safest money is unchanged from last month. Our recommendations, in no particular order, are:
- Ultra-Short-Term U.S. Investment-Grade Corporate or Securitized bond funds
- Short-Term U.S. Investment-Grade Corporate or Securitized bond funds
- Intermediate-Term U.S. Investment-Grade Corporate or Securitized bond funds
- Short-term high-yield bond funds
- Short and intermediate-term U.S. Treasury bond funds
- Cash (in a money market mutual fund paying 4.5% to 5.0% per year.)
- Bank or Credit Union Certificates of Deposit (only if FDIC or NCUA insured!)
- U.S. Savings I-Bonds (max savings is $10,000 per account per year.)
Due to the relatively low return of these investment products, investors should not put 100% or anything close to that in these products. These products are for an investor’s safest money or perhaps 10% to 25% of their total portfolio. These products are safe, but they will not provide the growth needed to stay ahead of inflation and taxes.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
Pop Quiz Answer
The S&P 500 Index is up 5,5250% since 1978. Back then the index averaged 96. On March 1, 2024, the S&P 500 closed at 5,137. Over the same time period, in percent, how much has Berkshire Hathaway A shares increased (BRK-A)? Hint, in 1978 the stock price averaged $335.85 a share and has never split.
Answer: The closing price on March 1, 2024, of BRK-A was $613,965. Yes, almost $614 thousand per share! The stock price is up 182,700.% since 1978.