But notice that late in the prior year, we had begun to see increasingly higher readings for this metric. Indeed, in December, January, and again in February, we saw the three best months for metric since July of 2021. So, attitudes toward consumption are changing in a positive way, and quickly.
Why might this be happening? Well, we felt dour in 2022 because our capacity to spend was under inflationary duress.
Today, it appears that the rate of inflationary change has nearly returned to pre-pandemic levels. According to the Department of Labor, the year over year change in personal income has been higher than that of the rate of inflation, and so our capacity to spend has been increasingly positive since November of 2022.
Discretionary income has been increasingly plentiful as well, and hence why we’re observing patterns of consumption improving.
Aside from sequentially higher retail sales reports, we’re also beginning to see a discernible shift in the ISM Manufacturing Index.
The ISM manufacturing index had been in freefall since March of 2021 until the beginning of the fourth quarter last year. Manufacturers didn’t just decide to stop making things. They responded to you not buying as many things as inflation hit a 40-year high. That in my opinion gave rise to the recent crisis driven, rapid adoption of technology and the emergence of the magnificent seven stocks last year.
We’ll save that for another article. For now, notice that this trend came to an end in the fourth quarter of last year, and has seemingly reversed. Now, for the first time in well over a year, the index is above 50 which indicates expansion in a new economic season. Clearly, the consumer is buying more things now. This is important because consumption is 70% of Gross Domestic Product, and observing these points of data, you can see how they’re beginning to daisy chain together, and in my opinion, they’re pointing to much better outcome than we had anticipated even just one year ago. We must be stoic in our resolve to proactively manage portfolios in a tactical manner as we observe this changing data.
Observing market behavior as an indicator as well. We call that stochastic analysis. So, when you hear in the media that markets are bouncing off of strength, or running into resistance, it is to Bollinger Bands that reference is being drawn.
On the 20th of November, it appeared that the 50 day and the 200 day moving averages were converging within the same cone, so on its surface, this suggested that the first quarter of 2024 might be very interesting to watch.
On the 1st of December though, we received the minutes of a Federal Open Market Committee meeting, and in my opinion, we heard the same message from the Fed for a 13th month in a row. Over the previous year, markets didn’t metaphorically blink, still reluctant to fully embrace the Fed following the most aggressive removal of accommodation in 45 years.
But on this day, the market closed up 580 points. We broke what had been the upper level of resistance. Statisticians tell us that if you breach a barrier, higher or lower, close above or below that level, and continue the trend, then there is a statistically high probability that you’ll re-set that barrier ten to fifteen percent higher or lower than the previously breached level.
Well, here we are today. We’re still searching for what has yet to become that new upper-level band of resistance. So, to your point, yes, I can point to a stochastic analysis of the market to suggest that we are indeed seeing patterns of behavior seemingly changing in a positive manner for the first time, really since the pandemic.
So, in closing, I’d like to offer this high-level advice about how you should approach this year as investors. Be this guy.
Stay away from sensationalism and hyperbole. Remain focused on that which can be quantified, and find the stoic disposition to act upon data when it begins to point in a certain direction.
Remain focused on the fruition of planning goals, and not necessarily on the red or green arrows of the day. Most of all, be patient. Yes, I believe we’re headed for the summer solstice, but you know, August doesn’t immediately follow April. This will unfold gradually over time, and across fits and starts as you put it at the beginning of this video. Remain patiently focused on the bigger picture, be tactical in your approach to asset allocation, while keeping your intestinal fortitude intact. That’s how we get through periods of disproportionate upheaval and colder economic seasons.
Seth J. Edgil and David Guttery offer products and services using the following business names: Keystone Financial Group– insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA/SIPC – securities and investments | Ameritas Advisory Services, LLC (AAS) – investment advisory services. AIC and AAS are not affiliated with Keystone Financial Group. Information is gathered from sources believed to be reliable; however, their accuracy cannot be guaranteed. Data provided is for informational purposes only and should not be construed as a recommendation to purchase or sell any investment product.
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