Watch Vance Howard discuss navigating the market through the banking crisis on TD Ameritrade Network

Markets are rallying after ECB rate hike and Credit Suisse (CS) bailout. Vance Howard discusses navigating the market through the banking crisis. He talks about how HCM is currently invested, highlighting his picks which include Bank of America (BAC) and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). He then goes over what financial conditions could mean for the Fed’s stance. Tune in to find out more about the stock market today. Watch the interview here.

Vance Howard on CNBC: The market is teetering on the trend line of going negative, now is not the time to be a bull

23-3-15 Vance Howard on CNBC
Vance Howard joins Frank Holland live in studio on CNBC’s Worldwide Exchange to discuss how the banking crisis events in the U.S. and Europe have changed his mindset over just how fully invested people should be right now. Watch the interview here.

Silicon Valley Bank Goes Under, Where Do We Go From Here?

To start the Wealth Watch I would like to let everyone know that we had almost no exposure to SIVB or the banking sector in general, and we do not own any bitcoin. Neither met our requirements for an investment.

While I have been writing to expect volatility over and over for weeks, I think it is now clear to see that I was not kidding, was I? The last week has weakened the HCM-BuyLine® and we are watching closely for any break. The markets have been trading just about as we had anticipated, with a nice run-up in January, then a pullback followed by a period of consolidation which is to be expected. What was not anticipated was a bank failure. That caused a two-day selloff that was very hard. The trend is still intact, but just barely. Even if the HCM-BuyLine® is breached, we do anticipate a recovery back above the trend in short order.

We spent a lot of time over the last three days analyzing whether we felt other banks were not being managed very well, and our conclusion is that this is most likely a one-off. In other words, the bigger banks look to be more sound. They are not taking on high risk loans like Bitcoin and tech startups like SIVB was. Furthermore, most of the larger banks are very well diversified whereas SIVB was not.  I’m not sure how they were able to give loans to a lot of these startups, but it has created some good buying opportunities in the banking sector. Our top pick would be Bank of America, and while we do anticipate investing in that bank soon, we will give the banking sector time to stabilize before looking to invest.

SIVB, the 16th largest bank in the US, is one of Tech industry’s largest lenders and media stories suggest VC and PE firms might be advising founders to move cash away from SIVB — essentially fueling a panic among Financials that continued right up until regulators shut it down.

SIVB’s failure highlights the fact that banks collectively are sitting on sizable losses on loans due to the rise in interest rates. The FDIC reported that at the end of 2022, the total unrealized losses is $620 billion (vs ~$15b 2021), and if these banks had to liquidate their portfolios, would substantially deteriorate book value.

But with investors and depositors rattled by the troubles at SIVB, financial conditions are tightening. This potentially reverses some of the hawkishness one would expect from the Fed. Basically, restricted lending by banks amplifies the impact of Fed hikes in place now, and would reduce the need for future hikes.

While the NFP jobs report will be very important for the Fed, the SIVB-induced bank scare actually offsets the inflationary risks for the Fed to an extent. That is, even if Feb jobs is really strong, the continued second-order effects of the SIVB-issues will likely contribute to a tightening of financial conditions. This means the odds of the Fed having to accelerate its pace of hikes might be reduced.

Volatility Can Be Scary, But The HCM-BuyLine® Remains Positive

The markets are trading about as we would expect. With the strong run-up in January, a pullback and period of consolidation was warranted. There is room for the market to move either up or down, with the trend still up as identified by the HCM-BuyLine®. The S&P 500 has traded down to support and is close to the 200-day MA. Like I stated last week, volatility is to be expected.

The S&P 500 ex-FAANG is trading at a 14.8 P/E, which shows a lot of value for most of the underlying issues in the S&P 500. A 14.8 average PE is not high for the rest of the S&P 500.

We hear investors say the market is too expensive. But this is distorted by the higher multiples of FAANG, and we think the higher multiples of FAANG are justified. FAANG stocks are also very strong financially and making a lot of money even in this volatile market.

The Conference Board’s Consumer Confidence Index fell 3.1 points in February to 102.9, down for the second consecutive month, and below the consensus of 108.5. While the index is down 26.0 points from its cycle high in mid-2021, it has been range-bound over the past several months and is holding up well above the lows during the pandemic. The current level is consistent with a continued economic expansion.

Consumers felt better about the present situation, with that index component up 1.7 points to 152.8, its best level in ten months. The main driver was a pickup in job availability, which is running close to its highest level since 2000 and implies continued downward pressure on the unemployment rate over the near-term. At the same time, current business conditions were broadly viewed as neutral.

Consumer expectations, however, dropped 6.3 points to 69.7, a seven-month low and near the worst level since March 2013. Expectations for jobs, business conditions, and incomes all worsened from the prior month. The confidence spread (present situation minus expectations) widened to 83.1 points, the most since March 2001. It suggests that even though consumer confidence is still high, consumers are nervous about the economic outlook. A peak in the confidence spread, followed by a sizeable decline, has historically been associated with slower economic growth or recession. Although this indicator has not yet peaked, we have it on watch for early signs of deterioration.

Don’t Blink – Bullish Signals Abound

The market has pulled back to the point of being oversold. After a nice rally a period of consolidation can often be expected. This has little effect on the HCM-BuyLine®, and it remains positive. The S&P has set into what is called a golden cross, where the 50-day moving average crosses above the 200-day moving average, reflecting another bullish pattern. Also, the S&P 500 remains above the 200-day moving average, and a breadth signal occurred on 1/12, another bullish signal. VIX, the volatility index, is now oversold and a reversal is probably imminent. Pullbacks are buyable until the HCM-BuyLine® turns negative, and it has a good amount of room to move before that happens.  Remember, you sometimes have to do what is not comfortable to be successful, and sometimes markets are a very uncomfortable place to be.

The S&P Global Flash U.S. Composite PMI climbed 3.4 points in February to 50.2, its best level and in expansion territory for the first time since June 2022. The improvement in private sector activity comes on the back of some better-than-expected economic data for January, including nonfarm payrolls and retail sales. Although the latter may have been impacted by seasonality and benchmark adjustments, and the risk of recession later this year has not been eliminated, the cumulative evidence still suggests that the odds of a soft landing for the economy have improved.

In both services and manufacturing, cost burdens eased but selling prices picked up. This suggests that firms continue to have pricing power, which bodes well for their profitability, but also implies that consumer price inflation may be stickier than anticipated.

Risk-On! – The HCM-BuyLine® Flashes Buy

The HCM-BuyLine® is positive, and risk should be taken. Pullbacks should be considered buyable. We have been adding exposure to equities and are near 100% back in the market. What can investors expect? Volatility, and I highlight that word for emphasis because there is a lot of fear out there due to the bruising 2022 market, not just for stocks but also the worst bond market in over 40 years. So, anytime Fed chair Powell steps in front of a microphone, hold on because the markets are going to move, and which direction is anyone’s guess. With the HCM-BuyLine® being positive the odds are a 73% chance that the market will continue to climb higher, and a 27% chance it does not hold and rolls over. In that case we again reduce our exposure to equity. 

What could be a very encouraging sign that not only are we now in an uptrend, but that a new bull market could be developing is the S&P 500 is setting what looks like a cup and handle pattern. The cup and handle is one of the more powerful technical chart patterns there is. They do not set up very often, but when they do set up and follow through, it usually leads to a very explosive and long-lasting rally. Time will tell.

Consumer prices firmed up in January, driven by a rebound in energy and continued strong gains in shelter. Additionally, revisions to the seasonal adjustment factors converted the 0.1% decline in December to a 0.1% increase and showed stronger price growth in Q4 overall than previously estimated. Year-to-year price growth eased less than expected. Coming on the back of strong payrolls growth and further tightening in labor market conditions in January, this report confirms that the Fed is not yet done raising rates.

We currently expect two more rate hikes this year before the Fed pauses to evaluate the impact of cumulative tightening. The Consumer Price Index (CPI) increased 0.5%, the most since last June, and above the consensus of 0.4%. Energy prices rose 2.0%, following two consecutive declines, while food prices rose 0.5%, still much stronger than the 0.15% average monthly gain in the year prior to the pandemic.

Core CPI, which excludes energy and food, increased 0.4%, the most in four months, and above the consensus of 0.3%. Shelter was the biggest contributor, up 0.7%, accounting for more than half of the increase in the core. Both rent and owners’ equivalent rent rose by the same amount. Shelter’s increase was off the peak of 0.8% at the end of last year, but still near the biggest gain since August 1990. While private surveys show that rents have already started to decline, the change is captured in the much broader shelter CPI with a significant lag. We expect shelter CPI to moderate later this year.

Vance Howard on Bloomberg Businessweek

© 2023 Bloomberg L.P. All rights reserved. Used with permission

Vance Howard joins Oliver Renick on TDA Network’s Morning Trade Live to discuss his outlook on the market

Could SNAP Go As Low As $6 Per Share In 2023? META Comparison
Is there any hope for a social media platform like Snapchat? “Technical analysis on a stock like SNAP is terrible. I see it going as low as $6 per share in 2023. I think this is largely an advertising problem, as well as the entire communications sector being weak. On the other hand, Meta Platforms (META), previously Facebook (FB), needs to reevaluate their business model as what they largely provide are ads versus social engagement,” says Vance Howard. Next, Tom White discusses example options trades on META.

HCM-Buyline® Goes Positive – Look For Your New HCM 401(K) Allocations Now

The HCM-BuyLine® has turned positive on a short, intermediate, and long-term basis after giving a very strong buy signal. Several other indicators have also been close or have turned positive. We have sent out new allocations for our 401(k) Optimizer participants, along with readjusting our allocation in other investment areas such as annuities. Thus, until/unless there is some type of meaningful pullback under 3949, dips in the next 1-2 days should be buyable into/post FOMC for rallies back over 4100.

The equity comeback of the past three months has been broadening out globally, with the U.S. market now participating to a greater extent and the performance of risk-on proxies becoming more decisive relative to the performance of risk-off proxies.

I have enclosed this week’s strongest sectors for your review:

Inflation pressures continued to recede in December but are still elevated. The PCE Price Index edged up 0.1%, the least in five months, largely due to lower energy prices. The core PCE Price Index rose 0.3%, in line with the consensus

On a y/y basis, PCE prices posted 5.0%, down from 5.5% in the prior month, and the lowest inflation rate since September 2021. Core PCE inflation eased to 4.4% from 4.7% in the prior month, the lowest rate since October 2021, and matching the consensus. The deceleration supports a continued downshift in Fed rate hikes. We expect a 25 bp rate increase at the FOMC meeting next week.

The main contributor to the deceleration was goods inflation, particularly durables. Durable goods prices were up just 1.4% y/y, the least since February 2021, and a steep drop from the cycle peak of 10.6% y/y in early 2022. Services inflation, which is stickier, was unchanged from the prior month at 5.2% y/y. It has ticked down from its cycle peak of 5.5% y/y last October, but it is still near its highest level since 1985. Housing and utilities prices, which accounts for more than a quarter of the services price index, are still posting above-average monthly gains. They were also up 8.4% y/y in December, the most since October 1982, keeping upward pressure on services inflation.

Personal consumption expenditures (PCE) fell 0.2% in December, below the consensus estimate of -0.1%. This was the second consecutive decline in spending and the most in a year. It suggests that demand is slowing under the pressure of higher interest rates and still elevated inflation.

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