The S&P 500 index fell 3.1 percent in February as the Russian invasion of Ukraine added to the growing list of uncertainties affecting markets. Oil spiked to more than $105 a barrel, while wheat jumped to its highest level since 2008 as Russia and Ukraine account for roughly 30 percent of all wheat exports. Prices for corn, iron ore, sunflower seeds, barley, among others produced in Russia and Ukraine rose in tandem.

This is happening at a time when inflation has been increasing for more than a year while the Federal Reserve has failed to act. We consider this reckless behavior. As recently as January 26, 2022, Federal Reserve Chairman Jerome Powell referred to “the relatively high-class problems” that come with the economic recovery, including “high inflation.” Inflation is running at a 40-year high, and real hourly earnings (meaning adjusted for inflation) have declined for 10 consecutive months.

The Fed has lost touch with reality. One day Fed Chairman Powell states inflation is a high-class problem, while another day he claims the Fed understands “that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food.”

Click here to read the full report.

In our early December piece, we wrote “Of greater concern is whether the Fed is making another mistake.” And specifically, “any perceived mistake could result in a significant reduction in risk assets” as “hedge funds are exceptionally good at crowding the exits.” That is exactly how the year began.

A rough start to the year got even worse following a press conference by President Joe Biden whereby the S&P 500 index dropped 6.8 percent over the following three days. That is not a political statement – it is a fact. It is quite clear that the markets did not like his comments that suggested a “minor incursion” by Russia into Ukraine would be tolerated, and that the 2022 elections might not be legitimate.

The S&P 500 index declined 5.25 percent in January having been down more than 11 percent only a week before. The bond market sensing a major mistake by the Federal Reserve regarding inflation saw the 10-year U.S. Treasury yield rise from 1.35 percent on December 3, 2021, to 1.87 percent on January 18, 2022. The nearly 40 percent increase in interest rates over a seven-week period was a catalyst for a selloff in the U.S. equity markets, with the NASDAQ Composite falling more than 15 percent at one point in January.

Click here to read the full report.

The month of December ended a volatile six-week period with the S&P 500 index and NASDAQ Composite experiencing several weekly losses and gains exceeding 2 percent and 3 percent, respectively. Concerns about Federal Reserve policy, inflation, the Omicron variant, and the future of the Biden administration’s Build Back Better, among other things, were responsible.

Nevertheless, the S&P 500 index gained 4.3 percent in December and was up 26.8 percent for the year as inflation spiked to multi-decade highs led by oil prices, which rose roughly 55 percent. Meanwhile, interest rates on the 10-year Treasury Note rose from 0.93 percent at the end of 2020 to 1.52 percent at year-end 2021.

The headline numbers by themselves were deceiving as there was quite a bit going on underneath the surface. The median S&P 500 stock has corrected 15 percent from its 52-week high, and as many as 208 stocks trading on the New York Stock Exchange and 738 stocks trading on the NASDAQ hit new 52-week lows on the week-ending December 3, 2021.

In addition, the Initial Public Offering (IPO) exchange traded fund was down more than 10 percent in 2021 despite the hype of the new issue market. It seems that a number of companies that had immature business models went public because money was available and interest was high.

Click here to read the full report.

The S&P 500 index dropped 2.2 percent and 1.9 percent in two of the last three days of November on concerns about a new COVID variant (Omicron), rising inflation, and renewed tension over the federal debt ceiling. In November, the S&P 500 fell 0.8 percent, the yield on the 10-year Treasury Note declined from 1.55 percent to 1.43 percent, and a barrel of West Texas Intermediate oil dropped more than 20 percent to roughly $66.50.

At this point not much is known about the Omicron variant, but we do know that viruses generally mutate, and although they become more transmissible, they generally become less severe. Nevertheless, some countries have already issued travel restrictions. The initial knee-jerk reaction was “here we go again,” however, the Delta variant did not result in a shutdown and it remains to be seen what happens with Omicron.

Of greater concern is whether the Fed is making another mistake. We have been critical of the Fed because both the 2000 and 2008 bear markets in stocks had the Fed’s fingerprints all over them. Moreover, the Fed tends to deny responsibility and accountability, so there seems to be few lessons learned. For example, in 2007, former Federal Reserve Governor Edward Gramlich wrote a book titled Subprime Mortgages: America’s Latest Boom and Bust. A few years later former Fed Chairman Alan Greenspan wrote an article titled “Never Saw it Coming.”

Click here to read the full report.

Following a 4.75 percent decline in September on concerns over the U.S. government debt ceiling, higher inflation, and a slowing economy, the S&P 500 index rallied 6.9 percent in October to a new all-time high. Meanwhile, a barrel of West Texas Intermediate crude oil rose 11 percent in October to more than $83, up more than 71 percent year-to-date and the highest level in 7 years.

The interest rate on the 10-year Treasury Note was 1.55 percent at the end of October, up from 0.93 percent at year-end. Moreover, the Federal Reserve is expected to announce a reduction in the amount of monthly bond purchases, which currently is running at $120 billion per month.

Click here to read the full report.

The stock and bond markets came under increasing pressure in September as higher inflation, slowing economic growth, drama over raising the debt ceiling, and a possible default by China’s largest property developer weighed on markets. More importantly, the Federal Open Market Committee (FOMC) suggested that the Federal Reserve could begin to “taper” the pace of bond purchases beginning in November.

The S&P 500 index fell 4.75 percent in September with much of that coming in the last few days of quarter-end. The yield on the 10-year Treasury Note rose 0.22 percentage points to 1.52 percent in four weeks, and a barrel of West Texas Intermediate oil rose from about $68.50 to $75.

Political brinksmanship over the debt ceiling was front and center as Treasury Secretary Janet Yellen warned of “catastrophic consequences” should the U.S. default on its debt. She went on to say it could cause “a steep drop in stock prices” and put the economy into recession.

If you say things like that near the end of a quarter when liquidity is light, it is going to cause a reaction. Despite the rhetoric, however, the reality is that the democrats can raise the debt ceiling by themselves. This is about politics. But if you are going to play with matches, people can get burnt.

Click here to read the full report.

The month of August saw an increase in the number of COVID-Delta variant cases, a botched withdrawal from Afghanistan with legitimate questions about the competence of leadership in a number of areas, several hurricanes, and further record highs in the S&P 500 index.

To be clear, this is not a political statement.  Too often investors get hurt when they ignore reality and do not confront “what is.”  For the record, over the years we have been equally critical of both sides of the aisle when the facts dictate. 

Despite the headlines, the S&P 500 gained 2.8 percent in August to close above 4500 for the first time in history.  The yield on the 10-year U.S. Treasury inched up to 1.30 percent, while the price of a barrel of West Texas Intermediate oil fell roughly 6.5 percent for the month after being down more than 15 percent mid-month. 

Click here to read the full report.

The S&P 500 index rose 2.2 percent and recorded another all-time high in July notwithstanding a significant uptick in volatility as the COVID-Delta variant has caused the number of new cases to rise. Uncertainty about the government’s response, including whether we will be subject to new restrictions, weighed on the markets.

The S&P 500 experienced its worst and best one-day performance since March on back-to-back days in July. Although the number of COVID cases are on the rise, the number of fatalities has remained relatively low compared to last year.

The yield of the 10-year U.S. Treasury Note fell to 1.24 percent at the end of July, down from 1.45 percent at the end of June and 1.74 percent at the end of the first quarter. This action seems to be counterintuitive given that inflation, according to the core personal consumption expenditures (PCE), rose 3.5 percent year-over-year, the highest since 1991.

Click here to read the full report.

The S&P 500 index recorded another all-time high as the accommodative monetary policy from the Federal Reserve helps the post-pandemic economic recovery gain traction. Although stocks have been one of the primary beneficiaries, the combination of Fed liquidity and the economic re-opening is causing inflation to rise. For example, crude oil prices were roughly $75.50 a barrel at the end of June, up from around $48.50 at year-end. As a result, interest rates on 10-year U.S. Treasury securities, which were trading at a yield of 0.93 percent at the end of December, were recently yielding 1.45 percent.

TJT Capital Group’s InVEST Risk Model ® has helped our clients participate in bull markets and protect capital from the devastation of bear markets by focusing on 5 indicators that really matter when it comes to determining the health and direction of markets.  The following is the most recent update.

Click here to read the full report.