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Happy Tax Day

| April 15, 2024

I suppose there are people that are happy it’s Tax Day and happy to pay their taxes, just the same as there are people who like doing 300 crunches before breakfast.  I don’t really count myself in either group 😊. But we do it, because if we don’t, we could see fines or jail time, and a few things I truly appreciate might disappear. So, I pay my taxes and move on with life.

Speaking of moving on with life, the higher inflation numbers apparently have not dampened shoppers’ desire to spend money.

If you take out auto sales, retail sales were up 1.1%. Both were FAR stronger than expectations. So even in the face of inflation and higher debt (credit card and otherwise), consumers are still spending.

At the same time, the Empire State Manufacturing Index showed a larger contraction than expected for March.

Meanwhile, I’m sure you noticed, and I have had many questions about this, that Iran launched missiles and drones at Israel. This has been a problem area for 20 years now (some would argue more). Since the capture of Saddam Hussein in 2003, there hasn’t been an offset to Iran in the region, other than western intervention.

This latest issue in that region has the potential to get out of control. With this latest attack on Israel by Iran, obviously world “leaders” are urging restraint.

What are the possible outcomes?  Here are the 3 obvious ones.

  1. They get better
  2. They stay the same
  3. They get worse

If you want my 2 cents, I would say they roughly stay the same. I certainly don’t think they get better because of the missile and drone strikes, but I don’t think they get substantially worse. By that I mean the start of WWIII. Is it possible? Yes, but that would require Russia and China to get involved militarily in the region and we already know Russia is busy in Ukraine. I’m not sure that China is willing to jump in this fight, as there’s nothing in it for them.

So, sabers rattle, missiles are fired and many threats are exchanged. By some accounts, Iran got exactly what it wanted when nearly all of its projectiles were eradicated. It was able to check the box that it revenged an attack, while not actually provoking a broader fight. What does the market care about? They really just care about #3 above. If that doesn’t happen, the market will pull back and then start to go back to business again (much like the initial Russian attack).

But it is the Middle East and the possibility of things getting out of control are real. Making portfolio decisions are very difficult because you just don’t know what spark may or may not light a fire.

Shifting gears, we are now in Q1 earnings season and so far corporate earnings have been pretty good. Remember, it’s ultimately earnings that drive stock values over the long-term. Wars can impact earnings, so we should pay attention, but we ultimately need to come back to earnings every time. Granted, we have less than 10% reporting so far, but 84% are beating estimates and it seems to be pretty well spread out among the reporting companies. See the table below.

Finally, a quick update from the absolute implosion of the “EV” market, where Ford is finally restarting F150 Lightning production, Tesla is finally starting to ship Cyber Trucks from their Texas plant, and some manufacturers are either going out of business or managing to get lifelines to keep from closing. It appears that finding a new EV is quite simple, and prices are getting more attractive.

Tesla has announced a layoff.

And used Teslas (largely due to excess new inventory and price cuts) have come down substantially.

That brings prices down 27%-32% over the last year (based on 2+ year old models).

It’s no small wonder that retail sales ex autos were more robust. Seems like people are not interested in buying new cars. Next stop is steep discounts and 0% interest financing. Let’s see if that’s enough to get people interested.

For now, we need to keep one eye on earnings and one eye on the Middle East.

Have a good week and please do reach out with questions or comments.

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