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Strange Things are afoot… aybe not at the Circle K

| February 05, 2024

As you know, I try to link my title with the theme of my weekly blog. But I also like to have a little fun with it too. If you happen to be into 80’s teenage humor, this one’s right up your alley. Click on the movie cover below and we can be off on our excellent adventure!

And as always, the fun is so short. We have to get back to the real strange things that happened on Friday. I thought I was the only one noticing it, but just about every comment I read over the weekend referenced what happened. Did you notice it?  Of course, you need to know what “it” is in order to answer that question. We’ll get to that in a sec. Let’s take a step back first and do some quick math. Ok, I did the math for you…

The S&P 500 was up 1.01% on Friday. Propelled higher by none other than the ‘Magnificent 7’ stocks. I have included a chart below showing the weight of each company in the index and their corresponding return for Friday. On the one hand, it’s not all that peculiar, as we’ve mentioned before that the S&P has been narrowly led by just a few stocks. We get a few days where it broadens out and then goes right back to being narrow again. You can see that almost 30% of the index is made up of just these seven stocks, one of the highest concentrations in history.

Those seven stocks accounted for the entire gain on the S&P on Friday, and just Amazon and Meta accounted for almost three-quarters of the gain.

The chart above is a little dated, now the top 10 are 33.6% (over 1/3!)

Here’s another look at how narrow this market is.

So much of it is related to interest rates. We mentioned last week that the Federal Reserve would come out with their decisions on short-term interest rates, which we said would be ‘no change.’ Well, that’s exactly what it was…no change. Except that the press conference afterward was much more ‘hawkish,’ meaning they told the market they likely would not cut rates at the March meeting. So, the markets started to price in less rate decreases. See the chart below of the 10-year treasury. It moved up about 15 basis points (0.15%) on Friday. That’s a big move in one day for treasuries.

The other thing prompting the repricing of rate cuts was the jobs report on Friday. It came in at a whopping 353,000 new jobs created for January. That’s good for those looking for a job, bad if you are expecting the FED to lower interest rates. In fact, Fed Chair Jerome Powell was on 60 Minutes last night and was very clear that there is not a big reason to cut rates imminently. Here’s the link to that interview.

So now that I’ve given you the background, here’s what was strange.

  • Over half of the stocks in the S&P 500 and Dow Jones were down
  • 67% of stocks traded on the NYSE were down (3:2 down)
  • 75% of the Russell 2000 (small cap stocks) were down (3:1 down)

That’s really odd and you would expect that on a big up day more stocks would participate. In fact, the last time the market was up 1% and the advance/decline line was so negative was…

The last strange thing that’s afoot is this labor market itself. I just mentioned the great jobs number above, but here’s what is strange. At the same time that there were so many people getting new jobs, the average aggregate work week fell by 0.3%. Let me get this straight. We are hiring a lot of people but then shrinking the overall hours worked?

You would think, if you needed less work from your current employees, you wouldn’t need to hire more people. But perhaps it’s just a lot of part-time work being hired, bringing the average down. Hard to know from the data. Am I the only one perplexed by this?

Here’s a note from a past colleague.

Finally, we made reference to productivity last week.  In our view, that is the key to having low inflation and a robust economy. Fourth quarter productivity numbers came out, and they were 3.2% versus inflation, which is trending toward 2% on a 12-month basis and is already at 2% over the last 6 months.

Productivity like that will likely help keep a lid on inflation in the longer term.

On a side note, in that interview on 60 Minutes, did anyone notice the number that Scott Pelley threw out for the national debt? $144 trillion in 30 years. WHAT?! Did anyone catch that around the 10-minute mark of the video? $1M per household. Just the interest on that would be $5.8 trillion a year at just a 4% average interest rate. For perspective, and I know we’re talking about 30 years in the future, but the budget is around $6 trillion today. I guess I agree with the Chairman – the long-term path is unsustainable.

That’s it for today, I hope you have a great week. If you have any comments or questions, please feel free to reach out to us.

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