Confirmation Week

It’s best not to confuse long-term investing with short-term trading. The markets over the long-term reflect earnings. If earnings move higher, the markets generally follow. This is an easier game to play. The trend has been higher for the U.S. markets looking out over a century.

But, in the short-term, the market makes lots of bets on what they think will happen in the coming weeks or months. They get caught up in stories of promise and potential. This is not unlike sports.

In many leagues, hot prospects can get a big contract or endorsement deal. They’re new. They’re exciting. And, there’s a lot of joy in seeing a new talent emerge. But, it’s the players who are consistent and deliver on that potential who end up making the most money throughout their career…and even beyond it. Think Michael Jordan, Charles Barkley, Peyton Manning and Jack Nicklaus.

In many leagues, hot prospects can get a big contract or endorsement deal.

Music is the same way. The one-hit wonders of the 70s and 80s are in the distant past. Billy Joel, Elton John and Gun n Roses are still selling out decades later.

Some of that promise that powered the markets in 2023 will be on display next week as investors look for confirmation that the stories are intact.

Story #1: Artificial intelligence will start delivering meaningful revenue this year.

Story #1: Artificial intelligence will start delivering meaningful revenue this year.

Mega cap tech stocks last year powered higher mostly on the hopes that this new technology could be a game-changer for productivity and profits. But, outside of a few companies including Nvidia and Microsoft, AI profits were simply a talking point, not a tangible piece of the business yet.

The market was willing to pay more and more for each of these companies because of the promise, the potential. At some point, they’ll need to show AI’s profitability. That’s why it will be key to listen closely to each tech CEO’s AI outlook for the year.

Next week, we’ll hear from many of the Mega cap tech companies.

Next week, we’ll hear from many of the Mega cap tech companies.

Story #2: The Bond Market is Under ControlTreasury will not oversupply long-term bonds.

Each quarter, the U.S. Department of Treasury announces how much new debt it will issue. It’s typically not a major headline grabber. Until last summer. In late July, the Treasury announced it was going to issue a much larger amount of debt than the market was expecting.

In turn, Treasuries sold off, driving bond yields higher. Simple supply-demand dynamics. Within three months, yields on 10-year Treasuries had topped 5%. Stocks also got pummelled, the S&P 500 dropping 10%.

In turn, Treasuries sold off, driving bond yields higher.

Then, in late October, all of that reversed when the Treasury’s announcement was more in line with what Wall Street professionals were expecting. Fears of oversupply dissipated. Inflation continued falling causing the Fed to pivot and that helped drive a massive rally in bonds. Likewise stocks ripped higher, back to all-time highs.

On Monday, the Treasury will announce how much debt it expects to issue in the coming quarter. Wall Street will be watching.

Back to the aforementioned Fed pivot. Policymakers will be meeting next week. They are not expected to adjust rates, but Chairman Jay Powell will be pressed for more details on the Fed’s thinking around cuts this year. We’ll be paying attention to what he says…and what he doesn’t say!

They are not expected to adjust rates, but Chairman Jay Powell will be pressed for more details on the Fed’s thinking around cuts this year.

The market is currently pricing in that the cuts will begin in May, but a lot may depend on the labor market. Jobs have been plentiful and unemployment remains near record lows. The latest read comes on Friday.

So buckle up, this could be a wild week for the markets. The soft landing seems to be priced in. This week, we’ll get a plethora of fresh data the market will look to for confirmation of that narrative.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

This material is provided as a courtesy and for educational purposes only.

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.