Quote of the Week
“Whoever loves much, performs much, and can accomplish much, and what is done in love is done well.” – Vincent Van Gogh
Last week was a good week for the equity markets. The Dow was up +2.9%, the S&P 500 was up +3.3% and the Nasdaq was up +3.1%. I know you are getting tired of me saying that the recent rally is a bear market rally. Looking at the direction of the underlying economic data I don’t see any possibility that this is a sustainable rally. The economic charts and forward corporate earnings are pointed almost straight down. We expect this to last for maybe the next four quarters.
Let’s take a look at the history of bear market rallies. The average bear market rally since 1929 has averaged +29%. There have been 26 bear market rallies since 1929 with some bear markets having multiple rallies within the bear market. Since 2000 there have been two +40% rallies and one +50% rally before the bear market bottom is reached. Remember the 2000-2002 bear market was down -50% and the 2007-2008 bear market was down -57%.
It is important to point out that the economic recession of 2000-2002 was a shallow recession. We don’t need a deep economic recession for the markets to decline, all we need is for a corporate earnings recession to bring down stock prices. That is where we are headed. We are going to stay with the data to drive our positioning.
Currently we are positioned with about 50% in cash, 30% in bonds, plus small positions (around 3%) in gold, US dollar, New Zealand, consumer staples, healthcare, utilities, and Japan consumer staples.
The Social Security Cost of Living Adjustment is estimated to be 9.6% for next year. The consumer price index data for July released last week shows +8.5% for the last 12 months. If inflation continues to run hot the adjustment could be as high as 11.4%. according to a new analysis from the nonpartisan Committee for Responsible Federal Budget (CRFB).
Mary Johnson, the policy analyst for Social Security and Medicare policy of the Senior Citizens League states “A high COLA will be eagerly anticipated to address an ongoing shortfall in benefits that Social Security beneficiaries are experiencing in 2022 as inflation is running higher than their 5.9% COLA for 2022”.
The annual COLA underscores the financial pressures that many Social Security recipients face.
Thirty-seven percent of participants in the Senior Citizens League’s new Seniors Priority Survey reported they received low income assistance in 2021. This appears to be more than double the 16% receiving needs-based assistance before the pandemic, as reported by the U.S. Census Bureau.
There are only two months of consumer price data left before the Social Security Administration announces the COLA for 2023. The Senior Citizens League expects the SSA to announce the benefit raise on October 12, after the release of the September consumer price index data. The Social Security Administration uses average inflation in the third quarter, based on the CPI-W to calculate the benefit adjustment for the following year.
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These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
The S&P 500 index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.
Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.