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Broad Market Outlook
As we have been talking the last few weeks about how we should expect to see the 10 year retest and possibly push a bit higher as retests often do, that is exactly what we are seeing.
One could expect to see a weak equities market to follow as the interest on taking on new debt becomes more expensive for most businesses and often the average person to a much greater extent.
The big talk lately has been all these rate hikes, yet mortgage rates are already getting close to 7%, a number that most of us have never seen or be aware of in our life time. Aka only a moron would refinance right now at the highest rate in more then a decade.
Just like when we were figuratively pounding the table in 2020 and 2021 to refinance your home as we were (lowering our rate from 4.5 to 3%), right now could not be more of a worse time to lock in a loan as rates as they get extended after a 100% run up this year.
Remember when energy ran up 100% this year and most thought it wouldn't end, what happened?
Just like a winning stock on the way up the story is often a perfect one when under the hood, the engine is starting to overheat.
When it comes to interest rates or raising them, the "talk" is how they want to slow the economy down but behind the scenes its often a different game that isn't obvious until its too late.
I was talking with a mortgage lender yesterday and she had mentioned how right now the person wanting a mortgage have to pay to lock in there rate.
The key word is pay, normally the only time you would "pay" to lock in a rate would be if you were buying down the rate.
For example right now you are offered a rate of 7% on a $500k loan, if you wanted to buy the rate down, you would pay 1% of the loan amount to bring it down a point. You would pay $5,000 extra to bring the rate from 7% to 6%. Now you obviously can't buy the rate down to 0% but you get the idea.
Right now, most lending are charging that 1% fee yet only offering you 7%, you are paying extra just to get the market rate.
The obvious question is why would they do that?
Why would they charge the home buyer this extra fee for offering them what the market is serving up?
The answer is simple, lenders are smart, they know where rates are going and they know the person who buys the top of the mortgage rate market at 7% is going to be the first one to refinance when rates are back in the 4's.
Now once they refinance, the bank that was charging 7% loses out on all those decades of interest payments yet had to put up the risk to buy the home for the buyer. By charging that extra fee, they can recoup some of there risk because they know these loans wont last once rates pull in.
The tough talk is rising rates, yet behind the scenes, the people in the know are planning for a different end result, one that I feel is the same, that over the next year rates will continue to pull back instead of climbing higher.
Looking at the chart of the 10 year, right now it looks like mortgage rates are going to run to 10% just like most people 2 years ago thought Bitcoin would run to a million and 6 months ago most thought buying screenshots of monkeys would be worth a boat load of bananas, yet that often happens at the end of the runs when the story is perfect and the people in the know are on the other side of the transaction.
Let's wait for the 10 year to flush up through the retest and once it starts to turn, we can find our low risk set ups to take advantage of when the time is right.
From Bennett
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Macro Rotation Outlook
SPY
Dow Jones
Nasdaq
Mid Caps
Small Caps
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Sector Rotation
Sensitive - sectors that have moderate correlations to overall market conditions.
Tech
Energy
Industrial
Telecom
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Cyclical - sectors that are more sensitive overall market conditions.
Materials
Consumer Discretionary
Financials
REIT
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Tax Experts
We have reviewed quite a few tax returns so far and have yet to find one where we could not have added value.
We recently found a member who paid a tax penalty because his tax guy put he contributed $12,000 into his Roth when he only contributed the max. He paid a penalty for this persons mistake without being aware and his tax guy made up the most ridiculous excuse, it was just embarrassing.
What is the worst case of getting a 2nd opinion from someone who has successfully filed over 4,000 tax returns?
Let's have a second look at your tax return, if we can't find a way to save you taxes on this or next years return, we will give you a months membership free.
Worst case you get a free months membership!
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Defensive - sectors that tend to outperforming during sub par market conditions.
Consumer Staples
Healthcare
Bio Tech
Utilities
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Big Picture Set Up
ABNB
ABNB has been basing out nicely for the last few months under this 130 level and continues to put in higher lows lately. This is a name that we want to find an entry up off support vs having to be perfect buying the breakout.
AEP
Utilities have been leading the market lately being the first sector to hit 52 week highs this year and this AEP has been setting up for this blue sky breakout for 2 years now, when it wants to break 105 to the upside, we want to be involved.
JPM
JPM has been in a breakdown stage for most of this year and since the summer has finally started to base out as the bank continues to show us that it can tighten up under this $120 area, could be a low risk entry for the break of the downtrend and base that it has been in for quite some time.
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