[Altos Weekly Traders Edge] Has the Economic Soft Landing Arrived...Details Inside

Sponsor "This is unfair" These [three retirement strategies]( work so well… I’m surprised 'they' haven’t made them illegal yet. [It’s all revealed in our popular guide - “How to Master the Retirement Trade.”]( [GRAB YOUR COPY - TAP HERE]( The Economic Soft Landing: Has it Arrived? Weekly Market Overview Hi Traders, As the first quarter of 2024 draws near, the economic landscape continues to shift. Early in the year, market expectations pointed towards significant easing in monetary policy, with a series of potential Fed Funds rate cuts in sight. However, recent indicators, alongside commentary from the Federal Reserve, have dampened those expectations. While inflation remains somewhat tenacious, the overall economic picture appears surprisingly resilient. This begs the question: Has the much-discussed 'soft landing' already occurred, or is it still on the horizon? The Fed's Balancing Act The Federal Reserve's mandate is twofold: ensuring price stability and promoting maximum employment. Recent inflation data presents challenges in this respect, with prices rising higher than anticipated. The Fed's preferred gauge, the Personal Consumption Expenditures Price Index (PCE), stands at 3.1% – exceeding the 2.0% target. On the employment front, the picture is murkier. Despite a rapid series of interest rate hikes from 2022 through mid-2023, the unemployment rate stands at a surprisingly low 3.7%. This resilience contradicts expectations fueled by economic theory, which typically suggests rising unemployment as an unintended outcome of tightened monetary policy. The Beveridge Curve and Labor Market Dynamics One intriguing perspective on this resilience can be found by analyzing the Beveridge Curve. This curve charts the relationship between the unemployment rate and job openings. Historically, during periods of significant labor market mismatch, the curve shifts outward and upward. This phenomenon occurred following the pandemic as service jobs dwindled and demand for higher-skilled tech jobs surged. However, a key observation emerges when examining the curve's evolution from April 2020 onward. Between March 2022 and the present, as the Fed embarked on its rate-tightening campaign, a combination of factors seems to have occurred. While higher employment certainly absorbed some vacancies, the decline in job openings suggests something more is at play. It's likely that a portion of these vacancies disappeared not due to layoffs, but rather a slowdown in new hiring alongside a high employment baseline. Jobs, Openings, and the Recession Question The dynamic between job openings and the number of unemployed individuals tells a similar story. Open positions have steadily declined since early 2023, while the number of unemployed remains near pre-pandemic levels. This indicates a labor market absorbing job losses not primarily through layoffs, but through unfilled openings. Economists debate the technical definition of a recession. While HORAN's analysis points toward a recessionary period in early 2022, based on two consecutive quarters of negative real GDP growth, the National Bureau of Economic Research (NBER) utilizes a more nuanced approach. Regardless of the NBER's official designation, the GDP data points to a clear economic slowdown in that period. ISM Index: A Mixed Picture The Institute for Supply Management's (ISM) monthly surveys offer another lens. December data painted a mixed picture, with the ISM Services Purchasing Managers' Index (PMI) at an expansionary 53.4%. This suggests growth in the dominant service sector, while the ISM Manufacturing PMI contracted slightly to 49.1%. Nonetheless, ISM's commentary suggests even a value just above 42.5% points to longer-term overall expansion. Supply Chains, Backlogs, and New Orders Following the significant disruptions of the pandemic era, backlogs have finally normalized – a promising sign. Furthermore, new orders across industries display an encouraging upward trend throughout much of 2023. These indicators point toward a tempering of inflationary pressures fueled by supply-demand mismatches. Earnings Hold Surprises, Outlook Remains Cautiously Optimistic The fourth-quarter 2023 earnings season delivered better-than-expected results, with projected year-over-year earnings growth reaching 10% for S&P 500 companies. This surpasses initial projections of 5.2% growth, and analysts forecast a near double-digit growth rate of 9.5% for full-year 2024. While risks remain, earnings reports hint at an economy proving more robust than many anticipated. - The Team at Altos Trading In the next article: Are REITs the key to predicting the Fed's next move on interest rates? Sponsor Hey there, got a second? Here’s a financial history lesson you can’t miss… If the chart below has any lessons for us, we're about to repeat the inflationary roller coaster of the 1970s: But here's the thing, many folks back then saw inflation as a setback, rather than a springboard. But those who didn't, found ways to turn challenges into windfalls. And guess what? We've bundled up many of those lessons for you below: The Complete Guide to Options Income isn't just a guide. Think of it as a treasure map, showing you the way to turn inflationary challenges into income windfalls. [Want in?🔗Click Here to get the guide…]( Missed our action-packed Live Weekly Market Review? Fear not! Here's your whirlwind recap. This week, we charted market territory with Market Overview – Mapping Out Key Levels. These zones are where the action happens! Then, the 36-Month MA revealed long-term trends, like spotting the prevailing winds. Ready for volatility? We showed you How to Spot Unusual Options Activity, arming you to ride the waves. Our Share Your Favorite Symbol segment uncovered hidden gems. Finally, the Ticker Q&A Roundtable was your chance to tap into expert knowledge. Missed the live show? Catch the replay by Wednesday noon and learn at your own pace. Join us next Tuesday for another thrilling market expedition! This week our topics were... - Market Overview - Mapping Out Key Levels - Review 36-Month MA - How to Spot Unusual Options Activity - Share Your Favorite Symbol! - Ticker Q&A Roundtable [WATCH THE REPLAY NOW]( The Interest Rate Canary in the Coal Mine: REITS REITs (Real Estate Investment Trusts) offer a unique window into the Federal Reserve's interest rate policy. As vehicles that invest directly in and finance real estate, their fortunes are inextricably linked to the cost of borrowing. Any shifts in interest rates send ripples through the entire REIT sector. Just a few months ago, I argued that REIT outperformance signaled a potential peak in interest rates. However, recent rate increases have reversed that trend. REITs have tumbled, erasing their earlier gains and suggesting that the Fed's tightening cycle may have further to run. Why REITs Hate Rising Rates The fundamental relationship is simple: when interest rates rise, the cost of financing real estate projects – from development to acquisitions – increases. This directly cuts into REIT profitability. As property valuations adjust to reflect this higher cost of capital, pressure mounts for heavily indebted REITs, especially those relying significantly on variable-rate financing. Additionally, REITs compete for investor capital with fixed-income investments. As rates climb, safe-haven assets like Treasury bonds become more enticing. This can lead to investors selling REITs in favor of lower-risk alternatives. The resulting capital outflow weakens REITs' financial position and can drive down their stock prices. Sector-Specific Headwinds Beyond broad interest rate trends, REITs also face challenges unique to their niches within the real estate market. The continued rise of e-commerce puts pressure on retail REITs heavily invested in physical stores. Similarly, the widespread adoption of remote work models casts doubt on the future of office real estate. The recent slowdown in residential real estate further complicates the picture. If home prices decline, residential REITs could face both diminishing asset values and increased competition as more rental properties enter the market. Expert Opinions: What to Watch For While REITs certainly face pressure in the current environment, opportunity can emerge from turmoil. Some analysts believe that well-managed REITs with strong balance sheets and portfolios of high-quality properties could be poised for a rebound once interest rates stabilize. Additionally, REITs specializing in sectors experiencing structural tailwinds (like data centers or cell towers) might offer greater resilience. Ultimately, close attention to both the Fed's rate trajectory and any further weakening (or strengthening) of specific real estate sectors will be crucial for investors seeking to decipher the signals REITs are sending. Sponsor [New Customers earn 5.25% APY* (variable)]( Store your money with Cash Reserve, a high-yield account built for peace of mind. New customers earn 5.25% variable APY*—that’s 13x higher than the national savings rate. ** Plus, your money’s FDIC-insured up to $2M†at our program banks and no limits on withdrawals and transfers. **The national average savings account interest rate is reported by the FDIC (as of 5/15/23) as the average annual percentage yield (APY) for savings accounts with deposits under $100,000. 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However, the publishers of the Altos Trading Alert Newsletter are not brokers or investment advisers, and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. Altos Trading, including its owner, does not participate in any trades issued through the alert services. Subscribers to Altos Trading or any other persons who buy, sell or hold securities should do so with caution and consult with a broker or investment adviser before doing so. Trading securities and options involves risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade securities and options, and must meet suitability requirements. Past results are not necessarily indicative of future performance. Performance figures are based on actual recommendations. Due to the time critical nature of trading, brokerage fees, and the activity of other subscribers, there is no guarantee that subscribers will mirror the performance of the service. Performance numbers shown are based on trades subscribers could enter based on the trade alerts. Altos Trading, LLC assumes no responsibility for any losses incurred by any individual or entity as a result of trade alerts or strategies taught through courses or coaching services. 7154 W State Street Suite 169 Boise Idaho 83714 USA [Unsubscribe]( | [Change Subscriber Options](