The New Year may bring an unwelcome change

Overvaluation could rear its ugly head EDITOR’S NOTE: I’m sharing some market analysis from the team over at Avalon today. From time to time, I like to give you a behind-the-scenes look at what clients at money management firms come to expect from their investing teams. From the end of October to this past Tuesday, U.S. Treasuries have advanced nearly 17% as measured by the iShare 20+ year Treasury Bond (TLT). Driving this rally has been the belief in a “soft landing” for the economy, as evidenced by the record number of articles mentioning it, as the chart below shows. As a result, the stock market has been rallying on lower inflation expectations and a continued belief that the Federal Reserve is going to cut rates next year. With rates easing and ample liquidity in the system, it has provided the perfect conditions for stocks to stage an impressive year-end rally, with the S&P 500 up 13% since the October low. Unfortunately, the rally has pushed U.S. large-caps deeper into overvaluation. For the market to do well in 2024, it will take the rest of the market to finally begin to participate with the megacaps in a meaningful way to at least avoid any serious correction. That could be more than Santa can deliver. When we look at U.S. equities globally, we see just how extreme the valuations are. Primarily propelled by technology firms, the current environment is one of the most speculative periods for American stocks in history. Concurrently, volatility has reached a 4-year low representing a high in complacency. Today’s investors are underestimating the potential delayed impacts of one of the most aggressive monetary tightening policies in history. With a 2-year lead, changes in Fed funds rates have often foreshadowed significant volatility events in equity markets. If you're going long on the market here, the only actual long thesis that makes sense to me would be expecting an inflationary boom, where valuations are disregarded and thrown to the wind once and for all in favor of everybody buying into a system where the Fed prints money and buys bonds and stocks until we reap the consequences of defiling the corpse of the U.S. dollar. In that case, historical norms about valuations would no longer be relevant and all of the metrics showing the market as overvalued—and there are many—would be meaningless. The reality is that the economy is slowing and that the long-announced recession may be just around the corner. I’m seeing several economists even predict a period of deflation. Two opposing forces in 2024 The challenge as I see it is how the Fed is going to balance a slowing economy while at the same time, managing the reckless, out-of-control spending and continual need to sell more and more debt. Because of that, I’m sticking to my beliefs that the period will be more of stagflation simply because of the massive debt issues and that little will be done to properly address it, especially in an election year. CPI Year-Over-Year Details - Over the last 12 months, the All Items Index increased 3.1 percent before seasonal adjustment. - The All Items Index less the Food and Energy Indexes rose 4.0 percent over the last 12 months matching the year-over-year price in October. - Shelter is up 6.5 percent from a year ago. The rent of primary residence is up a whopping 6.9 percent from a year ago. - The Energy Index decreased 5.4 percent for the 12 months ending in November, while the Food Index increased 2.9 percent over the last year. The problem for the typical consumer is that while some expenses can be cut back, food and shelter are not on that list. The good news for the consumer was that gasoline prices continue to decline. But does this also forbode a slowing economy? For the moment, most of the market internals I follow remain positive, albeit beginning to look “late stage.” Enjoy the Christmas rally. The New Year may bring an unwelcome change. In the meantime, if you're thinking about hiring a financial advisor to assist you in navigating the ever-changing markets, here's where we can help. Our team at Avalon has put together a comprehensive report to guide you in finding a trustworthy advisor. After reading our ebook, [How to Find the Best Financial Advisor for You]( you'll be well-equipped to seek out an advisor who aligns with your wealth-building goals. [Sign up now to receive your free guide](. As a bonus, you'll also enjoy a complimentary subscription to ADAPT, where we share tips and ideas to fortify your portfolio. Wishing you financial success, DISCLAIMER: True Market Insiders sent this to you on behalf of a third party, Avalon, a registered investment advisor. Avalon and True Market Insiders are separate entities. Neither company owns the other. Both companies are owned by Chris Rowe. This article is an advertisement to sign up for a free e-letter called ADAPT, which is published by Avalon. True Market Insiders is NOT a registered investment advisor and is not licensed to give advice. True Market Insiders is a financial publishing firm that broadcasts and publishes educational investment material for educational purposes only. [YouTube]( [Facebook]( [Twitter]( [Instagram]( [LinkedIn]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of: True Market Insiders, 7901 4th St. N STE 6113 St. Petersburg, FL 33702. The information contained herein has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. True Market Insiders LLC is not an investment advisor and is not licensed to give specific financial advice. The chairman of True Market Insiders, Chris Rowe, is also the CEO, CIO and owner of Rowe Wealth Management LLC, which is not owned by and is not the owner of True Market Insiders. True Market Insiders will remove email addresses from our mailing lists if that email address hasn’t interacted with our content during a prolonged period. If you think your email was removed in error, please contact customer service at 855.822.0269 or support@truemarketinsiders.com.   [Unsubscribe]( | [Manage Your Preferences]( | [Privacy Policy](