Good Morning, The market is closed today for Presidents day and will reopen in the morning. This should give us a moment to catch our breath and get a handle on what is actually going on as the picture can get very muddled following the day to day action. So where do we start? Why with the Fed of course. The Feds dual mandate to maintain Employment and Inflation has been a tough balancing act over the past 12-18 months. It seemed like when one was moving in the right direction the other would move in the wrong direction. Early on there where more than a few economists that suggested that wee might be experiencing stagflation which is a rare condition in which the economy experiences both high inflation and high unemployment at the same time making it very hard toe fix. Raise interest rates and you make unemployment worse, lower interest rates and you make inflation worse. You don’t normally see these conditions exist at the same time but when the do they can be devastating as the were in the late 70’s when inflation was made artificially high by the Arab oil embargo. My observation is that this condition is normally brought ab0ut by some type of artificial stimulus such as the aforementioned oil embargo. Lord knows we’ve certainly had a lot of market manipulation over the past 10-15 years. This has led to a lot of “never before” situations. While the market has been lucrative at times it has also been very difficult to trade as compared to years past. Okay, enough of chasing rabbits! We find the economy has settled down a bit in recent weeks with recent unemployment and inflation reports moving closer to the Feds targets. What does this mean for us? The Fed is under no pressure to reduce rates further at this time and I don’t think they should be. However, the market can be unreasonable when it comes to low rates as it is addicted to cheap money. While I think the Fed was a little slow in arriving at this point, I do not think they should be in a hurry to decrease rates at this time as the economy is now coming into balance. For those of you that don’t understand the Federal Reserve, this is one of the best examples you will ever get of what they do and why they do it. Also, while we’re mentioning it, there has been a lot written about lately about the Feds independence. While some of you are excited about getting a new Fed Chief in a few months there is one thing you need to realize. Whether you are a conservative or a liberal, a democrat or a republican, it is important that the Fed maintains it’s independence from the government. In other words they must be able to make their decisions free of political influence. I said that to say this, it would be a dire mistake if the incoming Fed chairman were to decrease rates just to make the current administration happy. He must decrease rates only when the data calls for it. I won’t elaborate on it further, but it would be bad for both the market and the economy if he did anything else.

Let’s move on… the other issue we have going on this week is the tugawar  between AI and value. Most recently the Artificial intelligence trade has come a bit unraveled for two reasons. Investors have become increasingly concerned with the valuation of tech stocks and this is more complicated than just looking at normal stock valuation. In this case tech companies for better or for worse see the necessity to go all in on AI and they are spending massive amounts of money to be the first, biggest, best and preeminent  company with regard to AI. At this point investors are having problems seeing where this investment will add to tech companies bottom line. The difficulty in this is that AI creates value as it goes. It makes companies better, smarter, and in the end more efficient. So…. How and when does this effect their profitability? That is the question that investors are trying to answer. Obviously, there will be some companies that will harness AI better than others. Ultimately, it will come down to looking at these companies one by one, but isn’t that the way it has always been? Look for the AI Trade to be on again off again until AI evolves further in the market place and that folks will not be settled for the foreseeable future. For now though, the market continues to broaden out with sector rotation out of tech in into more conservative value areas such as consumer staples and real estate.  At some point these tech stocks are going to be very good value plays, and I look forward to when I get the signal that we have some sort of all clear. But I don’t see that right now. So the bottom line is that this dynamic of give and take between tech and value will continue to influence the market as we move forward.

Finally, you have the influence of AI on the market as a disrupter. One need to look no further than reports that were issued last week about how new AI programs were starting to disrupt the trucking, financial, and real estate industries. Now I’m not going to write a whole lot about that today other than to say it exists and it will reshape virtually every industry that makes up the market. In some cases companies will become more efficient and profitable. In some cases they will become obsolete and in some case jobs currently filled be humans will be replaced by AI.  In some cases things that have been unachievable in the past will now be possible.  Can you imagine the marriage of AI and Quantum Computing both in their infancy? Problems that previously could not be solved in a hundred years will be solved in minutes. While its not the same thing, you can look back at the dot com revolution and how it changed the face or our economy forever to see clearly how AI will be the next great disruptive evolution to the economy and thus the market…..

Here is what we have on tap for the week:

Week ahead calendar

All times ET.

Monday, Feb. 16

NYSE closed for Presidents Day. 

Tuesday, Feb. 17

8:30 a.m. Empire State Index (February)

10 a.m. NAHB Housing Market Index (February)

Earnings: EQT, Devon Energy, Cadence Design Systems, Palo Alto Networks, Kenvue, FirstEnergy, Expand Energy, Builders FirstSource, Genuine Parts, Labcorp Holdings, Leidos Holdings, Vulcan Materials, DTE Energy

Wednesday, Feb. 18

8:30 a.m. Durable Orders preliminary (December)

8:30 a.m. Housing Starts (December)

9:15 a.m. Capacity Utilization (January)

9:15 a.m. Industrial Production (January)

2 p.m. FOMC Minutes

Earnings: CF Industries, Edison International, Carvana, Molson Coors Beverage, Booking Holdings, Texas Pacific Land, Occidental Petroleum, Invitation Homes, Host Hotels & Resorts, DoorDash, Verisk Analytics, Analog Devices, Insulet, Global Payments

Thursday, Feb. 19

8:30 a.m. Initial Claims (2/14)

8:30 a.m. Philadelphia Fed Index (February)

8:30 a.m. Wholesale Inventories preliminary (December)

10 a.m. State Job Openings and Labor Turnover (December)

10 a.m. Pending Home Sales (January)

Earnings: Live Nation Entertainment, Newmont, Akamai Technologies, Alliant Energy, Extra Space Storage, Evergy, Quanta Services, CenterPoint Energy, Targa Resources, EPAM Systems, Walmart, Deere

Friday, Feb. 20

8:30 a.m. GDP Chain Price first preliminary (Q4)

8:30 a.m. Personal Consumption Expenditure (December)

8:30 a.m. Personal Income (December)

9:45 a.m. S&P Global PMI Manufacturing preliminary (February)

9:45 a.m. S&P Global PMI Services preliminary (February)

10 a.m. Michigan Sentiment final (February)

10 a.m. New Home Sales (December)

Earnings: PPL

Since the market if closed today there are no current results to report.

S&P 500 closes little changed after soft inflation report, index notches losing week: Live updates

Last weeks action left us with the following signals: C-Sell, S-Hold, I-Buy, F-Buy. We are currently invested at 100/S. Our allocation is now -2.15% on the year. Here are the latest posted results:

More Prices & Returns

God bless, Scott 

***Just a reminder that you can review the performance of our allocation at the Web Site TSPTALK.com in the autotracker section under the screen name KyFan1.

I produce and publish this blog as both a ministry and for the benefit of any Federal Government Employee. This is done to offer you some guidance as to how to approach your retirement more financially successful. When it is time for you to retire, I recommend you utilize the services of a Professional Money Manager, who works with a reputable investment firm. He understands the guidance you have already received and he can manage your savings assets utilizing a more advanced investment program into the future.

If you would like to receive more information about this introduction, please feel free to contact me at  KyFan1@aol.com.