At this point, few would question the economic impact that Taylor Swift has had on the world. The sheer level of spending the singer has triggered among consumers is breathtaking. The ripple effect of her business affairs has produced unexpected profits for many corporations and even countries worldwide. No wonder she is the only person from the world of entertainment to ever be on the cover of Time magazine.

 

In my day, Michael Jackson was the pop star who took the world by storm. The "gloved one" was the record breaker in the music and entertainment business every week. He made millions for himself and others. But Taylor Swift, the "anti-hero" singer who has captured the minds and hearts of millions, has largely eclipsed Michael Jackson's rise.

 

She toppled Jackson's AMA awards record at the American Music Awards recently while her Grammy awards have also broken records. Taylor's worldwide Eras Tour has garnered more than $1.04 billion which is the first tour in history to top the billion-dollar mark. She pulled in an additional $261.6 million worldwide from her movie, "The Eras Tour," thus far. That box office success also surpassed Jackson's total global take of $261.2 million for "This Is It" back in 2009. "Eras" is the highest-grossing concert or performance film of all time, recognized by the 2023 Guinness World Records.

 

However, the global impact of Swift has far transcended her economic successes. The level of spending, sales, engagement, viewership, and business synergy continues to reach new heights. Her work is benefiting countless industries, companies, and even regions throughout the world. Hotel chains, restaurants, clothing companies, transportation services, theatres, and even tourism have received substantial boosts from her endeavors. 

 

Swift has boosted business in far-off places such as Singapore where her concert has attracted thousands of fans from all over Southeast Asia. In Japan, her appearances are expected to generate more than $230 million, which would make it the country's biggest-ever musical event in terms of economic impact. Mexico saw a big jump in tourism as well during the concerts she gave last August.

 

Here at home, Swift has already generated $4.6 billion in consumer spending at last count and is expected to exceed $5 billion before the end of the year. Ticketing companies saw their stocks rise as her stadium appearances around the country produced more than $554 million in sales. Her concerts in Chicago spiked the hotel occupancy rate in Illinois with 44,000 rooms sold. Another record in her trail of records.

 

Probably the most popular episode in Swift's super-charged life is her romance with Kansas City Chiefs' tight end Travis Kelce. Their relationship blossomed as the NFL played in the background. Her appearance at games is credited with a 53 percent increase in viewership of girls between the ages of 12 and 17. That was most remarkable given the total amount of her available screen time during the Chiefs' games was a mere 0.46 percent. Kelce's jersey sales spiked 400 percent overnight. Fast forward to the Super Bowl.

 

Thanks to Swift's participation, brand awareness received by the Superbowl was almost 10 times the exposure an advertiser received in a 30-second commercial. That was worth about $9,500,000 in free advertising for the game. At the same time, this year's Super Bowl viewership increased to 123.4 million viewers versus 115.1 million last year. But among women ages 18 to 24 viewership increased 24 percent from last year, according to Sports Media Watch.

 

Swiftonomics is the word most often used to describe the global impact of Taylor Swift. It is a phenomenon that is so novel that a University of Kansas professor has recently created a curriculum called "Swiftynomics 101" to study the economics of the 34-year-old pop star's effect on the NFL.

 

The media would have you believe that everything Taylor touches turns to gold. That may be true, but it is not luck or accident that makes it so. Yes, her bank account now totals more than $1.1 billion by most estimates. But she has earned every dime of it.

 

She has written and sung 250 songs, and 10 albums beginning at the ripe age of 16. It may be the reason she has almost 500 million followers on social media. Her Eras tour consisted of 66 concerts in 20 U.S. cities and four cities in Latin America. There are still another 85 concerts left to do. She sings 44 songs per concert no matter whether she is "sick, injured, heartbroken, uncomfortable or stressed," according to her Time interview. To say she works her tail off would be an understatement. Bloomberg estimates she pockets $13 million every night.

 

For millions of children and adults, it would be hard to imagine a better role model than Taylor Swift. As for her economic acumen, the Kansas teacher is on target. I wouldn't be surprised to hear that Harvard or MIT has a case study or two for their next semester with Swift in mind.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Stocks forged ahead this week, making new highs with technology stocks continuing to take the lead. Financial flows into equity buoyed the overall market despite some disappointing results in the U.S. government's Treasury auctions. 

 

Credit for the continued move higher must go to the number one AI stock in the world, Nvidia.

 

It was touch and go on Wednesday night as all eyes waited for Nvidia's earnings results. The Street was divided on which way the markets would go. It depended on whether this leading semiconductor company could beat estimates once again and deliver higher forward guidance on the world's demand for its artificial intelligence chips.

 

Both the Mag 7 and the AI 5 stocks spent the beginning of the week falling in fear that Nvidia results could not possibly top the results of the last two quarters. Strategists were warning that the entire market was at risk since the AI boom has been the main driver of the market's advance for more than a year. 

 

 The company's corporate earnings and sales not only fulfilled the hopes of the biggest bulls but super charged the price of every stock that was even remotely involved in the AI boom.   Nvidia hit a new high for the year on Thursday and Friday while triggering an almost 3 percent gain on the NASDAQ. The S&P 500 Index added close to 2 percent, although the Dow and the Russell 2000 small cap index did add far less.

 

And while stocks rallied, bonds did the opposite. The U.S. Treasury's 10-year bond yield has been climbing higher, reaching 4.319 percent. Bond buyers are insisting on higher returns, and they should, given the billions of dollars in bonds the Treasury is auctioning this quarter and next. In the recent past, this reaction in the fixed-income market would have put downward pressure on stocks, but not this week.

 

The need of the U.S. Treasury to sell more longer-dated bonds and fewer short-term notes is forcing the Fed into a quandary. While the Fed stands pat on raising interest rates any further, the Treasury auction sales are forcing yields higher anyway. If this continues, (and it will) at some point equity investors will start to pay attention. That would not be good news for the stock market. In an election year, this could spell trouble for the incumbent.

 

The Fed may be forced to somehow ease the situation, but how? They have already said that cutting Interest rates too soon might spark an upsurge in inflation. The obvious answer, therefore, would be to ease up on the pedal of quantitative tightening, which would inject more liquidity into the financial markets. That would be good for markets and presumably the President.  

 

But right now, momentum traders don't care about bond yields, the dollar, or even corporate earnings for the most part. As I explained to readers last week, we have entered a riskier period of the market that can deliver great gains and great losses in quick succession. The first half of the week saw stocks plummet in fear that one company's results would take the entire market down. Thursday and Friday delivered the opposite results.

 

The momentum in the U.S. stock market is beginning to catch on in global markets as well. Japan's benchmark Nikkei Index hit a record high this week beating the previous record set 34 years ago. Shares in Frankfurt, Paris, and Milan gained more than 1 percent while Europe's Stoxx 600 Index also hit an all-time high. Even China considered a basket case and the worst market around, has seen stocks gain over the last week or two.

 

This stock market rally is getting a bit long in the tooth. The last two rallies that occurred (between 2022 and 2023) lasted between 16 and 19 weeks, gaining 20 percent and 21 percent respectively. This present one is in its 17th week with a gain of 23 percent thus far. Could it run further?

 

Yes, technical charts say we can, even though we could see some short-term weakness ahead. It appears that financial flows into equity markets are still strong, so there is enough buying power available to fuel further upside. And so far, stocks have not fallen on good news, if this week is any indication. My first target remains 5,140 on the S&P 500 Index, and we are getting close to that level. A short-term pullback could be in the offing. 

 

But after that, a rally that extends into mid-March, or even April could see a few percentage points tacked on to this year's gains. Let's target 5,220 on the S&P 500 Index as a good guess.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Stocks are climbing, scaling new heights while euphoria abounds. Momentum is pushing the technology sector, and AI stocks in particular. How long can it last and how high can it go?

 

It is the question on the minds of many on Wall Street. At this point, the consensus opinion is that we are due for a pullback. Even the bulls are getting worried as valuations become stretched.

 

However, valuations are in the eye of the beholder. While the price-earnings ratio of the market is about 21 percent, if you remove a handful of mega-cap stocks the average is only 17 times earnings. That handful of stocks has accounted for more than 50 percent of the gains this year in the S&P 500 Index. The Magnificent 7 (Meta, Apple, Amazon, Alphabet, Microsoft, Nvidia, and Tesla) have long held leadership positions within the equity market. Recently, however, a few additional stocks have joined this pack of champions.

 

The "AI 5" (Nvidia, Microsoft, Advanced Micro Devices, Taiwan Semi-Conductor Manufacturing, and Broadcom) are companies that Wall Street analysts believe are leaders in the development of artificial intelligence. All but one (Microsoft) are semiconductor stocks. Momentum in these stocks as well as most of the Mag 7 stocks is through the roof. The last time we saw momentum at this level was in November 2021.

 

Market momentum, for those who are not aware, is the capacity for a price trend in a stock, stocks, or markets to continue and sustain itself (either higher or lower). As the AI movement picked up steam this year, for example, prices rose, traders jumped on the bandwagon, volume increased, prices climbed even higher, and more and more buyers piled into this group of stocks. A herding mentality has taken over and the chase is on!

 

There are plenty of money managers and traders who make a living buying and selling momentum. The idea is to buy the asset when it is rising and then sell after it has peaked in price. Don't be fooled; this is a dicey business. It is a trading maneuver that relies on a greater fool theory and has nothing to do with the fundamental value of the underlying security. 

 

In today's market, many investors are marveling at how high prices Microsoft Nvidia or any of the other Mag 7 and AI 5 stocks have reached. The same momentum trend helps explain why the stock markets, and particularly the technology sector, are pushing higher and higher. There is nothing new in this behavior. It has happened many times in the history of the stock market.

 

What happens next? At some point, the trend of chasing these stocks peters out. Momentum traders will usually be alerted by technical and computer programs that it is time to reverse positions. The highflyers will be sold and/or shorted. Those unfortunates that purchased at the peak will be left holding the bag.

 

Unfortunately, given that the market capitalization of these stocks is in the vicinity of several trillion dollars, the impact on the overall market will be quite large. It is one of the reasons that I believe the coming pullback in stocks could be between 7-10 percent. That may sound like a lot, but it would only be a normal correction in the history of the S&P 500 Index.

 

But before you rush out to sell everything, let me caution that no one knows how far the momentum game can carry stocks. This week we hit 5,000 and beyond on the S&P 500. That is a nice round number but has little significance otherwise. Given the right circumstances, we could see 5,150 or even higher in the weeks ahead. What I wouldn't do is add more money to the Mag 7 or AI 5.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

It was one of those weeks. A gauntlet of data had investors working overtime to figure out where stocks and the economy were going. At the same time, the Fed told investors that a March rate cut was off the table. And then the job data was announced.

 

The non-farm payroll report for January came in at almost double market expectations. Economists were expecting 185,000 gains, but the U.S. economy created 353,999 jobs. That was a blowout number that had traders torn between selling the market (because of the inflation implications) or buying it due to what it might say about future growth.

 

Strength in the job market and wages would mean the Fed will delay cutting interest rates while further growth in the economy could be good for future earnings. The Wednesday FOMC meeting illustrated that dilemma and what the Fed planned to do about it. In one word — nothing — no rate hikes, and no rate cuts either. The outcome was a disappointment.

 

I thought Fed Chairman Jerome Powell did a good job explaining the present state of the economy and the reasons the Federal Reserve wants to wait a little longer to ease monetary policy. He expects the economy to continue to grow and at the same time the progress toward reducing inflation will continue. The Fed has been watching the labor market for signs of weakness but slowing wage growth is more important than the number of unemployed workers. Given the huge gain last month in the payroll data, his decision to wait for the data to confirm the Fed's next move seems correct to me.

 

I had warned readers that those bulls who were expecting a March interest rate cut by the Federal Reserve Bank were roaring up the wrong tree. And yet, going into the meeting, almost half of the market was betting on a cut. The news triggered a wave of selling that sent all three main averages down by more than a percent. Since I was not on the side of any Fed cut until May or even June, the sell-off felt overdone in my opinion. We regained much of those losses by Friday.

 

Beyond the Fed, the most important event was the fourth quarter earnings reports of five of the Mag 7. By Friday's close, the scorecard stood at three wins and two whiffs. Microsoft had decent earnings, but the stock sold off anyway at first, while Google disappointed investors. Meta and Amazon scored, and Apple whiffed.

 

Last week, I warned readers that all these stocks were priced for perfection and only stellar earnings and guidance would be able to justify further gains. Three out of five did just that and the markets reacted by hitting new highs.

 

There was good news on the U.S. Treasury financing front as well. The government announced it will need to raise less money via Treasury auctions this quarter. The mix between short-term notes and bills and longer-term bonds is tilting a little more toward the long end. That should keep the yield on U.S. Ten-year bonds supported. 

 

I expect stocks will continue higher, but the journey will be marred with sharp pullbacks. My target is still 5,000 -plus on the S&P 500 Index. Stepping back, however, I see these gains as part of an interim topping process that will end at some point this month or next in a stiff pullback.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Strong growth in the economy in the last quarter of 2023 helped support equity markets this week. The U.S. economy grew 3.3 percent in the fourth quarter, which was much higher than the estimates of 2.2 percent growth. For last year overall, the economy grew 2.5 percent.

 

At the same time the core personal consumption expenditure price index, which excludes food and energy, increased by 2.9 down from 3.2 percent from the prior month, and moved below 3 percent for the first time since March 2021. Investors liked those numbers enough to keep the S&P 500 Index making new highs.

 

Technology continued to lead stocks higher. The Magnificent Seven (Apple, Amazon, Alphabet, Microsoft, Nvidia, Tesla) garnered the lion's share of buying. Tesla, however was the downside exception. This has been the trend for most of last year and continues to be the case so far in 2024. Six of the seven accounted for 80 percent of the SPX gains in January, Nvidia and Microsoft alone represented almost 50 percent of that move.

 

The problem with this action is that with only a few stocks pushing the averages higher, I question the underlying health of the markets overall.

 

Under the market's hood, rotation into one sector and out of others for a day or two says to me that most of the market is going nowhere. The bears argue that this kind of action can't continue much longer. My answer to that is the Mag Seven carried the market for most of last year and continue to do so at least into February.

 

That does not mean I would rush in to buy more of these big-cap tech stocks. They are "holds," right now. Most investors already own these seven stocks in their portfolios anyway. In addition, they are top holdings in hundreds of exchange-traded funds and mutual funds. As such, they represent a huge portion of U.S. investments. The entire market capitalization of the small-cap, Russell 2000 Index, for example, is less than the market value of Apple or Microsoft. These large-cap, liquid stocks are supporting the markets.

 

There have been times in the past, for example, in the latter half of 2022, when these darlings were out of favor. When they are, this usually leads to a sell-off in the overall market. Could this happen again? It certainly can.

 

Take Tesla as an example. For years, this electric vehicle pioneer could do no wrong. But sentiment has changed. The mounting competition of dozens of EV manufacturers entering the market is reducing prices and causing profits to decline. Recently, one Chinese company, BYD, has dethroned Tesla as the leading EV company in the world. Tesla's stock price has plummeted in recent weeks and earnings were disappointing.

 

Most of the Mag Seven companies will be reporting earnings in the coming week or two. Thus far, fourth-quarter earnings have been pretty good. About 25 percent of the S&P 500 Index have reported. Overall, 70 percent are beating estimates by about 7 percent. Given how high these individual stock prices have been bid up, most are priced for perfection. Netflix earnings did surprise to the upset, while Tesla did the opposite. The Bulls are hoping the remaining five surpass expectations.

 

Next week, we will also be treated to another Federal Open Market Committee (FOMC) meeting. Investors expect the Fed to hold the line on interest rates. No rate cuts or hikes are expected. Possibly even more important than the Fed will be the U.S. Treasury's quarterly refunding announcement on Jan. 31. The more long-term Treasury bonds the government plans to sell at upcoming auctions, the more pressure there will be on bond yields to rise. That will have consequences for the equity markets.

 

We are still in that last move up that I had been forecasting. And it is not over yet. How much higher could we go? The S&P 500 could climb 100-200 points higher to 5,000-5,100. My timing for this market's short-term top was off a bit. I was expecting that we would have already hit the top by now. However, it still looks like a pullback in February into March before moving higher sometime in the spring. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.