An important government inflation metric, the Personal Consumption Expenditures Price Index (PCE), for February came in as expected on Good Friday. Since the markets were closed, as investors celebrate the three-day Easter holiday weekend, Monday, April 1, should be interesting.

 

Core PCE rose by 0.3 percent from the previous month. Year-over-year PCE prices rose by 2.8 percent, easing slightly from the 2.9 percent increase in January. The PCE is the Federal Reserve Bank's favorite inflation indicator. As such, it carries a lot more weight when determining whether the central bank will stand pat or decide to cut interest rates in the months ahead. The February numbers will likely not change the current stance of the Fed.

 

Given that both the Consumer Price Index and the Producer Price Index came in hotter than expected in both January and February, investors had worried that the PCE could do the same. It did, but so slightly that next week traders will need another reason to either push equities higher or continue the recent trend of selling large-cap tech and buying other areas like financials, industrials, small-cap, precious metals, and cyclicals.

 

The plot thickens when we consider the changes that have been going on all week behind the scenes. The stock market has just finished another strong quarter. The S&P 500 Index was 10 percent, the largest first-quarter gain in years. As is often the case, pension funds, money managers, and other investors at the end of a robust quarter are expected to adjust their asset allocations to account for the outperformance by equities. As such, pension funds, for example, were expected to sell as much as $32 billion in stocks that had outperformed the most during the quarter and invest the proceeds in the debt markets.

 

At the same time, a large hedged-equity fund, the $16 billion, JP Morgan Hedged equity Fund that holds a basket of S&P 500 Index stocks, along with options on that index, is expected to roll over its options positions on Friday. Given the low market liquidity on this holiday, that rollover could exacerbate or suppress stock market moves on Monday.

 

This week also saw Donald Trump's social media company begin trading on the NASDAQ. The Trump Media & Technology Group's main asset is Truth Social.  Readers may recall that the social media platform was established by Trump following the Jan. 6 insurrection. It was at that time when the former president was booted off social media's mainstream platforms, including Facebook and Twitter. Since then, he has been reinstated on both but has stuck with Truth Social as his main avenue of social communication with his followers.

 

The stock (symbol DJT) of which Trump is the dominant shareholder (58 percent), has exploded in price in its first week in trading and has been called the ultimate Meme stock. Like most such stocks, it is losing money and has little in the way of financials.

 

Theoretically, most shareholders have a lock-up period of at least six months before they can sell their shares. Given Trump's need for cash because of legal proceedings that have gone against him, the company's Trump-friendly board of directors could waive or shorten the lock-up period.

 

That could turn messy, however, because a sale by the majority shareholder would likely depress the stock price. That would allow shareholders to show injury and give standing to lawsuits on behalf of public shareholders. More should be revealed in the weeks ahead.

 

In any case, stocks overall have continued to rise and have traded higher than my best-case forecast of 5,240 on the S&P 500 Index. On Monday, because of all this rebalancing and the outcome of the PCE data, we could see the markets react strongly one way or the other. The best I can say is that April Fool's Day may be nothing to fool around with.

 

By the way, my cataract surgery on my left eye came off without a hitch, which was why there was no column last week. I get my right eye done on April 3, so unfortunately no columns next week either. 

 

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.

Immigration has become a dirty word among Americans. Illegal aliens take the brunt of the nation's animosity, for sure, and are vilified for a long list of crimes that few question. I am one of the few who see a positive side to migrants.

 

Politicians on both sides of the aisles are competing to keep as many immigrants as possible from entering the country. Campaign speeches by many radicals warn that the situation has reached cataclysmic proportions. The media stokes these fires with shots of dark-skinned refugees fording rivers, shivering in lines surrounded by barbed wire, and headlining any crimes that involve an immigrant. This is nothing new.

 

The country has a long history of failed immigration policies. Waves of immigration, followed by periods of no migration, or even expulsion, are part of our history. Migrants have settled vast areas of the country, built our railroads, and industrialized our cities. Attitudes toward these generations of newcomers have waxed and waned, blown by economic circumstances and the whims of our politicians. 

 

 Immigrants of different races, cultures, and religions have been subjected to enormous political backlash in the U.S. time and again. German, Irish, English, Italian, Canadian, French, Chinese, Jews, Japanese, South American, African — take your pick — they have all had their turn from the earliest days of this nation's existence.

 

Let's look at just a few examples. The Know Nothing Party in the 1850s hated Catholics and all foreigners. They wanted to increase the residency period for naturalization to 21 years. After the Civil War, the Naturalization Act of 1870 only granted naturalization rights to "aliens being free white persons, and to aliens of African nativity and persons of African descent." Then there was the Chinese Exclusion Act of 1882 which blocked Chinese immigrants from entering the country.  

 

In 1924, the politically popular and widespread notions of eugenics, nationalism, and xenophobia culminated in the National Origins Act. It was crafted to eliminate the "parasites of Europe and elsewhere." The Johnson-Reed Immigration Act of 1924 halted all immigration from Asia, Southern Europe and Eastern Europe. Some believe that the lack of fresh immigration labor could have contributed to the economic downturn in the 1930s.

 

In 1933, the country entered the Great Depression. The secretary of labor at the time argued that repatriating foreigners would create additional jobs for Americans. As a result, the federal government deported more than one million Mexicans and persons of Mexican ancestry (60 percent of those were U.S. citizens). How did that work? The reverse happened. The unemployment rates for Americans spiked even higher. Sound familiar?

 

And what about the impact of our pre-World War II, immigration policies? You should know that our anti-refugee rules left thousands upon thousands of Jews stranded in Nazi-occupied Europe. We, along with many other countries, turned a blind eye to Hitler's Jewish pogroms despite knowing the systematic extinction of millions. How many more German Jews and others could have escaped the holocaust by fleeing to America, but no one cared? "Play it again, Sam."

 

In my next column, I will examine the controversy over immigration raging in the country today and how our present policies have impacted our economic growth, income, and inflation.

 

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.

February inflation data showed no progress on inflation. That follows the same kind of readings from the previous month. While two months does not make a trend, the disappointing numbers gave investors pause.

 

Both the Consumer Price Index (CPI) and its cousin, The Producer Price Index (PPI), came in warmer than economists had expected. Consumer prices rose 3.2 percent in February from a year earlier but were only slightly higher than economists' expectations of 3.1 percent. The PPI rose 1.6 percent year-over-year, which was the largest gain since last September. Month-over-month, the PPI at +0.6 percent was double the average forecast.

 

These data points should be taken with a grain of salt since a couple of higher numbers should be expected. Few, if any, macroeconomic trends travel in an uninterrupted straight line higher or lower.  Unfortunately, these results practically guarantee that the Federal Reserve will hold off on any plans to cut interest rates.

 

No one was expecting the Fed to cut in March anyway. In Chairman Powell's most recent statements, he indicated March was off the table. But now, the earliest the market can expect a cut will be in June, if then. Markets are now pricing in about a 59 percent chance of an interest rate cut in June. Given that economic growth and employment trends remain strong, some argue that the Fed need not reduce interest rates at all this year.

 

Any hint of no cuts ahead would not be taken kindly by the markets. That is because much of the gains in financial markets, whether in bonds, equities, precious metals, commodities, crypto, etc., have been fueled by investors' expectations that the Fed is planning on reducing interest rates at least three times this year.

 

As such, the FOMC meeting notes will be released on the afternoon of March 20, and I suspect every word will be analyzed with a microscope. Chairman Powell's Q&A session afterward will also be subject to the same scrutiny. I don't expect that Powell will deliver a nasty downside surprise. After all, this is an election year, and while the Fed is supposed to be "non-political," I doubt they would want to upset the economic apple cart and influence one side or the other.

 

As readers are aware, I believe the stock market is in the ninth inning of this rally. This week, the high on the S&P 500 Index was less than 44 points away from my top-of-the-range 5,220 target. I've noticed some changes in the market behavior while we made that new high. The momentum that has been driving stocks since the beginning of the year is beginning to wane and, in some areas, even reverse. The action of late has been wild and there are some signs of short-term topping patterns.

 

The technology sector, for example, which has led the market all year, is beginning to struggle. Semiconductors have been choppy. Nvidia, the quintessential AI stock, is no longer going up 2-3 percent per day. It is now down about 100 points from its all-time high. Some stalwarts of the market like Apple, Google, and Tesla (to varying degrees) seem to be rolling over. Some say that where Apple goes, so goes the market. 

 

In this risk-on environment, the declining dollar has been supporting commodities, especially gold and silver. However, the greenback, which is the world's safest trade, has flattened out and may be starting to bounce as traders worry that lower inflation is not quite in the bag. All of this tells me to be cautious and while we could still climb higher, I would have one eye on the exit.

 

Readers, please be aware that due to two upcoming medical procedures, there will be no columns next week, and again none during the week of April 1.

 

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.

Many Americans are getting a bad case of sticker shock when their check arrives at their favorite restaurants. Higher costs for labor, food, and a variety of other inputs are conspiring to make dining out a luxury item that fewer can afford.

 

Lest you think that these sky-high prices are confined to the white tablecloth crowd, guess again. I'm talking about everywhere. Prices in fast food chains, your neighborhood bar and grill, the home-style diner on the corner, and even your local Chinese takeout joint are jacking up prices.

 

By the beginning of this year, the costs of eating out rose more than 30 percent since 2019, according to the Labor Department. I think that is low. My favorite burger chain has increased prices so much that today the average burger costs more than $16 (with fries and a soda, we are talking more than $20).

 

In many cases, restaurants have no choice. Wages for everyone from waiters to busboys, cooks, and dish washers are going up along with the minimum wage. This year, the minimum wage was raised again in 22 states. In addition, restaurants in some areas have been forced to offer or expand fringe benefits to keep staff from quitting.

 

And yet, the restaurant business overall is expected to break $1.1 trillion in 2024, which is a 5 percent jump from 2023 and a new sales record. Employment in the sector is now back to its pre-pandemic level as well. The clear winners of this surge have been the fast-food and takeaway chains.

 

The independent restaurants, especially those with full-service operations, have not fared nearly as well. Caught between escalating costs and increasing resistance by diners to higher check prices, the independents are caught between a rock and a hard place with nowhere to go.

 

As if prices aren't high enough, a new technology-fueled wrinkle will soon be introduced to a restaurant or two near you. It is called "dynamic pricing." Thanks to software innovations, restaurants can move prices up and down based on demand and staffing. This will allow companies to change prices weekly or monthly depending on what they perceive are periods of surging demand.

 

It is a concept that most of us have had some experience with in the past. We all know that airfares increase during the holidays. A summer rental on the beach is more expensive in July than in November. Hotels charge more on the weekends and taxis more at rush hour. Eating and drinking establishments have long used the concept to draw in customers, for example, featuring "happy hours" or "early bird specials" where drinks and/or food are cheaper. However, now companies are using the reverse and charging higher prices during periods when demand surges.

 

Earlier this month, Wendy's CEO Kirk Tanner mentioned that the burger chain was testing dynamic pricing using algorithms, machine learning, and AI. The comment hit the national news wires and the backlash from fast-food fans was fast and furious. The furor resulted in a company statement denying it was going to raise prices, but instead use digital menus to change offerings during the day and offer discounts at slower times.

 

However, dozens of restaurants have already implemented surge pricing, according to the New York Post. And more will certainly be trying out the concept. By some estimates, restaurant chains could easily see prices during the lunch rush, for example, increase by 10-20 percent. The key is in how it is implemented. Focusing on the times of day when prices are lower seems crucial, rather than when they are higher. Somehow that is considered more palatable to consumers. Good luck with that. 

 

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.

At this point, a day without a new high seems almost abnormal. AI stocks rage higher, joined by weight loss companies like Lilly. The good news keeps rolling in with even Chairman Jerome Powell of the Federal Reserve Bank seemingly more dovish. 

 

The Fed chairman testified before both the House and Senate this week. He indicated that we could expect a couple of interest rate cuts this year if the inflation data continues to weaken. He also said that if it does, the Fed won't wait until inflation hits its 2 percent target before loosening monetary policy.

 

The economy continues to grow, and while there is some evidence that labor growth is moderating in certain sectors, the latest non-farm payroll numbers for February — a gain of 275,000 jobs — were higher than expected. However, the headline unemployment rate hit 3.9 percent from 3.7 percent in January.

 

Bottom line: there are still plentiful jobs available for anyone who wants one. Wage growth, however, is slowing (0.1 percent versus 0.2 percent month over month). That is helping to rein in inflation. The macroeconomic data is helping to boost the good cheer within the financial markets.

 

Even the problems that have beset a large regional bank, New York Community Bank (NYCB), did nothing to dent the armor of the bulls. This regional bank merged with a troubled Michigan mortgage lender, Flagstar Bank, in a $2.6 billion deal last year during the regional bank crisis. The merger pushed the combined bank near a $100 billion regulator threshold, which imposes stiff capital rules on banks over that level.

 

The consensus on Wall Street is that NYCB's increased exposure to the commercial real estate market, plus the new requirements, forced the bank to slash its dividend in January. That sent NYCBs' stock diving, which in turn sparked credit downgrades.

 

This week, as the bank's stock price was in free fall, several investment firms, including Steven Mnuchin's Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners injected more than $1 billion into the bank in exchange for equity. 

 

A year ago, a related issue (remember Silicon Valley Bank) drove down equity markets. At the time, investors feared that financial contagion might overwhelm the overall banking sector. It didn't. This time around, markets barely blinked.

 

The widening of the breath of the stock markets has also increased investors’ confidence in the rally. Bond yields have fallen, and the U.S. dollar along with it. That has sparked a bull run in gold and in Bitcoin since both are considered currency equivalents.

 

But there is a little more to this story than that. Some economists and stock strategists argue that when the Fed begins to cut interest rates, the dollar is going to tumble, and the demand for alternative currencies like gold and crypto will spike higher. Throw in the fear that the country's out-of-control debt level is going to cause a crisis, and you have the makings for much higher prices. As a result, both Bitcoin and gold hit all-time highs this week.

 

As I wrote last week, we have met my first target on the S&P 500 Index of 5,140. My second higher target was 5,220-5,240. We are already halfway there as of Friday. The precious metals are over-extended and need a pullback as is the rest of the market. My advice: hold on, but not chase.

 

We continue to have at least one day a week where markets suddenly dive by more than 1-2 percent on no news.  Each time, (so far) markets rally back by the next day. Don't be lulled into believing that the dip and bounce strategy will continue to work. Somewhere up ahead there awaits a 7-10 percent correction. It could take until April before that occurs.

 

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.