As we enter the second week of the month, September is living up to its reputation as a bad time for stocks. No matter the reasons, stocks should see further declines in the week ahead.

 

There are several villains in this sell-off besides seasonal factors, however. Bond yields continue to climb with the Ten-year, U.S. Treasury bonds hitting 4.30 percent at one point this week. Place the blame on Treasury Secretary Janet Yellen and the government. She continues to auction billions in Treasury bills and bonds to replenish the Treasury's general account. That avalanche of new issues is driving up yields and squashing bond prices.

 

Then there are oil prices. A barrel of West Texas crude was closing in on $90 a barrel this week. That has re-ignited fears that the rate of inflation is going to start climbing once again. Remember, oil is still the fuel that runs the world's economy. OPEC-plus seems bound and determined to keep the price as high as it can to balance its budget. All the cartel members, (even Russia) have agreed to extend production cuts until the end of this year.

 

And let's not forget China's faltering economy and its rocky relationship with the U.S. After months and months of blacklisting Chinese companies like Huawei, the Chinese chip maker, and mobile phone company, China is striking back. And what better target for payback than Apple?

 

This week China announced that they have banned the use of iPhones for central government officials as well as employees of state-run companies. To put that in perspective, Apple generates about 17 percent of iPhone sales from China.

 

The Chinese are not stupid. They know Apple is the No. 1 company in the world and is held in countless mutual funds, exchange-traded funds, and individual portfolios throughout the U.S. How better to play tit-for-tat than to hurt American investors in their pocketbooks?

 

Apple shares plummeted on the news, taking the tech sector and the market down with it. At the same time, Huawei has built an advanced 7-nanometer processor to power its latest smartphone. It is in direct competition with Apple to win back Chinese consumers and so far, it is succeeding.

 

In the meantime, the U.S. dollar continued its eight-week climb to its highest level since March. The continued strength in the U.S. economy, while other nations like Europe and China experience faltering growth, has kept the greenback strong. This is hurting overseas trade. A stronger dollar makes it tough for U.S. exporters to compete overseas.

 

Last week, I warned investors to tread carefully in September. Thus far, I have been proven right. I do expect this shallow sell-off to continue into next week, but then we should see a bounce. We may re-test the August lows (around 4,330 or so on the S&P 500 index), but that remains to be seen. Holding that level would be positive. If not, we could face another 5 percent decline before bouncing back. 

 

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.

Women with young children have hit their stride in America's workforce. The ability to work remotely has given these women the flexibility to make money while raising children.

 

A new report in June 2023 by the Hamilton Project at the Brookings Institution indicated that prime-age women (ages 25 through 54) had a labor force participation rate of 77.8 percent.

 

What was even more surprising was that women whose youngest child is under the age of 5 are the main locomotive behind this upward trend. Prepandemic, this group's participation in the workforce peaked at 68.9 percent but has now jumped to 70.4 percent. No other category of women has surpassed their prepandemic level thus far.

 

This is a far cry from the predicament women faced during the pandemic-induced shutdown of schools and the inability to find day-care services. At that time, working women were forced to choose between taking care of the kids or employment. Those who tried to do both, like my daughter, were under enormous pressure on both ends.

 

How bad did it get? In 2020, about 113 million women aged 25-54 with partners and small children were out of the workforce, according to the International Labor Federation. In that year, more than 2 million mothers left the labor force. That compares to 13 million males out of work.

 

Two factors conspired to get these women back in the workforce. The supply/demand imbalance of workers in the U.S. has resulted in the present-day historically tight labor market. Possibly even more important was the introduction of remote work. More research needs to be done, but one idea is that women who were highly educated and allowed more flexibility to work remotely rejoined the labor force. For those like my daughter who works in a high-level, high-demand management job in the retail sector, adding remote flexibility allowed her to retain her stressful job and care for her 8- and 11-year-old children.

 

The ability to tend to a child's needs, whether to pick up or drop off from school, make a doctor's appointment during work hours, or handle playdates during the summer allows mothers to juggle both jobs. If that is not possible, many moms are forced to throw in the towel on jobs like my daughter's and either quit or go part time. 

 

There does seem to be a cut-off point where women with very young children remain less likely to work than women with older kids or no kids. Normally, childbirth is when a woman's career path changes in the U.S., which impacts the rest of their economic life. It usually limits income, job selection, promotions, and fringe benefits.

 

For decades, women advocates have lobbied for more flexibility in the workplace that would allow women with children to remain in the workforce. COVID-19 and the subsequent remote work policies could have major implications for women and their future ability to hold careers and all that comes with it.

 

But there are still bumps in the road for working women. Indeed, the job search company, surveyed more than 1,000 stay-at-home moms, who re-entered the workforce only to find a good deal of bias in their job search. About 73 percent reported some bias due to the employment gap on their resumes. Many found difficulty in obtaining a flexible position.

 

Unfortunately, as the risk of contagion recedes, an increasing number of employers (mostly males) are clamping down on remote work. Many large companies are insisting on at least three days in the office per week. Employees are pushing back, but if the labor market weakens, workers may not have the leverage to resist the curtailment of remote work, at least for now. Longer-term, however, the aging of American workers should mean that labor shortages will continue and with it, remote work. That would be a big plus for women.

 

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.

Decades after the first lunar landing, the space race has come back into vogue. Driving the competition is the potential value of the moon's economic, scientific, and even geopolitical promise.

 

Dominance in space, while I was growing up, was something confined to comic books and sci-fi movies. In 1969 that changed. Three astronauts from the U.S. made "one giant leap for mankind" by walking on the Moon. As a high school student, I marveled that Mars would be next, but space exploration quickly took a back seat to other issues like Vietnam, Civil Rights, and the arms race.

 

Fifty-four years later, space is back, and it is now a real proposition. Countries like China, Japan, India, Russia, and the U.S. are looking to stake claims in this new extraterrestrial frontier. 

 

The current thinking is that the moon is a great place to test out the technology needed to further explore the universe. In addition, those that can establish a presence, and mine for water and other resources, will have the necessary ingredients to travel deeper into space to destinations such as Mars. In short, the Moon is the most obvious place to jump off into infinity and beyond for the winners.

 

NASA's launch of the un-crewed Artemis 1 last year was the opening shot in a long-range plan to send people to the lunar surface by 2025 and, in time, establish a sustained lunar presence. Other nations have a similar mindset and are not far behind the U.S.

 

Much of the world's attention has switched to a specific area of the Moon after researchers discovered water on the Moon in 2008-2009. The existence of water is key to sustaining human life on the surface and it appears that the South Pole of the Moon contains quite a bit of it.

 

Russia, which made history in 1966, when the Soviet Union's Luna-9 touched down on the Moon's surface, has been racing against India to be the first to land in that area. However, their Luna-25 vehicle crashed into the lunar surface earlier this month. That allowed India's Chandrayaan-3 vehicle to touch down a few days later. India became the first nation to reach the moon's South Pole.

 

For India and its people, it was the crowning achievement in becoming a new power in space. It had already succeeded in sending its landers to the lunar surface and deploying a space station. India now joins the U.S., China, and Russia as the only nations that have succeeded in accomplishing a controlled landing on the Moon. Many have tried over the years without success, most notably both Israel and Japan.

 

But giving up is not an option in the race for the moon's economy. Several nations, as well as private companies, have plans to explore the lunar surface. Japan's Aerospace Exploration Agency, for example, is launching a craft in a few weeks. Private companies such as Ispace and Astrobotic are also planning to send missions to the lunar surface with the intent of delivering cargo for governments. Altogether, there are more than 22 companies that have set their sights on the Moon.

 

Private companies are expecting this new space race, fueled by government competitors, will be a fertile field for future profits. Communication, defense, and data requirements are accounting for the largest share of private sector purchases right now. Entrepreneurs hope that products and services unique to the moon will soon follow.

 

In the case of NASA, supporting private industry is now part of their space program. Buying services from the private sector to support Earth orbit programs are already in place. Eventually, other business lines that could include transportation, water extraction, mining, and construction are contemplated. The fact that Boeing and Northrop Grumman (among others) built the Space Launch System rocket lends credence to these beliefs. In addition, several private companies are already working on spacesuits and Moon landers.

 

Critics worry that private companies may be putting the cart before the horse in investing in a new space industry at this early stage. Planning for the economic exploitation of the moon might happen, they argue, but it could be years away. 

 

Spending billions now to develop the technology that would enable the delivery of payloads to the moon, with no sure customer, or even a human presence on the lunar surface is risky at best. But risk has always been the price for innovation, for breakthroughs, and for building a better future. Governments are betting that space and the exploitation of the moon could spark new industries, more economic growth, and plenty of new jobs, so it is worth the risk. 

 

As for me, it's simple. I'm in for the long haul. If you have doubts, you only need to ask what would Buzz Lightyear do?

 

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.

Fed Chairman Jerome Powell indicated that he was "prepared to raise rates further" at the Jackson Hole Symposium this week. Investors who were hoping to hear a more dovish outlook were disappointed.

 

The market walked away with an understanding that interest rates had two paths forward. The best case was flat for a longer period, or higher if inflation persists. About last year's address, Powell said "The message is the same: It is the Fed's job to bring inflation down to our 2 percent goal, and we will do so."

 

Beyond Friday's event, it was a slow week with little volume and plenty of volatility. Second-quarter corporate earnings in the retail sector were lackluster for the most part with forward guidance indicating a slowing in retail spending on the margin.

 

On the economic front, data revealed further weakness in certain sectors, but the job market remained buoyant. The weakness in the U.S. Purchasing Managers Index (PMI) indicated that demand for new business in the services sector contracted. This followed a bigger-than-expected decline in Euro Zone PMIs as well as slowing growth in China. All this data indicates that inflation may continue to fall but most of the downward pressure could be due to a softening economic picture in Europe and China.

 

The most important event of the week, aside from Powell's comments, revolved around an individual company, Nvidia, the semiconductor giant. Nvidia is the world's leader in the manufacture of Artificial Intelligence (AI) microchips. It commands an 80 percent market share worldwide. Many Wall Street analysts believe we are just at the beginning of an enormous multi-year demand for AI chips that will benefit Nvidia enormously.

 

Following a blockbuster May earnings report that rocked Wall Street and sent the stock soaring up 200 percent this year, Thursday's second-quarter earnings announcement blew away what were already sky-high expectations. The company reported a 101 percent jump in sales from last year, while earnings were up 429 percent. They also guided higher revenues for the coming quarter that was $3.5 billion higher than the loftiest estimates.

 

However, sometimes there is a difference between a company's fortunes and what happens to its common stock. The stock price had been bid up relentlessly for weeks before the earnings results. The earnings did catapult the stock higher after the announcement in the pre-market hours by 7 percent.

 

It took most of the market higher with it and dragged the tech-heavy NASDAQ up over one percent.  And then boom, both the stock and the market tumbled shortly after the opening.

 

In hindsight, (as often happens in trading) all the good news was already discounted in the stock price. There was nothing left to do but sell on the news and that is exactly what traders did. Be aware, however, that this price decline has nothing to do with the fundamental value of the company and its prospects.

 

As for the markets overall, the S&P 500 index did give me the bounce I was looking for. It gained 2 percent this week before reversing back down. I believe we are in a topping process in the markets, which should continue into the second week of September. After that, I expect a bigger move down.

 

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.

Henry Ford must be rolling over in his grave. His vision of making an automobile that would be accessible to all Americans was embraced by the car industry for decades. That era has come to an end.

 

The demise of the reasonably-priced auto is happening before our eyes. The last car with an average price of less than $20,000, the Mitsubishi Mirage, a compact, is being discontinued. It joins models such as the Honda Fit, Chevrolet Spark, and Volkswagen Beetle in the graveyard of small, affordable cars.

 

Over the last few years, Americans for the most part have forsaken "small" for "big" vehicles like the SUV, pickups, and crossovers. For every Mirage sale in the second quarter of 2023, Ford sold 108 F-series pickups. The big auto companies claim that the U.S. consumer is not interested in buying small cars anymore. That may be true, but the reality is that fewer consumers than ever can afford to shell out $48,000 to $50,000 on average for a new vehicle.

 

Many blame the COVID-19 pandemic for the death knoll of affordable autos. At that time, used and new car prices spiked higher as global supply change shortages disrupted production. The microchip area was especially hard. The scarcity of chips forced car makers to ration, reserving this precious commodity for their most profitable, high-end autos. Supply of vehicles overall fell, while consumer demand throughout the country continued to increase. This led to an inflationary spiral in vehicle prices.

 

As in many other areas of the economy, there is a wide disparity between the haves and have-nots in this country. The ability to purchase an auto has suddenly become a luxury problem. This year, for example, the bottom 20 percent of workers reduced their purchases of new cars to its lowest level in more than a decade, according to the most recent Consumer Expenditure Survey, while the top 20 percent of earners spent more on new cars than any time since 1984.

 

Adding insult to injury is the rise in interest rates that have pushed car loans into the stratosphere. The number of motorists paying more than $1,000 per month for a new car loan is almost 16 percent, which is a record. The average monthly payment, according to Edmunds.com, is well over $700 per month. That means if you took out a car loan at 4 percent a few years ago for a $40,000 car, and now must pay 8 percent in interest over five years, for a similarly priced car that would add $4,463 to the total cost of the vehicle.

 

Most of us believed that once the pandemic was over, car prices would return to normal instead, manufacturers continued to raise prices. Why, you might ask, have auto manufacturers forsaken Ford's goal of building "a motor car that the everyday American could afford?"

 

The truth is simple. After the pandemic, car manufacturers realized that selling fewer vehicles at higher prices was good for both sales and profits. Last year, for example, only 13.9 million units were sold in the U.S. (versus 17 million in 2019), but sales were $15 billion higher.

 

Electric vehicles are also to blame. The industry is in a do-or-die moment as consumers demand companies offer an increasing array of electric vehicle alternatives, while governments offer generous subsidies to manufacturers. This has led to a massive investment drain to the tune of billions of dollars to overhaul factories in a rush to produce EVs. One way to come up with that money was to accelerate the trend toward producing high-margin SUVs and trucks while reducing production in the less profitable affordable car market.

 

As most readers are aware, the skyrocketing costs of new cars have forced many car buyers into the used-car market. At least they are cheaper, if you can find one. The transaction price of a used car is currently $28,381, according to Edmunds.com. That is still up 44 percent over 2018. Add in the interest expense on a car loan and it is still a sizable sum.

 

For many consumers, the only recourse is to keep their aging vehicles, hoping the time will come that this insanity will end, and prices will come down to earth. In the meantime, the average age of a light-duty vehicle on the road stands at 12.5 years in the U.S. That is the highest level of aging autos since the financial crisis and subsequent recession. 

 

By 2028, a recent study of S&P Global Mobility predicts that autos that are six years or older will make up more than 74 percent of the U.S. total vehicle fleet of 2028. If so, and your car falls in that aging vehicle category, it might be a good idea to renew or purchase a five-year warranty on your auto right now.

 

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.