The S&P 500 bounced by more than 2 percent this week, retracing almost half of the 5 percent decline we have suffered so far in April. The jury is still out on whether this is only a dead-cat bounce or a signal that the downside is over.

 

It was a week of mixed messages for sure. Good earnings drove markets up on Monday and Tuesday. About 43 percent of companies listed on the S&P 500 Index have reported so far. Overall, 57 percent of them are beating estimates. Those that have been beaten are doing so by a median of 8 percent. There have been stand-out winners and losers among them.

 

Meta, for example, had good results, but its future guidance (higher capital expenditures and lower second-quarter sales) disappointed the markets. As most are aware, Meta is one of the most favored Magnificent Seven stocks. Disappointment in Meta caused the NASDAQ and other indexes to fall (one step back).

 

Thursday night Google and Microsoft reported better-than-expected results and propelled markets higher by one percent or more on Friday (two steps forward). Stocks were buffeted in both directions as traders were forced to reverse positions daily. To say the week was volatile would be an understatement.

 

This volatility was aided and abetted by macroeconomic data as well. The announcement that the U.S. economy in the first quarter of 2024 grew at its slowest pace in nearly two years, threw investors for a loop. The economy grew at 1.6 percent over the last three months, which missed the consensus forecast of at least 2.5 percent growth. That is a big drop considering that in the fourth quarter of 2023, GDP came in at 3.4 percent. Even worse, inflation, as measured by the core Personal Consumption Expenditures Index, grew by 3.7 percent, above estimates of 3.4 percent and a lot higher than the prior quarter's 2 percent. This was followed by the Fed's favorite inflation indicator, the Personal Consumption Expenditures Index on Friday morning which also came in higher than expected. The combination of lower economic growth and higher inflation immediately triggered talk of stagflation.

 

I think talk of stagflation is a bit premature at this point but that didn't stop traders from bidding up the price of gold and other commodities. Stagflation is the best possible scenario for pushing the price of gold higher. It is already one of the best-performing assets this year and bulls believe it could go much higher.

 

The question on my mind is whether this week's gains are simply a counter-trend rally or the end of the recent sell-off. Last week, I advised readers that "the technical charts say that we should expect a counter-trend rally, commonly called a dead-cat bounce. Unfortunately, the probabilities indicate that a bounce will not signal the selling is over."

 

For those investors that are not aware, "if you drop a dead cat from a high enough building it will surely bounce." I first encountered this saying back in 1985 when both the Singaporean and Malaysian markets were in free fall. These bounces are predictable, and they usually occur on declining volume. That is exactly what happened this week. It usually sucks in the FOMO crowd, who, conditioned to buy every dip, pile in only to get their hands burnt.

 

I will reserve judgment for now and see how the markets handle next week when we will once again be treated to the next Federal Open Market Committee meeting in mid-week(April 30-May 1)). Until then, hold on to your hats.

 

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 has been a month since the National Association of Realtors (NAR) was forced to scrap a system of broker fees that has been in place for a generation. A federal court still must approve the change in June or July, but if it does, it could alter the way Americans buy and sell homes for decades into the future.

 

The change was precipitated by a series of class action lawsuits from home sellers that accused Realtors and the Realtors Association of keeping agent compensation artificially high. In October 2023, a federal jury in Kansas City found the NAR and some of the largest brokers in the country guilty of colluding to inflate real estate commissions.

 

The damages of that suit were $1.78 billion, which will be paid to more than 260,000 homeowners in three states. More class action suits followed. Last month, the association settled the mounting lawsuits by agreeing to pay $418 million without admitting to any wrongdoing regarding compensation.

 

For those of us who have bought or sold a home through an agent who may have worked tirelessly in closing a deal, don't feel bad. That agent was paid handsomely for the effort. It is why there are 1,162,364 real estate sales and brokerages businesses in the U.S. This has been a great business for a long time. Until now, the home real estate market has been a tightly controlled market of fixed fees with no genuine competition.

 

Traditionally, the home seller pays a 5 percent to 6 percent commission on the sale price of the home. Typically, the seller's agent and the buyer's agent split that commission. In effect, the buyer's agent is working for the seller, which is a clear conflict of interest. Many home buyers are unaware of this fact.

 

Under NAR rules, sellers are required to advertise the buyer agent commission on the Multiple Listing Service, which is the database where real estate agents put homes for sale. There is even a specific box just for that number, but many homebuyers can't see that number, only their agents can.

 

Could an enterprising agent be tempted to focus their clients on houses with higher fee deals at the expense of lower fee homes that may be just as suitable? Raise your hand if that has happened to you. Sure, not all agents do this, but some certainly do. All this goes away if the courts approve this NAR settlement. Sellers could no longer promise a commission to buyers' agents and that little box would disappear.

 

We are talking big money here. Today, Americans pay out $100 billion in real estate commissions. The present commission structure could be reduced by between 20 percent and 50 percent if fixed fees go by the wayside, according to Keefe, Bruyette & Woods. The new agreement is expected to cut fees on the average home by $5,000 to $13,000.

 

For the 1.6 million Americans who are registered as real estate agents and for those companies that employ them, this is bad news. Commission rates would drop. Negotiated fees could be a viable alternative to fixed-rate fees. Online real estate companies that rely on partnerships with real estate agents, would also feel the heat and may pull back on their marketing efforts. Broker's commissions could fall to as low as 1 percent-1.5 percent per agent on each side, according to the Consumer Federation of America. The result, by some estimates, is that the number of real estate agents and companies could be reduced by half.

 

If the courts rule in favor of dismantling fixed commissions, existing homeowners would benefit immediately. They would no longer be faced with paying both their agent and the buyer's representative out of the sale proceeds. Sellers may get lower prices for their homes but keep more of the proceeds through reduced commissions. Buyers can save money by choosing a cut-rate broker, or none.

 

There will be a downside as well. Surviving agents and brokers might have to charge home buyers hourly rates. Sellers may have to pay higher fees to unload their homes. Agent services that are for now taken for granted could be drastically reduced. New ways of providing value will be a challenge for many brokers.

 

I know that most real estate agents bend over backward to satisfy their clients. Many provide weeks, months, and sometimes years of time, effort, and expense to move a home for you. Remember too that there is also a perk in paying the traditional fixed commission. Since the fees are baked into the higher home price, buyers can finance the fees with a mortgage.

 

Plenty of prospective home buyers may not be able to pay agents out of pocket. First-time home buyers and lower-income households, including minorities, have traditionally relied more heavily on agent services. In addition, the "let's go see what's out there" crowd will disappear once an agent begins charging for that privilege.

 

The end of fixed commissions is not rocket science. In so many industries, the practice of charging fixed fees for services is a thing of the past. In the financial services industry, for example, discount brokers and other new forms of competition effectively reduced commissions to zero. The industry did not disappear. It got bigger as participants figured out more and better ways to service their clients. Overall, economists expect the result in the real estate industry will be more homes bought and sold, and more liquidity in the real estate markets while making housing more affordable in the U.S.

 

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.

Geopolitical risk, inflation, higher for longer, rising bond yields, take your pick. There are several reasons for the stock market sell-off. The bad news for investors is that after a counter-trend bounce, the selling should continue.

 

There are at least half a dozen reasons why the markets were down again this week. If you have been following my columns, you know that I have been expecting this decline for weeks. The truth is that this pullback is long overdue. I believe it is a healthy, if painful, development that could last a few weeks.

 

I am not discounting the reasons for this decline. The attack on Israel last weekend was gut-wrenching. My next-door neighbor was in Jerusalem at the time visiting relatives, and spent Saturday night in a safe room, while we crossed our fingers and waited for some word from him while watching CNN with his wife.

 

All week investors have been waiting for the next shoe to drop. Thursday night Israel hit back, but with some restraint. Overnight stock futures tumbled, but by Friday morning regained their losses. I believe geopolitical risk will be with us for the next few weeks, keeping markets on edge.

 

As a result, the dollar, gold, and U.S. bond yields continue to rise. To make matters worse, this week Fed Chair Jerome Powell said the last three months of higher inflation data will likely delay interest rate cuts further. Some are even talking of a possible interest rate hike.

 

Pullbacks, corrections, sell-offs, call it what you will, markets are a self-correcting mechanism. One can predict easily that every year, there will be several declines in the stock average that can vary from a few percent to 10 percent or more. Since we haven't had a real pullback since October of 2023, this one may feel especially painful.

 

As readers know, I first started looking for this decline back in February, but the Fed's changing stance on when they might loosen monetary policy postponed the decline. In the first quarter of this year, Fed Chairman Jerome Powell, and his band of FOMC members, had lifted investors' hopes that there could be as many as three rate cuts this year if the data cooperated.

 

That set off a momentum trade in stocks that lasted well into March. As the weeks passed and stocks became more and more extended, I raised my target on the S&P 500 Index to my most bullish line in the sand, 5,240. The index surpassed that level by about 20 points about two weeks ago. Since then, we have sold down until today, the S&P is roughly 5 percent below the highs.

 

Stocks have dropped every day this week. The three main indexes are deeply oversold. The technical charts say that we should expect a counter-trend rally, commonly called a dead-cat bounce. Unfortunately, the probabilities indicate that a bounce will not signal the selling is over. I had been forecasting a 7 percent-10 percent decline and I am sticking with that forecast. That would bring the S&P 500 Index down to 4,820-4,850.

 

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.

If you haven't noticed, the price of large appliances continues to climb. What's worse, in a year or two, many find that the costly smart refrigerator, oven, or washing machine in your kitchen is suddenly plagued with all kinds of problems. What happened to the concept of quality?

 

In the last two years, my wife and I have had to purchase a new refrigerator and washer. The guy who delivered them warned me that it was just a matter of time before the dryer went as well. None of these items were more than 10 years old. I credit Rachel Wolfe of The Wall Street Journal for explaining why.

 

There seem to be three factors behind the shorter life span of these household goods. Computerization, an increase in the number of individual components that go into each appliance, and the quality of materials overall. Let's take the refrigerator, as an example.

 

Back in the day, I can remember my mom having to shut down the fridge every six months or so and scrape off the ice that had built up in the freezer. Those days are gone. Manual defrost gave way to frost-free refrigerators that came with a bunch of new parts like heaters, fans, and sensors to automate the defrosting process.

 

The dawning of the 2000s saw a breakthrough in both energy efficiency and precise temperature control by replacing thermostats with digital computer control. All that was required was to add another batch of components and parts, mostly electronic, such as relays, capacitors, and solder joints to the old ice box.

 

Another factor impacting all appliances, not just refrigerators, was the industry-wide transition to lead-free solder in 2006. Environmentally, the benefits are obvious, since it eliminates toxic lead, however, the new solder requires stricter control over manufacturing processes and better design practices to ensure long-term reliability. This has resulted in an entirely new series of challenges to your neighborhood repair person to figure out what parts need to be repaired while others may need to be replaced.

 

In the meantime, George Jetson would be proud of the advancements. Appliance manufacturers keep coming up with wonder after wonder. Icemakers, touchscreens, and chilled water dispensers are built into refrigerator doors. I fully expect my fridge to be able to sing Zippity Do Dah in its next reincarnation.

 

The same trend is occurring in other appliances. New smart ovens offer induction, convection, air fry, steam, dual-fuel, and touch control. Washers and dryers promise smart technology integration with features such as in-washer faucets, dirt level and fabric type sensors, steam closets, removable agitators, cold water wash technology, and even add-on filters for microplastic capture.

 

While all these features enhance functionality, the number of valves, pumps, electrical connections, electronics, and such make something created to keep things cold now takes a rocket scientist to figure out, let alone repair. I confess that I still can't figure out how to switch the icemaker from simply dispensing water to giving me a cup full of ice. What's worse is that a blip in the icemaker can cause a systemwide failure and put your fridge down for the count. It has happened to me.

 

I am not alone. My appliance repair guy said his industry is seeing a ton more items in need of repair. The Wall Street Journal article confirmed that and found that Yelp helped users request 58 percent more quotes from thousands of appliance repair businesses. American households spent 43 percent more on home appliances last year than 10 years ago, even though prices have declined during that same period. One of the main reasons for this discrepancy is there has been a higher rate of replacements. Twenty-five years ago, the average homeowner replaced appliances every 12-13 years. Today it is every eight to nine years.

 

As most readers know, getting someone to repair your appliance is an expensive and time-consuming process. House calls are roughly $250 per visit before any work is done. You can easily spend almost as much repairing an appliance as buying a new one. Manufacturers know that consumers are unlikely to invest in costly repairs. Therefore, many companies prioritize cost-effective production methods over repairability. Products that are not meant to be taken apart and fixed can be made cheaply with less expensive parts and materials.

 

In addition, replacement parts can be a game of brands. Premium brands tend to provide extensive spare parts support for their products, but even the best can require a week's wait or more. Cheaper brands, normally sold in budget stores and some box stores, often offer limited or no spare parts availability. They are designed to be disposable with your money back, or a new appliance if it is still under warranty. If not, you are out of luck.

 

In summary, the appliance market today "ain't what it used to be." One of my neighbors just ordered a dishwasher from Home Depot. They only drop it off. Now she needs to find a plumber to uninstall and cart away the old one and install the new one. There's not much anyone can do about it but if you still have that old freezer or fridge in the basement, I would keep it.

 

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.

"One's a dot, two's a line, three's a trend," is how the saying goes. When applied to the inflation data this week, it spelled bad news for the financial markets.

 

Over the last two months, inflation showed increases in both the Consumer Price Index (CPI) as well as the Producer Price Index (PPI). This week, the March CPI data came in warmer than investors had hoped (0.4 percent versus expectations of 0.3 percent). The PPI was slightly below forecasts, but the monthly core index matched expectations. Not good.

 

Economists might say the jury is still out on calling a backup in the inflation rate, but traders shoot first and ask questions later. Stocks fell on the CPI release. The U.S. Treasury Ten-year bond yield breached 4.58 percent and the dollar gained more than one percent. The data squashed any hopes that the Fed would cut interest rates in June.

 

Economists were forced to take a big step back from their rosy forecasts of an imminent loosening of monetary policy. It was a far cry from January when many thought we would see as many as seven interest rate cuts by the end of this year.

 

FOMC committee members have been giving speeches and interviews over the last two weeks. Some have been sounding the alarm. Their message was clear: fewer (if any) rate cuts could be expected unless there was further progress on the inflation front.

 

To be clear, Fed Chairman Jerome Powell has not changed his tune quite yet. He still expects to cut interest rates sometime this year, but exactly when would be data dependent.

 

The bulls, however, have not given up on their rate-cut thesis. They have just pushed back the timing to July or maybe September. I must wonder whether the exact timing of this rate cut, if it occurs, really makes a big difference to the economy.  I will go a step further and question whether the Fed needs to cut interest rates at all given the growth in the economy and the strength in the labor force. By cutting rates too soon, the Fed would create what most fear — a resumption of inflation. Remember, inflation is still out there. It is only the rate of increase that has declined.

 

Some believe that the fix is in. In an election year, the incumbent usually does everything possible to boost the economy. Cutting interest rates would help the cause, so the pressure will mount for the Fed to do something soon. That seems too easy to me. I believe the Fed will do what the Fed's got to do and be damned if there is fallout from the politicians.

 

As for the markets, I have been pleased by the performance of the "catch-up" trade I had predicted at the beginning of the year. Precious metals, especially gold, have hit new highs. Silver has also performed well. Basic materials, especially copper, and some soft commodities such as coffee and cocoa have soared. Energy, Industrials, and financials have also done better than the S&P 500 Index.

 

We hit a high of 5,264 on the S&P 500 Index back on March 28 (about 20 points higher than my target) but since then the averages have drifted lower. I expect markets to continue to consolidate over the next week or so with a good chance of further pullbacks if we break 5,140 on the downside.

 

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.