Stocks dipped on the last trading day of the year as the bulls punched out early to head to the pub for a well-deserved toast. 2023 was anything but a straight line, but few could argue that the results should be placed in the “win” column.
The hangover. Two giant teas and one espresso in, I spent the first part of my early morning scribbling a chart on my iPad… it’s coming, be patient. I needed all that caffeine, not because I had too much fun over New Year’s weekend, but because whatever ilk of illness I fought last week decided to upshift over the weekend leaving me crawling into 2024. All positive from here on out. I was fortunate to spend the holiday with my family, and I can report that we did, despite mine and my wife’s being under the weather, have a FANTASTIC time as we celebrated a momentous occasion. But as the music was blaring and everyone was dancing, I reflected in the final minutes of 2023. Not on anything as big as life (I had the whole weekend for that), but on finance. You see, when things are going so well, champagne flowing, horns blowing, feet tapping, etc. seems to be the best time to watch one’s back. I joked a few weeks ago about the morning where there was a bull on the train tracks and the Dow was just under its all-time, jesting “what could possibly go wrong?” And things only got better since that post!
All joking aside, 2023 was a great year, if not a challenging year. It marked the beginning of what might be the turnaround for inflation, ushering in what might be of a period of… normalcy. You see, markets go up and down, which is ok, and to be expected. It’s the extremes which are always worrisome. You can’t argue that 2020’s declines followed by 2021’s extreme gains… followed by 2022’s extreme declines were not extreme. Last year found the market seeking some new normal as it pondered interest rates coming down somewhat (in the future) but not to 2021 levels and the potential near-avoidance of a recession. There were wars, bank collapses, scandals, geopolitical tensions… you name it, but the market has demonstrated that it believes that everything is going to be alright. This note is not meant to be a review of 2023 and thoughts on what we can expect for 2024. That will come in my quarterly review in a few weeks. I simply want to note that, the final weeks of the year were really interesting, and now… starting today, traders are going to have to figure out how to pay the butcher’s bill for the party. Because, as you know everything has a cost in finance and economics.
Now that I have written 2 paragraphs where I intended to only write 2 sentences, I will hard-transition to that scribbling I alluded to at the top of this piece. I was watching the news at 04:00 this morning while sipping on tea #1. The headline was about how minimum wages will rise in New York starting today. There was an interview in which a person said something to the effect of “we want to be living in these upscale neighborhoods as well, and this will give us a chance at that.” I am not going to lie, but that did cause me to double-take. In capitalism, there really is only one sure way to increase one’s station in life. I am not going to get into philosophy, but I will tell you that free-market economics is real, and if you mess with them, there will be a cost. Now, we may decide, that the costs are worth it, but there will be a cost, nonetheless. Hearing that interview inspired me to pick up my iPad to ponder the costs of a minimum wage. So here is my chart of the morning… handcrafted by my own hands ✋🤚for you. Take a look and follow me to the finish.
This chart shows the supply (green line) and demand (blue) of labor. Where those two curves cross over each other is the equilibrium, which is the point at which workers and wage payers settle on a market wage. W* is that market wage, and Q* is the number of workers employed and willing to work at for W*. By going against the market and moving wages to Wm (the red lines), you create a price floor. When that happens, more workers are willing to work (supply) while companies are willing to hire less (demand). The difference between the two curves, the artificial disequilibrium caused by the price floor, is unemployment. So, in attempting to help improve wages for lower-salaried workers, which is a good and just thing, we may be setting the stage for costs down the road. Now, I want to make it clear that I am not against it in the least, I simply want to demonstrate that there is a cost for everything, whether it is in the capital markets, or in economics, both of which are our concerns 😉. When I was 14, I was able to secure working papers (we needed them in those days) so I could work in my uncle’s factory for the summer. He paid me $3.18 / hour… it was the minimum wage at the time. I knew that it was not going to be enough to get me my dream car. It motivated me to work harder and exceed the minimum wage. In that case, it was successful… the costs were justified… I think, though it did take me many, many years to get the car.
WHAT’S GOING ON THIS MORNING
Boston Properties (BXP) shares are higher by +1.58% in the premarket after Jefferies upgraded the stock to BUY from HOLD and raised the company’s target price. In the past 30 days, 9 analysts have raised their price targets for the company, while none have lowered their price targets. Dividend yield: 5.58%. Potential average analyst target upside: +0.8%.
Ball Corp (BALL) shares are lower by -2.10% after BofA downgraded the company to UNDERPERFORM from NEUTRAL citing that the company was fully valued, and that it expected a weaker first half for the company. The company is expected to announce earnings on 2/1. Dividend yield: 1.39%. Potential average analyst target upside: +1.5%.
LAST FRIDAY’S MARKETS
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