Post by Admin/YBB on Jul 31, 2021 6:39:45 GMT -6
Pg M1, TRADER. Big TECHS pulled the market down this week in spite of their great earnings reports. But SMALLER stocks did better – equal-weight SP500 RSP and small-cap R2000 were up. The FOMC meeting was a nonevent. The Q2 GDP growth was high but below expectations due to inventory drag. Revenue and earnings growth have been fantastic, and analysts continue to raise ESTIMATES. But that is not how a typical year works – the estimates start out high and come down as the year progresses. But the danger now is that at some point the estimates will become too high and there would be disappointments.
Covid-19-Delta is boosting healthcare stocks (PFE, etc; ETFs XLV, PPH, IHI). Due to good earnings, the healthcare sector fwd P/E at 17.45 is still well below 21.45 for SP500. So, the healthcare sector should continue to do well.
The SPAC-driven rally in electric-vehicle (EV) stocks has fizzled and last week was just dreadful (NKLA, FFIE, RIDE, ARVL, etc). Remember that EV-SPACs have no revenues, and some may run out of cash before commercial products emerge. There is less risk in EV-SPACs with $1+ billion in cash (only 3 are FSR, LCID, FFIE) and they trade at multiples of cash (5x, 9x, 4x).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.36%, SP500 -0.37%, Nasdaq Comp -1.11%, R2000 +0.75%. DJ Transports -2.00%; DJ Utilities +0.32%. (Rotating spot China KWEB -8.72%) US$ index (spot) -0.93%, oil/WTI futures +2.61%, gold futures +0.62%.
YTD (index changes only), DJIA +14.14%, SP500 +17.02%, Nasdaq Comp +13.85%. (Rotating spot China KWEB -34.29%)
Pg M4, EUROPE. German food-service equipment maker Rational (RTLLF; P/E 82; EV/EBITDA 70) was hit hard by the pandemic and its recovery has been difficult too. It has capital-lite business model. But it is attractive as the recovery progresses.
Pg M4, EMERGING MARKETS. Indian PM MODI is pushing big on green/renewable energy – to quintuple output by 2030 at an estimated cost of $500 billion. Helping him are local billionaires/industrialists AMBANI (Reliance Industries), ADANI (Adani Group), TATA (Tata Group) and foreign investors such as Goldman Sachs/GS, Abu Dhabi Investment Authority (ReNew Power is going public via merger with the US SPAC RMG Acquisition/RMGB), etc. Challenges include huge public-private investments required; states’ control of transmission grid; 40% tariff on Chinese solar panel imports; low green/renewable energy base with 50%+ power currently produced from coal.
Pg M6, COMMODITIES. Gold hit its peak a year ago (Aug 6-7, 2020), then touched a low on Mar 8, 2021 (high-to-low -19.7%) and is now down -14% from high. According to PSARRAS (GoldCore USA), the current low interest rates and high inflation (transitory, says the FED) should be good for gold.
Pg M5, OPTIONS. American Express/AXP is a good play for TRAVEL RECOVERY. Global travel and entertainment may reach 80% of 2019 level by 2021/Q4, and that would be without much corporate travel. AXP is up +41% YTD and call-writing/covered-calls are recommended.
(SP500 VIX 18.24, Nasdaq 100 VXN 20.81, SKEW 153.71 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M23, M28: An up week in EUROPE (Greece +3.42%, Italy +1.11%, Belgium -1.53%) and a bad week (again) in ASIA (Australia +0.50%, China -5.80%). The equity CEF index (data to Thursday) outperformed the DJIA and its discount was -5%.
TREASURY* 3-mo yield 0.06%, 2-yr 0.19%, 5-yr 0.69%, 10-yr 1.24%, 30-yr 1.89%. DOLLAR fell, DXY 92.09, -0.9% (M31). GOLD (Handy & Harman spot, Thursday) rose to $1,826, +1.5% (M34); the gold-miners rose sharply. (^XAU was at 143.77, +5.99% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M29).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “The LABOR SHORTAGE is Worse than it Looks, and Help is NOT on the Way”. Employers are calling furloughed workers back, but they are not returning. This has created a severe shortage of workers in many industries and the supervisory staff has to take up some slack. Recent data of 9.2 million job openings and 9.5 million unemployed is also a CONUNDRUM. Many parents with kids at home cannot return to work and they are getting generous unemployment benefits anyway (to end in early-September). Will SEPTEMBER fix the problem when kids are back to school and workers return to offices/factories? But there may be a mismatch between jobs available and worker skills and many workers may not be returning to their old jobs. Many older workers have quit or retired, and more may do so if they cannot work remotely. So, the WAGE INFLATION may not subside, as expected by the FED. There is a risk of Fed policy error. Company EARNINGS may also suffer due to labor shortages and higher wages. The trend for AUTOMATION may accelerate and the capex for IT is already rising. This FALL will be critical in many ways.
Pg 6, UP & DOWN WALL STREET. Historically, August, September, October are the WORST 3-MONTH stretches with negative returns and high volatility (VIX) (records for each of these 3 months were also examined and those were less clear cut than for the 3-month stretch). The preceding month (July) often has signs of excesses and that probably was Robinhood/HOOD IPO that had poor reception (it came at the lower end of $38-42 range and then fell). The JOBS report on Friday may show gain of 900K-1.2M.
A covid-19 PARADOX is that there were 9.2 million job openings in May and 9.5 million unemployed in June (peak was 15.6 million unemployed in April 2020). Explanations include childcare for kids at home; fear of Covid-19 at workplace; generous federal unemployment benefits (ending in early-September); re-evaluation of work-life balance (and many deciding to quit/retire). RESERVATION-WAGE is the wage required to attract workers to new jobs and, according to the NY FED, that annual mean was $71,403 recently, unusually up during a period of high unemployment. Surprisingly, employment didn’t go up (yet) in states that stopped federal unemployment benefits. These developments make it difficult for the FOMC to achieve its dual mandate of moderate inflation (or, reasonably stable prices) and maximum employment.
Pg 8, STREETWISE. Intel’s (INTC; fwd P/E 11) new CEO Pat GELSINGER promises to move fast to regain chip leadership by 2025, but will that be possible? Bulls and bears both cite pace of developments and costs. In the past, INTC made some huge bets on new technologies, and some didn’t pan out. It is now getting into EUV technology that it had avoided so far (EUV machines are made by ASML and are in high demand). The catchup plan includes using outside foundries for most advanced chips, making custom chips for others and expanding capability and capacity through M&A. It faces competition from TSM, AMD, NVDA and they won’t be sitting still.
(More later….)
Covid-19-Delta is boosting healthcare stocks (PFE, etc; ETFs XLV, PPH, IHI). Due to good earnings, the healthcare sector fwd P/E at 17.45 is still well below 21.45 for SP500. So, the healthcare sector should continue to do well.
The SPAC-driven rally in electric-vehicle (EV) stocks has fizzled and last week was just dreadful (NKLA, FFIE, RIDE, ARVL, etc). Remember that EV-SPACs have no revenues, and some may run out of cash before commercial products emerge. There is less risk in EV-SPACs with $1+ billion in cash (only 3 are FSR, LCID, FFIE) and they trade at multiples of cash (5x, 9x, 4x).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.36%, SP500 -0.37%, Nasdaq Comp -1.11%, R2000 +0.75%. DJ Transports -2.00%; DJ Utilities +0.32%. (Rotating spot China KWEB -8.72%) US$ index (spot) -0.93%, oil/WTI futures +2.61%, gold futures +0.62%.
YTD (index changes only), DJIA +14.14%, SP500 +17.02%, Nasdaq Comp +13.85%. (Rotating spot China KWEB -34.29%)
Pg M4, EUROPE. German food-service equipment maker Rational (RTLLF; P/E 82; EV/EBITDA 70) was hit hard by the pandemic and its recovery has been difficult too. It has capital-lite business model. But it is attractive as the recovery progresses.
Pg M4, EMERGING MARKETS. Indian PM MODI is pushing big on green/renewable energy – to quintuple output by 2030 at an estimated cost of $500 billion. Helping him are local billionaires/industrialists AMBANI (Reliance Industries), ADANI (Adani Group), TATA (Tata Group) and foreign investors such as Goldman Sachs/GS, Abu Dhabi Investment Authority (ReNew Power is going public via merger with the US SPAC RMG Acquisition/RMGB), etc. Challenges include huge public-private investments required; states’ control of transmission grid; 40% tariff on Chinese solar panel imports; low green/renewable energy base with 50%+ power currently produced from coal.
Pg M6, COMMODITIES. Gold hit its peak a year ago (Aug 6-7, 2020), then touched a low on Mar 8, 2021 (high-to-low -19.7%) and is now down -14% from high. According to PSARRAS (GoldCore USA), the current low interest rates and high inflation (transitory, says the FED) should be good for gold.
Pg M5, OPTIONS. American Express/AXP is a good play for TRAVEL RECOVERY. Global travel and entertainment may reach 80% of 2019 level by 2021/Q4, and that would be without much corporate travel. AXP is up +41% YTD and call-writing/covered-calls are recommended.
(SP500 VIX 18.24, Nasdaq 100 VXN 20.81, SKEW 153.71 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M23, M28: An up week in EUROPE (Greece +3.42%, Italy +1.11%, Belgium -1.53%) and a bad week (again) in ASIA (Australia +0.50%, China -5.80%). The equity CEF index (data to Thursday) outperformed the DJIA and its discount was -5%.
TREASURY* 3-mo yield 0.06%, 2-yr 0.19%, 5-yr 0.69%, 10-yr 1.24%, 30-yr 1.89%. DOLLAR fell, DXY 92.09, -0.9% (M31). GOLD (Handy & Harman spot, Thursday) rose to $1,826, +1.5% (M34); the gold-miners rose sharply. (^XAU was at 143.77, +5.99% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M29).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “The LABOR SHORTAGE is Worse than it Looks, and Help is NOT on the Way”. Employers are calling furloughed workers back, but they are not returning. This has created a severe shortage of workers in many industries and the supervisory staff has to take up some slack. Recent data of 9.2 million job openings and 9.5 million unemployed is also a CONUNDRUM. Many parents with kids at home cannot return to work and they are getting generous unemployment benefits anyway (to end in early-September). Will SEPTEMBER fix the problem when kids are back to school and workers return to offices/factories? But there may be a mismatch between jobs available and worker skills and many workers may not be returning to their old jobs. Many older workers have quit or retired, and more may do so if they cannot work remotely. So, the WAGE INFLATION may not subside, as expected by the FED. There is a risk of Fed policy error. Company EARNINGS may also suffer due to labor shortages and higher wages. The trend for AUTOMATION may accelerate and the capex for IT is already rising. This FALL will be critical in many ways.
Pg 6, UP & DOWN WALL STREET. Historically, August, September, October are the WORST 3-MONTH stretches with negative returns and high volatility (VIX) (records for each of these 3 months were also examined and those were less clear cut than for the 3-month stretch). The preceding month (July) often has signs of excesses and that probably was Robinhood/HOOD IPO that had poor reception (it came at the lower end of $38-42 range and then fell). The JOBS report on Friday may show gain of 900K-1.2M.
A covid-19 PARADOX is that there were 9.2 million job openings in May and 9.5 million unemployed in June (peak was 15.6 million unemployed in April 2020). Explanations include childcare for kids at home; fear of Covid-19 at workplace; generous federal unemployment benefits (ending in early-September); re-evaluation of work-life balance (and many deciding to quit/retire). RESERVATION-WAGE is the wage required to attract workers to new jobs and, according to the NY FED, that annual mean was $71,403 recently, unusually up during a period of high unemployment. Surprisingly, employment didn’t go up (yet) in states that stopped federal unemployment benefits. These developments make it difficult for the FOMC to achieve its dual mandate of moderate inflation (or, reasonably stable prices) and maximum employment.
Pg 8, STREETWISE. Intel’s (INTC; fwd P/E 11) new CEO Pat GELSINGER promises to move fast to regain chip leadership by 2025, but will that be possible? Bulls and bears both cite pace of developments and costs. In the past, INTC made some huge bets on new technologies, and some didn’t pan out. It is now getting into EUV technology that it had avoided so far (EUV machines are made by ASML and are in high demand). The catchup plan includes using outside foundries for most advanced chips, making custom chips for others and expanding capability and capacity through M&A. It faces competition from TSM, AMD, NVDA and they won’t be sitting still.
(More later….)