Post by Admin/YBB on Oct 9, 2021 7:13:22 GMT -6
Pg M1, TRADER. That was close – a temporary fix for DEBT-CEILING only to December 3. Nothing seemed normal – politics, economic data, jobs report (lately, too many adjustments and revisions). Institutional investor SENTIMENT has been worsening (AAII Investor Sentiment too). 10-yr yield rose to 1.6%. But now comes the Q3 EARNINGS season. Rising labor and material costs may pressure earnings growth. Forget about those recent sizable beats of rising analyst estimates. With projections for earnings growth falling (and halting by early 2022), the SP500 may be pricey at fwd P/E of 20.6. There may be more downside than upside. The new normal may be more volatility.
TECH stocks have suffered as 10-yr yield has risen to 1.61% (from September low of 1.29%) after the FED indicated that QE taper will be soon. Real yields are still negative. There may be buying opportunity in dominant big techs FAAMG when the 10-yr yield peaks again (at 2021 high 1.75%?). So, there is 5-6% downside for Nasdaq 100/QQQ but it may find support near 200-dMA.
An obituary for Citi/C strategist Tobias LEVKOVICH (60). He passed away from injuries he suffered as a pedestrian after being hit by a car. Despite his busy work schedule, he was available to Barron’s staff and media.
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 September 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.22%, SP500 +0.79%, Nasdaq Comp +0.09%, R2000 -0.38%. DJ Transports +2.73%; DJ Utilities +1.36%. (Rotating spot energy XLE +5.07%) US$ index (spot) +0.07%, oil/WTI futures +4.57%, gold futures UNCH.
YTD (index changes only), DJIA +13.53%, SP500 +16.91%, Nasdaq Comp +13.12%. (Rotating spot energy XLE +49.26%)
Pg M4, EUROPE. Swedish SKF (SKFRY; fwd P/E 11.6 only) designs and manufactures bearings, seals and lubrication systems for a variety of industries including the EVs. It has a huge database of industrial application “knowledge”. The newest technology is remote systems monitoring. New CEO GUSTAFSON started in Summer.
Pg M4, EMERGING MARKETS. Russian NATURAL GAS giant Gazprom/OGZPY is flying high as natural gas prices are in the stratosphere (if you think that prices are high in the US, look at those in Europe and Japan). It has a good dividend yield; it must distribute 50% of earnings in dividends, so those may go up hugely next year, and Russia will be a huge beneficiary as its largest shareholder. Yet it has limited flexibility as it distributes natural gas via its expensive network of pipelines under long-term contracts and it hasn’t invested much in the LNG facilities. It has promised to supply more natural gas to Europe. It is also caught up in Russian global politics. (Note to Barron’s: MMBTU is million BTU, NOT billion BTU)
Pg M6, COMMODITIES. If NATURAL GAS prices rise too much, there may be a shift to dirtier oil and/or coal (also expensive). Russia announced a boost in supplies to Europe.
Pg M5, OPTIONS. This time it is different, really! FED’s QE taper will be here soon; EARNINGS growth has peaked; progress in DC on budget and infrastructure stimulus is slow. VOLATILITY has returned. In each of the last 3 weeks, there were 2+ days of SP500 moves of +/- 1%, and 1 day of Nasdaq 100 move of -2%. From the recent market peak on September 2, 10-day volatility has doubled. Options markets are indicating more HEDGING activity (but SKEW is now lower). Aggressive investors may pair call-buying with put-selling, but other investors may reassess their risk exposures. (by guest author SOSNICK, Interactive Broker)
(SP500 VIX 18.77, Nasdaq 100 VXN 23.16, SKEW 134.46) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M22, L54: An up week in EUROPE (Spain +2.24%, Sweden -0.76%) and an up week in ASIA (Indonesia +5.14%, S Korea -1.92%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -3%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.32%, 5-yr 1.05%, 10-yr 1.61%, 30-yr 2.16%. DOLLAR rose, DXY 94.10, +0.1% (52-wk high, missed weak dollar memo? M24). GOLD (Handy & Harman spot, Thursday) rose to $1,773, +0.9% (M27); the gold-miners rose. (^XAU was at 123.75, +4.48% 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 1.25% (L55).
*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 L4: COVER STORY, “Sizing Up DC/All Eyes on Washington/The New Investing Landscape”. Several FEDERAL POLICIES are affecting the economy and the markets. There are the MONETARY and FISCAL policies, with a huge INFRASTRUCTURE STIMULUS expected soon that will include big changes to healthcare, drugs, taxes, student loans, retirement savings, etc. Most investors should just wait to see the final changes. Then in the foreign policy area, there are the US-China relations (SP500 companies have only 5% revenue exposure to China but much higher earnings exposure) and global SUPPLY-CHAIN issues (some are no longer just pure business issues). Rising RATES will affect individuals, corporations, government (debt-servicing) and the stock market (valuation level). INFLATION pressures are rising. Market VOLATILITY has gone up and some of it is news driven. High EARNINGS expectations have yet to come down – that is not in the market yet. BONDS are no longer providing ballast effect for stocks. Lower future RETURNS may lead to troubles with pension funds, insurance companies and shortfalls in consumer spending. Like it or not, the ESG trend is growing and cannot be ignored. Stick with multi-facet/asset diversified portfolios.
Supplement, Funds Quarterly 2021/Q3. Excerpts will be in a separate Part 3.
Pg 9, UP & DOWN WALL STREET. Sign of times – a startup 24 Exchange wants to offer 24/7 trading, but the SEC approval may not be until 2022, if at all. What will that do to the job market? The last JOBS report was ugly. But the devil was in the details and several explanations could be found for the huge miss. The unemployment rate was 4.8% and wages rose. What happened to 7 million who lost extra federal unemployment insurance? There are now 1.43 job openings for every unemployed person. There is mismatch in worker skills and job qualifications, and also a lack of will to work due to various family issues (childcare, transportation, etc). None of this may affect FED’s QE taper schedule. Strangely, jobs in Canada are back to the pre-pandemic level.
Recently, stocks and bonds haven’t worked properly in BALANCED portfolios (i.e., they had positive correlation instead of historically negative correlation). As YIELDS rose, both stocks and bonds were hurt.
September VTSAX -4.49%, VBTLX -0.90%, VBINX -3.11%
Q3 VTSAX -0.07%, VBTLX +0.11%, VBINX -0.03%
12 months VTSAX +32.08%, VBTLX -0.92%, VBINX +17.97%
Current INFLATION is above +2% average FOMC target (so the real rates are negative) but that is said to be transitory. Traditional hedges by TIPS and gold haven’t worked and JPM recommends value and cyclical stocks that would benefit from economic RECOVERY.
Pg 13, STREETWISE. Q3 EARNINGS season starts next week. The pandemic era pattern of last 5 quarters with companies beating rising analyst expectations may finally come to an end. Rising prices and product shortages are hurting revenues and profits. Earnings growth is slowing and may stall by 2022/H1. Would investors be willing to pay high valuations when the earnings growth stops?
AAPL may report free cash flow of $100+ billion (but growing slowly) and MSFT, AMZN, GOOGL (with faster growth) may catch up in 2-3 years (only Saudi Arabian Aramco is in that league now; in an irony, the oil monopoly claims ESG credits with a picture of MBS included in its annual report).
(More later….)
TECH stocks have suffered as 10-yr yield has risen to 1.61% (from September low of 1.29%) after the FED indicated that QE taper will be soon. Real yields are still negative. There may be buying opportunity in dominant big techs FAAMG when the 10-yr yield peaks again (at 2021 high 1.75%?). So, there is 5-6% downside for Nasdaq 100/QQQ but it may find support near 200-dMA.
An obituary for Citi/C strategist Tobias LEVKOVICH (60). He passed away from injuries he suffered as a pedestrian after being hit by a car. Despite his busy work schedule, he was available to Barron’s staff and media.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for September 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.22%, SP500 +0.79%, Nasdaq Comp +0.09%, R2000 -0.38%. DJ Transports +2.73%; DJ Utilities +1.36%. (Rotating spot energy XLE +5.07%) US$ index (spot) +0.07%, oil/WTI futures +4.57%, gold futures UNCH.
YTD (index changes only), DJIA +13.53%, SP500 +16.91%, Nasdaq Comp +13.12%. (Rotating spot energy XLE +49.26%)
Pg M4, EUROPE. Swedish SKF (SKFRY; fwd P/E 11.6 only) designs and manufactures bearings, seals and lubrication systems for a variety of industries including the EVs. It has a huge database of industrial application “knowledge”. The newest technology is remote systems monitoring. New CEO GUSTAFSON started in Summer.
Pg M4, EMERGING MARKETS. Russian NATURAL GAS giant Gazprom/OGZPY is flying high as natural gas prices are in the stratosphere (if you think that prices are high in the US, look at those in Europe and Japan). It has a good dividend yield; it must distribute 50% of earnings in dividends, so those may go up hugely next year, and Russia will be a huge beneficiary as its largest shareholder. Yet it has limited flexibility as it distributes natural gas via its expensive network of pipelines under long-term contracts and it hasn’t invested much in the LNG facilities. It has promised to supply more natural gas to Europe. It is also caught up in Russian global politics. (Note to Barron’s: MMBTU is million BTU, NOT billion BTU)
Pg M6, COMMODITIES. If NATURAL GAS prices rise too much, there may be a shift to dirtier oil and/or coal (also expensive). Russia announced a boost in supplies to Europe.
Pg M5, OPTIONS. This time it is different, really! FED’s QE taper will be here soon; EARNINGS growth has peaked; progress in DC on budget and infrastructure stimulus is slow. VOLATILITY has returned. In each of the last 3 weeks, there were 2+ days of SP500 moves of +/- 1%, and 1 day of Nasdaq 100 move of -2%. From the recent market peak on September 2, 10-day volatility has doubled. Options markets are indicating more HEDGING activity (but SKEW is now lower). Aggressive investors may pair call-buying with put-selling, but other investors may reassess their risk exposures. (by guest author SOSNICK, Interactive Broker)
(SP500 VIX 18.77, Nasdaq 100 VXN 23.16, SKEW 134.46) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M22, L54: An up week in EUROPE (Spain +2.24%, Sweden -0.76%) and an up week in ASIA (Indonesia +5.14%, S Korea -1.92%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -3%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.32%, 5-yr 1.05%, 10-yr 1.61%, 30-yr 2.16%. DOLLAR rose, DXY 94.10, +0.1% (52-wk high, missed weak dollar memo? M24). GOLD (Handy & Harman spot, Thursday) rose to $1,773, +0.9% (M27); the gold-miners rose. (^XAU was at 123.75, +4.48% 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 1.25% (L55).
*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 L4: COVER STORY, “Sizing Up DC/All Eyes on Washington/The New Investing Landscape”. Several FEDERAL POLICIES are affecting the economy and the markets. There are the MONETARY and FISCAL policies, with a huge INFRASTRUCTURE STIMULUS expected soon that will include big changes to healthcare, drugs, taxes, student loans, retirement savings, etc. Most investors should just wait to see the final changes. Then in the foreign policy area, there are the US-China relations (SP500 companies have only 5% revenue exposure to China but much higher earnings exposure) and global SUPPLY-CHAIN issues (some are no longer just pure business issues). Rising RATES will affect individuals, corporations, government (debt-servicing) and the stock market (valuation level). INFLATION pressures are rising. Market VOLATILITY has gone up and some of it is news driven. High EARNINGS expectations have yet to come down – that is not in the market yet. BONDS are no longer providing ballast effect for stocks. Lower future RETURNS may lead to troubles with pension funds, insurance companies and shortfalls in consumer spending. Like it or not, the ESG trend is growing and cannot be ignored. Stick with multi-facet/asset diversified portfolios.
Supplement, Funds Quarterly 2021/Q3. Excerpts will be in a separate Part 3.
Pg 9, UP & DOWN WALL STREET. Sign of times – a startup 24 Exchange wants to offer 24/7 trading, but the SEC approval may not be until 2022, if at all. What will that do to the job market? The last JOBS report was ugly. But the devil was in the details and several explanations could be found for the huge miss. The unemployment rate was 4.8% and wages rose. What happened to 7 million who lost extra federal unemployment insurance? There are now 1.43 job openings for every unemployed person. There is mismatch in worker skills and job qualifications, and also a lack of will to work due to various family issues (childcare, transportation, etc). None of this may affect FED’s QE taper schedule. Strangely, jobs in Canada are back to the pre-pandemic level.
Recently, stocks and bonds haven’t worked properly in BALANCED portfolios (i.e., they had positive correlation instead of historically negative correlation). As YIELDS rose, both stocks and bonds were hurt.
September VTSAX -4.49%, VBTLX -0.90%, VBINX -3.11%
Q3 VTSAX -0.07%, VBTLX +0.11%, VBINX -0.03%
12 months VTSAX +32.08%, VBTLX -0.92%, VBINX +17.97%
Current INFLATION is above +2% average FOMC target (so the real rates are negative) but that is said to be transitory. Traditional hedges by TIPS and gold haven’t worked and JPM recommends value and cyclical stocks that would benefit from economic RECOVERY.
Pg 13, STREETWISE. Q3 EARNINGS season starts next week. The pandemic era pattern of last 5 quarters with companies beating rising analyst expectations may finally come to an end. Rising prices and product shortages are hurting revenues and profits. Earnings growth is slowing and may stall by 2022/H1. Would investors be willing to pay high valuations when the earnings growth stops?
AAPL may report free cash flow of $100+ billion (but growing slowly) and MSFT, AMZN, GOOGL (with faster growth) may catch up in 2-3 years (only Saudi Arabian Aramco is in that league now; in an irony, the oil monopoly claims ESG credits with a picture of MBS included in its annual report).
(More later….)