Post by Admin/YBB on Apr 16, 2022 5:24:57 GMT -6
Pg 33, TRADER. “Sell in May and go away” may work this time. War, inflation, pandemic, Fed, earnings, lousy sentiment (as posted elsewhere, the AAII bullish sentiment was at 30-yr low) may be the reasons. “Don’t fight the Fed”, especially when it is set on slowing the economy. Be prepared for trouble and tough times ahead. In the past when the market is down by April, then it is also down from May-September 40% of the time (so, 60% of the time it is not). But practically, make any changes only at the margins, and may be shift a little from industrials and commodities to healthcare.
Despite rising rates, UTILITIES are hot (XLU +6.3% YTD) and there may be more upside. An explanation for this unusual behavior may be that rising rates now are not from strengthening economy (that would boost cyclicals) but purely from FED action and/or talk. And that is driving scared investors into utilities. REGULATORS set utility rates based on returns on assets and those are growing as many regulated utilities increase capex for renewable energy (so, the utilities don’t even have to wait for these new projects to generate revenues or profits).
From the NY Auto Show (In-Person). Auto INDUSTRY is not worried about its current issues and weak 2022/Q1. It is looking at 2023 and beyond for new models and big transition plans for the EVs. But INVESTORS are worried as the auto stocks have been lousy YTD. Auto sales have been at recessionary levels but further downside in auto stocks may be limited.
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 (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd & 3rd rate hike, FOMC 5/4/22+ (50 bps hike possible)
4th & 5th rate hikes, FOMC 6/15/22+ (50 bps hike possible)
6th & 7th rate hike, FOMC 7/27/22+
8th rate hike, FOMC 9/21/22+
9th rate hike, FOMC 11/2/22+
10th & 11th rate hike, FOMC 12/14/22+ (target 2.75-3.00%)
(The Fed talking circus may have pushed the fed fund futures market a bit too far)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.78%, SP500 -2.13%, Nasdaq Comp -2.63%, R2000 +0.52%. DJ Transports +2.58%; DJ Utilities -0.86%. (Rotating spot utilities XLU -1.13%) US$ index (spot) +0.48%, oil/WTI futures +8.84%, gold futures +1.51%
YTD (index changes only), DJIA -5.19%, SP500 -7.84%, Nasdaq Comp -14.68%. (Rotating spot utilities XLU +6.30%)
Pg 46, EUROPE. Dutch semi chip designer/developer/manufacturer STMicroelectronics (STM; fwd P/E 12.2) makes chips for several sectors (industrial, electronics, telecom, wireless, auto) and includes Apple/AAPL and Tesla/TSLA among its customers. It is growing its production capacity. As an integrated chip maker, it has less supply-chain disruption issues in this very tight chip market. Its selloff -20% YTD is overdone.
Pg 46, EMERGING MARKETS. PAKISTAN stock market is very cheap (PAK bounced +9% on recent political change; -75% from 2017); attractive may be IT, infrastructure, banks. There are economic challenges and political instability. Inflation is +13%; Pakistan rupee is down -16%; economic growth is +5%. The new Prime Minister SHARIF has hiked pensions and government salaries to compensate for inflation but that may just feed inflation.
Pg 48, OPTIONS. Inflation, earnings season, Fed, War, weaponized dollar and commodities, there are so many crosscurrents. More options strategies are recommended for fertilizer producer Mosaic/MOS that has surged since the previous call-spread recommendation – now sell puts if want to buy more on weakness, or sell calls if willing to exit position.
(SP500 VIX 22.70, Nasdaq 100 VXN 28.86, SKEW 134.39) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 50, COMMODITIES. CRUDE OIL may remain above $100. Post-pandemic recovery, Russia-Ukraine war and reluctance of producers to produce more means that supply DEFICIT will continue in 2022, a huge change from the glut in 2020 when WTI future even went double-digit negative. Release of oil from global strategic reserves will have only transient effect(s). Spikes below $100 and above 130 (recent peak) are still possible.
EXTRA. Commodities have rallied due to war, sanctions, supply-chain disruptions. DBC (60% in energy) is up +35% YTD and 29% above 200-dMA. Don’t be surprised if it suddenly falls -15% below 200-dMA, for a collapse of -41%. Beware of volatility in commodities.
Pg 65, 70: A down week in EUROPE (Greece +1.93%, Spain +0.98%, Denmark -2.52%) and a down week in ASIA (Australia +0.62%, HK -1.86%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -0.6%.
TREASURY* 3-mo yield 0.79%, 1-yr 1.84%, 2-yr 2.47%, 5-yr 2.79%, 10-yr 2.83%, 30-yr 2.92%. DOLLAR rose, ^DXY 100.51, +0.7% (pg 73). GOLD rose to $1,963, +1.10% (Handy & Harman spot, Thursday) (pg 76); the gold-miners rose. (^XAU was at 167.76, +2.52% for the week)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
Top FDIC insured savings deposit rates**: Money-market accounts 0.70%; 3-mo Jumbo CD 0.35%, 1-yr CDs 1.19%; 5-yr CDs 2.47% (pg 71).
**For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 & Nov 1.
www.treasurydirect.gov/tdhome.htm
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 24: COVER STORY, “ESG/Sustainable Investing Failed Its Big Test. A Reckoning is Coming”. ESG investing has exploded in recent years. Professionally managed global ESG assets ballooned to $48 trillion in 2021, almost 40% of all AUMs (the US ESG funds AUM grew to $360 billion). Russia-Ukraine war has provided a test for ESG strategies on how they deal with surging ENERGY (only 1.47% of ESG funds vs 4% for all stock funds) and DEFENSE sectors. The ESG funds with EXCLUSIONARY policies have suffered. Some are finding reasons to get back in the missed areas (citing soft and fuzzy criteria such as demonstrated intent, progress, promises, etc). On hindsight, was ESG just a play on high TECH exposure? (25.58% for ESG funds vs 23.86% for all stock funds) Check these performance data:
2012-21 (10 years): SP500 +16.55%, ESG +15.58%, LC +14.87%
2020-21 (2 years): ESG +25.19%, SP500 +23.39%, LC +23.39%
2022/Q1: ESG -7%, LC -5.6%, SP500 -4.6%
In recent years, the ESG proponents have said that ESG is just a high-quality, risk-reducing additional screen and that ESG can outperform, but that may be about to change. ESG is even more popular in Europe where lot of ESG factors are formalized in regulations. But the ESG growth in the US has been strong since 2019 and some have declared the ESG to be mainstream. Critics of ESG point to the lack of accepted terminology and standards. The SEC has proposed some disclosure rules, but some say that it should do more. Proxy firm ISS and business services firm PwC are getting more involved with ESG issues. MSCI now owns Amy DOMINI’s former index as MSCI KLD 400 Social Index and is now the biggest ESG index provider; it declined to provide comments. Morningstar/MORN owns ESG rating firm Sustainalytics and is cited extensively. Larry FINK’s (iShare/BlackRock/BLK) push for ESG has been controversial; BLK also declined comments. The next few months/quarters will be critical for ESG.
Pg 9, UP & DOWN WALL STREET. Is the US going through a BOOM or a BUST? Different SECTORS are presenting a very confusing picture. The JOB market is strong, but CONSUMERS are tapped out (high INFLATION; record consumer CREDIT). RETAIL sales are mixed, but down on inflation-adjusted and unit-sales basis. TRUCKING activity is down sharply, and store warehouses are bulging with INVENTORIES. Some cyclical sectors are at/near RECESSIONARY levels. A ratio of cyclical vs defensive groups of stocks has rolled over by -24% in a year. Tight MONETARY conditions are missing so far but those may be coming soon. The FED is desperately trying to do a lot by just TALKING. Now, if the Fed or its talk can also print oil, grains, trucks.
With the BOND selloff, some strategists are now looking at them more favorably, or less negatively. And MUNIs may be outright attractive with their long-term tax-free yield approaching 4%, the highest since 2016 (but I don’t see that at FMSBond, etc that show high-quality long-term munis in high-2s or low-3s; may be HY munis?). There are heavy outflows from muni funds. Some long-term munis that were issued last year at 2-3% are trading at 70c-75c and the drop is not related to credit issues. Munis may be good bond ballasts now. (I think that this piece may be mixing up investment-grade and HY munis, and also muni yields and tax-equivalent yields)
EXTRA. CEFs with high distributions, good 5-yr total returns and attractive discounts: Convertibles+ ACV, CHY, CHI, AVK; HY HYT; multisector BIT; fund-of-CEFs FOF.
Pg 13, STREETWISE. Elon MUSK’s $54.20/share best-and-final offer for Twitter/TWTR at $43 billion valuation, fwd P/S 4, fwd P/FCF 30 may seem reasonable, but its chances are uncertain.
(More later….)
Despite rising rates, UTILITIES are hot (XLU +6.3% YTD) and there may be more upside. An explanation for this unusual behavior may be that rising rates now are not from strengthening economy (that would boost cyclicals) but purely from FED action and/or talk. And that is driving scared investors into utilities. REGULATORS set utility rates based on returns on assets and those are growing as many regulated utilities increase capex for renewable energy (so, the utilities don’t even have to wait for these new projects to generate revenues or profits).
From the NY Auto Show (In-Person). Auto INDUSTRY is not worried about its current issues and weak 2022/Q1. It is looking at 2023 and beyond for new models and big transition plans for the EVs. But INVESTORS are worried as the auto stocks have been lousy YTD. Auto sales have been at recessionary levels but further downside in auto stocks may be limited.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd & 3rd rate hike, FOMC 5/4/22+ (50 bps hike possible)
4th & 5th rate hikes, FOMC 6/15/22+ (50 bps hike possible)
6th & 7th rate hike, FOMC 7/27/22+
8th rate hike, FOMC 9/21/22+
9th rate hike, FOMC 11/2/22+
10th & 11th rate hike, FOMC 12/14/22+ (target 2.75-3.00%)
(The Fed talking circus may have pushed the fed fund futures market a bit too far)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.78%, SP500 -2.13%, Nasdaq Comp -2.63%, R2000 +0.52%. DJ Transports +2.58%; DJ Utilities -0.86%. (Rotating spot utilities XLU -1.13%) US$ index (spot) +0.48%, oil/WTI futures +8.84%, gold futures +1.51%
YTD (index changes only), DJIA -5.19%, SP500 -7.84%, Nasdaq Comp -14.68%. (Rotating spot utilities XLU +6.30%)
Pg 46, EUROPE. Dutch semi chip designer/developer/manufacturer STMicroelectronics (STM; fwd P/E 12.2) makes chips for several sectors (industrial, electronics, telecom, wireless, auto) and includes Apple/AAPL and Tesla/TSLA among its customers. It is growing its production capacity. As an integrated chip maker, it has less supply-chain disruption issues in this very tight chip market. Its selloff -20% YTD is overdone.
Pg 46, EMERGING MARKETS. PAKISTAN stock market is very cheap (PAK bounced +9% on recent political change; -75% from 2017); attractive may be IT, infrastructure, banks. There are economic challenges and political instability. Inflation is +13%; Pakistan rupee is down -16%; economic growth is +5%. The new Prime Minister SHARIF has hiked pensions and government salaries to compensate for inflation but that may just feed inflation.
Pg 48, OPTIONS. Inflation, earnings season, Fed, War, weaponized dollar and commodities, there are so many crosscurrents. More options strategies are recommended for fertilizer producer Mosaic/MOS that has surged since the previous call-spread recommendation – now sell puts if want to buy more on weakness, or sell calls if willing to exit position.
(SP500 VIX 22.70, Nasdaq 100 VXN 28.86, SKEW 134.39) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 50, COMMODITIES. CRUDE OIL may remain above $100. Post-pandemic recovery, Russia-Ukraine war and reluctance of producers to produce more means that supply DEFICIT will continue in 2022, a huge change from the glut in 2020 when WTI future even went double-digit negative. Release of oil from global strategic reserves will have only transient effect(s). Spikes below $100 and above 130 (recent peak) are still possible.
EXTRA. Commodities have rallied due to war, sanctions, supply-chain disruptions. DBC (60% in energy) is up +35% YTD and 29% above 200-dMA. Don’t be surprised if it suddenly falls -15% below 200-dMA, for a collapse of -41%. Beware of volatility in commodities.
Pg 65, 70: A down week in EUROPE (Greece +1.93%, Spain +0.98%, Denmark -2.52%) and a down week in ASIA (Australia +0.62%, HK -1.86%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -0.6%.
TREASURY* 3-mo yield 0.79%, 1-yr 1.84%, 2-yr 2.47%, 5-yr 2.79%, 10-yr 2.83%, 30-yr 2.92%. DOLLAR rose, ^DXY 100.51, +0.7% (pg 73). GOLD rose to $1,963, +1.10% (Handy & Harman spot, Thursday) (pg 76); the gold-miners rose. (^XAU was at 167.76, +2.52% for the week)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
Top FDIC insured savings deposit rates**: Money-market accounts 0.70%; 3-mo Jumbo CD 0.35%, 1-yr CDs 1.19%; 5-yr CDs 2.47% (pg 71).
**For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 & Nov 1.
www.treasurydirect.gov/tdhome.htm
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 24: COVER STORY, “ESG/Sustainable Investing Failed Its Big Test. A Reckoning is Coming”. ESG investing has exploded in recent years. Professionally managed global ESG assets ballooned to $48 trillion in 2021, almost 40% of all AUMs (the US ESG funds AUM grew to $360 billion). Russia-Ukraine war has provided a test for ESG strategies on how they deal with surging ENERGY (only 1.47% of ESG funds vs 4% for all stock funds) and DEFENSE sectors. The ESG funds with EXCLUSIONARY policies have suffered. Some are finding reasons to get back in the missed areas (citing soft and fuzzy criteria such as demonstrated intent, progress, promises, etc). On hindsight, was ESG just a play on high TECH exposure? (25.58% for ESG funds vs 23.86% for all stock funds) Check these performance data:
2012-21 (10 years): SP500 +16.55%, ESG +15.58%, LC +14.87%
2020-21 (2 years): ESG +25.19%, SP500 +23.39%, LC +23.39%
2022/Q1: ESG -7%, LC -5.6%, SP500 -4.6%
In recent years, the ESG proponents have said that ESG is just a high-quality, risk-reducing additional screen and that ESG can outperform, but that may be about to change. ESG is even more popular in Europe where lot of ESG factors are formalized in regulations. But the ESG growth in the US has been strong since 2019 and some have declared the ESG to be mainstream. Critics of ESG point to the lack of accepted terminology and standards. The SEC has proposed some disclosure rules, but some say that it should do more. Proxy firm ISS and business services firm PwC are getting more involved with ESG issues. MSCI now owns Amy DOMINI’s former index as MSCI KLD 400 Social Index and is now the biggest ESG index provider; it declined to provide comments. Morningstar/MORN owns ESG rating firm Sustainalytics and is cited extensively. Larry FINK’s (iShare/BlackRock/BLK) push for ESG has been controversial; BLK also declined comments. The next few months/quarters will be critical for ESG.
Pg 9, UP & DOWN WALL STREET. Is the US going through a BOOM or a BUST? Different SECTORS are presenting a very confusing picture. The JOB market is strong, but CONSUMERS are tapped out (high INFLATION; record consumer CREDIT). RETAIL sales are mixed, but down on inflation-adjusted and unit-sales basis. TRUCKING activity is down sharply, and store warehouses are bulging with INVENTORIES. Some cyclical sectors are at/near RECESSIONARY levels. A ratio of cyclical vs defensive groups of stocks has rolled over by -24% in a year. Tight MONETARY conditions are missing so far but those may be coming soon. The FED is desperately trying to do a lot by just TALKING. Now, if the Fed or its talk can also print oil, grains, trucks.
With the BOND selloff, some strategists are now looking at them more favorably, or less negatively. And MUNIs may be outright attractive with their long-term tax-free yield approaching 4%, the highest since 2016 (but I don’t see that at FMSBond, etc that show high-quality long-term munis in high-2s or low-3s; may be HY munis?). There are heavy outflows from muni funds. Some long-term munis that were issued last year at 2-3% are trading at 70c-75c and the drop is not related to credit issues. Munis may be good bond ballasts now. (I think that this piece may be mixing up investment-grade and HY munis, and also muni yields and tax-equivalent yields)
EXTRA. CEFs with high distributions, good 5-yr total returns and attractive discounts: Convertibles+ ACV, CHY, CHI, AVK; HY HYT; multisector BIT; fund-of-CEFs FOF.
Pg 13, STREETWISE. Elon MUSK’s $54.20/share best-and-final offer for Twitter/TWTR at $43 billion valuation, fwd P/S 4, fwd P/FCF 30 may seem reasonable, but its chances are uncertain.
(More later….)