Post by Admin/YBB on Jun 18, 2022 5:59:59 GMT -6
Pg 31, TRADER (Cover Story). A TERRIBLE WEEK – the worst selling stretch in SP500 history. There were weak economic data, high inflation, rising rates (1st 75-bps hike since 1994) and more Fed tightening is coming. Economy may be a victim in the Fed’s inflation fight. EARNINGS projections are too high and have to be revised downwards (so, the current P/Es may not hold; SP500 fwd P/E 15.4 now). Several former story-stocks have faltered (DIS, ETSY, NFLX, etc). David KOSTIC (GS) has recessionary SP500 earnings as $225 and fwd P/E as 14 for a target of $3,150, and non-recessionary earnings as $239 and fwd P/E as 17+ for a target of $4,165 (note the P/E contraction as earnings decline, and P/E expansion as earnings rise). So, there may be further DOWNSIDE but also good REBOUND potential. Be ready for a great BUYING OPPORTUNITY (for both the market timers and the asset allocators).
SMALL-CAPS have been hit VERY hard: R2000 -31.8% since its 11/2021 high; -26% YTD decline is its worst H1 ever (prior bad H1 were in 1982, 1984, 2020 and those were less than half as worst as now). But a great H2 may follow the worst H1; small-cap underperformance relative to large-caps may turn into outperformance. The R2000/IWM fwd P/E is only 15.8 now vs 26.4 in 11/2021. A lot will depend on whether RECESSION will be avoided. But even if there is recession, further DOWNSIDE may be more for large-caps than small-caps.
Big BANKS are dirt cheap (ETF KBE -20.4% YTD) but Citigroup (C; P/B 0.5 only; Warren BUFFETT is buying) is the cheapest among them. Banks are supposed to benefit from rising RATES (as their net interest income rises) but there are concerns about business and lending slowdown, decline in trading and investment banking activities, additional capital needs (and Jamie DIMON/JPM didn’t help). On the other hand, banks are in sound financial shape and the Fed STRESS TEST results this week will confirm that, and several dividend boost announcements should follow.
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.
7th, 8th & 9th rate hike, FOMC 7/27/22+ (75 bps hike possible)
9th & 10th rate hike, FOMC 9/21/22+ (50 bps hike possible)
11th & 12th rate hike, FOMC 11/2/22+ (50 bps hike possible)
13th rate hike FOMC 12/14/22+ (target 3.50-3.75%)
At the June FOMC, POWELL showed that he can revise his own previous guidance & market expectations if the new data requires that. Elsewhere it is mentioned that the Fed may not go as far as the CME FedWatch is now showing for 2022/23.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -4.79%, SP500 -5.79%, Nasdaq Comp -4.78%, R2000 -7.48%. DJ Transports -3.74%; DJ Utilities -9.46%. (Rotating spot small-cap R2000 IWM -7.48%) US$ index (spot) +0.44%, oil/WTI futures -9.21%, gold futures -1.92%.
YTD (index changes only), DJIA -17.75%, SP500 -22.90%, Nasdaq Comp -30.98%. (Rotating spot small-cap R2000 IWM -25.81%)
Pg 44: NYSE cumulative (5-day) A/D line fell for a 3rd week.
Pg 34, EUROPE. Swiss robotics and industrial automation giant ABB (fwd P/E 19) is benefitting from the EV boom. In addition to many products for the EV ecosystem, it is a major producer of the EV charging stations and has signed a deal recently with Shell/SHEL. It is also planning to streamline by spinning off/divesting some business units.
Pg 34, EMERGING MARKETS. CHINA is trying to shore up its economy and is also relaxing regulatory pressures on its techs. The EM managers, general value managers and other investors are rushing to buy Alibaba (BABA; fwd P/E 14 only; -74% from Fall 2020 high to 03/2022 low; +30% in a month). It is cutting costs, buying back stock and has high cash position. Risks are competition and general China related (many investors have just sworn off China but that is how opportunities develop).
Pg 35, OPTIONS. Recommended is selling puts on stocks and ETFs that one would like to own. Options premiums are high due to high VIX. Note that if the stocks/ETFs decline, the put seller is obligated to buy on assignment or expiration; otherwise, they pocket the premium.
(SP500 VIX 31.13 (high), Nasdaq 100 VXN 36.66 (high), options SKEW 121.15 (not high), bond MOVE 133.75 (high) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 36, COMMODITIES. GOLD is down (GLD -1.4% YTD) but not as much as stocks (SPY -21%, QQQ -31%), bonds (LQD -18%), cryptos (-50%+). Gold (bullion) has downside to $1,800, and it is volatile, but the upside is significant due to high inflation. Strong dollar is a headwind, and dollar reversal may be a good signal for gold. (All YTD data are to 6/14/22; more volatile gold-miners are not mentioned, but note that GDX -7.27%, GDXJ -13.98%).
Pg 49: An UGLY week in EUROPE (Belgium -3.25%, Netherlands -7.26%) and an UGLY week in ASIA (Indonesia -0.22%, S Korea -5.75%).
TREASURY* 3-mo yield 1.63%, 1-yr 2.86%, 2-yr 3.17%, 5-yr 3.34%, 10-yr 3.25%, 30-yr 3.30%. REAL yields (NEW) 5-yr 0.54%, 10-yr 0.67%, 30-yr 0.85%.
DOLLAR rose, ^DXY 104.65, +0.5% (pg 54). GOLD rose to $1,842, +0.6% (Handy & Harman spot, Thursday) (pg 56); the gold-miners tanked. (^XAU was at 121.42, -8.65% for the week)
Top FDIC insured savings deposit rates** (This feature seems to be discontinued)
US SAVINGS I-Bonds^, current rate 9.62% (annualized). Rates change on May 1 & Nov 1.
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) 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 31: COVER STORY – see TRADER.
Supplement1, The Top 100 Women Financial Advisors 2022 with several profiles/features and a listing.
Supplement2, PENTA.
See Part2.
Pg 7, UP & DOWN WALL STREET. The FED has become aggressive in its INFLATION fight and that has caused havoc on risk assets (stocks, bonds, commodities, cryptos) and may cause economic slowdown. POWELL took 75-bps hike off the table at his press conference on 5/4/22, but the WSJ was tipped on Monday 6/13/22 that the FOMC was to seriously consider 75-bps hike this time, and when the announcement came on Wednesday 6/15/22, the surprise/shock was all gone. Cited were bad CPI reading and worsening UM consumer sentiment during the Fed blackout week. The economic data were also weak (retail sales, housing starts). For the markets, it was the worst week since the pandemic meltdown week ending on 3/20/20 (Friday). EVERYTHING was sold (stocks, bonds, commodities, cryptos) – even the recently hot energy (XLE -17.16% for the week! -20.36% from 6/8/22 peak days ago). HOUSING may already be in recession as mortgage rates have risen. Atlanta Fed GDPNow is now showing Q2 growth at 0%. Soon the effects of reverse-wealth-effect would be seen. The losses in equities and cryptos so far have well exceeded those during the dot. com bubble burst. Some economists think that the fed fund futures market has gotten ahead of itself and that the Fed may pause/stop before reaching those levels.
It’s time to revisit traditional allocation/balanced 60-40 portfolios (-17.8% YTD). Yields have risen but the bond market has been oversold in anticipation of several rate hikes. Going forward, stocks may have tougher time if the Fed continues its current monetary tightening path. Some say that the Fed may be forced to pause/stop as the economic conditions worsen.
Pg 11, STREETWISE. HOUSING is deteriorating rapidly. Mortgage rates are approaching 6%; housing affordability has worsened; online brokers (COMP, RDFN) are laying off staff; housing stocks have crumbled (XHB, ITB, COMP, RDFN, 3x NAIL). Selected homebuilders may be attractive (LEN, TOL), but avoid brokers (RMAX, RDFN, EXPI). Low homebuilders’ P/Es may be misleading due to high prices of land they own. Supply of older homes may be constrained as their owners may be reluctant to part with their current low-rate mortgages for new high-rate mortgages for replacement homes (but those who have to move will).
The SP500 fwd P/E < 15 now but in a recession, “E” may fall and P/E may shrink. For 2022, GS projects +17% without recession (4,290), -14% with recession (3,153). (see TRADER also)
(More later….)
Accessible from Morningstar (M*), Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
SMALL-CAPS have been hit VERY hard: R2000 -31.8% since its 11/2021 high; -26% YTD decline is its worst H1 ever (prior bad H1 were in 1982, 1984, 2020 and those were less than half as worst as now). But a great H2 may follow the worst H1; small-cap underperformance relative to large-caps may turn into outperformance. The R2000/IWM fwd P/E is only 15.8 now vs 26.4 in 11/2021. A lot will depend on whether RECESSION will be avoided. But even if there is recession, further DOWNSIDE may be more for large-caps than small-caps.
Big BANKS are dirt cheap (ETF KBE -20.4% YTD) but Citigroup (C; P/B 0.5 only; Warren BUFFETT is buying) is the cheapest among them. Banks are supposed to benefit from rising RATES (as their net interest income rises) but there are concerns about business and lending slowdown, decline in trading and investment banking activities, additional capital needs (and Jamie DIMON/JPM didn’t help). On the other hand, banks are in sound financial shape and the Fed STRESS TEST results this week will confirm that, and several dividend boost announcements should follow.
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.
7th, 8th & 9th rate hike, FOMC 7/27/22+ (75 bps hike possible)
9th & 10th rate hike, FOMC 9/21/22+ (50 bps hike possible)
11th & 12th rate hike, FOMC 11/2/22+ (50 bps hike possible)
13th rate hike FOMC 12/14/22+ (target 3.50-3.75%)
At the June FOMC, POWELL showed that he can revise his own previous guidance & market expectations if the new data requires that. Elsewhere it is mentioned that the Fed may not go as far as the CME FedWatch is now showing for 2022/23.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -4.79%, SP500 -5.79%, Nasdaq Comp -4.78%, R2000 -7.48%. DJ Transports -3.74%; DJ Utilities -9.46%. (Rotating spot small-cap R2000 IWM -7.48%) US$ index (spot) +0.44%, oil/WTI futures -9.21%, gold futures -1.92%.
YTD (index changes only), DJIA -17.75%, SP500 -22.90%, Nasdaq Comp -30.98%. (Rotating spot small-cap R2000 IWM -25.81%)
Pg 44: NYSE cumulative (5-day) A/D line fell for a 3rd week.
Pg 34, EUROPE. Swiss robotics and industrial automation giant ABB (fwd P/E 19) is benefitting from the EV boom. In addition to many products for the EV ecosystem, it is a major producer of the EV charging stations and has signed a deal recently with Shell/SHEL. It is also planning to streamline by spinning off/divesting some business units.
Pg 34, EMERGING MARKETS. CHINA is trying to shore up its economy and is also relaxing regulatory pressures on its techs. The EM managers, general value managers and other investors are rushing to buy Alibaba (BABA; fwd P/E 14 only; -74% from Fall 2020 high to 03/2022 low; +30% in a month). It is cutting costs, buying back stock and has high cash position. Risks are competition and general China related (many investors have just sworn off China but that is how opportunities develop).
Pg 35, OPTIONS. Recommended is selling puts on stocks and ETFs that one would like to own. Options premiums are high due to high VIX. Note that if the stocks/ETFs decline, the put seller is obligated to buy on assignment or expiration; otherwise, they pocket the premium.
(SP500 VIX 31.13 (high), Nasdaq 100 VXN 36.66 (high), options SKEW 121.15 (not high), bond MOVE 133.75 (high) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 36, COMMODITIES. GOLD is down (GLD -1.4% YTD) but not as much as stocks (SPY -21%, QQQ -31%), bonds (LQD -18%), cryptos (-50%+). Gold (bullion) has downside to $1,800, and it is volatile, but the upside is significant due to high inflation. Strong dollar is a headwind, and dollar reversal may be a good signal for gold. (All YTD data are to 6/14/22; more volatile gold-miners are not mentioned, but note that GDX -7.27%, GDXJ -13.98%).
Pg 49: An UGLY week in EUROPE (Belgium -3.25%, Netherlands -7.26%) and an UGLY week in ASIA (Indonesia -0.22%, S Korea -5.75%).
TREASURY* 3-mo yield 1.63%, 1-yr 2.86%, 2-yr 3.17%, 5-yr 3.34%, 10-yr 3.25%, 30-yr 3.30%. REAL yields (NEW) 5-yr 0.54%, 10-yr 0.67%, 30-yr 0.85%.
DOLLAR rose, ^DXY 104.65, +0.5% (pg 54). GOLD rose to $1,842, +0.6% (Handy & Harman spot, Thursday) (pg 56); the gold-miners tanked. (^XAU was at 121.42, -8.65% for the week)
Top FDIC insured savings deposit rates** (This feature seems to be discontinued)
US SAVINGS I-Bonds^, current rate 9.62% (annualized). Rates change on May 1 & Nov 1.
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) 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 31: COVER STORY – see TRADER.
Supplement1, The Top 100 Women Financial Advisors 2022 with several profiles/features and a listing.
Supplement2, PENTA.
See Part2.
Pg 7, UP & DOWN WALL STREET. The FED has become aggressive in its INFLATION fight and that has caused havoc on risk assets (stocks, bonds, commodities, cryptos) and may cause economic slowdown. POWELL took 75-bps hike off the table at his press conference on 5/4/22, but the WSJ was tipped on Monday 6/13/22 that the FOMC was to seriously consider 75-bps hike this time, and when the announcement came on Wednesday 6/15/22, the surprise/shock was all gone. Cited were bad CPI reading and worsening UM consumer sentiment during the Fed blackout week. The economic data were also weak (retail sales, housing starts). For the markets, it was the worst week since the pandemic meltdown week ending on 3/20/20 (Friday). EVERYTHING was sold (stocks, bonds, commodities, cryptos) – even the recently hot energy (XLE -17.16% for the week! -20.36% from 6/8/22 peak days ago). HOUSING may already be in recession as mortgage rates have risen. Atlanta Fed GDPNow is now showing Q2 growth at 0%. Soon the effects of reverse-wealth-effect would be seen. The losses in equities and cryptos so far have well exceeded those during the dot. com bubble burst. Some economists think that the fed fund futures market has gotten ahead of itself and that the Fed may pause/stop before reaching those levels.
It’s time to revisit traditional allocation/balanced 60-40 portfolios (-17.8% YTD). Yields have risen but the bond market has been oversold in anticipation of several rate hikes. Going forward, stocks may have tougher time if the Fed continues its current monetary tightening path. Some say that the Fed may be forced to pause/stop as the economic conditions worsen.
Pg 11, STREETWISE. HOUSING is deteriorating rapidly. Mortgage rates are approaching 6%; housing affordability has worsened; online brokers (COMP, RDFN) are laying off staff; housing stocks have crumbled (XHB, ITB, COMP, RDFN, 3x NAIL). Selected homebuilders may be attractive (LEN, TOL), but avoid brokers (RMAX, RDFN, EXPI). Low homebuilders’ P/Es may be misleading due to high prices of land they own. Supply of older homes may be constrained as their owners may be reluctant to part with their current low-rate mortgages for new high-rate mortgages for replacement homes (but those who have to move will).
The SP500 fwd P/E < 15 now but in a recession, “E” may fall and P/E may shrink. For 2022, GS projects +17% without recession (4,290), -14% with recession (3,153). (see TRADER also)
(More later….)
Accessible from Morningstar (M*), Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).