Post by Admin/YBB on Jan 14, 2023 5:14:30 GMT -6
Pg 36, TRADER. If high INFLATION was a problem in 2022, shouldn’t lower inflation be good for 2023? May be not. Company PROFITS and margins will be under pressure from lower prices. Housing is already experiencing contraction. New and used car prices are weakening. Commodity prices are falling (steel, aluminum, copper, oil, grains). But wages remain strong and that isn’t good for earnings. 2023 earnings are still too high. Quality stocks and healthcare sector may do better. (Article has mixed up things. If prices for some inputs go down, that should be good for the earnings of the users, but not for those of their producers.)
The consensus is that after a brutal 2022, there will be bumpy 2023/H1, so stick with defensive consumer-staples (fwd P/E 21, expensive) and utilities (fwd P/E 19, also expensive), and then shift to risk-on ahead of better 2023/H2. But the markets don’t reward consensus and better bets may be secular GROWTH and selected ENERGY plays that may benefit from Inflation Reduction Act, the Chips Act, the Infrastructure Investment and Jobs Act.
All-weather aggregates producer Martin Marietta Materials (MLM; fwd P/E 20) is attractive. It has 20-30% market share in markets that are local/regional and have high barriers to entry. There is CONSTRUCTION going on somewhere all the time and there is lot of government infrastructure spending ahead.
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.
1st rate hike of 2023, FOMC 2/1/23+ 25 bps
2nd rate hike, FOMC 3/22/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
FOMC 5/3/23+ Hold
FOMC 6/14/23+ Hold
Hold continues and then a cut is indicated at FOMC 12/13/23.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +2.00%, SP500 +2.67%, Nasdaq Comp +4.82%, R2000 +5.26%. DJ Transports +3.52%; DJ Utilities +0.75%. (Rotating spot consumer-staples -1.37%) US$ index (spot) -1.64%, oil/WTI futures +8.26%, gold futures +2.91%.
52-WK (index changes only), DJIA -4.48%, SP500 -14.24%, Nasdaq Comp -25.61%. (Rotating spot consumer-staples XLP -2.97%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 48: NYSE cumulative (5-day) A/D line rose; ratio of winners:losers 3:2. (Upside- and downside- volumes were not notable but there was a lot of chatter on Twitter about DEEMER’s breakaway-momentum (BAM) signal – the 10-day advance-decline ratio > 1.97)
Pg 39, EUROPEAN TRADER. The UK mining and commodities giant Glencore (GLNCY; fwd P/E 6.5 only) did well in 2022 (it benefitted from disruptions due to Russia-Ukraine war) and should also do well in 2023 as China reopens. It is gradually winding down its (thermal) coal business. It will benefit from energy transition that will need more copper, nickel, cobalt.
Pg 39, EMERGING MARKETS. BRAZILIAN stocks and bonds rallied as the government and military moved to control post-election riots. But President LULA (77) has a tough road ahead as his party doesn’t have majority in the Congress. The former President Bolsonaro was watching the spectacle from the US where he was vacationing, getting medical treatment and/or just hiding as his legal immunity as president ended.
Pg 40, OPTIONS. Selling puts on stocks one would like to own at lower prices remains an attractive strategy. There is volatility ahead in this bad Q4 earnings season. There are headline risks from the FOMC, company earnings and layoffs, etc.
(SP500 VIX 18.35, Nasdaq 100 VXN 23.82 (high), options SKEW 121.70, bond MOVE 113.55) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 41, COMMODITIES. NATURAL GAS is down -62% from 8/22/22 peak of $9.68 and there are still 2.5 months left in the Winter. The Europeans stockpiled ahead of the Winter that turned out to be mild; energy conservation, alternate supplies of LNG and weakening dollar also helped. Chinese demand hasn’t picked up so far. But the Russia-Ukraine war continues, and future supply uncertainties will keep prices volatile. The US talk on banning natural gas for home use by 2030 will also be a factor.
Pg 53: A good week in EUROPE (Netherlands +4.88%, Denmark -1.46%) and a good week in ASIA (Philippines +4.07%, Indonesia -0.81%).
TREASURY* 3-mo yield 4.67%, 1-yr 4.69%, 2-yr 4.22%, 5-yr 3.60%, 10-yr 3.49%, 30-yr 3.61%. REAL yields 5-yr 1.40%, 10-yr 1.31%, 30-yr 1.44%.
DOLLAR fell, ^DXY 102.18, -1.6% (pg 58). GOLD rose to $1,907, +3% (Handy & Harman spot, Thursday; pg 60); the gold-miners continued to rally. (^XAU was at 136.70, +3.53% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With half the data in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 0-1% only.
*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/marketable-securities/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16: COVER STORY, “Roundtable 2023, Part 1 of 3”. The Roundtable was held on January 9 in the NYC; Bhansali joined via Zoom. Part 1 starts with general discussions and only the main points are highlighted here without mentioning who said what (it’s just not practical for Summaries). Latter Part 1, and Parts 2 and 3 (in subsequent issues), focus on specific recommendations by panelists and those are simply noted below. Access full details via online subscription, local library, or purchasing paper issue for $5 at a newsstand.
There was general agreement that the era of free money was over; the valuations matter again; the fixed-income is finally paying income; both bulls and bears can play in the rubble of 2022 (some damage related to leverage, derivatives and pricing of illiquid assets is still unfolding or yet to unfold). Then the panelists were split on a variety of scenarios with ups and down (and some down and down).
The central banks are playing significant roles in global markets. Inflation has peaked but is still high. Fiscal policies remain loose. Wage growth remains high. Earnings will be under pressure. Inventory control and product pricing will become more important. The fed funds may peak at 5.5% but rate cuts may be unlikely in 2023. Liquidity in the markets is down. The impact of Fed QT is unknown. Market P/Es may be affected. The 60-40 portfolios may be making a comeback. The ETFs have started to change the nature of the markets. The Fed may not shift to easing at the first signs of trouble. Credit risks are a concern especially in the private markets with low/no regulations; lot of private debt may be CCC or lower. There may be soft-landing or a mild recession. Some parts of economy seem to be in recession already (auto production, airplane production, housing, etc).
Weak dollar will benefit many areas including foreign investments. Look for companies that have come through 2022 in a decent shape; growth and tech may be down but not out. Russia-Ukraine war will continue to cause global problems, especially in Europe; it has fundamentally changed geopolitics (future hot spots include Middle East, China-Taiwan, etc). The SPR will have to be refilled; it is at an alarmingly low level now when there is no crisis. Globalization is dead and onshoring will take time and will be expensive. China reopening and global outbreaks of Covid will be important factors. Weather and climate effects are becoming more serious. The US population growth has stalled. Recent years (2020, 2021, 2022) have shown dangers of extrapolations of current trends. The SP500 projections ranged from 2,900-4,300. Cryptos have been a disaster; benefits of blockchain haven’t materialized.
Tod AHLSTEN/Parnassus, PRBLX:
Rupal BHANSALI/Ariel: AMIGY, GSK, TIMB, VIV (Part 1)
Scott BLACK/Delphi:
Abby COHEN/Columbia U:
Sonal DESAI/Franklin Templeton:
Henry ELLENBOGEN/Durable Capital: ABCM, DUOL, FSV, RBC, YOU (Part 1)
Mario GABELLI/Gamco:
David GIROUX/T Rowe Price, PRWCX:
William PRIEST/Epoch Inv Partners:
Meryl WITMER/Eagle Capital:
Pg 7, UP AND DOWN WALL STREET. The DEBT-CEILING drama will start next week as the US Treasury takes unusual steps to avert default until the early-June drop-dead date. The markets yawned as they digested the CPI and the UM sentiment data that pointed to possible soft-landing ahead (not recession). Until 2011, the budget approvals and debt-ceiling extensions went hand in hand, but now, there is this artificial crisis. Risks of mistakes are high when the Congress is divided and there is disunity even within the parties. There will be serious repercussions for the US economy and dollar if there is even a technical DEFAULT (by missing interest/principal on Treasuries, Social Security payments, federal payroll, etc). The deficit for the FY 2023 budget is about $1.2 trillion (ideally, the matter should have been handled by 10/1/22, but here we are in 2023); record deficit was $3.1 trillion in the FY 2020 due to Covid; the national debt is 120% of the GDP. Deficits can also fuel INFLATION. Tighter MONETARY policy isn’t effective when the FISCAL policy is loose. The stock market P/Es may be headed lower. The current rally? Enjoy while it lasts.
While value did better in 2022 (RPV), DEEP-VALUE (DEEP) didn’t. But now, selected deep-value stocks are rebounding: COF, GM, F, UAL, SRC, KRC, KRG, even some energy. Look for dividend yields, earnings yields, low debt/tBV, etc to avoid value-traps.
Pg 9, STREETWISE. Nelson PELTZ (Trian) took 35 pages to criticize Disney/DIS, but he doesn’t have a problem with the new CEO Bob IGER. Some of the issues between Peltz and DIS are carrying over from the time of the former CEO Chapek who had summarily rejected Peltz’ approaches. Peltz has complained about losses from streaming, dividend cut, recent M&A, debt, lower EPS, etc. There was a pandemic too. For now, the profits from parks are covering losses from streaming. Iger has also taken some immediate steps to improve employee and customer satisfaction. But the depressed DIS stock will need some work – cutting costs, adjusting pricing, developing new strategy for streaming.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
The consensus is that after a brutal 2022, there will be bumpy 2023/H1, so stick with defensive consumer-staples (fwd P/E 21, expensive) and utilities (fwd P/E 19, also expensive), and then shift to risk-on ahead of better 2023/H2. But the markets don’t reward consensus and better bets may be secular GROWTH and selected ENERGY plays that may benefit from Inflation Reduction Act, the Chips Act, the Infrastructure Investment and Jobs Act.
All-weather aggregates producer Martin Marietta Materials (MLM; fwd P/E 20) is attractive. It has 20-30% market share in markets that are local/regional and have high barriers to entry. There is CONSTRUCTION going on somewhere all the time and there is lot of government infrastructure spending ahead.
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.
1st rate hike of 2023, FOMC 2/1/23+ 25 bps
2nd rate hike, FOMC 3/22/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
FOMC 5/3/23+ Hold
FOMC 6/14/23+ Hold
Hold continues and then a cut is indicated at FOMC 12/13/23.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +2.00%, SP500 +2.67%, Nasdaq Comp +4.82%, R2000 +5.26%. DJ Transports +3.52%; DJ Utilities +0.75%. (Rotating spot consumer-staples -1.37%) US$ index (spot) -1.64%, oil/WTI futures +8.26%, gold futures +2.91%.
52-WK (index changes only), DJIA -4.48%, SP500 -14.24%, Nasdaq Comp -25.61%. (Rotating spot consumer-staples XLP -2.97%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 48: NYSE cumulative (5-day) A/D line rose; ratio of winners:losers 3:2. (Upside- and downside- volumes were not notable but there was a lot of chatter on Twitter about DEEMER’s breakaway-momentum (BAM) signal – the 10-day advance-decline ratio > 1.97)
Pg 39, EUROPEAN TRADER. The UK mining and commodities giant Glencore (GLNCY; fwd P/E 6.5 only) did well in 2022 (it benefitted from disruptions due to Russia-Ukraine war) and should also do well in 2023 as China reopens. It is gradually winding down its (thermal) coal business. It will benefit from energy transition that will need more copper, nickel, cobalt.
Pg 39, EMERGING MARKETS. BRAZILIAN stocks and bonds rallied as the government and military moved to control post-election riots. But President LULA (77) has a tough road ahead as his party doesn’t have majority in the Congress. The former President Bolsonaro was watching the spectacle from the US where he was vacationing, getting medical treatment and/or just hiding as his legal immunity as president ended.
Pg 40, OPTIONS. Selling puts on stocks one would like to own at lower prices remains an attractive strategy. There is volatility ahead in this bad Q4 earnings season. There are headline risks from the FOMC, company earnings and layoffs, etc.
(SP500 VIX 18.35, Nasdaq 100 VXN 23.82 (high), options SKEW 121.70, bond MOVE 113.55) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 41, COMMODITIES. NATURAL GAS is down -62% from 8/22/22 peak of $9.68 and there are still 2.5 months left in the Winter. The Europeans stockpiled ahead of the Winter that turned out to be mild; energy conservation, alternate supplies of LNG and weakening dollar also helped. Chinese demand hasn’t picked up so far. But the Russia-Ukraine war continues, and future supply uncertainties will keep prices volatile. The US talk on banning natural gas for home use by 2030 will also be a factor.
Pg 53: A good week in EUROPE (Netherlands +4.88%, Denmark -1.46%) and a good week in ASIA (Philippines +4.07%, Indonesia -0.81%).
TREASURY* 3-mo yield 4.67%, 1-yr 4.69%, 2-yr 4.22%, 5-yr 3.60%, 10-yr 3.49%, 30-yr 3.61%. REAL yields 5-yr 1.40%, 10-yr 1.31%, 30-yr 1.44%.
DOLLAR fell, ^DXY 102.18, -1.6% (pg 58). GOLD rose to $1,907, +3% (Handy & Harman spot, Thursday; pg 60); the gold-miners continued to rally. (^XAU was at 136.70, +3.53% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With half the data in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 0-1% only.
*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/marketable-securities/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16: COVER STORY, “Roundtable 2023, Part 1 of 3”. The Roundtable was held on January 9 in the NYC; Bhansali joined via Zoom. Part 1 starts with general discussions and only the main points are highlighted here without mentioning who said what (it’s just not practical for Summaries). Latter Part 1, and Parts 2 and 3 (in subsequent issues), focus on specific recommendations by panelists and those are simply noted below. Access full details via online subscription, local library, or purchasing paper issue for $5 at a newsstand.
There was general agreement that the era of free money was over; the valuations matter again; the fixed-income is finally paying income; both bulls and bears can play in the rubble of 2022 (some damage related to leverage, derivatives and pricing of illiquid assets is still unfolding or yet to unfold). Then the panelists were split on a variety of scenarios with ups and down (and some down and down).
The central banks are playing significant roles in global markets. Inflation has peaked but is still high. Fiscal policies remain loose. Wage growth remains high. Earnings will be under pressure. Inventory control and product pricing will become more important. The fed funds may peak at 5.5% but rate cuts may be unlikely in 2023. Liquidity in the markets is down. The impact of Fed QT is unknown. Market P/Es may be affected. The 60-40 portfolios may be making a comeback. The ETFs have started to change the nature of the markets. The Fed may not shift to easing at the first signs of trouble. Credit risks are a concern especially in the private markets with low/no regulations; lot of private debt may be CCC or lower. There may be soft-landing or a mild recession. Some parts of economy seem to be in recession already (auto production, airplane production, housing, etc).
Weak dollar will benefit many areas including foreign investments. Look for companies that have come through 2022 in a decent shape; growth and tech may be down but not out. Russia-Ukraine war will continue to cause global problems, especially in Europe; it has fundamentally changed geopolitics (future hot spots include Middle East, China-Taiwan, etc). The SPR will have to be refilled; it is at an alarmingly low level now when there is no crisis. Globalization is dead and onshoring will take time and will be expensive. China reopening and global outbreaks of Covid will be important factors. Weather and climate effects are becoming more serious. The US population growth has stalled. Recent years (2020, 2021, 2022) have shown dangers of extrapolations of current trends. The SP500 projections ranged from 2,900-4,300. Cryptos have been a disaster; benefits of blockchain haven’t materialized.
Tod AHLSTEN/Parnassus, PRBLX:
Rupal BHANSALI/Ariel: AMIGY, GSK, TIMB, VIV (Part 1)
Scott BLACK/Delphi:
Abby COHEN/Columbia U:
Sonal DESAI/Franklin Templeton:
Henry ELLENBOGEN/Durable Capital: ABCM, DUOL, FSV, RBC, YOU (Part 1)
Mario GABELLI/Gamco:
David GIROUX/T Rowe Price, PRWCX:
William PRIEST/Epoch Inv Partners:
Meryl WITMER/Eagle Capital:
Pg 7, UP AND DOWN WALL STREET. The DEBT-CEILING drama will start next week as the US Treasury takes unusual steps to avert default until the early-June drop-dead date. The markets yawned as they digested the CPI and the UM sentiment data that pointed to possible soft-landing ahead (not recession). Until 2011, the budget approvals and debt-ceiling extensions went hand in hand, but now, there is this artificial crisis. Risks of mistakes are high when the Congress is divided and there is disunity even within the parties. There will be serious repercussions for the US economy and dollar if there is even a technical DEFAULT (by missing interest/principal on Treasuries, Social Security payments, federal payroll, etc). The deficit for the FY 2023 budget is about $1.2 trillion (ideally, the matter should have been handled by 10/1/22, but here we are in 2023); record deficit was $3.1 trillion in the FY 2020 due to Covid; the national debt is 120% of the GDP. Deficits can also fuel INFLATION. Tighter MONETARY policy isn’t effective when the FISCAL policy is loose. The stock market P/Es may be headed lower. The current rally? Enjoy while it lasts.
While value did better in 2022 (RPV), DEEP-VALUE (DEEP) didn’t. But now, selected deep-value stocks are rebounding: COF, GM, F, UAL, SRC, KRC, KRG, even some energy. Look for dividend yields, earnings yields, low debt/tBV, etc to avoid value-traps.
Pg 9, STREETWISE. Nelson PELTZ (Trian) took 35 pages to criticize Disney/DIS, but he doesn’t have a problem with the new CEO Bob IGER. Some of the issues between Peltz and DIS are carrying over from the time of the former CEO Chapek who had summarily rejected Peltz’ approaches. Peltz has complained about losses from streaming, dividend cut, recent M&A, debt, lower EPS, etc. There was a pandemic too. For now, the profits from parks are covering losses from streaming. Iger has also taken some immediate steps to improve employee and customer satisfaction. But the depressed DIS stock will need some work – cutting costs, adjusting pricing, developing new strategy for streaming.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).