Post by Admin/YBB on Feb 4, 2023 5:14:45 GMT -6
Pg 27, TRADER. The DISINFLATIONARY process has started, so said POWELL. Defying logic, stocks are RALLYING. Investors are looking beyond Fed rate hikes, some poor Q4 earnings, a too hot jobs report and 54-yr low unemployment rate of 3.4%. SOFT LANDING seems a more plausible scenario as signs of recession are nowhere to be seen. Even the WAGE growth, a prime worry of POWELL, seems to be moderating. But RATES may stay higher longer and that would be a drag on earnings and stock valuations. In the meantime, this risk-on rally is driven by P/E expansion. Investors should be cautious and selective.
INFRASTRUCTURE stimulus and push for RENEWABLES will benefit CAT, DE, TEX; URI, HRI, WSC; CRH, MLM, VMC, EXP, SUM; PWR, ACM, J, MTZ, DY, STRL; ETF is PAVE.
Don’t chase this rally. Stick with quality stocks that haven’t participated (with good reasons in some cases) – EQT, LUV, BAC, WFC, GS, FITB, MTB, GOOGL.
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 rate hike, FOMC 3/22/23+ 25 bps
3rd rate hike, FOMC 5/3/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
FOMC 6/14/23+ Hold
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Hold
FOMC 11/1/23+ Cut
FOMC 12/13/23+ Cut
POWELL said that may be 2 more rate hikes and no cuts in 2023. The fed funds futures market complied partially – it adjusted to 2 more hikes, but projects cuts later in 2023.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.15%, SP500 +1.62%, Nasdaq Comp +3.31%, R2000 +3.88%. DJ Transports +7.15%; DJ Utilities -1.47%. (Rotating spot ARKK +6.09%) US$ index (spot) +1.05%, oil/WTI futures -7.89%, gold futures -3.41%.
52-WK (index changes only), DJIA -3.32%, SP500 -8.09%, Nasdaq Comp -14.83%. (Rotating spot ARKK -41.10%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 40: NYSE cumulative (5-day) A/D line rose for a 5th week; ratio of winners:losers 2:1.
Pg 30, EUROPEAN TRADER. The UK hotel group Whitbread/WTBDY is expanding rapidly in Germany with its Premier Inn chain. This German expansion is at loss now but that may change soon; it may benefit from international travel recovery. The core UK business is also solid. In 2019, Whitbread sold Costa Coffee to Coca-Cola/KO (some of its coffees have very high caffeine content; it’s also entering the US market).
Pg 30, EMERGING MARKETS. Baidu/BIDU is planning for a ChatGPT rival (who isn’t?) – Alphabet/GOOGL, Tencents/TCEHY, Ali Baba/BABA are also in the race (note that Microsoft/MSFT is big investor in OpenAI that developed ChatGPT). The underlying technology for ChatGPT isn’t very complicated – its lots of data, data-mining and computing power. China may even have advantages due to weaker privacy protections. All this may benefit the SEMI-CHIP manufacturers (TSM, etc). BIDU is also expanding its robotaxi services. It is cooperating with the Chinese government on several infrastructure projects (traffic control, etc) and faces less pressures from the government.
Pg 32, OPTIONS. STOCK-REPLACEMENTS by CALLS allow booking profits and still remain in the game with lower $amounts. Remember, profits are just digital illusions until realized.
(SP500 VIX 18.33, Nasdaq 100 VXN 25.40 (high), options SKEW 123.08, bond MOVE 98.99) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 33, COMMODITIES. Industrial-precious metal SILVER is outperforming gold, although the two have high correlation. This is an indication that global economic activity is picking up, including China reopening. Silver is also important for energy transition and EVs, besides its traditional uses in industrial products/processes and jewelry. Weak DOLLAR is also tailwind for precious metals. Silver targets are in $30s with soft landing and $10s with recession.
Pg 45: An up week in EUROPE (Sweden +4.64%, Switzerland +0.65%) and a down week in ASIA (Taiwan +4.80%, China -4.14%).
TREASURY* 3-mo yield 4.70%, 1-yr 4.79%, 2-yr 4.30%, 5-yr 3.67%, 10-yr 3.53%, 30-yr 3.63%. REAL yields 5-yr 1.40%, 10-yr 1.31%, 30-yr 1.46%.
DOLLAR rose, ^DXY 102.99, +1% (pg 50). GOLD fell to $1,875, -2.6% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 127.60, -5.33% 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 0-2% 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 18: COVER STORY, “Pfizer/PFE is Moving Beyond Covid. Why Its Stock is a Buy”. Yield 3.7%; fwd P/E 11.3; very low debt (used Covid windfall to pay most debt). PFE is attractive beyond Covid vaccines and drugs – drug pipeline is strong, although analysts are less optimistic about it than CEO BOURLA; R&D is growing; it’s active in M&A; buybacks may resume. 2022 was a blockbuster year for revenues and earnings due to Covid vaccines and drugs, and 2023 may be a reset year. Covid business may become a smaller and recurring business with the FDA recommending annual Covid shots and with combo flu + Covid vaccines by 2026 (why so late?). Future prices for Covid shots may be $110-130, much higher than $30 under government contracts (but with huge volumes for mass vaccinations).
Pg 6, UP AND DOWN WALL STREET. Red hot JOBS report and only 3.4% unemployment rate reduced chances of FED PIVOT. At post-FOMC presser, POWELL indicated a couple more rate hikes, then a hold, but no cuts in 2023; he no longer seemed too concerned about strong JOLTS report; he strangely noted that FINANCIAL CONDITIONS have tightened when, in fact, they have eased a bit lately due to lower bond yields and dollar weakness. The fed fund FUTURES adjusted partially – to 2 more rate hikes, but still projecting cut(s) in late-2023, and that may not happen.
0DTE (0 days to expiration, or same-day expirations) are the shortest-term OPTIONS that are causing a speculative frenzy. These are very cheap and offer highly leveraged bets but are also risky. This dash-to-trash rally (in depressed, low-quality and meme stocks) has been fueled in part by the 0DTEs. These options high volume isn’t reflected in the fear gauge VIX (that is options-based). The SEC has been watching from sidelines. (There is even a subscription site 0DTE.com)
Pg 9, STREETWISE. ACTIVISTS (variations include corporate raiders, greenmailers) make noises but often are not effective. There may be an initial pop in the target stock but then nothing much. There are too many activists now who buy just a little of the target stocks to become noticeable; some have dedicated activist funds and collect high fees regardless of the outcome. But investors love good stories and public fights.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
INFRASTRUCTURE stimulus and push for RENEWABLES will benefit CAT, DE, TEX; URI, HRI, WSC; CRH, MLM, VMC, EXP, SUM; PWR, ACM, J, MTZ, DY, STRL; ETF is PAVE.
Don’t chase this rally. Stick with quality stocks that haven’t participated (with good reasons in some cases) – EQT, LUV, BAC, WFC, GS, FITB, MTB, GOOGL.
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 rate hike, FOMC 3/22/23+ 25 bps
3rd rate hike, FOMC 5/3/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
FOMC 6/14/23+ Hold
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Hold
FOMC 11/1/23+ Cut
FOMC 12/13/23+ Cut
POWELL said that may be 2 more rate hikes and no cuts in 2023. The fed funds futures market complied partially – it adjusted to 2 more hikes, but projects cuts later in 2023.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.15%, SP500 +1.62%, Nasdaq Comp +3.31%, R2000 +3.88%. DJ Transports +7.15%; DJ Utilities -1.47%. (Rotating spot ARKK +6.09%) US$ index (spot) +1.05%, oil/WTI futures -7.89%, gold futures -3.41%.
52-WK (index changes only), DJIA -3.32%, SP500 -8.09%, Nasdaq Comp -14.83%. (Rotating spot ARKK -41.10%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 40: NYSE cumulative (5-day) A/D line rose for a 5th week; ratio of winners:losers 2:1.
Pg 30, EUROPEAN TRADER. The UK hotel group Whitbread/WTBDY is expanding rapidly in Germany with its Premier Inn chain. This German expansion is at loss now but that may change soon; it may benefit from international travel recovery. The core UK business is also solid. In 2019, Whitbread sold Costa Coffee to Coca-Cola/KO (some of its coffees have very high caffeine content; it’s also entering the US market).
Pg 30, EMERGING MARKETS. Baidu/BIDU is planning for a ChatGPT rival (who isn’t?) – Alphabet/GOOGL, Tencents/TCEHY, Ali Baba/BABA are also in the race (note that Microsoft/MSFT is big investor in OpenAI that developed ChatGPT). The underlying technology for ChatGPT isn’t very complicated – its lots of data, data-mining and computing power. China may even have advantages due to weaker privacy protections. All this may benefit the SEMI-CHIP manufacturers (TSM, etc). BIDU is also expanding its robotaxi services. It is cooperating with the Chinese government on several infrastructure projects (traffic control, etc) and faces less pressures from the government.
Pg 32, OPTIONS. STOCK-REPLACEMENTS by CALLS allow booking profits and still remain in the game with lower $amounts. Remember, profits are just digital illusions until realized.
(SP500 VIX 18.33, Nasdaq 100 VXN 25.40 (high), options SKEW 123.08, bond MOVE 98.99) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 33, COMMODITIES. Industrial-precious metal SILVER is outperforming gold, although the two have high correlation. This is an indication that global economic activity is picking up, including China reopening. Silver is also important for energy transition and EVs, besides its traditional uses in industrial products/processes and jewelry. Weak DOLLAR is also tailwind for precious metals. Silver targets are in $30s with soft landing and $10s with recession.
Pg 45: An up week in EUROPE (Sweden +4.64%, Switzerland +0.65%) and a down week in ASIA (Taiwan +4.80%, China -4.14%).
TREASURY* 3-mo yield 4.70%, 1-yr 4.79%, 2-yr 4.30%, 5-yr 3.67%, 10-yr 3.53%, 30-yr 3.63%. REAL yields 5-yr 1.40%, 10-yr 1.31%, 30-yr 1.46%.
DOLLAR rose, ^DXY 102.99, +1% (pg 50). GOLD fell to $1,875, -2.6% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 127.60, -5.33% 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 0-2% 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 18: COVER STORY, “Pfizer/PFE is Moving Beyond Covid. Why Its Stock is a Buy”. Yield 3.7%; fwd P/E 11.3; very low debt (used Covid windfall to pay most debt). PFE is attractive beyond Covid vaccines and drugs – drug pipeline is strong, although analysts are less optimistic about it than CEO BOURLA; R&D is growing; it’s active in M&A; buybacks may resume. 2022 was a blockbuster year for revenues and earnings due to Covid vaccines and drugs, and 2023 may be a reset year. Covid business may become a smaller and recurring business with the FDA recommending annual Covid shots and with combo flu + Covid vaccines by 2026 (why so late?). Future prices for Covid shots may be $110-130, much higher than $30 under government contracts (but with huge volumes for mass vaccinations).
Pg 6, UP AND DOWN WALL STREET. Red hot JOBS report and only 3.4% unemployment rate reduced chances of FED PIVOT. At post-FOMC presser, POWELL indicated a couple more rate hikes, then a hold, but no cuts in 2023; he no longer seemed too concerned about strong JOLTS report; he strangely noted that FINANCIAL CONDITIONS have tightened when, in fact, they have eased a bit lately due to lower bond yields and dollar weakness. The fed fund FUTURES adjusted partially – to 2 more rate hikes, but still projecting cut(s) in late-2023, and that may not happen.
0DTE (0 days to expiration, or same-day expirations) are the shortest-term OPTIONS that are causing a speculative frenzy. These are very cheap and offer highly leveraged bets but are also risky. This dash-to-trash rally (in depressed, low-quality and meme stocks) has been fueled in part by the 0DTEs. These options high volume isn’t reflected in the fear gauge VIX (that is options-based). The SEC has been watching from sidelines. (There is even a subscription site 0DTE.com)
Pg 9, STREETWISE. ACTIVISTS (variations include corporate raiders, greenmailers) make noises but often are not effective. There may be an initial pop in the target stock but then nothing much. There are too many activists now who buy just a little of the target stocks to become noticeable; some have dedicated activist funds and collect high fees regardless of the outcome. But investors love good stories and public fights.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).