From Barron’s, February 27, 2023 (Part 1, Market Week+)
Feb 25, 2023 6:12:39 GMT -6
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Post by Admin/YBB on Feb 25, 2023 6:12:39 GMT -6
Pg 28, TRADER. After this pullback of 5% to near 200-dMA, the SP500 fwd P/E is still 17.5 (high); small- and mid- caps may be better values. Recent stronger economic data meant that the FED won’t cut rates any time soon. The 10-yr yield rose to 3.95% and should rise further.
Intel/INTC slashed its dividend. A screen for high PAYOUT ratios ( > 50%) found 115 SP500 companies where dividends may be at risk in a recession – HD, MCD, DRI, SCCO, DOW, VF, etc. But note that some companies may support dividends from cash flows.
In 2022/Q4, hedge-funds shifted from cyclicals (energy, financials, industrials, materials) to growth; they remained overweight in healthcare. The Edgar/SEC filings must be within 45 days of the quarter-end (thus there can be a reporting delays of 3.0-4.5 months, but some like Warren Buffett have received permission from the SEC for delays even beyond that).
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
4th rate hike, FOMC 6/14/23+ 25 bps (rate 5.25-5.50%; likely cycle peak)
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Hold
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
There were changes to rate cut prospects during the week (hot PCE, after hot CPI and PPI previously), but by Friday, the results were just as last week.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -2.99%, SP500 -2.67%, Nasdaq Comp -3.33%, R2000 -2.87%. DJ Transports -3.35%; DJ Utilities -2.64%. (Rotating spot SP-SC 600 -2.71%) US$ index (spot) +1.35%, oil/WTI futures UNCH, gold futures -1.72%.
52-WK (index changes only), DJIA -3.654%, SP500 -9.46%, Nasdaq Comp -16.79%. (Rotating spot SP SC 600 -4.81%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 40: NYSE cumulative (5-day) A/D line fell; ratio of winners:losers 1:3.
Pg 31, EUROPEAN TRADER. British American tobacco (BTI; yield 7.4%; fwd P/E 7.5; buybacks) is attractive. Beyond smoking, it has growing businesses in vaping, heated- and chewable- tobacco. Brands include Camel, Lucky Strike, Pall Mall, Dunhill; Vuse (several sub-brands within; the US launches slowed/delayed).
Pg 31, EMERGING MARKETS. Russian SANCTIONS haven’t failed but will need more time to show effect. PUTIN overestimated his military hand, while the West overestimated sanctions. Russia had been preparing and taking calculated risks since the invasion of Crimea in 2014 (but it was blind sighted by the freezing of its reserves in the West and its cutoff from the Western financial systems (SWIFT, etc). Parts of the Russian economy have been impacted severely. But global military threat from Russia has been degraded (and only the ultimate nuclear threat remains).
Pg 32, OPTIONS. 0DTE (zero-day-to-expiry) options are hot now, but they are not so dangerous as the media says. All options go through the 0DTE stage (and low/no-commissions make them worthwhile for retail investors). Sure, it is aggressive and unhealthy speculation. Also, huge options volumes may affect the underlying stocks and indexes. (By guest author Steve Sosnick, IBKR)
(SP500 VIX 21.67 (high), Nasdaq 100 VXN 27.18 (high), options SKEW 121.22, bond MOVE 122.84) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 33, COMMODITIES. In a year since the start of Russian-Ukraine war, its impact on commodities SUPPLY-CHAINS and that of SANCTIONS (or PRICE-CAPS) on Russian commodities (oil/gas/coal, palladium, copper, steel, wheat) have dwindled (after an initial turmoil). Of course, there have been several adjustments and shifts. GRAINS were handles differently than ENERGY where much of the Russian energy supply simply shifted from Europe to Asia.
Pg 45: A bad week in EUROPE (Greece +1.80%, Denmark -0.03%, Netherlands -3.92%) and a bad week in ASIA (Taiwan +0.08%, China -3.46%).
TREASURY* 3-mo yield 4.86%, 1-yr 5.05%, 2-yr 4.78%, 5-yr 4.19%, 10-yr 3.95%, 30-yr 3.93%. REAL yields 5-yr 1.72%, 10-yr 1.57%, 30-yr 1.61%.
DOLLAR rose, ^DXY 105.25, +1.4% (pg 50). GOLD fell to $1,811, -1.3% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 111.84, -4.93% 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 4/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 1-2% 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, “What Everyone Got Wrong About the ECONOMY – and the Ominous Implications for the FED”. Post-pandemic (and post-stimuluses), the Russia-Ukraine WAR and the FED monetary tightening started. Most forecasts and projections were rendered useless. Consumer SPENDING and JOBS market remained strong, but the stock and bond MARKETS tanked. There are now doubts about soft-, hard- or no- LANDING; the latter just means landing deferred. But with strong economic reports, RATES will be higher for longer. GOODS and HOUSING have responded to Fed actions but not SERVICES. The LABOR POOL has also shrunk (due to retirements, resignations, little/no immigration).
Pg 7, UP AND DOWN WALL STREET. It’s bad news for stocks and bonds as hopes for RATE cuts fade away on strong INFLATION and other economic data. SERVICES have some sticky inflation components. Inflation-expectations also rose. The FED FUNDS may peak at 5.25-5.50% (i.e. 3 more 25-bps hikes); 10-yr may peak at 4.60%. Attractive now are 6-mo T-Bills at 5.06% and 10-yr TIPS at 1.57% + inflation (for 5-yr TIPS, 1.72% + inflation).
Big TECHS led the market up (from October lows) and are now leading it down. Rising RATES and/or slowing EARNINGS are causing valuation issues with stocks and housing.
Pg 11, STREETWISE. Mike WILSON (Morgan Stanley) is very negative on stocks – they are in a death-zone with high valuations and low liquidity. Equity risk premiums (ERPs) are too low. Rates are up, earnings are down. His SP500 targets are 3,900-3,300-3,000. He favors defensive sectors (consumer-staples, healthcare).
Assorted TIDBITS. UBS says DIVIDENDS are more stable than earnings; combination of current-dividend and dividend-growth is attractive (that sum is the long-term total-return). META is copying Twitter by introducing Meta Verified at $14.99/mo. On JUNK FEES: Twitter will offer 2FA only for paying premium customers; MCD is charging for McNuggets sauce; DPZ, PZZA are charging for pizza delivery by miles.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
Intel/INTC slashed its dividend. A screen for high PAYOUT ratios ( > 50%) found 115 SP500 companies where dividends may be at risk in a recession – HD, MCD, DRI, SCCO, DOW, VF, etc. But note that some companies may support dividends from cash flows.
In 2022/Q4, hedge-funds shifted from cyclicals (energy, financials, industrials, materials) to growth; they remained overweight in healthcare. The Edgar/SEC filings must be within 45 days of the quarter-end (thus there can be a reporting delays of 3.0-4.5 months, but some like Warren Buffett have received permission from the SEC for delays even beyond that).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd rate hike, FOMC 3/22/23+ 25 bps
3rd rate hike, FOMC 5/3/23+ 25 bps
4th rate hike, FOMC 6/14/23+ 25 bps (rate 5.25-5.50%; likely cycle peak)
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Hold
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
There were changes to rate cut prospects during the week (hot PCE, after hot CPI and PPI previously), but by Friday, the results were just as last week.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -2.99%, SP500 -2.67%, Nasdaq Comp -3.33%, R2000 -2.87%. DJ Transports -3.35%; DJ Utilities -2.64%. (Rotating spot SP-SC 600 -2.71%) US$ index (spot) +1.35%, oil/WTI futures UNCH, gold futures -1.72%.
52-WK (index changes only), DJIA -3.654%, SP500 -9.46%, Nasdaq Comp -16.79%. (Rotating spot SP SC 600 -4.81%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 40: NYSE cumulative (5-day) A/D line fell; ratio of winners:losers 1:3.
Pg 31, EUROPEAN TRADER. British American tobacco (BTI; yield 7.4%; fwd P/E 7.5; buybacks) is attractive. Beyond smoking, it has growing businesses in vaping, heated- and chewable- tobacco. Brands include Camel, Lucky Strike, Pall Mall, Dunhill; Vuse (several sub-brands within; the US launches slowed/delayed).
Pg 31, EMERGING MARKETS. Russian SANCTIONS haven’t failed but will need more time to show effect. PUTIN overestimated his military hand, while the West overestimated sanctions. Russia had been preparing and taking calculated risks since the invasion of Crimea in 2014 (but it was blind sighted by the freezing of its reserves in the West and its cutoff from the Western financial systems (SWIFT, etc). Parts of the Russian economy have been impacted severely. But global military threat from Russia has been degraded (and only the ultimate nuclear threat remains).
Pg 32, OPTIONS. 0DTE (zero-day-to-expiry) options are hot now, but they are not so dangerous as the media says. All options go through the 0DTE stage (and low/no-commissions make them worthwhile for retail investors). Sure, it is aggressive and unhealthy speculation. Also, huge options volumes may affect the underlying stocks and indexes. (By guest author Steve Sosnick, IBKR)
(SP500 VIX 21.67 (high), Nasdaq 100 VXN 27.18 (high), options SKEW 121.22, bond MOVE 122.84) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 33, COMMODITIES. In a year since the start of Russian-Ukraine war, its impact on commodities SUPPLY-CHAINS and that of SANCTIONS (or PRICE-CAPS) on Russian commodities (oil/gas/coal, palladium, copper, steel, wheat) have dwindled (after an initial turmoil). Of course, there have been several adjustments and shifts. GRAINS were handles differently than ENERGY where much of the Russian energy supply simply shifted from Europe to Asia.
Pg 45: A bad week in EUROPE (Greece +1.80%, Denmark -0.03%, Netherlands -3.92%) and a bad week in ASIA (Taiwan +0.08%, China -3.46%).
TREASURY* 3-mo yield 4.86%, 1-yr 5.05%, 2-yr 4.78%, 5-yr 4.19%, 10-yr 3.95%, 30-yr 3.93%. REAL yields 5-yr 1.72%, 10-yr 1.57%, 30-yr 1.61%.
DOLLAR rose, ^DXY 105.25, +1.4% (pg 50). GOLD fell to $1,811, -1.3% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 111.84, -4.93% 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 4/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 1-2% 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, “What Everyone Got Wrong About the ECONOMY – and the Ominous Implications for the FED”. Post-pandemic (and post-stimuluses), the Russia-Ukraine WAR and the FED monetary tightening started. Most forecasts and projections were rendered useless. Consumer SPENDING and JOBS market remained strong, but the stock and bond MARKETS tanked. There are now doubts about soft-, hard- or no- LANDING; the latter just means landing deferred. But with strong economic reports, RATES will be higher for longer. GOODS and HOUSING have responded to Fed actions but not SERVICES. The LABOR POOL has also shrunk (due to retirements, resignations, little/no immigration).
Pg 7, UP AND DOWN WALL STREET. It’s bad news for stocks and bonds as hopes for RATE cuts fade away on strong INFLATION and other economic data. SERVICES have some sticky inflation components. Inflation-expectations also rose. The FED FUNDS may peak at 5.25-5.50% (i.e. 3 more 25-bps hikes); 10-yr may peak at 4.60%. Attractive now are 6-mo T-Bills at 5.06% and 10-yr TIPS at 1.57% + inflation (for 5-yr TIPS, 1.72% + inflation).
Big TECHS led the market up (from October lows) and are now leading it down. Rising RATES and/or slowing EARNINGS are causing valuation issues with stocks and housing.
Pg 11, STREETWISE. Mike WILSON (Morgan Stanley) is very negative on stocks – they are in a death-zone with high valuations and low liquidity. Equity risk premiums (ERPs) are too low. Rates are up, earnings are down. His SP500 targets are 3,900-3,300-3,000. He favors defensive sectors (consumer-staples, healthcare).
Assorted TIDBITS. UBS says DIVIDENDS are more stable than earnings; combination of current-dividend and dividend-growth is attractive (that sum is the long-term total-return). META is copying Twitter by introducing Meta Verified at $14.99/mo. On JUNK FEES: Twitter will offer 2FA only for paying premium customers; MCD is charging for McNuggets sauce; DPZ, PZZA are charging for pizza delivery by miles.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
