Post by Admin/YBB on Apr 1, 2023 5:44:43 GMT -6
Pg 33, TRADER. Be worried as stocks rose in an “eventful” 2023/Q1 – tough Fed, banking crisis, selloff in financials. This would make sense if the BANKING problems could remain only in the banking sector, but that may be wishful thinking. Cautious bankers will tighten credit and starve startups, early-stage companies and small businesses; the HY and leveraged-loan markets (FR/BL) will also tighten.
DEBT-CEILING has been on the back burner during the BANKING CRISIS, but that drama is surely approaching. The 2011 downgrade of the US Treasuries was a factor that kept the US rate about +100 bps higher than German bunds. The US Treasury CDS have been rising. The yield-curve is severely inverted. The drop-dead date for debt-ceiling may be between June-August. A chaotic resolution may cause more things to break (beyond cryptos, techs, regional banks).
2023/Q1 EARNINGS are expected to decline -4.6% yoy but revenues may grow +1.7%. Projections for all of 2023 may have to be cut, but then, 2024 looks rosy. The SP500 fwd P/E of 17.5% is pricey. Watch for BANK earnings starting from April 14 for the impacts of the banking crisis and slowing economy.
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.
FOMC 5/3/23+ +25 bps (cycle peak 5.00-5.25%)
FOMC 6/14/23+ Cut
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Cut
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +3.22%, SP500 +3.48%, Nasdaq Comp +3.37%, R2000 +3.89%. DJ Transports +5.34%; DJ Utilities +3.20%. (Rotating spot high-beta SP500 SPHB +4.71%) US$ index (spot) -0.50%, oil/WTI futures +9.26%, gold futures -0.66%.
YTD (index changes only), DJIA +0.38%, SP500 +7.08%, Nasdaq Comp +16.77%. (Rotating spot high-beta SP500 SPHB +12.24%) (YTD resumes)
Pg 45: NYSE cumulative (5-day) A/D LINE rose for a 2nd week; ratio of winners:losers 7:1.
SENTIMENT. AAII Bull-Bear Spread -23.1% (very low); Delta MSI 29.4% (very low).
Pg 36, EUROPEAN TRADER. The aerospace company Rolls-Royce (RYCEY; fwd P/E 27.4; the iconic auto brands were sold to BMW in 2003) bulls like new CEO’s plans for turnaround. He wants to focus on profitability, not market share. Its main businesses are aircraft engine manufacturing and servicing.
Pg 36, EMERGING MARKETS. To benefit from the US Chips and Science Act to promote domestic semi-CHIPS manufacturing, TSM (Taiwan) and INTC are building huge facilities near Phoenix, AZ. But chips manufacturing is very WATER-intensive and that is a scarce resource in AZ. Phoenix draws 40% of its water from the COLORADO RIVER that runs through 7 states, and AZ is the last one. Almost 70% of Colorado River water is used for farming. In a hyperbole, Kathryn SORENSEN, a former director of Phoenix Water Services, and now with Kyl Center (Arizona State U), said that the state’s water planning goes back “thousands of years”, so it can handle the water demands.
Pg 37, OPTIONS. Traders can exploit market volatility by selling calls (less risky) and puts (more risky).
(SP500 VIX 18.70, Nasdaq 100 VXN 23.60 (high), options SKEW 126.31, bond MOVE 135.93 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. For 2023/Q1, gold, copper, steel, iron-ore did well. Most other commodities did poorly, and energy was the worst, and natural gas the worst of the worst. Mild Winter in the US and Europe were a factor. Nickel, etc may get a boost from the clean energy push by the Inflation Reduction Act.
Pg 51: A good week in EUROPE (Sweden +6.25%, UK 2.98%) and a good week in ASIA (Australia +3.28%, Philippines -1.24%).
TREASURY* 3-mo yield 4.85%, 1-yr 4.64%, 2-yr 4.06%, 5-yr 3.60%, 10-yr 3.48%, 30-yr 3.67%. REAL yields 5-yr 1.20%, 10-yr 1.16%, 30-yr 1.44%.
DOLLAR fell, ^DXY 102.59, -0.5% (pg 58). GOLD fell to $1,980, -0.7% (Handy & Harman spot, Thursday; pg 60); the gold-miners rose. (^XAU was at 131.44, +3.47% 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 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 2-3% only (this estimate has been creeping up).
*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 “The Battle Over TIKTOK is Just Starting”. The US is looking again at TikTok, a unit of Chinese giant ByteDance. Its CEO CHEW’s appearance before a House committee didn’t go well. Among his other points, the observation that ByteDance is 60% owned by institutional investors, 20% by employees, and “only” 20% by its Chinese founders didn’t alleviate many concerns. Options now are that TikTok may continue AS-IS (unlikely), or may be BANNED (also unlikely), or may be SPUN OFF by ByteDance. Beneficiaries of a ban will be META, YouTube/GOOGL, SNAP. But a ban will escalate the US-CHINA trade war, and any related legislation may also comeback to bite the US SOCIAL-MEDIA companies. TikTok was almost sold in 2020 and bidders then were ORCL (with WMT) and MSFT, but those deals fell through. TikTok has since partnered with ORCL on “Project Texas” that now houses most of TikTok’s US operations on ORCL servers (but some back-office work is still in China and that creates suspicions). A deal for majority US ownership of TikTok is doable, but must overcome antitrust (FTC, DOJ) and other obstacles. ORCL has since bought healthcare IT firm Cerner, and MSFT is tied up with the ATVI acquisition (other bidders may emerge, but the current TikTok tie-in with ORCL may be a problem). China also opposes any sale or spinoff. A final possibility may be to just kick the can down the road. (See more TikTok stories in Part 2).
Pg 7, UP AND DOWN WALL STREET. Despite FED’s rate hikes, POWELL’s tough talk, and a global BANKING CRISIS, March and 2023/Q1 were good for stocks. Market expectations for Fed pause/cuts rose. The YIELD-CURVE was inverted but less so. The REAL RATES are still negative. INFLATION is declining gradually. The next JOBS report on Friday may set the course of FOMC action on May 3.
Be selective with HY. The HY ETFs HYG and JNK may not present the total picture. A HY barbell may be better – mixing BB with distressed HY (“CCC or below”). The new issue market for “CCC or below” may be shuttered now and some companies may have trouble rolling over their low-rated HY. The leveraged-loans (FR/BL) may take up the slack. Several attractive leveraged HY CEFs include BGH; FR FRA, JFR.
Pg 9, STREETWISE. STOCKS held during this BANKING crisis. All of the commotion was just on Twitter. The SP500 fwd P/E is 18. Bearish WILSON (MS) is looking for sharp declines in E (earnings) and P/E (valuations); HATZIOUS (GS) thinks that stocks will just be sideways for a while. Serious CREDIT tightening by cautions banks may not materialize. – this isn’t the GFC, 2008. Remember that the economy and stocks are on different cycles. And unexpected things can happen. So, wait with T-Bills (and money-market and short-term bond funds).
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
DEBT-CEILING has been on the back burner during the BANKING CRISIS, but that drama is surely approaching. The 2011 downgrade of the US Treasuries was a factor that kept the US rate about +100 bps higher than German bunds. The US Treasury CDS have been rising. The yield-curve is severely inverted. The drop-dead date for debt-ceiling may be between June-August. A chaotic resolution may cause more things to break (beyond cryptos, techs, regional banks).
2023/Q1 EARNINGS are expected to decline -4.6% yoy but revenues may grow +1.7%. Projections for all of 2023 may have to be cut, but then, 2024 looks rosy. The SP500 fwd P/E of 17.5% is pricey. Watch for BANK earnings starting from April 14 for the impacts of the banking crisis and slowing economy.
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.
FOMC 5/3/23+ +25 bps (cycle peak 5.00-5.25%)
FOMC 6/14/23+ Cut
FOMC 7/26/23+ Hold
FOMC 9/20/23+ Cut
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +3.22%, SP500 +3.48%, Nasdaq Comp +3.37%, R2000 +3.89%. DJ Transports +5.34%; DJ Utilities +3.20%. (Rotating spot high-beta SP500 SPHB +4.71%) US$ index (spot) -0.50%, oil/WTI futures +9.26%, gold futures -0.66%.
YTD (index changes only), DJIA +0.38%, SP500 +7.08%, Nasdaq Comp +16.77%. (Rotating spot high-beta SP500 SPHB +12.24%) (YTD resumes)
Pg 45: NYSE cumulative (5-day) A/D LINE rose for a 2nd week; ratio of winners:losers 7:1.
SENTIMENT. AAII Bull-Bear Spread -23.1% (very low); Delta MSI 29.4% (very low).
Pg 36, EUROPEAN TRADER. The aerospace company Rolls-Royce (RYCEY; fwd P/E 27.4; the iconic auto brands were sold to BMW in 2003) bulls like new CEO’s plans for turnaround. He wants to focus on profitability, not market share. Its main businesses are aircraft engine manufacturing and servicing.
Pg 36, EMERGING MARKETS. To benefit from the US Chips and Science Act to promote domestic semi-CHIPS manufacturing, TSM (Taiwan) and INTC are building huge facilities near Phoenix, AZ. But chips manufacturing is very WATER-intensive and that is a scarce resource in AZ. Phoenix draws 40% of its water from the COLORADO RIVER that runs through 7 states, and AZ is the last one. Almost 70% of Colorado River water is used for farming. In a hyperbole, Kathryn SORENSEN, a former director of Phoenix Water Services, and now with Kyl Center (Arizona State U), said that the state’s water planning goes back “thousands of years”, so it can handle the water demands.
Pg 37, OPTIONS. Traders can exploit market volatility by selling calls (less risky) and puts (more risky).
(SP500 VIX 18.70, Nasdaq 100 VXN 23.60 (high), options SKEW 126.31, bond MOVE 135.93 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. For 2023/Q1, gold, copper, steel, iron-ore did well. Most other commodities did poorly, and energy was the worst, and natural gas the worst of the worst. Mild Winter in the US and Europe were a factor. Nickel, etc may get a boost from the clean energy push by the Inflation Reduction Act.
Pg 51: A good week in EUROPE (Sweden +6.25%, UK 2.98%) and a good week in ASIA (Australia +3.28%, Philippines -1.24%).
TREASURY* 3-mo yield 4.85%, 1-yr 4.64%, 2-yr 4.06%, 5-yr 3.60%, 10-yr 3.48%, 30-yr 3.67%. REAL yields 5-yr 1.20%, 10-yr 1.16%, 30-yr 1.44%.
DOLLAR fell, ^DXY 102.59, -0.5% (pg 58). GOLD fell to $1,980, -0.7% (Handy & Harman spot, Thursday; pg 60); the gold-miners rose. (^XAU was at 131.44, +3.47% 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 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 2-3% only (this estimate has been creeping up).
*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 “The Battle Over TIKTOK is Just Starting”. The US is looking again at TikTok, a unit of Chinese giant ByteDance. Its CEO CHEW’s appearance before a House committee didn’t go well. Among his other points, the observation that ByteDance is 60% owned by institutional investors, 20% by employees, and “only” 20% by its Chinese founders didn’t alleviate many concerns. Options now are that TikTok may continue AS-IS (unlikely), or may be BANNED (also unlikely), or may be SPUN OFF by ByteDance. Beneficiaries of a ban will be META, YouTube/GOOGL, SNAP. But a ban will escalate the US-CHINA trade war, and any related legislation may also comeback to bite the US SOCIAL-MEDIA companies. TikTok was almost sold in 2020 and bidders then were ORCL (with WMT) and MSFT, but those deals fell through. TikTok has since partnered with ORCL on “Project Texas” that now houses most of TikTok’s US operations on ORCL servers (but some back-office work is still in China and that creates suspicions). A deal for majority US ownership of TikTok is doable, but must overcome antitrust (FTC, DOJ) and other obstacles. ORCL has since bought healthcare IT firm Cerner, and MSFT is tied up with the ATVI acquisition (other bidders may emerge, but the current TikTok tie-in with ORCL may be a problem). China also opposes any sale or spinoff. A final possibility may be to just kick the can down the road. (See more TikTok stories in Part 2).
Pg 7, UP AND DOWN WALL STREET. Despite FED’s rate hikes, POWELL’s tough talk, and a global BANKING CRISIS, March and 2023/Q1 were good for stocks. Market expectations for Fed pause/cuts rose. The YIELD-CURVE was inverted but less so. The REAL RATES are still negative. INFLATION is declining gradually. The next JOBS report on Friday may set the course of FOMC action on May 3.
Be selective with HY. The HY ETFs HYG and JNK may not present the total picture. A HY barbell may be better – mixing BB with distressed HY (“CCC or below”). The new issue market for “CCC or below” may be shuttered now and some companies may have trouble rolling over their low-rated HY. The leveraged-loans (FR/BL) may take up the slack. Several attractive leveraged HY CEFs include BGH; FR FRA, JFR.
Pg 9, STREETWISE. STOCKS held during this BANKING crisis. All of the commotion was just on Twitter. The SP500 fwd P/E is 18. Bearish WILSON (MS) is looking for sharp declines in E (earnings) and P/E (valuations); HATZIOUS (GS) thinks that stocks will just be sideways for a while. Serious CREDIT tightening by cautions banks may not materialize. – this isn’t the GFC, 2008. Remember that the economy and stocks are on different cycles. And unexpected things can happen. So, wait with T-Bills (and money-market and short-term bond funds).
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).