Post by Admin/YBB on Jul 1, 2023 4:05:38 GMT -6
From Barron’s, July 3, 2023 (Part 1, Market Week+)
Pg 28, TRADER. Stocks are rising because good news is good news (previously, they were rising a wall of worry. So, stocks are rising and just find a narrative to fit). Investors have ignored bad/unpleasant news – the Fed; regional banking crisis; debt-ceiling drama; potential recession; geopolitical (for a brief moment, the market was relieved that Putin was still in power). The SP500 rose +16% in H1 (the best since 2019) and Nasdaq Comp +32% (the best since 1983). Active managers outperformed their benchmarks. Lagging were DJIA, equal-weight SP500 RSP, small-cap R2000. In H2, either the rest of 492 SP500 stocks will catch up with 8 leading mega stocks, or this narrow rally will fizzle. SP500 fwd P/E is 19 ahead of the expected weak Q2 earnings season. Expect a market pause or pullback. Stick with quality stocks (QUAL). There may be some allocation shift from (outperforming) stocks into (lagging) bonds.
VOLATILITY has been muted despite some turbulence (the Fed; regional banking crisis; Putin-Wagner, etc). Stock CORRELATIONS are low (they peaked in 03/2020). SP500 index is masking large moves up/down in several components. Q2 EARNINGS season starts in mid-July. A pullback or selloff may be ahead – there hasn’t been -3% drawdown since March.
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 7/26/23+ hike +25 bps (cycle peak 5.25-5.50%)
FOMC 9/20/23+ hold
FOMC 11/1/23+ hold
FOMC 12/13/23+ hold
(Cuts in 2024. Still far from what POWELL says – 2 more hikes in 2023 and no cuts in 2024.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +2.02%, SP500 +2.35%, Nasdaq Comp +2.19%, R2000 +3.68%. DJ Transports +5.73%; DJ Utilities +0.47%. (Rotating spot equal-weight SP500 RSP +3.36%) US$ index (spot) UNCH, oil/WTI futures +2.14%, gold futures +0.10%.
YTD (index changes only), DJIA +3.80%, SP500 +15.91%, Nasdaq Comp +31.73%. (Rotating spot equal-weight SP500 RSP +5.94%)
SENTIMENTS
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 4:1.
AAII Bull-Bear Spread +14.4% (above average).
%Above 50-dMA for NYSE-listed stocks 70.21% (overbought) (StockCharts $NYA50R; $SPXA50R for the SP500 is also included in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 61.2% (good) (a proprietary index for %Above 75-dMA for selected 1,800 stocks). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg 31, INTERNATIONAL TRADER. Use frozen RUSSIAN RESERVES ($300+ billion) in the Western banks (EU, US) to pay for Ukraine aid ($411+ billion so far)? What could go wrong? Problems with international law for one, bad strategy is another. An alternate idea from the EU is to tax investment earnings of sovereign assets. Another from the US is to use Russian reserves only as collateral for reconstruction loans for Ukraine. Politicians are more willing to rush on this than banks and central banks.
EMERGING MARKETS. (Place holder)
COMMODITIES. (Place holder)
(It looks like these regular columns are gone. Barron’s page count is lower too, but it still costs $5 per issue. Long-term subscription prices may be lower with promos.)
Pg 32, OPTIONS. A big recent surprise was the brief tussle between the Wagner Group and PUTIN. To deal with such uncertainties, investors can generate income by selling puts on blue chips they want to own at lower prices, or sell/write calls on holdings that they can give up on bounces.
(SP500 VIX 13.59, Nasdaq 100 VXN 19.55, options SKEW 143.05 (high), bond MOVE 113.45 (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: An up week in EUROPE (Netherlands +3.37%, Belgium -0.93%) and an up week in ASIA (Philippines +1.92%, Thailand -1.62%).
TREASURY* 3-mo yield 5.43%, 1-yr 5.40%, 2-yr 4.87%, 5-yr 4.13%, 10-yr 3.81%, 30-yr 3.85%. REAL yields 5-yr 1.95%, 10-yr 1.59%, 30-yr 1.62%.
DOLLAR rose, ^DXY 102.92, UNCH (pg 50). GOLD fell to $1,912, -1% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 120.03, +1.45% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, NEW rate from May 1, 2023, is 4.30%; the fixed rate is +0.90%, the semiannual inflation is +1.69%.
*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, “Bargains Abound in Commercial Real Estate (CREs). Where to Find Income and Growth”. Hybrid work-from-home/office has been bad for real estate. The CRE occupancies are down. Many publicly traded real estate stocks have sold off and their yields are now attractive (not so yet for unlisted/nontraded real estate funds that don’t have to update frequently or mark-to-market). The FED may raise rates a couple more times. Lending/credit conditions are tight. Recession may be ahead. Strong sectors include warehouses/logistics, data centers, medical properties, apartments. For real estate, FFOs (funds from operations) are more meaningful than Pes. It’s hard to call the bottom, so a prudent approach may be to barbell – a mix of strong and weak sectors. Mentioned are AVB, EQR, DLR, EQIX, FR, SPG, PEAK, KIM, CUZ, HIW. (See real estate Q&A in Part 2)
Pg 6, UP AND DOWN WALL STREET. Generative AI hype added $5 trillion (+32%) to the Nasdaq Comp YTD. Many are stress-testing ChatGPT. There have been other runups caused by hot technologies such as 3-D printing, autonomous driving, blockchains, (and at one time) metaverse. AI may be following the HYPE cycle where in the early stages, the expectations are far ahead of the potential.
Pg 9, STREETWISE. Eli Lilly’s/LLY newest obesity/diabetes drug retatrutide had good results in Phase 2 trials – better than those for existing similar drugs on the market. Novo Nordisk/NVO has semaglutide/Wegovy/Ozempic on the market; LLY has tirzepatide/Mounjaro that is approved for diabetes and should be approved soon for obesity. All these drugs use one or more receptor agonists. LLY stock has runup sharply (fwd P/E 50) but earnings are expected to double in 2-3 years from these drugs. Risks are in ramping up the production and insurance coverage for obesity treatment at a cost of $1,000-1,500/mo (coverage for diabetes isn’t in doubt). There are medical spas that obtain some of these ingredients in the black market, compound them (a practice not covered by the FDA), and offer obesity treatments for $300-850/mo – beware of related risks (you don’t know what you are getting and in what doses).
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
Pg 28, TRADER. Stocks are rising because good news is good news (previously, they were rising a wall of worry. So, stocks are rising and just find a narrative to fit). Investors have ignored bad/unpleasant news – the Fed; regional banking crisis; debt-ceiling drama; potential recession; geopolitical (for a brief moment, the market was relieved that Putin was still in power). The SP500 rose +16% in H1 (the best since 2019) and Nasdaq Comp +32% (the best since 1983). Active managers outperformed their benchmarks. Lagging were DJIA, equal-weight SP500 RSP, small-cap R2000. In H2, either the rest of 492 SP500 stocks will catch up with 8 leading mega stocks, or this narrow rally will fizzle. SP500 fwd P/E is 19 ahead of the expected weak Q2 earnings season. Expect a market pause or pullback. Stick with quality stocks (QUAL). There may be some allocation shift from (outperforming) stocks into (lagging) bonds.
VOLATILITY has been muted despite some turbulence (the Fed; regional banking crisis; Putin-Wagner, etc). Stock CORRELATIONS are low (they peaked in 03/2020). SP500 index is masking large moves up/down in several components. Q2 EARNINGS season starts in mid-July. A pullback or selloff may be ahead – there hasn’t been -3% drawdown since March.
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 7/26/23+ hike +25 bps (cycle peak 5.25-5.50%)
FOMC 9/20/23+ hold
FOMC 11/1/23+ hold
FOMC 12/13/23+ hold
(Cuts in 2024. Still far from what POWELL says – 2 more hikes in 2023 and no cuts in 2024.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +2.02%, SP500 +2.35%, Nasdaq Comp +2.19%, R2000 +3.68%. DJ Transports +5.73%; DJ Utilities +0.47%. (Rotating spot equal-weight SP500 RSP +3.36%) US$ index (spot) UNCH, oil/WTI futures +2.14%, gold futures +0.10%.
YTD (index changes only), DJIA +3.80%, SP500 +15.91%, Nasdaq Comp +31.73%. (Rotating spot equal-weight SP500 RSP +5.94%)
SENTIMENTS
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 4:1.
AAII Bull-Bear Spread +14.4% (above average).
%Above 50-dMA for NYSE-listed stocks 70.21% (overbought) (StockCharts $NYA50R; $SPXA50R for the SP500 is also included in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 61.2% (good) (a proprietary index for %Above 75-dMA for selected 1,800 stocks). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg 31, INTERNATIONAL TRADER. Use frozen RUSSIAN RESERVES ($300+ billion) in the Western banks (EU, US) to pay for Ukraine aid ($411+ billion so far)? What could go wrong? Problems with international law for one, bad strategy is another. An alternate idea from the EU is to tax investment earnings of sovereign assets. Another from the US is to use Russian reserves only as collateral for reconstruction loans for Ukraine. Politicians are more willing to rush on this than banks and central banks.
EMERGING MARKETS. (Place holder)
COMMODITIES. (Place holder)
(It looks like these regular columns are gone. Barron’s page count is lower too, but it still costs $5 per issue. Long-term subscription prices may be lower with promos.)
Pg 32, OPTIONS. A big recent surprise was the brief tussle between the Wagner Group and PUTIN. To deal with such uncertainties, investors can generate income by selling puts on blue chips they want to own at lower prices, or sell/write calls on holdings that they can give up on bounces.
(SP500 VIX 13.59, Nasdaq 100 VXN 19.55, options SKEW 143.05 (high), bond MOVE 113.45 (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: An up week in EUROPE (Netherlands +3.37%, Belgium -0.93%) and an up week in ASIA (Philippines +1.92%, Thailand -1.62%).
TREASURY* 3-mo yield 5.43%, 1-yr 5.40%, 2-yr 4.87%, 5-yr 4.13%, 10-yr 3.81%, 30-yr 3.85%. REAL yields 5-yr 1.95%, 10-yr 1.59%, 30-yr 1.62%.
DOLLAR rose, ^DXY 102.92, UNCH (pg 50). GOLD fell to $1,912, -1% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 120.03, +1.45% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, NEW rate from May 1, 2023, is 4.30%; the fixed rate is +0.90%, the semiannual inflation is +1.69%.
*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, “Bargains Abound in Commercial Real Estate (CREs). Where to Find Income and Growth”. Hybrid work-from-home/office has been bad for real estate. The CRE occupancies are down. Many publicly traded real estate stocks have sold off and their yields are now attractive (not so yet for unlisted/nontraded real estate funds that don’t have to update frequently or mark-to-market). The FED may raise rates a couple more times. Lending/credit conditions are tight. Recession may be ahead. Strong sectors include warehouses/logistics, data centers, medical properties, apartments. For real estate, FFOs (funds from operations) are more meaningful than Pes. It’s hard to call the bottom, so a prudent approach may be to barbell – a mix of strong and weak sectors. Mentioned are AVB, EQR, DLR, EQIX, FR, SPG, PEAK, KIM, CUZ, HIW. (See real estate Q&A in Part 2)
Pg 6, UP AND DOWN WALL STREET. Generative AI hype added $5 trillion (+32%) to the Nasdaq Comp YTD. Many are stress-testing ChatGPT. There have been other runups caused by hot technologies such as 3-D printing, autonomous driving, blockchains, (and at one time) metaverse. AI may be following the HYPE cycle where in the early stages, the expectations are far ahead of the potential.
Pg 9, STREETWISE. Eli Lilly’s/LLY newest obesity/diabetes drug retatrutide had good results in Phase 2 trials – better than those for existing similar drugs on the market. Novo Nordisk/NVO has semaglutide/Wegovy/Ozempic on the market; LLY has tirzepatide/Mounjaro that is approved for diabetes and should be approved soon for obesity. All these drugs use one or more receptor agonists. LLY stock has runup sharply (fwd P/E 50) but earnings are expected to double in 2-3 years from these drugs. Risks are in ramping up the production and insurance coverage for obesity treatment at a cost of $1,000-1,500/mo (coverage for diabetes isn’t in doubt). There are medical spas that obtain some of these ingredients in the black market, compound them (a practice not covered by the FDA), and offer obesity treatments for $300-850/mo – beware of related risks (you don’t know what you are getting and in what doses).
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).