Post by Admin/YBB on Sept 23, 2023 3:56:16 GMT -6
From Barron’s, September 25, 2023 (Part 1, Market Week+)
Pg 28, TRADER. A BAD week! This stock market drop is the worst since 03/2023 (only). Is it September jitters or something bad? October is just ahead. POWELL’s hedging (may raise or hold rates) didn’t help. The 10-yr is now near 16-yr high (mortgage rates may hit 8% soon). The SENTIMENT is dour (see details below under SENTIMENTS). Stocks may have some more downside.
With a lot of bad news in (high rates, underwater HTM portfolios, recession fears), BANKS may be ready for rebound. ETFs are regional bank KRE, bank KBE, financials XLF. (An UGLY week for banks)
New CEOs may benefit PayPal/PYPL and Block/SQ. Both did well early in the pandemic but have had hard times since. Alex CHRISS from Intuit/INTU will be the new CEO at PYPL. Founder Jack DORSEY will again become the CEO of SQ, hopefully, with more focus now.
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 11/1/23+ hold (cycle peak 5.25-5.50%)
FOMC 12/13/23+ hold
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ hold
(Probabilities for Hold aren’t high, so expect shifts soon) (Cuts in mid/late-2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.89%%, SP500 -2.93%%, Nasdaq Comp -3.62%, R2000 -3.82%. DJ Transports -2.29%; DJ Utilities -2.34%. (Rotating spot bank KBE -5.19%) US$ index (spot) +0.25% (remains too strong over 100+), oil/WTI futures -0.81%, gold futures +0.09%.
YTD (index changes only), DJIA +2.46%, SP500 +12.52%, Nasdaq Comp +26.23%. (Rotating spot bank KBE -19.05%)
SENTIMENTS
In the hindsight, several sentiment indicators PEAKED around 7/20/23.
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 2:7.
AAII Bull-Bear Spread -3.3% (below average).
%Above 50-dMA for NYSE-listed stocks 25.93% (oversold; even more oversold for SP500); Scale: oversold < 30, negative < 50, positive > 50, overbought > 70 (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 41.4% (negative); Scale: oversold < 30, negative < 50, positive > 50, overbought > 70 (a proprietary index for %Above 75-dMA for selected 1,800 stocks). Unclear what day of the week it is released, but it seems to lag other sentiment indicators (Barron’s updates it on late-Fridays). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg 31, INTERNATIONAL. To catchup with the US Tesla/TSLA and Chinese BYD, the GERMAN automakers (VW, Mercedes-Benz, BMW) are pumping $406 billion into EVs. They are funding EV efforts from their ICE cash flows. They also have strong presence in the Chinese market. Unions are strong in Europe. A concern is the EU investigation on Chinese EVs that may result in tariffs, and that would be bad for Germany.
Pg 32, OPTIONS. After low volatility recently, a high volatility event may follow from any one of these factors – geopolitical, tightening by global central banks, US government shutdown, etc. It is OCTOBER after all. Buy VIX calls; avoid the current popular trade of selling VIX calls.
(SP500 VIX 17.20, Nasdaq 100 VXN 22.01 (high), options SKEW 135.94 (high), bond MOVE 101.11 (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A BAD week in EUROPE (Spain +0.19%, France -2.41%, Greece -4.38%) and a BAD week in ASIA (Indonesia +0.21%, Taiwan -3.84%).
TREASURY* 3-mo yield 5.56%, 1-yr 5.46%, 2-yr 5.10%, 5-yr 4.57%, 10-yr 4.44%, 30-yr 4.53%;
REAL yields 5-yr 2.28%, 10-yr 2.07%, 30-yr 2.16%;
FRNs Index** 5.39% (strange – no change in 9 decimal digits since 9/6/23; Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose, ^DXY 105.58, +0.3% (pg 50; rising since mid-July, now near 12/2022 high). GOLD was flat at 1927, UNCH (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 114.58, -3.47% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
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%.
(NOTE1 – the current semiannual inflation is +2.0562% (CPI-U, unadjusted) & next month’s data on 10/12/23 will be used for the I-Bond rate on November 1)
(NOTE2 – the Social Security COLA will also be known on 10/12/23. It is based on the Q3 average of CPI-W and the estimates now are around +3.2% COLA for 2024)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(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, “How Ozempic and Wegovy Could Break the Healthcare System”. The new GLP-1 receptor agonist drugs from Novo Nordisk/NVO and Eli Lilly/LLY may revolutionize the treatments of DIABETES/OBESITY/SLEEP APNEA, but they will also be huge burden on the HEALTHCARE system. Medicare coverage for obesity begins in 2025 (they are already covered for diabetes) and that may cause higher Medicare premiums. Medicaid, with combo federal and state funding, has variable policies – some states cover them for obesity/sleep apnea, others not yet. Employer-based commercial healthcare plans will be affected differently according to their sizes; they also have better control over their drug formularies (with tiers and other restrictions). But higher premiums may be in the future. Big pharma may be contributing to high demand by aggressive ads for these as must-have meds (why are there general ads for prescription drugs?).
Pg 7, UP AND DOWN WALL STREET. Treasury BOND ( > 1 year) yields are headed higher; the 10-yr yield is near the highest since 2007, but has only reached its 233-yr (!) average (the yield-curve seems to be pivoting about the short-term rates). Will this be enough for the FED or will it continue to tighten (with fed fund rates and QT) ? The investment grade bonds may be in the bottoming stages; it’s shocking that the 30-yr T-Bond issued at 1.25% in mid-2020 now has 50%+ loss. Also keep in mind that T-Bill and 10-yr yields tend to peak around the same time. At some point, the stock market may break under the weight of high rates; the strength in SP500 (below 50-dMA but above 200-dMA) is misleading due to the Magnificent 7; the equal-weight SP500 RSP (below both 50-dMA and 200-dM) may be more representative.
Treasury bond ( > 1 year) yields are up, but there are better deals in T-Bills ( < 1 year), REITs (SBRA, CTC, BHI), BDCs (ARCC, TSLX), energy (RIG, SLB, EQT), homebuilders (LEN, PHM, MDC), convertibles (BAC-PL).
Pg 11, STREETWISE. STOCKS and BONDS look attractive with rates at the current high level. Past excesses have been corrected – if you have forgotten about the NFT craze, good for you; cryptos are around but shrunken quite a bit; meme stocks were washed away by high rates for savers. T-Bill yields peak before the last rate hike by the Fed (elsewhere, little movement in the recent 3m auctions and in 2-yr FRN index have been noted). Middle of the YIELD-CURVE has priced some Fed rate cuts, so the barbell approach may be the best ( < 2 years, > 10 years). But all bond buyers now would do fine – starting yields are fairly good indicators of future potential bond returns (especially, the 30-day SEC yield). Overseas markets are also attractive (Europe EZU, Japan EWJ, etc) as the 14-year long stretch strong dollar may be ending. The US stocks may also be OK except for some overvalued/bubbly stocks; look at equal-weight SP500 RSP. The US earnings bottomed in Q2. A prudent mix of global assets now should prove fruitful.
(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 + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).
Pg 28, TRADER. A BAD week! This stock market drop is the worst since 03/2023 (only). Is it September jitters or something bad? October is just ahead. POWELL’s hedging (may raise or hold rates) didn’t help. The 10-yr is now near 16-yr high (mortgage rates may hit 8% soon). The SENTIMENT is dour (see details below under SENTIMENTS). Stocks may have some more downside.
With a lot of bad news in (high rates, underwater HTM portfolios, recession fears), BANKS may be ready for rebound. ETFs are regional bank KRE, bank KBE, financials XLF. (An UGLY week for banks)
New CEOs may benefit PayPal/PYPL and Block/SQ. Both did well early in the pandemic but have had hard times since. Alex CHRISS from Intuit/INTU will be the new CEO at PYPL. Founder Jack DORSEY will again become the CEO of SQ, hopefully, with more focus now.
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 11/1/23+ hold (cycle peak 5.25-5.50%)
FOMC 12/13/23+ hold
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ hold
(Probabilities for Hold aren’t high, so expect shifts soon) (Cuts in mid/late-2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.89%%, SP500 -2.93%%, Nasdaq Comp -3.62%, R2000 -3.82%. DJ Transports -2.29%; DJ Utilities -2.34%. (Rotating spot bank KBE -5.19%) US$ index (spot) +0.25% (remains too strong over 100+), oil/WTI futures -0.81%, gold futures +0.09%.
YTD (index changes only), DJIA +2.46%, SP500 +12.52%, Nasdaq Comp +26.23%. (Rotating spot bank KBE -19.05%)
SENTIMENTS
In the hindsight, several sentiment indicators PEAKED around 7/20/23.
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 2:7.
AAII Bull-Bear Spread -3.3% (below average).
%Above 50-dMA for NYSE-listed stocks 25.93% (oversold; even more oversold for SP500); Scale: oversold < 30, negative < 50, positive > 50, overbought > 70 (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 41.4% (negative); Scale: oversold < 30, negative < 50, positive > 50, overbought > 70 (a proprietary index for %Above 75-dMA for selected 1,800 stocks). Unclear what day of the week it is released, but it seems to lag other sentiment indicators (Barron’s updates it on late-Fridays). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg 31, INTERNATIONAL. To catchup with the US Tesla/TSLA and Chinese BYD, the GERMAN automakers (VW, Mercedes-Benz, BMW) are pumping $406 billion into EVs. They are funding EV efforts from their ICE cash flows. They also have strong presence in the Chinese market. Unions are strong in Europe. A concern is the EU investigation on Chinese EVs that may result in tariffs, and that would be bad for Germany.
Pg 32, OPTIONS. After low volatility recently, a high volatility event may follow from any one of these factors – geopolitical, tightening by global central banks, US government shutdown, etc. It is OCTOBER after all. Buy VIX calls; avoid the current popular trade of selling VIX calls.
(SP500 VIX 17.20, Nasdaq 100 VXN 22.01 (high), options SKEW 135.94 (high), bond MOVE 101.11 (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A BAD week in EUROPE (Spain +0.19%, France -2.41%, Greece -4.38%) and a BAD week in ASIA (Indonesia +0.21%, Taiwan -3.84%).
TREASURY* 3-mo yield 5.56%, 1-yr 5.46%, 2-yr 5.10%, 5-yr 4.57%, 10-yr 4.44%, 30-yr 4.53%;
REAL yields 5-yr 2.28%, 10-yr 2.07%, 30-yr 2.16%;
FRNs Index** 5.39% (strange – no change in 9 decimal digits since 9/6/23; Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose, ^DXY 105.58, +0.3% (pg 50; rising since mid-July, now near 12/2022 high). GOLD was flat at 1927, UNCH (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 114.58, -3.47% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
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%.
(NOTE1 – the current semiannual inflation is +2.0562% (CPI-U, unadjusted) & next month’s data on 10/12/23 will be used for the I-Bond rate on November 1)
(NOTE2 – the Social Security COLA will also be known on 10/12/23. It is based on the Q3 average of CPI-W and the estimates now are around +3.2% COLA for 2024)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(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, “How Ozempic and Wegovy Could Break the Healthcare System”. The new GLP-1 receptor agonist drugs from Novo Nordisk/NVO and Eli Lilly/LLY may revolutionize the treatments of DIABETES/OBESITY/SLEEP APNEA, but they will also be huge burden on the HEALTHCARE system. Medicare coverage for obesity begins in 2025 (they are already covered for diabetes) and that may cause higher Medicare premiums. Medicaid, with combo federal and state funding, has variable policies – some states cover them for obesity/sleep apnea, others not yet. Employer-based commercial healthcare plans will be affected differently according to their sizes; they also have better control over their drug formularies (with tiers and other restrictions). But higher premiums may be in the future. Big pharma may be contributing to high demand by aggressive ads for these as must-have meds (why are there general ads for prescription drugs?).
Pg 7, UP AND DOWN WALL STREET. Treasury BOND ( > 1 year) yields are headed higher; the 10-yr yield is near the highest since 2007, but has only reached its 233-yr (!) average (the yield-curve seems to be pivoting about the short-term rates). Will this be enough for the FED or will it continue to tighten (with fed fund rates and QT) ? The investment grade bonds may be in the bottoming stages; it’s shocking that the 30-yr T-Bond issued at 1.25% in mid-2020 now has 50%+ loss. Also keep in mind that T-Bill and 10-yr yields tend to peak around the same time. At some point, the stock market may break under the weight of high rates; the strength in SP500 (below 50-dMA but above 200-dMA) is misleading due to the Magnificent 7; the equal-weight SP500 RSP (below both 50-dMA and 200-dM) may be more representative.
Treasury bond ( > 1 year) yields are up, but there are better deals in T-Bills ( < 1 year), REITs (SBRA, CTC, BHI), BDCs (ARCC, TSLX), energy (RIG, SLB, EQT), homebuilders (LEN, PHM, MDC), convertibles (BAC-PL).
Pg 11, STREETWISE. STOCKS and BONDS look attractive with rates at the current high level. Past excesses have been corrected – if you have forgotten about the NFT craze, good for you; cryptos are around but shrunken quite a bit; meme stocks were washed away by high rates for savers. T-Bill yields peak before the last rate hike by the Fed (elsewhere, little movement in the recent 3m auctions and in 2-yr FRN index have been noted). Middle of the YIELD-CURVE has priced some Fed rate cuts, so the barbell approach may be the best ( < 2 years, > 10 years). But all bond buyers now would do fine – starting yields are fairly good indicators of future potential bond returns (especially, the 30-day SEC yield). Overseas markets are also attractive (Europe EZU, Japan EWJ, etc) as the 14-year long stretch strong dollar may be ending. The US stocks may also be OK except for some overvalued/bubbly stocks; look at equal-weight SP500 RSP. The US earnings bottomed in Q2. A prudent mix of global assets now should prove fruitful.
(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 + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).