Post by Admin/YBB on Oct 21, 2023 4:16:00 GMT -6
From Barron’s, October 23, 2023 (Part 1, Market Week+)
Pg 28, TRADER. The 10-yr was at 5% back in 2007. But it got there very fast this time, noted ANTONELLI/Baird. Then, there are global geopolitical headwinds. It may still be OK if the US economy holds up; energy/XLE and selected consumer-discretionary (AXP, etc) may be fine. The market and investors need time to get used to 5%+ rates, so higher for longer may be appropriate for the FED. Just take a deep breath (inhale – hold – exhale slowly).
BANK stocks keep falling (KBE, KRE, XLF). Their earnings have been fine; they passed the Stress-Tests; the regional banking crisis is over (but some doubt that); recession has been cancelled. Lot of bad news is already in bank stocks with KBE fwd P/E 7, P/B 0.9, yield 3.7%. Goldman Sachs/GS has thrown in the towel on its consumer banking excursions; Q3 may have been a classic kitchen-sink-cleanup. Citi/C has repeatedly disappointed, but how low can it go?
Continuous glucose monitoring (CGM) devices maker DexCom/DXCM (also, Abbott/ABT) has been hit hard unfairly by the hype on the new diabetes/obesity drugs (from LLY, NVO). But with these medical issues so widespread globally, the CGMs and the new drugs can coexist (not everybody will get prescriptions for these new drugs, and their coverage by insurance, and their pricing, are also open questions.)
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
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.81%, SP500 -2.39%, Nasdaq Comp -3.16%, R2000 -2.26%. DJ Transports -1.69%; DJ Utilities -2.11%. (Rotating spot bank KBE -3.09%) US$ index (spot) -0.46% (remains too strong over 100), oil/WTI futures +1.21%, gold futures +2.86%.
(NOTE. SP500 rose from 200-dMA to 50-dMA, then fell below 200-dMA; DJIA failed at 200-dMA; Nasdaq Comp failed at 50-dMA; DJ Transports couldn’t hold 200-dMA; DJ Utilities and R2000/IWM were well below 200-dMA).
YTD (index changes only), DJIA -0.06% (flat YTD), SP500 +10.02%, Nasdaq Comp +24.05%. (Rotating spot bank KBE -22.77% (ouch!))
SENTIMENTS
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 1:3.
FUND INFLOWS/OUTFLOWS (4-weekMA) (NEW). Outflows from stocks, taxable bonds, munis, money-market funds. (Money left all major fund categories. Where is it going? Not to banks.)
AAII Bull-Bear Spread -0.7% (below average).
%Above 50-dMA for NYSE-listed stocks 19.61% (oversold); 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 26.4% (oversold); 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 TRADER. According to a UBS report (2023 Global Real Estate Bubble Index Report), the EUROPEAN real estate market (UK, Germany, Spain, Switzerland, etc) is distressed now, but also overpriced relative to local market histories. Most European mortgages are adjustable-rate, so higher rates are biting. Prices are expected to decline 5-10% in 2024.
Pg 32, OPTIONS. The markets are too calm for the worsening global geopolitical situation (forget the Fed). Real trend beyond the trading range (SP500 4,200-4,400) has yet to be revealed. Q3 earnings won’t clarify much. VIX is volatile but not concerning in the low-20s. Take care of your overall risks. Recommended is selling puts on stocks you would like to own at lower prices.
(SP500 VIX 21.72 (high), Nasdaq 100 VXN 25.27 (high), options SKEW 137.73 (high), bond MOVE 135.45 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A bad week in EUROPE (Greece +0.93%, Spain -2.17%, Denmark -5.29%) and a bad week in ASIA (Malaysia -0.77%, China -4.63%). (All in RED except for Greece)
TREASURY* 3-mo yield 5.58%, 1-yr 5.41%, 2-yr 5.07%, 5-yr 4.86%, 10-yr 4.93%, 30-yr 5.09%;
REAL yields 5-yr 2.39%, 10-yr 2.46%, 30-yr 2.55%;
FRNs Index** 5.41% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLARrose fell, ^DXY 106.16, -0.4% (pg 50; rising since mid-July). GOLD rose to 1,989, +4% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 116.33, +1.73% for the week) (The gold-miners are lagging the gold-bullion)
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 NEW semiannual inflation for I-Bonds is +1.9723% (CPI-U, unadjusted). Assuming base/fixed rate as 0.9-1.5%, the estimated I-Bond rate range on 11/1/23 is 4.86-5.47%.)
(NOTE2 – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*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 16, COVER STORY “Brokerage King Charles Schwab/SCHW Won’t be Dethroned. Here’s Why”. This has been a terrible year for Schwab – sharp declines in its stock, deposits, new accounts/assets. Its integration with TD Ameritrade is finally complete after 3 years. Despite complaints and transitional issues, most financial advisors (RIA assets: #1-Schwab at 54%, #2-Fidelity at 22%, #3-Pershing/BK at 5% only) and investors will stick with Schwab. Some features from TD Ameritrade didn’t transfer and there are issues with Schwab tech/mobile interface. An advisor platform update was made just on 10/16/23.
In recent years, Schwab became more like a bank and less like a discount brokerage. But now its former “profit center” Schwab Bank has problems – high portfolio (HTM + AWS) losses due to higher rates, fleeing deposits (but a lot of those may still be within the Schwab platform); it is still central to Schwab robo-advisors that have high cash allocations. It had to borrow from FHLB for liquidity. Schwab also refuses to offer higher rate money market funds as brokerage core/settlement options (as Fidelity and Vanguard do). But rates may be peaking. Schwab has good long-term growth prospects.
Pg 7, UP AND DOWN WALL STREET. Dysfunction in DC*^, global geopolitical issues and rising long-term rates have created worries for stocks. The FOMC on 11/2/23 may hold rates, but with inflation high, economy strong and record household wealth, the FED may not be done yet. One can be sure about higher rates for longer. In fact, the long-term rates started rising after it became clear that there may be fewer rate cuts in 2024 than the market had projected (or, just blame the bond vigilantes). Intermediate-term Treasuries (and corporates) may now be attractive to some but avoid long-term bonds – if some things go wrong, the long-term rates may spike to 6% (that will certainly break a few things). The HY corporates are moderately attractive at 8-9%. GOLD briefly rose to above 2,000 (prior peak was $2,051.50 in 08/2020) despite higher rates and strong dollar. So, there are some unusual factors in the market (as these things have different trends). (*^McHenry has decided what pro tempore means to him. The typical role of pro tempore or acting or interim position is to deal with the matters until a permanent replacement is in place.)
5%+ 10-yr (2007 peak was 5.3%) will negatively impact everything from HOUSING to STOCKs. The short-term Treasuries have been 5%+ for a while, and 30-yr is also 5%+ now. The very long-term average for all Treasuries outstanding is 4.5%. The BBB corporates are at 6.7% (attractive to pension funds and insurance companies). The mortgage rates will be 8%+ and housing affordability has worsened. Homebuilders ITB has sold off. Real estate cap-rates will increase too. SP500 yield is 1.62% and trailing P/E is 21.4 (cash-adjusted), 20.2 (operating); but cash-adjusted P/Es simply backout cash and that at 5%+that has to be accounted for.
Pg 10, STREETWISE. When 10-yr yield rises, the stock P/Es fall. After several years, the 10-yr yield is about the same as the inverse of P/E, or 100(E/P)% (remember the broken Fed Model?). SP500 Magnificent-7 has (as a group) P/E of 45. One can evaluate that with the discounted cash flow (DCF) analysis. They also generate lots of free cash flows (i.e., cash flow net of necessary capex and expenses). So, the market may be simply looking at billions of free cash flows out into the future. (Another explanation may be based on their PEG ratio, i.e., the P/E divided by the growth rate, are reasonable).
(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. The 10-yr was at 5% back in 2007. But it got there very fast this time, noted ANTONELLI/Baird. Then, there are global geopolitical headwinds. It may still be OK if the US economy holds up; energy/XLE and selected consumer-discretionary (AXP, etc) may be fine. The market and investors need time to get used to 5%+ rates, so higher for longer may be appropriate for the FED. Just take a deep breath (inhale – hold – exhale slowly).
BANK stocks keep falling (KBE, KRE, XLF). Their earnings have been fine; they passed the Stress-Tests; the regional banking crisis is over (but some doubt that); recession has been cancelled. Lot of bad news is already in bank stocks with KBE fwd P/E 7, P/B 0.9, yield 3.7%. Goldman Sachs/GS has thrown in the towel on its consumer banking excursions; Q3 may have been a classic kitchen-sink-cleanup. Citi/C has repeatedly disappointed, but how low can it go?
Continuous glucose monitoring (CGM) devices maker DexCom/DXCM (also, Abbott/ABT) has been hit hard unfairly by the hype on the new diabetes/obesity drugs (from LLY, NVO). But with these medical issues so widespread globally, the CGMs and the new drugs can coexist (not everybody will get prescriptions for these new drugs, and their coverage by insurance, and their pricing, are also open questions.)
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
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.81%, SP500 -2.39%, Nasdaq Comp -3.16%, R2000 -2.26%. DJ Transports -1.69%; DJ Utilities -2.11%. (Rotating spot bank KBE -3.09%) US$ index (spot) -0.46% (remains too strong over 100), oil/WTI futures +1.21%, gold futures +2.86%.
(NOTE. SP500 rose from 200-dMA to 50-dMA, then fell below 200-dMA; DJIA failed at 200-dMA; Nasdaq Comp failed at 50-dMA; DJ Transports couldn’t hold 200-dMA; DJ Utilities and R2000/IWM were well below 200-dMA).
YTD (index changes only), DJIA -0.06% (flat YTD), SP500 +10.02%, Nasdaq Comp +24.05%. (Rotating spot bank KBE -22.77% (ouch!))
SENTIMENTS
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 1:3.
FUND INFLOWS/OUTFLOWS (4-weekMA) (NEW). Outflows from stocks, taxable bonds, munis, money-market funds. (Money left all major fund categories. Where is it going? Not to banks.)
AAII Bull-Bear Spread -0.7% (below average).
%Above 50-dMA for NYSE-listed stocks 19.61% (oversold); 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 26.4% (oversold); 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 TRADER. According to a UBS report (2023 Global Real Estate Bubble Index Report), the EUROPEAN real estate market (UK, Germany, Spain, Switzerland, etc) is distressed now, but also overpriced relative to local market histories. Most European mortgages are adjustable-rate, so higher rates are biting. Prices are expected to decline 5-10% in 2024.
Pg 32, OPTIONS. The markets are too calm for the worsening global geopolitical situation (forget the Fed). Real trend beyond the trading range (SP500 4,200-4,400) has yet to be revealed. Q3 earnings won’t clarify much. VIX is volatile but not concerning in the low-20s. Take care of your overall risks. Recommended is selling puts on stocks you would like to own at lower prices.
(SP500 VIX 21.72 (high), Nasdaq 100 VXN 25.27 (high), options SKEW 137.73 (high), bond MOVE 135.45 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A bad week in EUROPE (Greece +0.93%, Spain -2.17%, Denmark -5.29%) and a bad week in ASIA (Malaysia -0.77%, China -4.63%). (All in RED except for Greece)
TREASURY* 3-mo yield 5.58%, 1-yr 5.41%, 2-yr 5.07%, 5-yr 4.86%, 10-yr 4.93%, 30-yr 5.09%;
REAL yields 5-yr 2.39%, 10-yr 2.46%, 30-yr 2.55%;
FRNs Index** 5.41% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR
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 NEW semiannual inflation for I-Bonds is +1.9723% (CPI-U, unadjusted). Assuming base/fixed rate as 0.9-1.5%, the estimated I-Bond rate range on 11/1/23 is 4.86-5.47%.)
(NOTE2 – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*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 16, COVER STORY “Brokerage King Charles Schwab/SCHW Won’t be Dethroned. Here’s Why”. This has been a terrible year for Schwab – sharp declines in its stock, deposits, new accounts/assets. Its integration with TD Ameritrade is finally complete after 3 years. Despite complaints and transitional issues, most financial advisors (RIA assets: #1-Schwab at 54%, #2-Fidelity at 22%, #3-Pershing/BK at 5% only) and investors will stick with Schwab. Some features from TD Ameritrade didn’t transfer and there are issues with Schwab tech/mobile interface. An advisor platform update was made just on 10/16/23.
In recent years, Schwab became more like a bank and less like a discount brokerage. But now its former “profit center” Schwab Bank has problems – high portfolio (HTM + AWS) losses due to higher rates, fleeing deposits (but a lot of those may still be within the Schwab platform); it is still central to Schwab robo-advisors that have high cash allocations. It had to borrow from FHLB for liquidity. Schwab also refuses to offer higher rate money market funds as brokerage core/settlement options (as Fidelity and Vanguard do). But rates may be peaking. Schwab has good long-term growth prospects.
Pg 7, UP AND DOWN WALL STREET. Dysfunction in DC*^, global geopolitical issues and rising long-term rates have created worries for stocks. The FOMC on 11/2/23 may hold rates, but with inflation high, economy strong and record household wealth, the FED may not be done yet. One can be sure about higher rates for longer. In fact, the long-term rates started rising after it became clear that there may be fewer rate cuts in 2024 than the market had projected (or, just blame the bond vigilantes). Intermediate-term Treasuries (and corporates) may now be attractive to some but avoid long-term bonds – if some things go wrong, the long-term rates may spike to 6% (that will certainly break a few things). The HY corporates are moderately attractive at 8-9%. GOLD briefly rose to above 2,000 (prior peak was $2,051.50 in 08/2020) despite higher rates and strong dollar. So, there are some unusual factors in the market (as these things have different trends). (*^McHenry has decided what pro tempore means to him. The typical role of pro tempore or acting or interim position is to deal with the matters until a permanent replacement is in place.)
5%+ 10-yr (2007 peak was 5.3%) will negatively impact everything from HOUSING to STOCKs. The short-term Treasuries have been 5%+ for a while, and 30-yr is also 5%+ now. The very long-term average for all Treasuries outstanding is 4.5%. The BBB corporates are at 6.7% (attractive to pension funds and insurance companies). The mortgage rates will be 8%+ and housing affordability has worsened. Homebuilders ITB has sold off. Real estate cap-rates will increase too. SP500 yield is 1.62% and trailing P/E is 21.4 (cash-adjusted), 20.2 (operating); but cash-adjusted P/Es simply backout cash and that at 5%+
Pg 10, STREETWISE. When 10-yr yield rises, the stock P/Es fall. After several years, the 10-yr yield is about the same as the inverse of P/E, or 100(E/P)% (remember the broken Fed Model?). SP500 Magnificent-7 has (as a group) P/E of 45. One can evaluate that with the discounted cash flow (DCF) analysis. They also generate lots of free cash flows (i.e., cash flow net of necessary capex and expenses). So, the market may be simply looking at billions of free cash flows out into the future. (Another explanation may be based on their PEG ratio, i.e., the P/E divided by the growth rate, are reasonable).
(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).