Post by Admin/YBB on Nov 18, 2023 5:12:58 GMT -6
From Barron’s, November 20, 2023 (Part 1, Market Week+)
Pg 28, TRADER. This has been a convincing RALLY that may lead to new highs for SP500. The seasonality is positive from Nov 1 – Apr 30. Assumptions are good earnings growth and same/lower rates.
Rising COPPER prices from October lows are bullish for FCX. Commodities should do well in global economic recovery. The current commodity allocations are quite low.
With the US economy holding up, selected CONSUMER-DISCRETIONARY stocks should do well: EXPD, ULTA; DHI, GM, MGM, WSM. Beware that the market-weight ETF XLY is very overweight in AMZN and TSLA, and equal-weight RSPD may be better.
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 12/13/23+ hold (cycle peak 5.25-5.50%)
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ cut
FOMC 6/12/24+ hold
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.) (Powell/Fed doesn’t think that cuts would be in 2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.94%, SP500 +2.24%, Nasdaq Comp +2.37%, R2000 +5.42%. DJ Transports +3.51%; DJ Utilities +3.05%. (Rotating spot Retail XRT +5.70%) US$ index (spot) -1.93% (remains too strong over 100), oil/WTI futures -1.66%, gold futures +2.59%.
YTD (index changes only), DJIA +5.43%, SP500 +17.57%, Nasdaq Comp +34.96%. (Rotating spot Retail XRT +4.63%)
SENTIMENTS
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 5:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA) (NEW). Stocks +, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +15.7% (above average). (Thursday-Wednesday)
%Above 50-dMA for NYSE-listed stocks 66.57% (positive); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 45.5% (negative); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 31, INTERNATIONAL TRADER. CHINA has excess production capacity and is undergoing deflation. It’s exporting more volume but is getting less $amounts; e.g., its steel exports are up 80% by tons, but down 40% by $amounts. Weak yuan is also a contributing factor. While this temporarily helps in the inflation fight by developing countries, soon there may be complaints of Chinese dumping. Costs of production in developing world have also gone up significantly, so the Chinese dumping makes it difficult to promote local production. The US may complain only after the 2024 elections.
Pg 32, OPTIONS. VIX should be used in 2 ways. At extremes, it is an investor sentiment signal. But in between, it’s just an indicator for options pricing. With VIX low now, options are cheap. It is puzzling that this is when there are many domestic and geopolitical disturbances.
(SP500 VIX 13.80, Nasdaq 100 VXN 17.41, options SKEW 146.88 (high), bond MOVE 113.11 (Yahoo Finance data).
(Low VIX, high SKEW combo is an indication of nervous bulls who may be dancing near the exits)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A good week in EUROPE (Sweden +4.54%, Norway +0.39%) and a good week in ASIA (HK +3.45%, Singapore -0.03%). (Global rally)
TREASURY* 3-mo yield 5.50%, 1-yr 5.24%, 2-yr 4.88%, 5-yr 4.45%, 10-yr 4.44%, 30-yr 4.59%;
REAL yields 5-yr 2.22%, 10-yr 2.16%, 30-yr 2.24%;
FRNs Index** 5.36% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell, ^DXY 103.8, -1.9% (pg 50). GOLD rose to $1,981, +2% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 112.92, +4.66% 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 November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – 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 18, COVER STORY “What RECESSION? Consumers Still Have Plenty to Spend”. Healthy LABOR and strong consumer SPENDING should make soft landing possible. Economy is growing, Labor market is tight due to lower birth rate and lower immigration. Many families used Covid stimulus to boost their finances. Estimates of personal savings have been wrong and about 9% of Covid excess savings still remains. Some early warning signs are rising delinquencies for credit card debt and auto loans. Consumer confidence is low and that has restrained spending. Higher rates will also reduce spending. Consumers are spending more on services than on goods. Spending by the wealthy has been strong. Expectations are that the Fed will make only small adjustments in its policies.
Pg 7, UP AND DOWN WALL STREET. With strength in the economy, and in the stock and bond markets, the FED may not cut rates in 2024. Consumers see prices that are +18% above the levels in 12/2020 and those won’t be going down with low inflation (because inflation is the rate of change of prices, not the level). The CME FedWatch and a survey of professional managers project cuts in 2024, but those may have to be revised. This may be the 7th time since mid-2022 that the market anticipated a Fed-pivot that didn’t come. The market’s exuberance since October may have been misplaced. Higher inflation will keep the Fed from lowering the short-term rates, and extra Treasury borrowings will move the long-term rates higher. So, the yield-curve should resume its rotation about the short end causing more pain for bond holders. Attractive may be low/intermediate-duration bond funds and higher-grade tranches of CLOs (i.e., some credit risk, but not a lot).
SMALL-CAPS have rebounded strongly. They are still cheap at fwd P/E of 12.3; almost 40% of R2000 companies don’t have earnings, unusual when the economy is fine. The high for R2000 was on 11/8/21 and it is still 26% below that; but it is positive for Q4 and YTD. Large-caps may act better if the economy slows down.
Pg 11, STREETWISE. Upjohn (a unit of PFE then) merged with Mylan in 2020 and the new company was called Viatris/VTRS. It makes generics and biosimilars. It is also at the bottom of the valuation list for SP500 with a yield of 5.1% and fwd P/E 3.3; it has lots of free cash flow. It has sold some of its biosimilars to BioCon (India) for 12.9% stake. But what will it do now with the proceeds? With its past record of missteps, AVOID it, “cheap” it isn’t.
(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. This has been a convincing RALLY that may lead to new highs for SP500. The seasonality is positive from Nov 1 – Apr 30. Assumptions are good earnings growth and same/lower rates.
Rising COPPER prices from October lows are bullish for FCX. Commodities should do well in global economic recovery. The current commodity allocations are quite low.
With the US economy holding up, selected CONSUMER-DISCRETIONARY stocks should do well: EXPD, ULTA; DHI, GM, MGM, WSM. Beware that the market-weight ETF XLY is very overweight in AMZN and TSLA, and equal-weight RSPD may be better.
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 12/13/23+ hold (cycle peak 5.25-5.50%)
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ cut
FOMC 6/12/24+ hold
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.) (Powell/Fed doesn’t think that cuts would be in 2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.94%, SP500 +2.24%, Nasdaq Comp +2.37%, R2000 +5.42%. DJ Transports +3.51%; DJ Utilities +3.05%. (Rotating spot Retail XRT +5.70%) US$ index (spot) -1.93% (remains too strong over 100), oil/WTI futures -1.66%, gold futures +2.59%.
YTD (index changes only), DJIA +5.43%, SP500 +17.57%, Nasdaq Comp +34.96%. (Rotating spot Retail XRT +4.63%)
SENTIMENTS
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 5:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA) (NEW). Stocks +, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +15.7% (above average). (Thursday-Wednesday)
%Above 50-dMA for NYSE-listed stocks 66.57% (positive); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 45.5% (negative); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 31, INTERNATIONAL TRADER. CHINA has excess production capacity and is undergoing deflation. It’s exporting more volume but is getting less $amounts; e.g., its steel exports are up 80% by tons, but down 40% by $amounts. Weak yuan is also a contributing factor. While this temporarily helps in the inflation fight by developing countries, soon there may be complaints of Chinese dumping. Costs of production in developing world have also gone up significantly, so the Chinese dumping makes it difficult to promote local production. The US may complain only after the 2024 elections.
Pg 32, OPTIONS. VIX should be used in 2 ways. At extremes, it is an investor sentiment signal. But in between, it’s just an indicator for options pricing. With VIX low now, options are cheap. It is puzzling that this is when there are many domestic and geopolitical disturbances.
(SP500 VIX 13.80, Nasdaq 100 VXN 17.41, options SKEW 146.88 (high), bond MOVE 113.11 (Yahoo Finance data).
(Low VIX, high SKEW combo is an indication of nervous bulls who may be dancing near the exits)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A good week in EUROPE (Sweden +4.54%, Norway +0.39%) and a good week in ASIA (HK +3.45%, Singapore -0.03%). (Global rally)
TREASURY* 3-mo yield 5.50%, 1-yr 5.24%, 2-yr 4.88%, 5-yr 4.45%, 10-yr 4.44%, 30-yr 4.59%;
REAL yields 5-yr 2.22%, 10-yr 2.16%, 30-yr 2.24%;
FRNs Index** 5.36% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell, ^DXY 103.8, -1.9% (pg 50). GOLD rose to $1,981, +2% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 112.92, +4.66% 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 November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – 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 18, COVER STORY “What RECESSION? Consumers Still Have Plenty to Spend”. Healthy LABOR and strong consumer SPENDING should make soft landing possible. Economy is growing, Labor market is tight due to lower birth rate and lower immigration. Many families used Covid stimulus to boost their finances. Estimates of personal savings have been wrong and about 9% of Covid excess savings still remains. Some early warning signs are rising delinquencies for credit card debt and auto loans. Consumer confidence is low and that has restrained spending. Higher rates will also reduce spending. Consumers are spending more on services than on goods. Spending by the wealthy has been strong. Expectations are that the Fed will make only small adjustments in its policies.
Pg 7, UP AND DOWN WALL STREET. With strength in the economy, and in the stock and bond markets, the FED may not cut rates in 2024. Consumers see prices that are +18% above the levels in 12/2020 and those won’t be going down with low inflation (because inflation is the rate of change of prices, not the level). The CME FedWatch and a survey of professional managers project cuts in 2024, but those may have to be revised. This may be the 7th time since mid-2022 that the market anticipated a Fed-pivot that didn’t come. The market’s exuberance since October may have been misplaced. Higher inflation will keep the Fed from lowering the short-term rates, and extra Treasury borrowings will move the long-term rates higher. So, the yield-curve should resume its rotation about the short end causing more pain for bond holders. Attractive may be low/intermediate-duration bond funds and higher-grade tranches of CLOs (i.e., some credit risk, but not a lot).
SMALL-CAPS have rebounded strongly. They are still cheap at fwd P/E of 12.3; almost 40% of R2000 companies don’t have earnings, unusual when the economy is fine. The high for R2000 was on 11/8/21 and it is still 26% below that; but it is positive for Q4 and YTD. Large-caps may act better if the economy slows down.
Pg 11, STREETWISE. Upjohn (a unit of PFE then) merged with Mylan in 2020 and the new company was called Viatris/VTRS. It makes generics and biosimilars. It is also at the bottom of the valuation list for SP500 with a yield of 5.1% and fwd P/E 3.3; it has lots of free cash flow. It has sold some of its biosimilars to BioCon (India) for 12.9% stake. But what will it do now with the proceeds? With its past record of missteps, AVOID it, “cheap” it isn’t.
(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).