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CPI inflation bad news increases pressure on earnings to keep rally going
If, as the too hot April 10 CPI inflation argues, we’re not going to see a June 12 interest rate cut… And if investors are looking at two cuts in 2024 (at the most) instead of three… And if there’s a possibility that we won’t see the first rate cut until the November 7 Fed meeting… Then what will keep this rally from turning into a correction? Earnings look like they will have to do the job .Problem is that this quarter’s earnings look likely to disappoint. There are quarters with better earning growth forecast ahead. Will investors wait for them?
Fitch Ratings calls out China’s growing debt load–what worries me is that China isn’t alone
Fitch Ratings revised China’s outlook to negative from stable. The Big 3 rating company (along with Standard & Poor’s and Moody’s Investor Services) said the government is likely to pile on debt as it seeks to pull the economy out of a real estate-driven slowdown.The Fitch announcement matches a similar warning from Moody’s Investors Service in December. China’s public debt has risen rapidly over the past dozen years or so, as the government pumped money into the economy in order to prop up economic growth. To end a now years-long property slump, the government has already outlined new stimulus measures—like subsidies for households and businesses that want to upgrade appliances or machinery— and signaled that more will follow.Public debt was close to 80% of gross domestic product as of the middle of last year, roughly double the level of the mid-2010s, according to the Bank for International Settlements.
Hot CPI inflation number takes June interest rate cut off the table
In March the Consumer Price Index inflation rate rose more than expected by economists for a third straight month, the Bureau of Labor Statistics reported this morning. That looks to the market today, and to me, like it takes an initial interest rate cut off the table for the Fed’s June 12 meeting. The all-items inflation rate rose by 0.4% in March from February. The 12-month all-items inflation rate rose at a 3.5% rate in March. The core CPI, the inflation rate more important to the Federal Reserve, rose 0.4% month-over-month in March. And at a 3.8% annual rate.
Nvidia’s next earnings report shaping up as very, ahem, “interesting”
Nvidia (NVDA) doesn’t report earnings until May 22. But the report is already shaping up as critical for the stock. Analysts see the company reporting earnings of $5.13 a share for the quarter, up from just 88 cents a share in the same quarter of 2023.
But the short-term earnings numbers aren’t what’s most importance right now. Nvidia has roughly 90% share in the market for AI-accelator chips. That’s put a big target on the company’s back. No one expects Nvidia is maintain that 90% share–which is okay since the market is growing so fast. Last month, analysts at Bank of America said the market could reach anywhere between $250 billion and $500 billion over the next three to five years. That was a big jump from their earlier estimate of less than $250 billion. The question is How fast all the efforts to compete with Nvidia will eat into that market share.
10-year Treasury yields hit new high for 2024
Yields on the 10-year Treasury rose to the highest since November, climbing to 4.42%. That an increase in the 10-year yield of 25 basis points in the last month. The bond market looks to have given up its hope for three interest rate cuts in 2024 now to be looking now to just two moves by the Federal Reserve in 2024. Wednesday’s release of CPI inflation numbers for March will confirm or reverse that conviction
Special Report: It’s a New World for Dividend Investors Pick #9 Raytheon
Bookkeeping. I added Raytheon (RTX) as Pick #9 for my New World for Dividend Investing Special Report (You can find it in the Special Report section of this site along with all the content on this market and its trends for Dividend Income investors. But I’m reposting it as a stand alone pick so no one misses it.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
This week I expect the market to put its obsession with the Federal Reserve, inflation, and interest rates on hold, and switch to watching earnings reports for the first quarter of 2024. The first batch of earnings–the Big Banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC)–hits the wires on Friday, April 12–with Netflix (NFLX) to begin tech/momentum earnings reports on Tuesday, April 18. I think it would be an overstatement to say that the quarter’s earnings reports are make or break for this rally–the economic news is just too strong and interest rate cuts loom out there somewhere even if no one can say just when. But this quarter will provide an important data point in the “Stocks have climbed too far, too fast” vs. “This rally can run higher on a strong economy” debate. And the first set of high-profile earnings looks likely to throw some cold water on the most fevered market optimists.
Special Report: 7 Steps to Protect Your Portfolio While You Still Reap Market Gains: Step #4 Build a Short-Teem Bond Ladder
Step 4: Build a short-term Treasury bond ladder The yield on the 10-year Treasury bond climbed another 7 basis points today, April 5. That’s a gain in yield of 23 basis points in one month. So yes, it’s time to build a bond ladder in Treasuries.
Stronger than expected March jobs report nudges odds against June rate cut slightly
The U.S. economy added 303,000 jobs last month. That was far more than than the 192,000 expected by economists.The unemployment rate dipped to 3.8%.
For today at least the stock market sees the report as “The glass is half full.” Yes, a stronger than expected labor market raises the odds that the Federal Reserve won’t begin its interest rate cuts at its June 12 meeting. But the strength in the economy is good for stocks. And if not June, then the Fed will cut in July, the thinking goes today.
Special Report It’s a New World for Dividend Income Investors Stock Pick #8 Verizon
Bookkeeping. I added Verizon (VZ) as Pick #8 for my New World for Dividend Investing Special Report (You can find it in the Special Report section of this site along with all the content on this market and its trends for Dividend Income investors. But I’m reposting it as a stand alone pick so no one misses it. Dividend Pick #8: Verizon (VZ) The question for Verizon–and for dividend investors–is remarkably similar to the question for AT&T (T): Can a management that has run up a huge debt load find the discipline to use the company’s immense cash flows to pay down debt?
About those inflation worries yesterday? Today’s ISM services report says “Never mind.”
The Institute for Supply Management’s composite index of services fell 1.2 points to 51.4 a four-year low. The drop in the report released today, April 3, was the second month in a row. The services report came a day after the manufacturing sector report showed costs rising in the sector. Which, of course, led some investors and traders to worry that the Federal Reserve might put off the start of interest rate cuts beyond its June 12 meeting. The yield on the 10-year Treasury, which hit a new intraday high for 2024 at 4.37% yesterday, closed at 4.35% today. That’s still 17 basis points higher in a month. The relative calm today was also a result of remarks from Jerome Powell and other Fed officials that boiled down to “We told you the road to 2% inflation would be bumpy, but we haven’t seen anything in the recent data to change the direction of our policy or the timing of cuts.” A June cut, in other words, remains very much on the table.
Special Report: It’s a New World for Dividend Investors Pick #7 AT&T
Bookkeeping. I added AT&T (T) as Pick #7 for my New World for Dividend Investing Special Report (You can find it in the Special Report section of this site along with all the content on this market and its trends for Dividend Income investors. But I’m reposting it as a stand alone pick so no one misses it.
Hot Button Moves NOW: Buy Japanese Yen
Today’s Hot Button Moves NOW video is Buy Japanese Yen. I frankly can’r remember the last time I recommended buyinfg Yen. No one has wanted to buy the Yen for a long time, and it was the last major currency to have negative interest rates. The Bank of Japan has finally moved interest rates into positive territory. But, just barely. U.S. 10-year Treasury yields are currently at about 4.2% and the gap is about 3.5% between that and the Japanese government bond. A popular short is betting that the gap will get even wider. And the Yen is under speculative attack with market pressure to driving it down lower. But the Yen is currently too low, the Bank of Japan is starting to say ans the current price against the dollsr is around where it was the last time the Bank of Japan intervened. It’s likely we’ll hear more talk of intervention in the next three months or so and because there’s such a large short position we’re likely to see a decent pop in the Yen. To take advantage of this (potential) bounce, you can use the Invesco CurrencyShares Japanese Yen Trust ETF (FXY). Also, I would hold on to any Japanese stocks until we see that bounce. This isn’t a long term play, nor should it be a big chunk of your portfolio, but it’s a play that could see pop in the next three months.
Tesla shocks Wall Street with size of quarterly sales drop
Today, Tesla (TSLA) reported that it delivered just 386,810 vehicles in the first three months of the year. That was the biggest difference between actual sales and Wall Street sales estimates in data going back seven years, according to Bloomberg. Most analysts expected Tesla to sell more vehicles than a year ago. Instead, deliveries ended up dropping 8.5% year-over-year. And it was the first drop in year-over-year sales since the first year of the Covid-19 pandemic.
Special Report New World of Dividend Investing Pick #6 Honeywell
Bookkeeping. I added Honeywell (HON) as Pick #6 for my New World for Dividend Investing Special Report (You can find it in the Special Report section of this site along with all the content on this market and its trends for Dividend Income investors. But I’m reposting it as a stand alone pick so no one misses it.
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