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“Smart” money begins to question the speed of Fed interest rate cuts
There’s always the question of exactly how smart the smart money is, but I find these moves from big Wall Street names interesting as I look for any signs of cracks in the current consensus looking for a quick pivot to interest rate cuts from the Federal Reserve. Strategists at Goldman Sachs have joined those at Barclays in advising customers that the Federal Reserve will be less aggressive in cutting interest rates this year than markets are predicting, Bloomberg reported today, May 9.
Don’t forget tomorrow’s CPI inflation report
Tomorrow, May 10, brings the key CPI inflation report for April. Economists surveyed by Bloomberg are projecting that headline inflation will rise at a 5% year-over-year rate. That would match the 5% headline rate for the Consumer Price Index in March. The headline rate would remain so elevated because of a rise in oil prices in April after OPEC+ announced a drop in crude production. Month-to-month headline CPI inflation is expected to have climbed by 0.4% in April after a 0.1% month-to-month increase in March. The Federal Reserve watches the core rate, which strips out the costs of food and energy. Here too economists are not expecting a significant drop in inflation. Core inflation is projected to have climbed at a 5.5% rate against the 54.6% rate projected in March.
Please stand by–we’re having technical difficulties with our portfolio price feed
Every once in a while, Yahoo changes “something” on its feed of stock prices. No notification. No clue what to do if the change breaks something on a user’s site.
Well, that’s where I found myself and this site again on Friday. We know there are no prices in the portfolios. We’re working on getting everything hooked back up.
Please Watch My New YouTube Video: Trend of the Week Where Is All That Oil Cash Going to Go?
This week’s Trend of the Week is Where is All That Oil Cash Going to Go? The likely answer: the Permian Basin and acquisitions. Oil companies like Exxon Mobil (XOM) are putting so much cash into the bank, they don’t know what to do with it. Exxon Mobil had $32.7 billion in cash in the bank. With little debt, and plenty left over after capital spending, dividends, and buybacks, the company is left with a tremendous amount of cash. Historically, extra cash could be used in oil exploration, which could take 5-15 years. In a global warming economy, that doesn’t make sense since we don’t know where oil prices and demand will be in the years ahead. The better option is acquisitions. One of the companies Exxon is rumored to be targeting is Pioneer Natural Resources (PXD) for their assets in the Permian Basin. Chevron (CVX) is in a similar position as Exxon and you can expect them to be in the market for Permian companies as well. Other Permian Basin companies that are ripe for being acquired are Devon Energy (DVN) and Diamondback Energy (FANG). I already have PXD and DVN in a portfolio in my JubakPicks Portfolio, and I’ll now be adding FANG as well.
Saturday Night Quarterback (on a Monday)says, For the week ahead expect…
The next potential BIG volatility day comes on Tuesday, May 9, when President Joe Biden is scheduled to meet with Speaker of the House Kevin McCarthy will hold talks on raising the debt ceiling to avert a U.S. default. I don’t expect a breakthrough of any dimension. The politics say to me that both sides are dug in and that we’re still too far away–weeks perhaps–from the excrement hitting the propellers. The question for investors and traders is when the financial markets might start taking the prospects of a U.S. default seriously.
Huge April jobs number is a big shock to stock market
The U.S. economy added 253,000 jobs in April, the Bureau of Labor Statistics announced today, Friday, May 5. The official unemployment rate dipped by 10 basis points to 3.4%. (The U-6 unemployment rate, which includes discouraged workers who have stopped looking for a job and workers with part-time jobs who would like full-time work, fell to 6.1% in April (before seasonal adjustments) from 6.8% in March.) Economists were looking for the economy to add just 180,000 jobs in the month. The number is a huge surge after a drop from 472,000 jobs added in January to a revised 165,000 in March.
That was quick–fear is back but for how long?
For a few hours on Wednesday, stocks behaved as if the regional banking crisis was over and as if the Federal Reserve was about to not only end its interest rate increases but also begin cutting interest rates. Then Fed chair Jerome Powell reminded investors and traders that a pause in interest rate increases didn’t mean the Fed was about to pivot immediately to cutting interest rates. And investors and traders decided that the regional bank crisis might not be over if PacWest Bancorp (PACW) was exploring “alternatives” and if Western Alliance Bancorporation (WAL) might be looking for a deal. (The bank has denied that speculation.) Today, May 4, the fear is back.
Please Watch My New YouTube Video: Quick Pick Las Vegas Sands
Today’s Quick Pick is Las Vegas Sands Corp. (NYSE: LVS). Is Macau gaming the best way to play China? I would say yes. News out of China is that it’s clearly reaccelerating and will easily hit 5% economic growth in the current quarter. The economy is reopening and growth is up and Macau, as a gaming center, is benefitting in a pure Covid reopening story. Total gaming revenue in Macau was up 247% year over year in March and 450% in April. Normally I’d look at MGM International to play Macau, but their Las Vegas presence outweighs their China presence, and at this moment, I’m looking for something with less presence in Las Vegas. Although the name may suggest otherwise, Las Vegas Sands has a much bigger presence in China and is in the process of selling their Las Vegas assets in order to invest more in Singapore and Macau. This is a good place to play China gaming as the country accelerates and I’ll be adding it to my JubakPicks Portfolio with a target price of $70 a share.
First quarter earnings far: Bad but not as bad as feared
When is a 4.5% year-over-year drop in earnings for the stocks in the Standard & Poor’s 500 good news? When the forecast for first-quarter earnings projected a 6.8% drop. Bloomberg now projects, with 74% of the companies in the S&P 500 reporting first-quarter results, that earnings for the stocks in the index will be down 4.5% year over year this quarter.
Higher initial claims for unemployment report today suggests smaller jobs gains in tomorrow’s report for April
Initial claims for unemployment rose by the most in six weeks while continuing claims fell in the week ended April 29, the Labor Department reported this morning. Initial unemployment claims rose by 13,000 to 242,000. Economists surveyed by Bloomberg were looking for 240,000 initial claims. Continuing claims, which include people who have received unemployment benefits for a week or more and are a good indicator of how hard it is for people to find work after losing their jobs, fell by 38,000 to 1.81 million in the week ended April 22. That marked the biggest drop since July. If you think that a rise in unemployment and a weakening of the labor market is a good thing, as the Federal Reserve does, because it sets the stage for a decline in inflation, then today’s data had its negative aspects too. A separate report out today showed U.S. worker productivity declined in the first quarter by more than forecast and labor costs accelerated. That’s a strong argument for higher inflation.
Please Watch My New YouTube Video: Is This the End of Momentum?
Today’s topic is Is This the End of Momentum? One Last Momentum Blowout. This has been a great market for very specific stocks. We’re seeing a very narrow momentum market. A few stocks are overperforming the index and propping it up. An example is Meta Platforms (NASDAQ: META), formerly known as Facebook. Meta is up 102% this year and it’s up about 14% in the last month. The S&P is up 9.5% year to date and just 1.5% in the last month. We’re seeing a large divergence between the index and a narrow group of a few rallying stocks, like Meta, Netflix, Microsoft, and Nvidia. These stocks are outperforming the index, but they’re up based on very recent history. Meta’s recent earnings jolted the stock upwards, but it’s still a company that is bleeding money to develop its virtual reality products, with billions of dollars ($13.7B in 2022) lost by its Reality Labs program. The company had staked its future on the Metaverse but has yet to create a viable product from the project. As the momentum of these few stocks starts to slow, Meta could take a big hit because of these fundamental factors. In my opinion, we’re near the top of this momentum market and it’s time to start taking profits from companies like Meta, Microsoft, and Nvidia.
Powell talks the market out of its enthusiasm
Immediately after the Federal Reserve’s decision to raise interest rates another 25 basis points today, stocks moved up on a reading of the Fed’s 2 p.m. statement released with the rate news that saw the Fed as saying it would begin to cut interest rates soon. At 2:26 p.m. New York time the Standard & Poor’s 500 was up 0.58%. In Wednesday’s statement, the Fed said, “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” In March, the central bank had said it “anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” But stocks peaked for the day shortly after Fed chair Jerome Powell began his press conference at 2:30 p.m.
Fed hikes interest rates by 25 basis points as expected and tweaks language
Today, Federal Reserve’s Open Market Committee raised the Fed’s benchmark rate by 25 basis points to a target range of 5%- to 5.25%. The interest rate increase was expected by just about everyone. At 1:50, 10 minutes before the Fed’s announcement, the Fed Funds Futures market had priced in 88.2% odds of a 25 basis point increase. The Fed’s statement omits prior language from the March meeting that said “some additional policy firming” may be warranted. Instead, the Fed said it will take into account various factors “in determining the extent to which additional policy firming may be appropriate.” In other words, rate increases or a pause will depend on the data.
Economic reports this morning start a down day ahead of the Fed meeting tomorrow
This isn’t exactly what the stock market wanted to hear ahead of the Wednesday, May 3, meeting of the Federal Reserve’s Open Market Committee on interest rates. Before the open of the New York Stock Exchange, the Labor Department’s March Job Openings and Labor Turnover Survey–known as JOLTS— showed job openings falling to 9.59 million, below estimates for 9.6 million. And factory orders in March rose 0.9% on the month vs. February’s 0.7% drop. That was slightly below estimates for a 1.3% rise. For the day, the Standard & Poor’s 500 fell 1.11% and the Dow Jones Industrial Average slid 1.08%. The NASDAQ Composite was off 10.5% and the NASDAQ 100 dipped 0.89%. The small-cap Russell 2000 showed the biggest loss for the day at 2.10%. According to the CME FedWatch tool, the odds of a 25 basis point increase in interest rates on Wednesday is 87.6%.
Please Watch My New YouTube Video: Trend of the Week The Pain is Spreading
This week’s Trend of the Week is The Pain is Spreading. By pain, I mean layoffs. It started with technology companies as we saw job cuts from companies like Meta Platforms, Amazon, and Alphabet. Then recently announced cuts of 7,000 employees. Now, layoffs are spreading to other areas of the market. 3M (NYSE: MMM), a generally reliable blue chip stock, announced they’d be cutting 2,500 jobs back in January and have now added 6,000 more jobs to the chopping block- about 10% of their total workforce. This is in reaction to slowing sales and the potential for losses from liability lawsuits. In the most recent quarter, organic sales were down 4.9% (better than the expected 6.9%) with a guidance of a 2% sales decline for 2023. While 3M is trying to cut costs with layoffs, Wall Street remains skeptical. 3M hasn’t seen the rally other blue chip stocks have seen recently. The company has so many products out there, it is representative of the market as a whole. And this one example plays into the bigger picture of the slowing economy, greater job losses, and, possibly, a recession.
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