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Fed minutes remind market of interest rate, recessoin risks
Minutes from the Federal Reserve’s December 14 meeting stressed the central bank’s commitment to bring inflation down to the target 2% even at the cost of a recession. Although the financial markets were thinking about the Fed beginning to cut interest rates in the second half of 2023, nothing in the minutes pointed to that likelihood. And in fact, the Fed went out of its way to say that financial markets were underestimating the length of time remaining in this cycle of higher interest rates.
What the financial markets fear: More expensive money from the Bank of Japan
Late in December, the Bank of Japan announced, unexpectedly, that it was adjusting its policy for buying bonds. Even something as vague as that is enough to rattle financial markets because Japan is the world’s largest creditor. At the end of 2021, it held roughly $3.2 trillion in foreign assets, 30? more than No. 2 Germany. As of October, it owned over a trillion dollars of U.S. government debt, more than China. Japanese banks are the world’s largest cross-border lenders, with nearly $4.8 trillion in claims in other countries. The policy change was relatively minor–a decision to raise the ceiling on yields for the 10-year bond. But global bond markets have been waiting for any signs that say the days of 0% (or lower) bond yields in Japan might be coming to an end.
It’s too soon to buy Tesla–stock drops another 12% on delivery “miss”
Tesla (TSLA) can’t win for winning. On Monday, while U.S. markets were, fortunately, closed, the company reported record quarterly deliveries for the fourth quarter of 2022 of 405,278 cars. Unfortunately, Tesla had convinced Wall Street to look for delivery of 420,7690 cars. So even record deliveries amount to a miss. For a third straight quarter, Tesla’s deliveries missed company and Wall Street projections. The company saw deliveries rise 40% in 2022, but that too was short of the 50% growth targeted by the company. As of the close today, January 3, Tesla shares were down 12.24%
Macau gaming revenue falls at a huge 56% annual rate in December
Expectations are so negative on China that a 56% drop in gross gaming revenue in Macau counts as a positive surprise. Analysts had expected year over year gross gaming revenue to drop by 57% year over year in the month. And the December total was actually up 16% from the gross gaming revenue in November, according to the Gaming Inspection and Coordination Bureau.
Bad news for 2023 from the IMF
Happy new year from the International Monetary Fund! The new year is going to be “tougher than the year we leave behind,” IMF managing director Kristalina Georgieva said on CBS on Sunday morning. “We expect one-third of the world economy to be in recession.
For the year ahead: My Forecast of the 10 Trends that Will Move Stocks in 2023
The stock market in 2022 was extraordinarily event-driven. The Federal Reserve’s decision to, finally, raise interest rates and to raise them fast with four 75 basis point jumps during the year. Russia’s invasion of Ukraine and the resulting shock to energy and food commodity markets. OPEC’s decision to reduce production. The big slowdown in China’s economy as the country first fought Covid with the lockdowns of major cities and industrial regions and then reversed course to no Covid policy at all. The unexpected (by many) ability of Democrats in Congress and the Biden administration to pass legislation with unprecedented levels of spending on clean energy technology and other efforts to slow the rise in global temperatures. 2023 will come with its own set of new (and revisited) market-moving events. Once again I think we’re looking at a year where market trends aren’t determined by revenue and earnings but by big events outside the market itself. Here’s my forecast of the 10 events (or trends or whatever) that will move stocks in 2023. I’ve tried to put them in some rough kind of chronological order so you’ll know when to what for events to unfold and ripple out into the financial markets.
Friday jobs report coming up
It’s deja vu all over again as New York stock markets reopen for trading tomorrow.
We ended 2022 waiting for the monthly jobs report from the Labor Department to tell us when slower job growth would signal the potential end to the Federal Reserve’s cycle of interest rate increases. And we’re beginning 2023 the same way. The Labor Department will release the jobs report for December on Friday at 8:30 a.m. New York time. Economists surveyed by Bloomberg are projecting that the economy added 200,000 jobs in the month.That would be a strong but not too strong figure that’s unlikely to provide much clarity on the temperature of the jobs market or Federal Reserve policy. That’s especially true because the December jobs report is subject to significant seasonal error because government statisticians struggle to figure out how to adjust the data for seasonal holiday hiring. The Friday report will be preceded this week by the Job Openings and Labor Turnover Survey (or JOLTS report), ADP’s private payrolls data, and the Challenger Job Cuts report.
How sticky will inflation prove to be in 2023? Lessons from Christmas shopping say, Stickier than the market now expects (and the Fed hopes)
The big investing and economic question for 2023 is How hard will it be to push inflation to something near the Federal Reserve’s 2% target? The answer will determine (at least until rising unemployment gets the Fed to blink in the second half of 2023) how far and how fast the Federal Reserve will have to raise interest rates, how big a danger a true recession is, and how much of a slowdown we’ll see in economic growth and corporate profits? And the answers to those questions will largely determine the direction of the stock market in 2023. I’d like to offer two of my own observations from my personal Christmas shopping season free of charge to those economists who are now grappling with these questions. My personal experience says that inflation will be stickier than the consensus on Wall Street now believes. And that it will be very, very hard to push inflation back to the Fed’s target range without a true recession.
China is a huge Covid petri dish: How dangerous is that for the rest of the world?
What we know about viruses says that they mutate faster when a virus has a huge pool of infected hosts where the virus is busy replicating away. From that perspective, the collapse of China’s 0-Covid containment policy has turned the country into a huge 1.5-billion-person petri dish. With infections climbing rapidly, the coronavirus has plenty of opportunity to mutate into new variants. At this point, it’s clear that China’s new surge of infection is going to be a disaster for China. Experts from outside China put the likely death toll at 1 million or more, and the country’s healthcare system is reeling toward a complete breakdown. This isn’t good news for the Chinese economy or China stocks and my advice is to sell stocks with exposure to China. In the last few days, I’ve sold MGM Resorts International (MGM) and Volkswagen (VWAPY) out of my online portfolios. But how big a danger does the Covid outbreak in China pose to the rest of the world?
Apple falls again on China iPhone supply fears–but to me it looks like a turnaround is approaching
Apple (AAPL) shares were down another 1.21% as of 3:30 p.m. New York time today, December 27. That took the stock down to its lowest price since June 2021. The worry, of course, is China where, first, shutdowns under the country’s 0-Covid policy closed factories and kept consumers out o stores, and then, second, where an abrupt reversal of that policy has accelerated a new wave of outbreaks.
The timing of these developments, though, has some advantages for Apple.
China woes hammer Tesla, Nio–negative implications for tech companies such as Apple
As of 2:30 p.m. New York time today, December 27, shares of Tesla (TSLA) were down 8.59%. Domestic Chinese electric vehicle maker NIO (NIO) was down 8.71%. The problem for both companies? The new wave of Covid has cut demand in the Chinese market and forced the shutdown of production at the companies’ factories.
Is the VIX volatility index “broken” or is this a trading opportunity?
I vote for the latter–even though I acknowledge that the VIX, the CBOE S&P Volatility Index (VIX), which is supposed to track expectations for short-term volatility in the market, is behaving very strangely lately. The VIX is supposed to climb along with fear in the market as investors and traders step up to buy options and futures, even at higher prices, in order to hedge risk. But even as stocks have struggled in December the VIX has tumbled. It was down another 5.01% today to just 20.87.
Please Watch My New YouTube Video: Trend of the Week Oil is Back for 2023
Today I posted my two-hundred-and-twenty-first YouTube video; Trend of the Week Oil is Back for 2023. This week’s Trend of the Week: Oil is Back for 2023. We’re looking at a great set-up for oil going forward into 2023. Oil performed well in 2022, so it’s going into 2023 with strong recommendations from Wall Street strategists to “Keep it up.” We also may be hitting “peak oil” in Saudi Arabia, (like we talked about—for those who are old enough to remember- back in the 80s.) So Saudi Arabia and Russia, two big players in the commodity, are both constrained on oil production capacity. Additionally, we’re seeing a shift in the United States to becoming a net oil exporter. Oil has sold off, as United States Oil Fund (USO) shows, with the price n December 26 at $69.32. But it now looks to be in recovery and this looks like a good entry point. There is some resistance with the 50-day moving average at $69.64, but I don’t think it’ll be a problem to get back up to the November peak of 76. So what do you buy? USO gives you an overall market exposure in oil, but if you’re looking at an oil producer for more leverage, look to someone with a lot of oil exposure in the oil shales in the US, like ConocoPhilips (COP).
Please Watch My New YouTube video: Quick Pick Sell MGM
On Friday I posted my two-hundred-and-twentieth YouTube video: Quick Pick Sell MGM. This week’s Quick Pick is a little different. Normally my Quick Picks are long (buys) but this one is short (sell). This is a reaction to the terrible Covid outbreak in China right now. China went from a strict, 0-covid policy to hardly any policy at all. While their vaccine rate sounds good at 90%, a lot of that is Chinese-produced, non-RNA vaccines, which have proven to be fairly ineffective against the new Covid variants. As a result, viral projection models expect 1.1 to 1.3 million deaths over the next wave (or waves) of Covid in China. So how does that affect MGM International? Their resort in Macau, China, while recently receiving their gambling license renewal, will get hit hard by the largely self-directed reduction in travel. And the “official” policy, which is to encourage travel and work-as-usual, seems to be having the opposite effect by creating fear among Chinese citizens. Macao, following the lead of the new policies from the central government, has just about dropped its requirements for testing and quarantine. The new rules essentially say, “We just want you to come.” Instead, many people are locking themselves down in an effort to stay healthy as China’s covid problem runs rampant and the Chinese government refuses to share accurate data. I don’t want to watch this Covid disaster further hammer my position in the stock. I’ll be selling it at a loss in my Jubak Picks Portfolio (hey, harvest those tax losses for 2022), but I will look to get back in April or May if I start to see optimistic traders betting on an end to this wave of the Covid Pandemic in China.
Please Watch My New YouTube Video: Fear Is Still on a Holiday
Today I posted my two-hundred-and-nineteenth YouTube video: Fear Is Still on a Holiday Today’s topic: Fear is Still on a Holiday. This is a peculiar market for many reasons. Stocks are sinking, but volatility fear doesn’t seem to be rising. On December 20, for example, the S&P 500 fighting a 5-day losing streak. Havens of safety were getting smaller. Pharmaceuticals and airlines, which have been strong recently, sold off on December 19. Searching for glimpses of green, like Coke (up just .14%) in a sea of red is getting harder and harder. What’s curious though, is the VIX, the CBOE Volatility Index, better known as the “Fear Index” remains on the average to low end of its recent and historic range. their recent range. The VIX tracks prices for options and futures on the S&P, so as people, in fear of a downturn, hedge by buying “insurance” against a market drop, the VIX rises. But right now we’re seeing a market that truly stinks–that’s a technical term, I know, but you can Google it–while the VIX remains low, showing little sign of fear. My explanation is that at the end of the year, investors aren’t looking to hedge against a market they still hope will turn around. The VIX is an interesting short-term play here. Buying a Call option with a 60-day out as the market returns to fear, or rationality, in 2023 could be the way to go. I’m going to check on the up-to-the-minute price action and see if the Call option is attractive here. Look to my paid JubakAM.com and my free JubakPicks.Com sites on Friday for a buy or not.
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