In a speech today Federal Reserve Chair Jerome Powell clearly confirmed what other Fed officials have said this week: 1. The Fed will raise interest rates at its December 14 meeting by 50 basis points and not 75. That would follow on four straight 75 basis point interest rate increases. 2. The Fed will moderate the pace of its interest rate increases going forward. 3. The peak for the Fed’s benchmark interest rate will be “somewhat higher” than estimated in September. The Fed’s estimate in September was for a peak of 4.6% in 2023. The current benchmark rate is 3.75% to 4.00%. The Fed Funds futures market sees rates peaking at about 5% in the second quarter of 2023. What he didn’t clarify is what that peak rate might be or when the financial markets might see it.
Today I posted my two-hundred-and-eleventh YouTube video: The Fed Is Now On Message–Ask Why Today’s topic: The Fed is Now On Message, Ask Why. Last week I spoke about how confusing the Fed’s messaging had been recently, but this week, everybody has been on the same page. St. Louis Fed President, James Bullard, a fairly aggressive inflation fighter, suggested we need to take the Fed rate up to 5-7%, a hike from the current 3.75-4%. Loretta Mester, President of the Fed in Cleveland, agreed that the Fed isn’t near a pivot and John Williams, President of the New York Fed, came out with a detailed statement saying that more work is needed on inflation and unemployment may need to rise to 4.5-5% by the end of 2023. While Williams didn’t use the word, “recession,” it’s clear that you don’t reach those unemployment numbers without hitting a recession. So, why are these formerly out-of-sync Fed presidents suddenly aligned on message? The Fed is data-driven, and Fed members got new inflation and jobs numbers recently before the public release Thursday and Friday. Could be that these new data points have driven the Fed to the conclusion that we shouldn’t expect a pivot any time soon. Or maybe it’s just that the Fed goes into its quiet period soon before the December 14 meeting.
Pick #8 for My Special Report Own the Future for Pennies with my 10 Best Penny Stock Picks: ESS Tech
Call this bookkeeping. I recommended ESS Tech (GWH) in my November 11 Quick Pick video on Youtube. Today I’m adding it to my Special Report: Own the Future for Pennies with my 10 Best Penny Stock Picks as pick #8. And to my Millennial Portfolio–For Investors With More Time Than Money. The stock is down $6.44% today November 30 to $3.0386, so this seems a good time to buy for patient, very long-term investors. Here’s what I said in that YouTube video.
You have to do a fair amount of work rearranging the dividend numbers for BHP (BHP) to understand why this diversified commodities producer makes this list. First, throw that 11.02% dividend yield reported on Yahoo Finance and other sources. As part of its corporate strategy of moving away from fossil fuels and investing in expanding existing copper production and in opening its first potash mine (in Canada at a cost of $5.7 billion), BHP sold its petroleum unit. Part of the big “dividend” distribution in fiscal 2021 and 2022 is a result of the company distributing the shares in the purchaser it acquired in payment for that deal to BHP shareholders. Of the $7.11 paid in dividends in fiscal 2022, for example, $3.86 came from the distribution of those shares. If you buy BHP now, you can’t expect a repeat of that distribution of shares. (BHP also sold its U.S. onshore petroleum assets in 2019.) So the question is what dividend payout can you expect from BHP in 2023?
Okay, at some point in 2023 or 2024, we get a big rally stock market when the Federal Reserve ends its current cycle of interest rate increases. And then what? The biggest reason to believe in modest stock market gains in any post-bounce Bull Market is the strong possibility that corporate profits will slip from their near-record highs. Today, the Commerce Department reported that after-tax profits as a share of gross value added for non-financial corporations, a measure of aggregate profit margins, shrank in the third quarter to 14.9% from 16.2% in the second quarter.
Today I posted my two-hundred-and-tenth YouTube video: Quick Pick Defiance Palo Alto Networks. This week’s Quick Pick is Palo Alto Networks (NASDAQ: PANW), the cyber security software platform company. During this bear market, it’s not surprising to see some stocks down nearly 50% and trading at 30% to40% discounts, but Palo Alto has managed to drop only 8% for 2022 and is trading at a relatively slight 15% discount to fair value, according to Morningstar. While Palo Alto has had its severe dips, it recently bounced back up after announcing very solid earnings. In the quarter sales were up 25% year over year and annual recurring revenue (from SAAS subscriptions) was up 67% and billings were up 27%. Palo Alto covers a lot of areas of cybersecurity, making it a more attractive alternative for enterprise corporations looking to consolidate their security software and move to a one-stop shop that can cover more aspects of their security needs. I’m reluctant to buy anything in this continuing bear market, but would suggest looking at this stock in February 2023 or so, especially if it dips again. Palo Alto Networks is a member of my long-term 50 Stocks Portfolio on my two investing sites. The stock is up 108% since I initiated that position on January 21, 2020. The stock is also a member of my Millenial Portfolio on my subscription site JubakAM.com. That position is ahead 41% since May 21, 2021
Today, November 29, U.S. crude benchmark West Texas Intermediate traded at $78.45 a barrel. International benchmark Brent crude was at $83.26 a barrel. A month ago on October 28, West Texas Intermediate closed at $88.11 a barrel and Brent at $95.94. That price plunge is the background for Sunday’s regular meeting of OPEC+ oil ministers. Market speculation points to a strong chance of another cut in production following on the cut announced at the group’s October meeting. At the least, oil analysts say, OPEC+ will extend the October production cuts through the end of 2023.
Economists surveyed by FactSet forecast that the November jobs report, set for release Friday morning, will show that the economy added 220,000 new jobs in the month. And that the unemployment rate ticked higher to 3.8% from 3.7% in October If that forecast is correct, it would, probably, be enough to keep Wall Street convinced that the Federal Reserve will raise interest rates by only 50 basis points at its December 14 meeting and that the U.S. central bank is on track to wind down this cycle of interest rate increases in early 2023.
Apple takes hit from production disruption in China–but I’m closing my December 16 Put on time decay gets serious
Apple (AAPL) shares fell 2.63% today on estimates that Covid-lockdown turmoil at Chinese iPhone supplier Foxconn Technology could result in a production shortfall of 6 million units of the company’s iPhone Pro. And there’s a chance that production shortfalls could grow if Foxconn can’t get workers back to its assembly lines. The Put option on Apple that I bought back on October 12, 2022, jumped 59.79% today to $136 for a contract on 100 shares. But this option with its strike price of $135 expires on December 16. Which means that I’m running into that good old-time decay problem. If the stock, which closed at $144.22 today, doesn’t fall below $135 by December 16, then this option will expire worthless.
Today I posted my two-hundred-and-ninth YouTube video: Is the Fed Confusing or Just Confused? Today’s topic: Is The Fed Confusing, or Just Confused? First, Mary Daly, president of the San Francisco Fed came out with a very mixed message about the Fed’s December 14 meeting. The market seems to have decided that the Fed will raise rates by just 50 basis points, she said, but that it’s still too early to decide and a 75 basis-points increase is still on the table. But, she then added, the Fed is worried about overcorrecting and causing a recession. Then, Loretta Mester, president of the Cleveland Fed, announced that she is open to slowing the rate of the rate hikes, but was unclear on what “slowing” would actually mean. I think the key to market direction after the December meeting is the Dot Plot Summary of Economic Projections. The last time the Fed released a Dot Plot was September and it’s already wildly out of date. The September projected inflation rate for 2023 was 2.6-3.5% and 5.3-5.7% for 2022. Both projections will likely be revised higher in December. Inflation isn’t coming down as fast as the Fed thought in September, but it is coming down. Big question for the financial markets, though: Is it coming down enough? Rate hikes of 50 or 75 basis points are on the table but does the Fed now think it can stop raising the rates? My conclusion is that the Fed sounds confusing because the Fed is actually confused.
In-store traffic at brick-and-mortar retailers grew by a modest 2.9% on Black Friday weekend from 2021, preliminary numbers from Sensormatic Solutions show. (The figure isn’t adjusted for inflation. CPI inflation ran at a 7.7% rate in October.) Online sales during the biggest U.S. shopping day of the year rose 2.3% to $9.12 billion, Adobe Analytics said Saturday. That was slightly ahead of the company’s initial projection of $9 billion. (This number isn’t adjusted for inflation either.)
For the week ahead expect continued fallout in China from a jump in Covid deaths and demonstrations calling for an end to the country’s 0 Covid lockdown policy. On Saturday protests spread to cities and college campuses around China, reflecting rising public anger at the country’s Covid controls, with some in a crowd in Shanghai directing their fury at the Communist Party and calling on the country’s leader Xi Jinping to step down.