January 10, 2025
What You Need to Know Today:
Government shutdown avoided–until March 14
From the Washington Post: President Joe Biden signed a congressional spending bill into law on Saturday morning, putting to bed the threat of a potential Christmastime government shutdown and kicking the issue for a new Congress and a new president to address in the spring.
Has inflation stopped slowing? Wednesday’s CPI will tell
With financial markets deeply conflicted about the effects of a Trump Administration’s policies on taxes, the deficit, mass deportations, and sky-high tariffs will have on the economy and interest rates the October Consumer Price Index (CPI) due Wednesday takes on added importance. Wall Street economists expect headline inflation rose 2.6% annually in October, an increase from the 2.4% rise in September. Core inflation, which strips out more volatile food and energy prices, is forecast to have climbed at a 3.3% rate year over year. That would be unchanged from September’s increase.
Saturday Night Quarterback say (on a Sunday), For the week ahead expect…
I expect more breathless speculation on who will fill the most important posts in the Trump Administration that will be sworn in on January 20, 2025. The consensus, which I agree with, is that this administration will be much different than the first Trump team with fewer figures with anything approaching old-style conservative Republican credentials. Thinkoif the contrast between second Trump administration vice-president J.D. Vance and first administration pick Mike Pence. That difference has made any meaningful handicapping of this race for power extremely difficult–even though the issue of who will fill what chair is incredibly important. For investors I think the most important pick to watch is Treasury Secretary.
Watch my new YouTube video: Rally to continue through December; but I’m worried about January
Today’s video is Rally to Continue Through December; I’m Worried About January. While I recorded this video on November 5 (before the election results), I still believed we were looking at a rally through the end of the year. Looking at the patterns of earnings and cash flow, and with the election complete, we’ll continue with this upward movement until January. Generally, rallies happen every December as money managers look to buy to “window dress” their portfolios at the end of the year. Now that the election is over, any pre-election hedges will turn into more cash entering the market in December. Fourth quarter earnings will likely be the best of the year but the problem is that 2025 will not see as much earning growth as 2024. Likely, in January, companies may issue negative guidance for the year ahead. I don’t expect a depression or recession, but I do think we’ll see a slow down/pull back and we’re certainly due for 5-10% correction. Continue to ride the wave through December, and then look to make some profits in January. Selling in the new year will also mean you don’t have to take the tax hit this year
Get ready for the Trump tax cuts–in the first 100 days of the new administration
President-elect Donald Trump and Republican Congressional leaders are already promising to push through a new round of tax cuts to replace the 2017 cuts that expire in 2025. New tax cuts, they say, will be the first legislative–as opposed to initiatives by executive order such as new Trump tariffs–priority after the new president is inaugurated on January 20 2025. With Republican assured of a 53 to 55 seat majority in the Senate and likely to retain a majority in the House of Representatives, there’s not much Democrats can do to stop the cuts from becoming law.
Hot Button Moves NOW: Watch for my solutions to the yield drought
Today’s Hot Button Moves NOW video is “Yield Drought.” CDs that used to pay 5.25% are now paying closer to 4.90% on the high end and Treasuries yields are also falling. As stock prices rise, dividend yields fall to. I think this yield drought will continue to get worse. You have to be opportunistic and BE ready for bouts of volatility. Keep an eye out for temporarily depressed stocks and buy those for the yields. I’ll be releasing a special report on dividends and yield drought next week. Keep an eye on your email or subscribe to get alerted when that report drops.
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.
Live Market Report (20 minute delay)
Gold retreats from its record high–What to do Part 1
Gold futures for June delivery closed down 2.92% on the Comex today. The metal closed at $2343.40 an ounce. The drop came on a lessening of fears that the exchange of attacks between Israel and Iran would quickly lead to a wider Middle East war. And on growing sentiment that the Federal Reserve isn’t likely to cut interest rates soon. The drop in the gold contract for June delivery was the largest since February 3, 2023 when it fell 2.8%.
Please Watch My New YouTube Video: Quick Pick ABT
Today’s Quick Pick is Abbott Laboratories (ABT). The medical device sector is very complicated with constant changes to technology and best practice therapeutics and it can be very hard to keep track of, but two things recently caught my eye about Abbott. The company is generally very conservative and rarely raises guidance, but it did exactly that in its first quarter earnings report. It wasn’t a huge raise but the company went from projecting earnings in a range of $3.20 a share to $3.40 a share to a range with a higher floor of $3.25 to $3.40 a share. The other announcement was a big boost in sales of its diabetes continuous glucose monitoring device, Freestyle Libre. Sales grew to $1.5 billion, up 22.4% year over year. Overall, at the company medical device sales grew 14% year over year, though their Covid test sales were down 18% year over year. I think this is a medical device company that is well-positioned for an aging population. The stock pays a 2.08% dividend. Morningstar says this stock trades at fair value with the shares down about 7.8% in the last month. I think this is a good chance to buy this well-managed, conservative company.
A big test of demand for Treasuries in this week’s huge auctions
It’s been a tough month for Treasuries with yields rising on a re-thinking of when the Federal Reserve might begin to cut interest rates. The yield on the 10-year Treasury closed at 4.62% on Friday. That’s an increase in yield of 35 basis points in a month. (When yields climb, bond prices fall.) And this week the Treasury will auction a combined $183 billion of two-, five- and seven-year Treasury notes. Ans that’s ahead of the latest update on the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I’m sure you’ve noticed. The technology sector, which led the stock market rally in 2023 and in the early days of 2024, is in a slump. The Technology Select Sector SPDR ETF (XLK) tumbled 6.27% last week and is down 7.16% in the last month. For 2024 to date, as of the close on April 19, the sector is at break even with gain of 0.19%. Quite a turnabout for a sector that is still up 30% for the last 12 months. This week brings a raft of tech earnings that could turn the sector’s trend around. Or not.
Please Watch My New YouTube Video: Hot Button Moves Now Buy ASML
Today’s Hot Button Moves NOW video is Buy ASML Holding (ASML). ASML is the only global manufacturer of the most cutting-edge chip-making equipment, a technology called Extreme Ultra Violet Lithography (EUV). The equipment allows for a smaller chip, more transistors on the chip, and more power for less silicon. ASML’s earnings report on April 16 was disappointing, with fewer than expected orders, a situation that will likely continue into the next couple of quarters. This resulted in a big drop in earnings and the stock taking a big hit. But, this is the only game in town for this equipment, and anything chip that uses the new 2-nanometer, 3-nanometer, and 5-nanometer technologies will be made on ASML equipment. So orders will not stay down for long. I would use this weakness to buy ASML Holding. It’s not cheap, but it’s not likely not get much cheaper than this, and as geopolitical chip wars settle, orders for ASML will jump rebound. ASML Holding is a member of my long-term 50 Stocks Portolio.
Special Report: It’s a New World for Dividend Investors: Pick #10 ABBV
Bookkeeping. I added AbbVie (ABBV) as Pick #10 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. AbbVie (ABBV) has been a long-time member of the Dividend Portfolio with a gain of 213% since my January 29, 2020 pick. The question right now is Should it be a top dividend pick going forward? After all, the appreciation in the stock has dropped the dividend yield to 3.67%. (Add in a modest yield from buybacks and the total yield goes to 4.18%.) The most pressing question has been What will replace the $20 billion in annual revenue from the company’s blockbuster arthritis drug Humira (adalimumab) now that it faces competition from biosimilar generics? Now we’ve got some numbers to answer that question and to me they add up to AbbVie remaining a top dividend pick.
Please Watch My New Youtube Video: Want to know when the Fed will cut rates? Look at the calendar
Today’s video is Want to know when the Fed will cut rates? Look at the calendar. The Fed only has so many meetings left for 2024 and even fewer if you only coun those with Dot Plot updates of the Fed’s economic projections. The Fed is on the verge of a major shift in policy and the U.S. central bank almost never makes a big policty shift at a meeting without an update of its economic projections.. Early in the year, people were looking for up to five cuts, now, sentiment has shifted to one or fewer. If we get a rate cut at all, when will it be? Look at which upcoming Fed meetings include Dot Plots. The Fed doesn’t like to surprise investors and if they make a drastic change, like a shift to rate cuts, you can bet they want to do it while they’re also discussing projections for 2024 and 2025. The.CME Fedwatch Tool currently odds for the next meeting, May 1, at a 98% chance of no cut and the June meeting is now up to an 84.8% chance of no cut. The June meeting WILL have a Dot Plot and, up until recently, the finanial markets believed that meeting that would deliver the news. Because the Fed generally likes to give in-depth information during a big policy shift, it’s unlikely that the rate cut will be in July, since no dot Plot economic pdate is scheduled for that meeting. The next real chance of a rate cut, I think, is September 18, which has a Dot Plot. (There is no August Fed meeting.) The market thinks there will be a cut in September, and CME Fedwatch has the odds of no cut at that meeting at just 32.7%. A second rate cut in 2024 would have to be at the December 18 meeting, the final 2024 meeting with a Dot Plot. (The Fed doesn’t meet in Ocrober and the November meeting does include a Dot Plot update.) Without the September cut, it’s very unlikely there will be two cuts in 2024. Unless inflation data changes a lot, I doubt we’ll have two rate cuts, but we can look for one in September or December at this point.
Is China’s economy about to slow down again?
China reported faster-than-expected economic growth in the first quarter–but… Although Gross Domestic Product climbed 5.3% in the quarter–a faster rate of growth than in the first quarter of 2023 and above economist estimates, most of the good news came from the first two months of the quarter. In March growth in retail sales slumped and industrial output fell short of forecasts. That doesn’t bode well for the rest of 2024.
Confusion on Tesla climbs ahead of April 23 earnings report
Can’t figure Tesla (TSLA) out? Welcome to the club. The stock was down another 5.59% today, April 15, and is now down 31% for 2024. Maybe investors will get some clarity on the company’s identity and strategy when it announced earnings on April 23. Wall Street analysts expect earnings of 36 cents a share against earnings of 73 cents a share in 2023. I think that strategic clarity is actually more important than quarterly earnings at this point for Tesla.
Apple’s smartphone market share slide continues
Apple has lost its spot as the world’s biggest mobile phone seller, IDC reported today, April 15. A steep drop in sales in China for Apple let South Korean rival Samsung retake the lead in global market share. Samsung had been the biggest seller of mobile phones for 12 years until the end of 2023, when sales of Apple’s iPhone models overtook it. Global smartphone shipments increased by 8% to 289.4m units during January-March, according to IDC. Samsung has a 20.8% market share. That beat Apple’s 17.3% share
Saturday Night Quarterback (on a Sunday) asks, And now what in the Middle East and for global financial markets?
After Israel and its allies (with the help of some Arab states that don’t want to see a wider Middle East war and who aren’t thrilled with the growing power of Iran and its proxies) succeeded in shooting down almost all of the drones (170), ballistic missiles (120), and cruise missiles (30) launched by Iran against the country, will the two sides both declare victory and claim that honor is satisfied or will one or the other escalate the war with another round of attacks? As of early Monday trading in Asia, the oil and gold markets have reacted with concern but not panic. Gold, up 13% already this year to a record above $2,400 an ounce, moved higher but the gains were relatively modest. Spot gold climbed 0.8% to $2,361.92 an ounce as of 6:20 a.m.in Singapore. The global oil market opened to the upside but by less than 1%. And prices have been steady to slightly weaker since then.
JPMorgan Chase disappoints to start earnings season
All good things come to an end. After seven straight quarters of record levels of profits from net interest income, the spread between what earns by lending and what it pays depositors to raise funds, JPMorgan Chase (JPM) reported that net interest income slightly missed analyst estimates for the first quarter. The quarter the company reported today certainly wasn’t a disaster. The bank earned $23.1 billion in net interest income in the period, up 11% from the first quarter of 2023. But the end of the beat and raise guidance of the last year and a half plus an increase in costs were enough to lead to substantial selling today, April 12. The shares finished the day down 6.47% at $182.79. Analysts and investors were clearly hoping for more.
War fears driving oil and stocks now
West Texas Intermediate rose to its October 2023 highs, before pulling back, on fears that an Iranian retaliation for an Israeli attack on an Iranian consulate would lead to a wider war in the Middle East. International benchmark Brent crude surged as much as 2.7% to top $92 a barrel before retreating to close at $90.26 a barrel, up 0.58% on the day. West Texas Intermediate, the U.S. benchmark, is now up 19% in 2024. Bloomberg reports that Western intelligence assessments are looking for an Iranian attack in the next 48 hours. No one wanted to hold U.S. equities ahead of the weekend.
Producer price index continues bond market freak out
So why was this so important today? Important enough to send the yield on the 10-year Treasury up another 3 basis points to 4.58%.The Producer Price Index for final demand rose 0.2 percent in March, seasonally adjusted, the Bureau of Labor Statistics reported today. Final demand prices moved up 0.6% in February and 0.4% in January. On an unadjusted basis, the index for final demand increased 2.1% for the 12 months ended in March, the largest advance since rising 2.3% for the 12 months ended April 2023..The March increase in the index for final demand is attributable to a 0.3% rise in prices for final demand services. In contrast, the index for final demand goods edged down 0.1%. Look at the last set of numbers.
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.
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