November 14, 2024
What You Need to Know Today:
China tries same old medicine again to address sluggish growth
Minutes after the release of government data that showed the economy grew at just a 4.6% year over year rate in the third quarter (the official target is 5% growth), the People’s Bank of China announced new measures to support the country’s financial markets. People’s Bank Governor Pan Gongsheng flagged the real estate and stock markets as key challenges in the economy that require targeted policy support. the 4.6% growth rate is the slowest pace in six quarters.
Apple loses its appeal of $14 billion EU tax judgment
Apple (AAPL) today lost its court fight over a €13 billion ($14.4 billion) Irish tax bill. The European Union’s Court of Justice in Luxembourg backed a landmark 2016 decision that Ireland broke state-aid law by giving Apple an unfair advantage by awarding the company a lower tax bill. Apple will now be forced to pay $14 billion in back taxes.
Congress faces another shut down deadline on September 30
Congress returned to Washington today facing a September 30 deadline to pass legislation to keep the government open after the last stop-gap funding measure expires on September 30, the end of the 20214 fiscal year. The consensus view seems to be that there’s little to worry about and that Congress will, of course, cobble together another extension so close to the Presidential election. But we are talking about Congress, remember. It’s never a good idea to completely discount an act of astounding stupidity from Capitol Hill.
Saturday Night Quarterback says, For the week ahead expect…
There’s a good possibility of an AI “nothing-burger” from Apple (AAPL) on Monday, September 9, when the company rolls out its latest iPhones. Which are supposed to mark Apple’s advent as a serious smartphone AI player. All indications are, however, that Apple’s AI features on the iPhone will be distinctly underwhelming. And that’s a potential problem for the stock-up 15.08% for 2024 and ahead 13.67% for the last three months as of the close on September 6.
Jobs number weak enough to raise fears for the economy but not weak enough to cement 50 basis point cut on September 18
Today’s employment t report from the Bureau of Labor Statistics was the worst of both worlds. The increase in jobs of just 142,000 in August, coupled with downward revisions from June and July was enough to raise fears that the economy is stalling. And that the Federal Reserve had waited too long to cut interest rates. The median forecast in a Bloomberg survey of forecasters called for 165,000 new jobs win the month. But the employment number, which left the three-month average of new jobs created at the lowest since mid-2020, wasn’t bad enough to convince traders and investors that the Fed would cut interest rates by 50 basis points at its September 18 meeting.
Adding Kenvue (KVUE) to my Dividend Portfolio
Kenvue (KVUEO) isn’t exactly new. As a stand-alone stock, Kenvue dates back only to May 2023, but the company is a spin off of Johnson & Johnson’s (JNJ) consumer division. The owner of household consumer names that include Tylenol, Nicorette, Listerine, and Zyrtec, Kenvue is the world’s largest pure-play consumer health company by sales. The stock closed on September 5 with a yield of 3.64%. Morningstar calculates that the shares are 16% undervalued and puts a $26 target price on the shares. The stock closed at $22.51 on September 5. I’m adding the stock to my Dividend Portfolio tomorrow. With the Federal Reserve extremely like to begin cutting interest rates at its September 18 meeting, a lot of investors are looking for higher yield with slid safety. I think Kenvue offers exactly that combination.
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.
Live Market Report (20 minute delay)
If you’re an investor looking for something to worry about in 2024, think China
The news pointing to serious trouble in China’s economy–the kind that can’t be fixed by replacing market regulators in Beijing–keeps on coming. If you’re looking for “something” that could upset the global apple cart in 2004, keep your eye on China. The country’s market is big enough to matter for just about every company doing business internationally, and China is a key market for companies ranging from Tesla and Apple to Starbucks and Yum Brands. So the news today from the National Bureau of Statistics showing another big drop in consume prices–in this case not good news on inflation but a signal of sluggish domestic demand–worries me.
The surge in the U.S. debt couldn’t be coming at a worse time
The United States is on a pace to add nearly $19 trillion to its national debt over the next decade, according to a new report from the Congressional Budget Office released today, Wednesday, February 7. The budget office projected that the annual deficit will grow to $2.6 trillion in 2034 from $1.6 trillion this year, adding $18.9 trillion to the national debt during the decade. By then, the debt is projected to surpass $54 trillion.
Part 1 Worries over a top: Was the Meta Platforms 20% pop the market top? An important sign, yes,, but not for the reasons you think
I think we’re seeing stocks put in a top. Not immediate–I think we’ve got the impending Federal Reserve interest rate cuts to help stretch out this rally into a sideways move. But the signs are there. And the most important signs aren’t the “overvaluation” of the Magnificent 7 stocks or the narrow leadership in this market. (More on why this top isn’t likely to lead to a Bear Market in tomorrow’s post “Why this isn’t 1999.) Nope. To me the most important sign if the big announcement from Meta Platforms (META) of a $50 billion stock buy back and the initiation of 50 cents a share dividend, the company’s first.
Please Watch My New YouTube Video: How Long Does FOMO Drive This Market?
Today’s Trend of the Week is How Long Does FOMO Drive this Market? FOMO is “fear of missing out” and I’m using it to describe a market that is not driven by facts and fundamentals, but is largely focused on a fear of missing out on another rally, as many did in 2023. So what is the emotional trend and how long will it last? My sense is that there is one factor determining behind a lot of FOMO is expectations for a rate cut from the Fed. A potential rate cut could bring a lot more money into the market and drive prices higher– something investors don’t want to miss. In my opinion, we’ll have to wait until May or Jun for that cut to happen. So the hope of a cut will keep the market moving sideways and limit selling on high valuations. We’ll see some consolidation in the market leaders, but nothing that is likely to upend the market before these highly anticipated rate cuts.
Here we are again: 10-year Treasury yields back at 4.16%, up 14 basis points this morning
Maybe you can’t remember when the yield on the benchark 10-year Treasury fell through 4% and looked headed to 3.5%. It might be hard to remember because it was so long ago. Like two weeks. Today the yield on the 10-year Treasury completed a round trip, rising 14 basis points this morning to 4.16%.
Special Report: 10 Penny Stock Home Runs–Pick #3 GWH
Special Report: 10 Penny Stock Home Runs Pick #3 ESS Tech (GWH). The stock of this maker of iron flow, utility scale, long-draw-down batteries ticks all the boxes for my Penny Stock Home Runs.
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
I expect a relatively boring, week. With no fireworks from the Federal Reserve. Almost no economic data. No jobs surprises. And no earnings news from the Magnificent Sever stocks. Just old fashioned block and tackling to see if any other stocks can join the Momentum Parade.
Special Report: 10 Penny Stock Home Runs–Pick #2 PILBF
This one is very simple. When the price of lithium rebounds, high-quality low-cost lithium producers will see the revenue roll in. That’s why I’d got the world’s leading lithium-producer Albemarle (ALB) in my long-term 50 Stock Portfolio. But a smaller, high-quality, low-cost producer like Australia’s Pilbara Minerals will show gains even higher than Albemarle since the current price of $2.29 a share comes close to discounting the company’s survival.
New York Community won’t be the last bank to get into trouble; adding Puts on next bank crisis
Nothing like a bank surprise to get Wall Street in a lather. On Wednesday, January 31, New York Community Bancorp (NYCB) announced that it would cut its dividend and add to reserves against losses in its commercial lending portfolio. The stock fell 38% on Wednesday to hit a 23-year low on Thursday. The bad news wasn’t limited to U.S. banks either.Tokyo-based Aozora plunged more than 20% after warning of US commercial-property losses Frankfurt’s Deutsche Bank more than quadrupled its provisions against U.S real estate losses. I don’t see any reason to think that this is a one-day phenomenon. Or that the damage is just a minor problem in a few portfolios. Billionaire investor Barry Sternlicht warned this week that the office market is headed for more than $1 trillion in losses. “This is a huge issue that the market has to reckon with,” Harold Bordwin, a principal at Keen-Summit Capital Partners in New York, which specializes in renegotiating distressed properties, told Bloomberg. “Banks’ balance sheets aren’t accounting for the fact that there’s lots of real estate on there that’s not going to pay off at maturity.” On Monday then, I’m adding Put Options on the SPDR S&P Regional Banking ETF (KRE).
Please Watch My New YouTube Video: Pick of the Week HAS
Today’s Quick Pick is Hasbro (HAS). This stock isn’t terribly exciting or groundbreaking. There’s no big new tech connected to this pick. Hasbro makes toys and traditional toys are considered a declining industry. The stock is indeed ,60% off of its 2019 high. This is not a growth stock, but it is a reliable, high yield, dividend stock. Cash flow from toy sales is consistent enough to keep the 5.5-6% coming Sales may be flat this year but licensing with brands like My Little Pony and Transformers keep the company’s toys top of mind with kids and in the media. Hasbro is one of three major toy brands that make up 40% of the traditional U.S. toy market and 30% of the global market. The industry may not be exciting, but the high dividend yield makes this worth a look. I’ll be adding this to my Jubak Picks Dividend Portfolio next week.
U.S. economy adds a whopping 353,000 jobs in January; forget about a March interest rate cut
I think you can kiss goodbye to the idea that the Federal Reserve will begin cutting interest rates with its march 20 meeting. Today, the Bureau of Labor Statistics reported that the U.S. economy added 353,000 jobs in January. The statisticians also revised upward the job totals for December and November. The unemployment rate held at 3.7%. Hourly wages accelerated from a month earlier, increasing by the most since March 2022. Economists surveyed by Bloomberg wee looking for the economy to add 185,000 jobs in January.
Please Watch My New YouTube Video: Microsoft Shows Priced-to-Perfection Risks
Today’s video is Microsoft Shows Priced to Perfection Risks. This quarter, the company reported Tuesday, Azure, its cloud services flagship, grew revenue by 30% last year. While a 30% growth rate would be a great for many companies, Wall Street and analysts were disappointed in this news from Microsoft. This is the “priced to perfection” problem. Although the company beat earnings estimates, beat revenue estimates, and showed 30% growth in a key part of the company, the stock went down. Maybe a $3 trillion market cap on Microsoft is a lot of weight to push up hill. We could see more of this during this earnings season as Amazon, Apple and Meta release their own reports. The “Magnificent Seven” that were responsible for most of the 24% gain in the S&P in 2023 are beginning to wobble. My hope was for more market leaders to emerge but that doesn’t seem to be happening. I don’t expect “wobble” to cause anything that terrible in the market, but a sideways move is likely as investors ponder their next move.
This economy is confusing–will tomorrow’s Jobs Report tell us how we’re doing?
A day before the January jobs report that everyone on Wall Street is awaiting with bated breath two other reports painted a conflicting picture of how the U.S. economy is doing. And just in case you’ve forgotten the strength and speed of economic growth is what will determine when the Federal Reserve first cuts interest rates and how many cuts investors will see in 2024.
Federal Reserve disappoints, comes close to taking a March cut in interest rates off the table
The Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%–as the financial markets expected. But the central bank pushed back more strongly than financial markets hoped on a March 20 schedule for the first cut in rates. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said in its policy statement.Fed chair Jerome Powell pushed back even moe strongly in his Wednesday press conference pushed back: A march cut is “probably not the most likely case or what we’d call the base case,” he said. “I don’t think it’s likely the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to [cut rates].”
Microsoft beats on earnings, but stock is flat
It is perhaps too early to draw meaningful conclusions, but Microsoft’s failure to jump in after-hours trading on better than expected earnings sure seems like more evidence that this is a market priced to perfection.
Special Report: 10 Penny Stock Home Runs–Pick #1 LAZR, #2 PILBF, #3 GWH, #4 NLLSF, #5 LYSDY, #6 VWDRY, #7 LCCTF
Usually I start off one of these stock-picking Special Reports by building a paradigm that I can use to screen for the kind of stocks I’m looking for. For this Special Report: 10 Penny Stock Home Runs I’m going to reverse that process and begin with the 10 picks.My first pick is Luminar Technologies.
Please Watch My New YouTube video: Tesla’s headaches are causing real pain at GM and Ford
Today’s Trend of the Week video is Bad News from Tesla is even worse news for other electric vehicle companies. On January 24, after the close, Tesla announced a slight miss on their earnings report. Guidance was rather sparse but grim. Sales grew at about 38% in 2023, well below the 50% target that Tesla regularly touts. The 2024 guidance is even below that, (Wall Street estimates 24%). While this isn’t great for Tesla, it’s much worse for companies like Ford, GM and Volkswagen who are trying to figure out how much to spend and when to build market share for electric vehicles. The companies have been using estimates based on Tesla likely prices and profit margins in order to build their own projectors for their own profitability in electric vehicles. Those estimates, thanks to recent guidance from Tesla, appear to badly outdated, especially if Tesla is considering cutting prices again. Now companies like GM and Ford will have to decide how much pain, and for how long, they’re willing to take in order to get into this market.
Stocks rise and bond yields fall on Treasury surprise
Just days before the U.S. Treasury Department announces how much money it intends to borrow in the next quarter, the Treasury surprised traders by cutting its quarterly borrowing estimate to $760 billion. (Yeah, that would be a reduction from what had been expected.) The reduction fueled expectations on Wall Street that the Treasury would announce one last increase to its sales of long-term debt this week. That would be welcome relief after quarters when the size of Treasury auctions tested buyers’ appetites for government debt.
Hong Kong court orders China’s $300 billion in debt Evergrande property developer to liquidate
A Hong Kong court has ordered the liquidation of China Evergrande Group, the world’s most indebted property developer with more than $300 billion in liabilities. Thousands of unfinished but paid for apartments from the developer litter China.Of course, this being China, it’s unclear whether Chinese authorities will recognize the Hong Kong court’s ruling and allow international creditors to seize the company’s assets.
Please Read My New YouTube Video: Quick Pick ASML
Today’s Quick Pick is ASML Holding (ASML). ASML Holding is a chip equipment maker, specializing in high-end ultraviolet lithography. The stock released an impressive earnings report on Tuesday which sent the stock up 8.5% on that day. It’s up about 18% since I recommended the stock back in December. However, please remember, chip stocks and especially chip equipment stocks are cyclicals. They do well when demand is high, and then dip back down when demand is low. We’re currently in a big up cycle for chips with demand for new AI chips continuing to rise. ASML expects 2024 to maintain that upward swing and the stock is rising as expected. The thing I want to point out is how we know cyclical PEs to behave. The highest point for a cyclical PE tends to be down at the bottom, and as the stock goes up, the PE should go down. At the moment, the market is not at all focused on fundamentals and what we’re seeing is cyclical stocks trading like growth stocks. ASML is not a growth (forever) stock, but it’s currently trading at a PE of 39, the same as Microsoft, a definite growth stock (for comparison). There will be a top for ASML, it may not be 2024 but make sure you’re looking at fundamentals even if no one else in the market is.
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