September 21, 2024
What You Need to Know Today:
A soft landing–good for the economy but, I worry, maybe not for stocks
No doubt about it. A soft-landing would way better for the economy than a poke in the eye with a sharp stick. No big spike in unemployment. Decent growth in real personal incomes. Controlled and relatively low inflation. Real interest rates falling–slowly–from their current historically high levels. It would be a huge positive achievement if the Federal Reserve could engineer a soft landing after raising interest rates to slow the economy and cut inflation and then beginning to reduce interest rates to make sure that growth didn’t slow too much or too quickly. A huge positive the economy. I’m not sure, however, that an economic soft landing is quite so big a positive for the stock market.
Tomorrow’s a big day for inflation, interest rates, and the economy
Friday brings more inflation data— price indexes for April personal income and spending, including the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure. The PCE ran at an annual 2.7% in March and has exceeded the Fed’s 2% inflation target since March 2021.
It’s a concentrated Magnificent 7 market again
Hedge funds’ exposure to the Magnificent Seven of Nvidia (NVDA), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOG), Tesla (TSLA), and Microsoft (MSFT) has reached a record high of approximately 20.7% of their total net exposure to individual U.S. stocks, according to a report from Goldman Sachs. The proximate cause of this surge is Nvidia’s recent consensus-beating earnings report, which renewed the frenzy around artificial intelligence stocks. Nvidia has added around $470 billion in market capitalization since that report. A slightly more long-term cause is that with the consensus projection for when the Federal Reserve will start cutting interest rates moving later and later in 2024, earnings growth is increasingly the only game in town when it comes to supporting higher stock prices.
Saturday Night Quarterback say (on a Memorial Day Sunday), For the week ahead expect…
I expect Wall Street’s last rate cut bulls to get gradually less bullish. With means, expect to see interest rates (and Treasury yields) continue to rise, and the consensus on when the first cut in rates from the Federal Reserve to continue to move later in 2024. This past week economists at Goldman Sachs threw in the towel on their projections for a July interest rate cut by the Federal Reserve. The investment company moved its forecast for an initial cut to September.“Earlier this week, we noted that comments from Fed officials suggested that a July cut would likely require not just better inflation numbers but also meaningful signs of softness in the activity or labor market data,” the economists wrote in a note.Goldman Sachs had been one of the last banks on Wall Street betting the Fed would start lowering interest rates in July. JPMorgan Chase and Citigroup are among the few holdouts still forecasting a July move. Goldman is still predicting two interest rate cuts in 2024. The swaps market now fully prices in a December cut. The odds of a second reduction in 2024 stand at less than 30%, compared with about 70% last week. At the end of 2023, the first Fed cut was expected as early as March.
Nvidia beats even the most optimistic earnings forecasts
Yesterday, May 22, after the market close, Nvidia (NVDA) crushed Wall Street projections for revenue and earnings for the company’s fiscal first quarter of 2025. Nvidia reported that revenue soared 262% year-over-year to a record $26 billion, marking an 18% quarter-over-quarter increase. Adjusted earnings per share climbed 461% to $6.12. The Wall Street consensus had called for revenue of $24.65 billion and earnings per share of $5.59. And it even beat the Wall Street “whisper number,” which in a bullish momentum situation like this runs considerably above the official consensus. Data center revenue hit a record $22.6 billion, up 427% year over year. Data center revenue represents 87% of Nvidia’s total sales. For the current fiscal second quarter of 2025 Nvidia told investors to expect sales of $28 billion, up 107% year over year.
Please Watch My New YouTube Video: The Uncertainty of Uncertainty
Today’s video is The Uncertainty of Uncertainty in the Stock Market. Right now we’re seeing uncertainty on top of uncertainty. The CPI numbers just came out and April showed a slightly lower annualized inflation rate than March. The market took this as a signal that we’ve moved past inflation stagnation and have resumed the march towards 2%. This is, of course, an uncertainty. Another uncertainty is the what we don’t know about the inner thinking at the Fed. How much of a decline does the Fed really need to see to start cutting rates? Right now, according to the CME Fedwatch tool, there is a 70% chance that we’ll see interest rate cuts at the September Fed meeting. This prediction has shifted a lot in the last few months and could continue to shift. These uncertainties mean that the market may be fully priced at 5,200. Some analysts suggest we could hit 5,600 by the end of the year, making it a 15-20% year. In the short term, it’s really hard to predict how people react to all these layers of uncertainty. It’s also difficult to hedge this market so I recommend looking at individual stocks in lithium or copper that will continue to go up, even if the market as a whole doesn’t move.
Special Report: 10 Penny Stock Home Runs Pick #5 VWDRY
My 10 Penny Stock Homeruns Pick #5: Vestas Wind Systems (VWDRY).
Technically, the Vestas Wind Systems ADR (VWDRY) isn’t a penny stock. By the strict definition, a penny stock sells for $5 or less and the Vestas ADR closed on $9.06 today, February 14. But I included Vestas in my previous penny stock list back on July 11, 2022, even though the stock closed at $7.80 that day. With the company reporting a return to profitability for 2023 in its fourth quarter earnings report released today, I think Vestas has (finally) turned the corner. And, frankly, I just don’t want drop it from this list just as things get good again for the company and its investors. (Vestas is a member of my Jubak’s Picks Portfolio. The position is up 65.6% since initiation on March 4, 2019.) Tomorrow, February 15, I’ll also add Vestas to my long-term 50 Stocks Portfolio.
Live Market Report (20 minute delay)
U.S. electric vehicle sales up 50% year over year in the third quarter, but Tesla loses market share
In the third quarter electric vehicle sales in the United States jumped to more than 300,000 for the first time, Cox Automotive reported today. Electric vehicle sales were up 50% year over year in the quarter. And electric vehicles made up 7.9% of total industry sales. It’s not surprising that as vehicle sales volumes have surged, market leader Tesla (TSLA) has lost market share.
Just enough in today’s CPI inflation report to keep one more rate increase for 2023 on the table
Today’s Consumer Price Index report on inflation had just enough bad news on inflation to keep one more interest rate increases from the Federal Reserve on the table for 2023. The all items CPI inflation rate rose 0.4% in September from August. That was slightly above the 0.3% monthly rate that economists had expected. The core rate, which excludes more volatile food and fuel prices, rose by 0.3% in the month, as expected by economists. The bad news in the core number is that the month to month rate of increase at 0.3% recently isn’t low enough to bring inflation down to the Fed’s 2% target.
We’re looking at a global debt bomb
“Nobody expects the Spanish Inquisition!” Monty Python observed back in 1970 before attempting to torture a coal-miner’s wife with a dish rack. There’s an important investing version of this core truth: The financial market usually worries about the wrong problem. So that when the “Spanish Inquisition” (in financial terms) finally arrives, everybody is surprised. Well, we investors and traders have done it to ourselves again. We’ve spent much of 2022 and a good part of 2023 worrying about whether Federal Reserve interest rate increases would send the economy into a recession. There are still a few recession die hards worrying about that possibility, but by and large the worry has shifted to whether or not the Fed will delay its rate cuts in 2024–and thus delay the arrival of the “rate-cut-bounce.” While MANY–but certainly not all–investors, traders, and market analysts have been looking OVER THERE, however, the credit markets have built up a huge debt overhead and the global debt bomb looks ever closer to exploding. A crisis with the dire effects of the Global Financial Crisis of mid-2007 to 2009 is a possibility. I’d “guess” that most portfolios aren’t ready. The time to get ready is now. This increasingly looks like a debt market crisis of the type known as a Minsky Moment. To get ready first understand the source of the problem. I’m putting together a new Special Report for next week on what to do to get ready. Today’s post is a kind of set up, a get ready for the post on getting ready, if you will.
PepsiCo beats on earnings, raises guidance
Clearly, inflation isn’t bad for everyone. Not if you have pricing power, anyway. Today, PepsiCo (PEP) reported earnings and sales that a beat Wall Street estimates, and raised its guidance for the next quarter.
Special Report: 10 Contrarian Bargains to Buy Now–My first 3 picks are Luminar, Nidec, and Barrick
a lot of individual stocks are cheap right now, I’d argue. 180 of the 500 stocks in the S&P 500 trade now at the same or lower price that they commanded a year ago. And for many individual stocks the performance is even worse. For example, Luminar Technologies (LAZR), a maker of LIDAR safety and navigation equipment for cars, is down 40% in the last three months. Albemarle, the world’s leading supplier of lithium, is off 27% in the last three months. Nidec (NJDCY), a Japanese maker of small electric motors and electric vehicle drive trains, is down 13% in the last three months. I’d argue that these and the rest of the 10 Contrarian bargain stocks that I’m going to recommend in this Special Report share a number of characteristics that have led to their losses over the last few months or longer.
Selling 2 gold positions out of my portfolios tomorrow
Gold was up 1.9% in trading on COMEX today to $1876 an ounce on war in Israel and Gaza and fears that it would become a wider conflict in the region. I’ve been looking for an exit from two of my gold positions for a while now. And tomorrow is a good exit point, I think.
OPEC doesn’t see a reduction in global oil demand by 2045
Oil consumption will climb 16% to reach 116 million barrels a day in 2045, about 6 million a day more than previously predicted, the Organization of Petroleum Exporting Countries said today in its World Oil Outlook. India represents the biggest expansion in projected consumption, more than doubling its consumption to almost 12 million barrels a day, followed by China, with a gain of 4 million a day, or 26%.
News with the potential to move the markets this week: CPI inflation, Fed minutes, bank earnings
In my last post I wrote that the trend for the market is very uncertain at the moment and very dependent on news. This week will bring some of the news that will determine the market trend. Here’s a list in order of my sense of importance to the markets.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I’m hoping for some clarity this week on the market trend after Friday’s wild day. Friday’s intraday moves summed up the uncertainty about the direction of this market.
Exxon Mobil in talks to acquire Pioneer Natural Resources for $60 billion–I’m selling my position on Monday
The Wall Street Journal has reported that Exxon Mobil (XOM) is in advanced talks to buy Pioneer Natural Resources (PXD) in a deal valued at $60 billion. Pioneer currently has a market cap of $55 billion. Through in th debt that Exxon would be buying and there’s not a lot of extra upside here, in my opinion. Today’s 10.45% jump in pioneer shares to care of a lot of any potential deal premium. (I’m assuming that the report is accurate. Today’s news story follows on earlier speculation that the two companies were talking.) Unless you think another bidder will emerge–difficult but not impossible at this deal size, I’d sell my shares here. I like Pioneer as an independent big dividend paye
Ya can wrap fish in that ADP report showing a slowing jobs market
The U.S. economy added 336,000 jobs in September, the Bureau of Labor Statistics reported today, October 6. The unemployment rate held 3.8%. Economists surveyed Bloomberg had expected to see continued slowing growth in the labor market—-with forecasts of 170,000 jobs created, down from 187,000 in August. On Wednesday the ADP Research Institute reported that private payrolls rose by just 89,000 jobs in September. That was the fewest jobs added in a month since the start of 2021 and added to expectations of a weak report this morning.
So how high will yields go? I’m hearing 6% or even 7%
Today the yield on the 10-year Treasury closed at 4.71%. That was down 2 basis points on the day but in the year the yield is up 96y basis points. Almost a full percentage point. How high can yields go? Bond traders and investors want to know. Investors in other financial assets, stocks, for instance want to know. The Federal Reserve, which is supposed to set interest rates but is increasingly a sideline spectator on rates, wants to know.
The oil slump continues with WTI crude dropping below its 50-day moving average
So suddenly oil traders are worried about slowing global growth? Remember that just last week, these same folks bid oil up to near $100 a barrel after Saudi Arabia and Russia announced that they would extend curbs on production. My take on all this: Nobody knows and the traders driving these moves don’t have much conviction in their buys or sells. Which means that any move in either direction is likely to be followed by a strong move in the opposite direction.
Count on another shutdown “emergency” and another temporary spending “fix”
Here’s the math that leads me to believe we’re headed to a new show down crisis when the temporary fix that keeps the government open until November 17 runs out.
The bond plunge (and soaring yields) isn’t limited to the United States
Yesterday, October 3, the yield on the 30-year U.S. Treasury hit 5% for the first time since 2007. The yield on the German 10-year bond hit 3% for the first time since 2011. In one financial market after another higher U.S. yields are driving global bond prices lower and bond yields higher.
Good news for inflation, interest rates, the Fed in today’s ADP jobs number if we can believe it
Private payrolls rose by just 89,000 jobs in September, according to figures published today by the ADP Research Institute. That’s the fewest jobs added in a month since the start of 2021. Private payrolls climbed 180,000 in August. The results trailed all estimates in a Bloomberg survey of economists. The report is more evidence of a further slowing in the labor market. “We are seeing a steepening decline in jobs this month,” Nela Richardson, ADP’s chief economist, said in a statement. “Additionally, we are seeing a steady decline in wages in the past 12 months.” Both trends would be good news for the Federal Reserve in its fight to lower inflation. And would be positives for a financial market which has seen bond yields rise and stock prices stagnate recently in fears that inflation might be staging a come back. Good news–if, that is, the ADP numbers can be believed.
My VIX Call Options are up 38% since September 25–hold ’em
The VIX, the CBOE S&P 500 Volatility Index, climbed another 12.32% today, October 2, to 19.78. The Call Options–with a strike at 17 and an expiration on December 20–I bought on the VIX on September 25 are up 38% as of the close on October 2. (I hold them in my Volatility Portfolio.) I’m inclined to hold them a bit longer because:
The yield on the 10-year Treasury jumped another 13 basis points today, October 3
Where did the slow-moving, deep and placid Treasury market go? The yield on the 10-year benchmark Treasury–you know the one used to set the interest rate on things like mortgages–moved up another 13 basis points today, October 3, to 4.80%. That’s a jump to 24 basis points in just two days. The Treasury market just doesn’t move like this. The yield on the 10-year Treasury is now up 63 basis points in the last month.
The yields keep rising
Despite the Wall Street consensus that there won’t be an interest rate increase at the Federal Reserve’s November 1 meeting, Treasury yields keep climbing. The yield on the 10-year Treasury closed at 4.68% today, October 2.
I’ll be selling Nvidia out of my Volatility Portfolio tomorrow
I’m going to take advantage of today’s pop in Nvidia (NVDA) to sell the shares out of my very short-term Volatility Portfolio tomorrow, Tuesday, October 2. The shares closed up at the close today at $447.82, a gain of 2.95% on the day. I initiated the position in the Volatily Portfolio on Mach 25, 2023. It was up 66% as of the close today So why sell Nvidia here?
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