November 15, 2024
What You Need to Know Today:
Investors add 2+2 after Fed rate cut and lower initial claims report–and stocks roar higher
The number of Americans filing new applications for unemployment benefits dropped to a four-month low last week. Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 219,000 for the week ended September 14. That’s the lowest level since the middle of May, the Labor Department said on Thursday. Economists polled by Reuters had forecast 230,000 claims for the latest week. And stocks soared.
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.
Saturday Night Quarterback say, For the week ahead expect…
I’m expecting a key moment for momentum in a market that keeps setting new records on Wednesday, May 22, when Nvidia (NVDA) announces revenue and earnings for the company’s first fiscal quarter of 2025 and the quarter that ended in calendar April 2024. The consensus among Wall Street analysts is looking for the company to earn $5.17 a share. That would be a huge leap from 88 cents a share in the April 2023 quarter. The projections for revenue are every bit as optimistic.
Please Watch My New YouTube video: Hot Button Moves NOW: Buy Equal Weight S&P 500 Index ETFs
Today’s Hot Button Moves NOW video is Buy Equal Weight S&P Indexes. If you’re concerned about volatility in the tech sector but want to stay in the market, equal weight S&P indexes may be a good alternative. Stocks like Nvidia with a market cap of around 2 trillion, have a lot more weight in the common version of the market cap weighted S&P 500 index than a stock with a smaller cap. In the last week or so, we’ve seen equal weight indexes converge with the longer-term out-performance of the weighted indexes. Using an equal weight index lowers your exposure to the big, now more volatile stocks while keeping you in the market. The Invesco S&P 500 Equal Weight ETF (RSP) is a low expense ratio ETF (.2%) with about $55 billion in assets under management. Year to date, RSP is up 4.68% versus 9.9% year to date for the market cap weighted ETF from Vanguard (VOO). However, for the last 3 months you see a 4.3% return for the equal weight index versus a 4.19% for the market cap weighted index. In the last week, for the first time in a long time, the equal weight index outperformed the weighted index. While one week isn’t a trend, it does seem like the returns are converged. Shifting some S&P exposure from the large cap stocks to this equal weight ETF is a good choice to stay in the game with less volatility. I’m going to make this shift in my Perfect 5 ETF Portfolio on my subscription JubakAM.com site tomorrow May 16.
Special Report: 10 Great Growth Stocks that Are Getting Greater–today my 6th pick Danaher
GREATER Growth Stock Pick #6: Danaher (DHR). Danaher is a smart (that’s key) serial acquirer–and asset divester–in the life sciences space. And that makes this stock very interesting in an environment where small, young life sciences companies might be looking for help/rescue/acquisition because they can’t raise capital in a tough part of the credit cycle. I like Danaher now, as well, because the stock looks to have just about completed its re-rating after a spike in sales during the Covid pandemic led to over enthusiasm about the stock.
Live Market Report (20 minute delay)
Omph, that wasn’t good inflation news today–but still, go figure, stocks climbed
The headline Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure, climbed at 4.2% in the year through March. That was a big drop from the 5.1% year-over-year rate in February. (Although, I’d note, economists were expecting this all items number to drop to 4% before the actual report.) But the core inflation rate, after stripping out more volatile food and fuel prices, hardly budged in March at 4.6% year-over-year from the 4.7% year-over-year rate in February. And it’s the core PCE inflation rate that carries the most weight with the Federal Reserve. In other words, inflation remains elevated and very, very sticky.
Please Watch My New YouTube Video: Quick Pick Procter & Gamble
Today’s Quick Pick is Procter & Gamble (NYSE: PG). P&G’s first quarter earnings were good and a bit of a surprise. Reporting at $1.37 for the quarter, they beat Wall Street expectations ($1.32) by five cents and they were up 4 cents year over year. The company also raised guidance for revenue growth to 4% in 2023, higher than the prior 1%. While the report was good, it wasn’t that much better–it was a modest beat. What interests me is the market’s reaction to the report. The stock has been rallying since early March, but when P&G released the report, the stock jumped 3.7%. To me, this shows a hunger in the market for the (supposed) safety of blue chip stocks. As worries of a slowing economy and a possible recession grow, stocks that produce reliable, regular growth become more valuable. As I mentioned in my 10 Picks to prepare for a recession on JubakAM.com, P&G is a good place to be during a mild recession. Different story in a major downturn. Then everything falls.
Special Report: My 5 Favorite Shorts for This Market–Shorts #1, #2 , #3 and #4 (so 1 more to come.)
I’m expecting modestly positive economic news in the next few days. Which will, in my opinion, create a low-risk opportunity to make big gains by going short this market in order to profit as stock prices fall. I’m looking to put the first of those shorts in place right now. With the rest to go into place in the days after the Federal Reserve meets on Wednesday, May 3. In this Special Report, I’ll explain this perhaps initially counter-intuitive call on short-term market direction and give you the details on five of my favorite shorts for profiting in this market. With the first short pick today
GDP growth slowed in the first quarter by more than expected
Gross domestic product rose at a 1.1% annualized rate in the first quarter of 2023, the Commerce Department reported this morning. Consumers, again, kept the economy going with s 3.7% increase in consumer spending. Business investment in equipment posted the biggest drop since the start of the pandemic and inventories subtracted 2.26 percentage points from GDP in the quarter, the biggest negative impact on GDP in two years. The GDP data showed services spending rose at a 2.3% annualized rate, led by health care and restaurants and hotels. Outlays on goods increased at a 6.5% rate, the most in nearly two years. The results put even more pressure on continued job growth and increases in wages to keep consumer spending growing.
The median projection in a Bloomberg survey of economists called for a 1.9% GDP growth rate in the quarter.
Please Watch My New YouTube Video: Look Out Below! Central Banks to Take Away $1 Trillion in Cash
Today’s topic is Look Out Below! Central Banks to Take Away $1 Trillion in Cash. Citigroup recently reported that central banks pumped about $1 trillion into the financial markets during the recent bank-collapse crisis. While investors are currently focused on interest rates and inflation and how that affects the price of money, they may be overlooking this important liquidity story. Citigroup projects that this much liquidity injected into the financial system is equal to a rate cut of 50 basis points. The market indeed has received the rate cut it was looking for, just not where it was expected. We’ve now seen peak liquidity. Central banks will not keep putting this kind of liquidity into the market, and in fact, will try to take some of it back. Citigroup says we’ve gone through a risk-on rally fueled by extra cash from central banks, making junk bonds and high-risk investments very attractive. We also had a rally in corporate debt, as investors felt they could take on more risk with more cash in the market. Taking all this out of the market will make risk less attractive.
Microsoft soars on earnings, so I’m selling the shares I bought for my Volatility Portfolio
Back on March 24, I added shares of Microsoft (MSFT) to my Volatility Portfolio on the thinking that in a quarter when earnings were projected to be down for the Standard & Poor's 500 as a whole, reliable technology growth stocks such as Microsoft would outperform....
Financial markets begin, and I stress “begin,” to price in a debt ceiling default
You’d only notice if you’re paying very close attention to yields at the short end of the Treasury market. But bond traders are seeing what looks like the very beginning of a move to price in the possibility of a default by the U.S. government on its debt if the debt ceiling isn’t raised sometime between now and September. Analysts at JPMorgan Chase noted last week that yields on a three-month Treasury bill have spiked, while one-month yields have plummeted, a gap they noted is the “widest in over 20 years.” The gap may reflect investors’ fear of a default over the summer.
Look out below! Central banks to claw back $1 trillion in liquidity provided during banking crisis
Global central banks injected $1 trillion into financial markets during the first quarter, according to calculations by Citigroup as they sought to limit the damage from a banking crisis that claimed Silicon Valley Bank and Credit Suisse. That cash injection was equivalent, Citigroup says, to a 50 basis point cut to global investment-grade risk premium. Which goes a way to explaining the huge risk-on rally in the first months of 2023. And now, Citigroup warns, central banks will be looking to claw back some of that cash.
Please Watch My New YouTube Video: Trend of the Week Consumers Are Falling Behind on Their Debt Payments
This week’s Trend of the Week is Consumers Are Falling Behind on Debt Payments. Although the economy has been slowing for some time, there’s been a lag in consumers falling behind on debt payments. Until recently, consumers seem to have been relying on funds saved during the Covid crisis, but we’re now starting to see that life raft disappear as consumers start to sink underwater on debt payments. This isn’t a good sign for banks that may already be struggling with unrealized losses from the banking crisis. Wells Fargo recently put aside $1.2 billion for potential loan losses and other banks are following suit. About 20% of consumers are using “buy now, pay later” credit card features for things like groceries, showing that the slowing economy and slowing wage growth are finally catching up with consumers. Watch those delinquency rates going forward.
Intuitive Surgical reports a surprisingly strong first quarter
Last week Intuitive Surgical (ISRG) surprised everybody, including, apparently, management. Intuitive Surgical’s first-quarter revenue grew 14% year-over-year to $1.7 billion. (Wall Street was expecting $1.6 billion.) Surgical procedures performed using the company’s da Vinci system, rose 26% year-over-year, well above expectations for 15% growth. And the company raised guidance for global procedure growth to 18% to 21% from the prior guidance of 12% to 16%.
The stock market is trading in narrower and narrower bands
Important observation out of Morningstar on Friday. While the Morningstar U.S. Market Index is up 15.4% from its bear-market low on October 14, the market is only 1.4% higher than it was at the end of November. AND in recent months, the stock market has been moving in tighter and tighter bands. So far in April, the Morningstar U.S. Market Index has only moved up 0.9%. That puts the month on track to show one of the flattest monthly returns since May 2022.
Disney begins second round of cuts of 7,000 jobs today
Layoffs aren’t just for technology companies right now. Disney (DIS) has begun the second round of a projected three rounds of job cuts that will add up to a total reduction of 7,000 employees this year.
The Fed’s preferred inflation number coms out on April 28 , but the Fed can’t comment on it
The Bureau of Economic Analysis is scheduled to report the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, on April 28. But because the Fed’s pre-meeting quiet period stretches from April 22 to May 4, there won’t be any comments from Fed officials to spin the data for the financial markets. That could be, well, awkward, since it will leave Wall Street more in the dark than usual about what the inflation results mean. The PCE index is expected by economists surveyed by Bloomberg to have fallen in March to a 4.1% annual rate from the 5% reported for February. If the inflation numbers come in on expectations, investors and traders will be left wondering if the drop is enough to lead the Fed to stop its interest rate increases after a 25 basis point boost at the May 3 meeting.
Saturday Night Quarterback says, For the week ahead expect…
I expect to see the growth economy’s last stand when the Bureau of Economic Analysis the Advanced Estimate of first-quarter GDP on Thursday, April 27. The Atlanta Federal Reserve Bank’s GDPNow forecast predicts that the U.S. economy grew at a 2.5% real year-over-year rate in the first quarter of 2023. That would be roughly equal to the revised 2.6% growth rate in the fourth quarter of 2022. Which would be great news if projections from economists didn’t show growth turning negative in the second and third quarters. The growth estimate for growth for all of 2023 is around 0.4% (the Federal Reserve) or 0.3% (Goldman Sachs.)
Another sign of a credit problems? American Express adds $320 million to provisions for bad credit card debt in first quarter
A big increase in provisions for bad credit card debt overshadowed beats on revenue and confirmed positive revenue guidance for 2023. The company reported earnings of $2.40 a share, below the consensus projection of $2.65.
Tesla margins worse than expected and stock tumbles today
Tesla’s (TSLA) first-quarter earnings, reported yesterday April 19, after the market close, met expectations. But first-quarter automotive gross profit margins came in worse than expected. Tesla reported a profit of 85 cents a share, meeting expectations, on sales of $23.33 billion, just a touch below forecasts for $23.67 billion. Tesla’s other business generated a record $303 million in gross profit. Tesla deployed 3.9 gigawatt hours of battery storage in the quarter, up about 300% year over year. But, automotive gross profit margins, excluding regulatory credits, came in below 16%, down from about 21%
Watch My New YouTube Video: Quick Pick Newmont
Today’s Quick Pick is Newmont Corporation (NYSE: NEM). Newmont is the world’s largest gold miner but the stock hasn’t benefited very much from the recent rallies in gold. Unlike Barrick Gold, Newmont is not a low-cost miner, but it does have huge reserves as well as promising joint ventures–including one with Barrick in Nevada. The company is growing production and produced about 2.2 million ounces of gold in 2022, with production going up to a forecasted 2.7 million by 2027. Newmont likely hasn’t seen a huge rally yet because of the cost of energy. Mining gold takes a lot of energy and with recently higher gas/diesel prices, costs of mining and production have gone up and margins have been squeezed. However, looking forward to mid or late 2023, those margins will, in my opinion, start to look a lot better. If we hit a recession while inflation remains relatively high and energy prices come down, Newmont will benefit from lower costs and recession gold rallies. I would call Newmont my second choice gold stock to Barrick. Morningstar rates Newmont at 10% undervalued right now. This is a good time to buy and look for it to outperform in the second half of 2023.
Wanta play Banc Whac-a-Mole?
Thank goodness the banking crisis is over. (Where’s that sarcasm emoji when you need it?) Today, shares of Western Alliance Bancorporation (WAL) closed up 24.12% after the bank reported that deposits hadn’t fled the bank in the first quarter as rapidly as was feared. Signature Bank (SBNY), which is being shut down by regulators rallied a huge 26.01%. Granted that was from a share price of just 16.5 cents a share. Excuse me when I remember that the stock traded at $143.17 on February 2. The SPDR S&P Banking ETF (KBE) closed up 3.07% on the day. The regional bank ETF, SPDR S&P Regional Banking ETF (KRE) closed p 3.94%
Please Watch My New YouTube Video: China’s Economy Is Back
Today’s topic is China’s Economy is Back. On April 18, China reported 4.5% year-over-year GDP growth for the first quarter. While it wasn’t the 5% growth rate that the Chinese government has set as a target, it was better than the 4% forecast by economists. This growth rate comes on the heels of a 4th quarter with only 2.9% year-over-year growth. Other numbers showed strength too. For example, retail sales rose 10.6% year-over-year beating forecasts of 7.4%. But the economy isn’t cooking on all burners: Industrial production was up only 3.9%, just missing the forecasts of 4%. The iShares China Large-Cap ETF (FXI) is a good way to buy into China’s economy. There was a big rally from November to December as investors anticipated China’s economy speeding out of its Covid slump. But that rally was followed by a drop as the Chinese economy struggled with a resurgence in Covid cases. Now we’re seeing that drop start turn around. Individual stocks like Alibaba (BABA) and JD.com (JD) show charts with a similar pattern and can be expected to start to climb as the economy continues to pick up.
Tesla’s latest price cut puts intense scrutiny on margins in tonight’s earnings report
With the company due to report first-quarter earnings after the market close on Wednesday, April 19, yesterday, April 18, Tesla (TSLA) cut prices of its Model 3 and Model Y electric vehicles again.
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