March 9, 2025
What You Need to Know Today:
Fed’s December minutes another nail in the coffin for early interest rate cuts
In minutes from the Federal Reserve’s December 17-18 meeting released on Wednesday, January 8, Federal Reserve officials clearly decided to move more slowly on cutting interest rates in the quarters ahead. “Participants indicated that the committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” minutes from the Federal Open Market Committee showed. “Many participants suggested that a variety of factors underlined the need for a careful approach to monetary policy decisions over coming quarters.” Please note the reference to “quarters” and not “months.”
Is a guidance cut from Texas Instruments another sign of a top?
One indicator that I’m carefully monitoring is the guidance in third quarter earnings conference calls about the fourth quarter. I’m checking to see if the cuts to guidance and that Wall Street disappointment might set in a quarter early. If that looks like the case then I’d think about selling now instead of in January 2025.
Starbucks, caught in a hard place between sugar and caffeine, slumps again
Starbucks (SBUX) today pulled revenue and earnings guidance for 2025 after fiscal forth quarter sales fell. It is the third consecutive quarterly sales decline.
Climb in yield on 2-year Treasury says bond market is rethinking rate-cut trajectory
Two-year Treasury yields have climbed 34 basis points since the Federal Reserve reduced interest rates on September 18 for the first time since 2020. Rising yields “reflect the reduced probability of recession risks,” Steven Zeng, an interest rate strategist at Deutsche Bank told Bloomberg. “Data has come in pretty strong. The Fed may slow the pace of rate cuts.” We’ve read this story before
Making West Pharmaceutical Pick #5 in my Special Report 10 New Ideas for an Old Rally
Here’s what I wrote today when I added this stock to my Special Report.
What’s an AI search company startup worth? How about $9 billion? Or maybe $157 billion?
Perplexity AI, an artificial intelligence company building a search product to compete with Google search, is in early talks to raise private-round venture capital at a valuation of about $9 billion, Bloomberg reports.
Special Report: 10 Great Growth Stocks that Are Getting Greater–today my 8th pick BYD
GREATER Growth Stock Pick #8: BYD (BYDDF). I know; I know. What’s a Chinese stock doing on this list? It’s here because BYD, not Tesla (TSLA) is the big growth story in electric vehicles and not just for this month–but for years. And because I can see two catalysts that are about to power this stock higher. Morningstar calculates that BYD is 20% undervalued right now. Because this is a China stock we’ll need to take a deep look at valuation later in this post. But first, the growth story.
Live Market Report (20 minute delay)
Please Watch My New YouTube Video: Is Bank Lending Finally Starting to Get Tighter?
Today’s video Is Bank Lending Finally Starting To Get Tighter? The Federal Reserve regularly does an opinion survey of bank lending officers to ask if they’re seeing a tightening of credit standards on loans at their banks. In the most recent survey, 50.8% of banks reported tightening lending terms for medium and large business loans in the second quarter-up from 46% in the first quarter. They’re also reporting a rise in demand for loans. In the second quarter, 51.6% reported weaker demand, down from 55% in the previous quarter. We’re seeing the Fed’s policies slowly start to work. Eventually, this tightening will also hit the consumer level, making it more difficult to get a personal loan or a new credit card. This trend is something to watch as banks tighten their lending while demand remains steady.
Please Watch My New YouTube Video: Trend of the Week Are We Looking at a Supply Crisis for Treasuries?
Today’s Trend of the Week is Are We Looking at a Supply Crisis for Treasuries? The federal deficit grew by $1.39 trillion in the first nine months of fiscal year 2023. That’s a huge addition to the deficit, an increase of 170% compared to the first nine months of 2022. The Treasury also recently increased its forecast for borrowing in the July-September quarter to another $1 trillion. This fast increase in the supply of Treasuries has been tough on the market. The Fed is trying to shrink its balance sheet and not buy as many new Treasuries. Private sector investors at auction are demanding a bigger discount. And because of the debt ceiling shutdown in new debt and the drawdown on the Treasury’s cash balances, the treasury has been issuing a lot of short-term bills to rebuild its buffer. Right now, however, Treasury is trying to move away from the short bills and looking to selling longer maturities. The market has little appetite for longer maturities as inflation seems to have staying power. Recent auctions on 7-20 year treasuries have been pretty weak. If you’re looking to buy 10-year Treasuries, look for an extra yield premium around 5% or so before the market is down dealling with as with this supply issue.
Here’s my preview: CPI inflation report for July due Thursday a.m.
There’s a good chance that the Thursday morning CPI inflation report for July will show a small step backwards in the Fed’s battle against inflation. Here’s the Wall Street consensus as of the end of last week according to FactSet.
Saturday Night Quarterback (on a Sunday) says, For the Week Ahead Expect…
Wall Street is starting to look past this quarter’s earnings recession and lick its chops at a return earnings growth in the third quarter. Earnings for the second quarter are turning out to be just as depressing as everyone anticipated. With 80% of the companies in the Standard & Poor’s 500 already reporting, earnings per share for the companies in the index are down more than 7% from the second quarter of 2022. this quarter will mark a third straight quarter of earnings declines. But, increasingly, Wall Street analysts are forecasting a return to earnings growth (if you exclude earnings from energy companies) in the third quarter.
Gone to the Beach!!
I’m headed to the big sand of Fire Island for a few days. Back in the saddle on Saturday.
Please Watch My New YouTube Video: What About That 2.4% GDP Growth Rate Surprise?
Today’s video is What About That 2.4% GDP Growth Rate Surprise? Economists were expecting a 1.5% annual growth in the second quarter, but the first read reported a 2.4% growth rate–up from 2% in the first quarter. Where did the growth come from? Is the economy inexplicably stronger than anyone expected? Why haven’t the Fed rate increases dampened growth? How is inflation coming down as growth continues? There are suggested answers to these questions within the GDP report itself. The main explanation is that this trend, like all economic trends, is affected by lags. You can also see a shift in where the growth is coming from. GDP growth has recently a result of increases in consumption, while growth from business investments has been more subdued. Consumer spending was up in the most recent quarter, but it was only up 1.6%, not as high as the overall 2.4% growth rate. Where did the rest of the growth come from? Investments. Business investments came in at a 4.6% annual increase. Momentum built up by the Inflation Reduction Act, the subsidies and actual funding for business investment is still kicking in and we’re seeing an investment boom at the moment. Consumer spending going up 1.5% is positive, but what’s the trend on consumer spending? My guess is somewhere in the third or fourth quarter, we’ll see business investment peak and we’ll go back to a familiar growth pattern that focuses on consumer spending, where the Fed’s interest rates are more important.
Fitch cuts U.S. credit rating
The big problem, in my opinion, is that the today’s action by Fitch Rating won’t be the last ding to the U.S credit rating. It’s hard of me to see a quick turnaround in any of the negative trends that Fitch cited as a reason for lowering its rating on U.S. debt to AA+ from AAA.
Please Watch My New YouTube Video: Corporate Profit Margins–The Other Inflation Problem
Today’s Trend of the Week: Corporate Profit Margins–The Other Inflation Problem. The market is currently unsure if the Fed will continue to raise rates in September and December. Complicating the Fed’s job of bringing inflation: The trend in corporate profits. Profit margins are projected at 11.1% for the second quarter, down from 11.5% in the first quarter and down from 12.2% in this quarter a year ago. The five year average is 11.4%. Six straight quarters of declining profit margins have companies looking for more ways to bring the margins back up. Any company that still has pricing power is likely to be raising prices. As an example, Spotify raised its U.S. subscription price to $10.99 a month from $9.99 a month- a reasonable, one-dollar increase that will defend the company’s profit margin. The Fed, of course, doesn’t want companies raise prices as the central bank tries to stem inflation by raising interest rates. However for the time being, companies are doing whatever they can to increase profit margins and that includes raising prices on things like toothpaste, if they can, much to the Fed’s chagrin.
Please Watch My New YouTube Video: Quick Pick Verizon
Today’s Quick Pick is Verizon ( VZ). Verizon’s stock is up after recently reporting earnings. Verizon reported adjusted earnings of $1.21, up only 4 cents from the expected $1.17. The modest surprise was not what boosted the stock, however. Revenue was down year over year to $32.6 billion from $33.79 billion and the earnings were lower than last year’s $1.31 during this quarter. So why was there a bump in the stock? Verizon was expected to report a loss of 9,000 subscribers as competitors, like T-Mobile, chipped away at its customer base, but the company actually gained 8,000 postpaid subscribers. The stock has a great dividend of 7.68%, but the worry was, if Verizon continued to bleed subscribers, it would no longer be able to support the dividend. With the number of subscribers going up, that dividend looks to be safe and the stock will remain in my dividend portfolio on JubakPicks and JubakAM.
Fed bumps interest rates up another 25 basis points, says future increase “depends on the data”
The Federal Reserve raised its benchmark short-term interest rate 25 basis points to 5.25% to 5.50%. The central bank said that further interest rates are likely, but that the timing of any rate increases was contingent on data showing how the economy is reacting to interest rate increases so far. Fed Chair Jerome Powell made it clear that there is more work ahead to bring in inflation down to the Fed’s target of 2%. But he also made it clear that the timing of any future moves will depend on of data over the coming weeks and months. “We think we need to stay on task,” Powell said
Please Watch My New YouTube Video: The Coming End of Business as Usual
Today’s video is The Coming End of Business as Usual. One of the most extraordinary things about the global climate catastrophe is how little effect it’s had on financial markets and their behavior and expectations. The markets still believe that The Fed and other world central banks are still in control of the global economy. Increasing that’s not so as thousands of people die from the heat, places become more and more unlivable, and entire industries face stunning systemic changes. An example of such change is the homeowners market in Louisiana, Florida and California. Louisiana, after dealing with increasingly damaging hurricanes in recent years, has had a dozen insurers go belly-up in the state. Now, about 100,000 households have been forced to move from private insurers into the insurance state fund. Just like Florida, this fiscally conservative state is moving more and more of its citizens to a state-run insurance pool. Sixteen storms and hurricanes in the past three years have resulted in $100-200 billion of property damage in Florida, causing insurance rates to go up 200% since 2019 and many insurers to cease doing business the state. Now 1.4 million people rely on Florida’s Citizens Property Plan, a state-run fund. The conservative state has to rely on–dare I say it, socialism–in order to keep its real estate market goin-it’s hard to get a mortgage to buy a house without homeowners insurance. In California, wildfires have caused homeowners insurance policies to go up 16%, with many insurers leaving the state. The state’s insurance plan called “FAIR” has seen enrollment double since 2019. These are examples of the ways in which capitalism and capital markets will change during this age of global catastrophe. I think we can expect more to come.
How close is the Gulf Stream to collapse?
Yes, we do need more data before we can put a solid date on the collapse of the Atlantic Ocean’s circulation system that includes the Gulf Stream. But the fact that we’re asking that question is really, really scary. The last time the Atlantic circulation failed was during the Younger Dryas about 12,900 to 11,700 years before the present. The change was relatively sudden, taking place over decades (study of this period has overturned the idea that all climate change is slow), and resulted in a decline of temperatures in Greenland by 7 to 18 degrees Fahrenheit and advances of glaciers and drier conditions over much of the temperate Northern Hemisphere.
Microsoft beats Wall Street expectations but disappoints me
This isn’t the quarter I expect from a stock trading at a record, all-time high. Today, after the close, Microsoft (MSFT) reported fiscal fourth-quarter adjusted earnings of $2.69 a share. That exceeded Wall Street estimates of $2.55 a share.Revenue rose on 8% to $56.2 billion Wall Street analysts had expected $55.5 billion. For the fiscal 2023 year revenue grew by just 7%. That was the lowest annual growth since 2017.
Danaher continues its post-Covid reset–now is the time to buy future growth
The comparisons with 2022 continue to hurt shares of Danaher (DHR). For the second quarter, reported yesterday, the company saw revenue down 8% and adjusted earnings per share off 26% year over year. The culprit is easy to see. But I continue to hold Danaher in my Jubak Picks Portfolio where the position, initiated on June 20, 2017, was up 198.3% as of the close on July 25. Tomorrow July 26, I’ll be adding these shares to my long-term 50 Stocks portfolio. Danaher is one way to play the growth of the drug sector and the need of these companies for pure water.
Please Watch My New YouTube Video: Trend of the Week This is What Deflation Looks Like
Today’s Trend of the Week is This is What Deflation Looks Like. Last week, Ford announced it’s cutting the price of the Ford F-150 electric truck, the F-150 Lightning, by nearly $10,000. The prices had gone up when supplies were low, but now, Ford says that they’ve cut production costs, so they’re able to cut prices. Maybe. That’s one explanation anyway. But, the news came as Tesla’s long-awaited truck appears to be finally hitting the market (sometime this year.) There is an over-supply of electric vehicles in general as more and more car makers have pivoted to the EV, and the sector hasn’t grown as fast as the production. In order to keep market share in a young-fast growing industry, companies, like Ford, will cut prices. This is as an early sign of a potential deflationary period. The timing of a transition from an inflationary environment to a deflationary environment will depend largely on global climate change. A lot of money will have to be spent on building, or rebuilding infrastructure, which could stress supply, putting the brakes on deflation. Keep an eye out for my special report called, Investing in Global Climate Catastrophe for more on inflation, deflation and interest rates. For now, the Ford announcement gives us the first hint of deflation in a critical sector of the global economy.
Saturday Night Quarterback (on a Monday) says, For the week ahead expect…
Ho, hum, it’s a quiet week with nothing much going on. Oh, except for the meeting the Federal Reserve’s interest-rate setting Open Market Committee on Wednesday, July 26. Oh, and earnings from Microsoft (MSFT) and Alphabet (GOOG) on July 25, and Meta Platform (META aka Facebook) on July 26. Apple (AAPL) and Amazon (AMZN report on August 3.
Please Watch My New YouTube Video: Quick Pick Iron Mountain
Today’s Quick Pick is Iron Mountain (IRM). Iron Mountain has been around since the 1950s. It started off as a corporate document storage repository and has gradually moved into shredding, security and digitalization (they digitize and store important documents) and a full cloud storage and management offering. The company has 93 million square feet of storage around the world in 56 countries. It acquired about 29 companies in the last three years as the company looks to consolidate a still rather fragmented industry. It has had an average 5.6% revenue growth over the last three years. Morningstar calculates the shares trade at a 3% discount, with a PE of 31, and they pay a 4.2% dividend. I think Iron Mountain is riding a number of o-gern The long-term trends that include corporate and cyber security, as well as the need for document backup in a age of climate change. I’ll be adding this to my JubakPicks and Dividend portfolios on Monday, July 24..
Tesla drops today on earnings–it’s all about falling margins
Tesla (TSLA) delivered a big beat over Wall Street estimates when the company reported second quarter earnings after the close yesterday. The company reported earnings of 91 cents a share, well above the Wall Street projection of 80 cents a share. But in after hours trading, the stock still fell by 4.20%. Today, July 20, the shares are down 7.17% as of 10:45 a.m. New York time. And this comes despite another record quarter of unit sales. The problem?
Please Watch My New YouTube Video: Earnings It’s All About Surprise
Today’s video is Earnings: It’s All About Surprise. Good news is good, but it doesn’t necessarily move markets. On Friday, July 14, JPMorgan Chase came out with a stellar earnings report–but other stocks in the sector moved down on a belief that these banks wouldn’t match JPMorgans good news. However, SURPRISE! On July 18, Bank of America came out with a very good earnings report, and the stock popped by 4.2%. Bank of America surprised the market with a big bump from its Wall Street trading operations. On the surprise, Bank of America actually moved the entire banking index up 2.29%. On the negative side, regional bank PNC Bank surprised negatively with a cut to its full year guidance from 6-8% to 5-6%, and the stock, of course, fell. (Early in the day although it recovered by the close.) Keep all this in mind as we head into earnings season for technology companies, where expectations are often very high. Apple is one of the first to report and will set the tone for the second quarter which is typically a weaker quarter in the technology sector.T
Please Watch My New YouTube Video: Trend of the Week Consumers are Skipping Essentials
Today’s Trend of the Week is Consumers are Skipping Essentials. The impact of high inflation has consumers moving down the price point ladder, and we’re now seeing people skip purchases for essentials. Unit purchases for essentials like toothpaste, laundry detergent and toilet paper are falling. It’s only inflation that keeps retail sales in dollars from dipping. From an investing perspective, this means there isn’t anywhere to hide. Target, which is a relatively inexpensive retailer, is reporting negative growth. Walmart and Costco are still positive, but that could change if this trend continues. In May, inflation adjusted household spending stalled and was essentially flat. Unit sales are down 3% to 4% in the 52 weeks through June 24. This is a sure sign that consumers are cutting back on spending. This all before consumer incomes take a hit with the resumption of college loan payments in October. My advice: be careful out there.
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