November 15, 2024
What You Need to Know Today:
The Fed cuts by 50 basis points–don’t make too much of the dip in stocks today
The Federal Reserve lowered its benchmark interest rate by 50 basis points Wednesday. The vote for a 50 basis point cut was 11-1 with the only negative vote–for a 25 basis point cut rather than 50–the first dissent in the Jerome Powell era. The Fed’s dot plot showed a narrow majority, 10 of 19 Fed officials, favoring at least an additional half-point in rate cuts at Fed’s two remaining 2024 meetings. The Federal Open Market Committee to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years.
CPI inflation hits the mark for April: Is this the start of another drop in inflation, finally
Today, May 15, the April Consumer Price Index report dangled new hope in front of investors. The all-items index annual rate of inflation dropped to an annual 3.4% rate from 3.5% in March. The core index, which leaves out food and energy prices, fell to an annual rate of 3.6%, down from 3.8% in March. Those annual rates are still way above the Federal Reserve’s inflation target of 2%. But after three straight reports where the inflation rate came in above market expectations todays report, which hit projections right on the mark, came as good news. In recent weeks Wall Street has speculated that inflation is set to resume its downward course starting with the April report. And after stalling above 3.5%, annual inflation would resume its downward path.
Powell says Slow–as market waits for Wednesday CPI inflation report
Granted that the remarks weren’t delivered at the most high profile venue–a panel discussion at the Foreign Bankers Association meeting in Amsterdam–but I read Federal Reserve chairmen Jerome Powell as saying that the U.S.central bank might hold interest rates steady for longer than now expected by WallStreet. Ahead of new inflation data from the Consumer Price Index for April due tomorrow, anyway. On the day before the meeting economists were expecting the annual inflation rate at both the all-time and core levels to have dropped by 10 or 20 basis in April
Special Report: The 5 Next Big Things–The first Next Big Thing, AI Phase 2 first 6 picks
This special report is about the history of the future. And how to score big returns by investing in the future. By studying the past histories of the future, we can understand what kind of bets on the future pay off with outsized gains. Think about it this way.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I expect more inflation news. What else? On Wednesday, May 15, the Bureau of Labor Statistics will release its report on Consumer Price Index (CPI) inflation for April. Even though the CPI isn’t the Federal Reserve’s preferred inflation measure (that’s the Person Consumption Expenditures (PCE) index, which won’t be released (for April) until May 31), Wall Street is looking for a trend in the CPI report that will point to the inflation rate moving lower convincingly enough so that the U.S. central bank can begin to cut interest rates at its September meeting.
Consumer confidence hits 6-month low and inflation expectations rise to 3.5% in year ahead
According to the University of Michigan survey, U.S. consumer sentiment declined in early May to a six-month low as short-term inflation expectations and concerns about the job market picked up. The sentiment index slid to 67.4 in May from 77.2, according to the preliminary reading. The figure was weaker than all forecasts in a Bloomberg survey of economists. Consumers expect prices will climb at an annual rate of 3.5% over the next year, the highest in six months and up from the 3.2% expected in April.
Special Report: 10 Great Growth Stocks that Are Getting Greater–My first 8 picks
Here are the first 8 picks for my GREATER Growth Stocks Special Report. More on the way.
Live Market Report (20 minute delay)
Netflix misses, badly, on subscribers in the first quarter
Last night after the market close, Netflix (NFLX) reported first-quarter 2023 results that showed new subscribers grew by just 1.75 million in the first quarter against expectations for 2.3 million additions. Earnings and revenue projections disappointed investors: Netflix said it anticipates earning $2.84 per share on $8.24 billion in the second quarter. Wall Street analysts had forecast earnings of $3.05 per share on $8.5 billion in revenue. For the first quarter, revenue and earnings for the first quarter roughly matched Wall Street consensus estimates. Revenue was $8.16 billion versus an expected $8.18 billion. Earnings per share were $2.88 versus $2.86 expected Today, April 19, shares of Netflix were down 3.34% as of noon New York time.
Please Watch My New YouTube Video: Trend of the Week Banks–It Can Still Get Worse
This week’s Trend of the Week is Banks: It Can Still Get Worse. First Republic (FRC) is an example of a really hammered regional bank. They have about $4.2 billion in unrealized losses and the bank doesn’t look viable. On March 6, FRC stock was at $122, and by March 20, it had dropped to $12 and hasn’t really gone up since. Most recently, on April 10, the bank announced it will no longer pay the dividend for preferred shares–a surprising move as preferred shares are generally safe from such dividend cuts. This is just one example of how it’s still possible for things to get worse in the sector. As bank earnings season gets underway, you can expect a lot more bad news, with banks reporting high amounts of unrealized losses. In some cases, those unrealized losses could truly imperil the banks. I’m not sure where the worst problems will be and which banks are most affected, but we’ll see them start to pop up as earnings reports come out and banking Whac-A-Mole begins.
Special Report: 10 Picks for the Coming Recession
10 Picks for the Coming Recession. This one is especially difficult. Not only do I face the usual crystal-ball problem that comes up whenever you try to pick an investment for the future–what’s the macro and micro world going to look like in 6 months or a year from now–but I’ve got two big Recession-specific challenges. First, is there actually going to be a Recession in 2023? All the signs, in my opinion, point toward a recession in the second and third quarters, but it’s by no means guaranteed that we’ll have the two quarters of negative GDP growth that’s required by the minimal definition of a recession. And what’s the point, you might well ask, of making picks for a coming recession that never arrives? And, second, how bad will this recession be?
China’s economy is picking up speed, but not quickly enough for impatient Asian markets
China’s economy grew at a faster-than-expected pace in the first quarter. Gross domestic product grew 4.5% year-on-year in the first three months of the year, data from the National Bureau of Statistics (NBS) showed on Tuesday, faster than the 2.9% in the previous quarter. It beat analyst forecasts for a 4.0% expansion and marked the strongest growth in a year. But investors in Asian financial markets reacted with disappointment
Truly bad “possibilities” on a debt ceiling default move up in the calendar
The exact date that the federal government could run out of accounting gimmicks and actually default on the national debt is open to debate. Could be June or July or as late as December or even sometime in 2024. The estimates are all over the block. Which is one reason that the stock market isn’t pricing in this potential event. The timing largely depends on the pace of tax payments. The more the government collects and the sooner, the farther away a default would be. Now with income tax day upon us, Yahoo Finance is reporting two new studies that say a default is on the schedule for earlier than expected.
Saturday Night Quarterback says, For the week ahead…
I expect the earnings season story for the coming week to continue to be dominated by banks. But whereas last week, Friday specifically, was all about big banks, this coming week will be dominated by earnings reports from regional and smaller banks. That’s the very kind of banks that are the focus of worry about the collapse of Silicon Valley Bank and Signature Bank. We will, however, get a sprinkle of earnings reports from non-bank names just to add some spice to the week.
This won’t end quickly: Republicans to unveil demands for avoiding a debt ceiling default on U.S. credit
Next week House Speaker Kevin McCarthy will unveil a plan that would suspend the nation’s debt ceiling for a year in return for spending cuts, the rollback of Biden administration global warming initiatives, and additional work requirements for Medicaid recipients. Republicans know these demands are dead in the water in the Senate and with the White House, but they hope, I’d guess, that President Joe Biden will agree to concessions in order to avoid a U.S. default on its debt.
Buckle your seatbelts; we’re in for a bumpy ride.
The bill, which is likely to be introduced on the House floor next week, is essentially a Republican wish list of spending cuts and regulatory changes with little chance of being enacted.
Buying more VIX Call Options on Monday because this market is just too complacent
The VIX “fear index,” known more formally as the CBOE S&P 500 Volatility Index (VIX), dropped again today with a retreat of 3.60% taking the index down to a close of 17.16. The VIX, which measures the price that investors and traders are willing to pay in the options market to hedge risk on the Standard & Poor’s 500 in the next month or so, hasn’t been this low in 2022. The prior low for the VIX this year was 17.87 on February 2. You have to go back to December 27, 2021, when the index stood at 17.22 to find a roughly comparable level. With all that lurking out there in the financial world, I find the VIX at 17.16 too good to pass up.
Parse this: Good news on big bank earnings sends big bank stocks up but everything else down
It is good, maybe great news this morning from three of the country’s biggest banks. JPMorgan Chase posted a surprise 2% increase in deposits and first-quarter net income surged 49%. Wells Fargo (WFC) saw net interest income rocket by 45%. Citigroup (C) reported a 23% gain in net interest income and a 4% increase in fixed-income trading. As of 2:30 p.m. New York time JPMorgan Chase shares were up 7.33%. Wells Fargo had tacked on a small 0.05% gain. And Citigroup was up 4.88%. And all the major stock indexes were significantly in the red.
Please Watch My New YouTube video: Quick Pick Moderna
Today’s Quick Pick is Moderna (NASDAQ: MRNA). You’re familiar with Moderna as the developer of one of the RNA-Covid vaccines. The stock market has been treating the stock like the company was a one-trick pony with sales dependent totally on the demand for Covid-19 vaccines. But I think of the MRNA Covid-19 vaccine as proof of the validity of Moderna’s technology platform which takes a lot of the risk out of what is still an early-stage biotech stock. The company now has 36 other vaccines in its development pipeline using the mRNA technology that was proven effective in the Covid vaccines. Around six of those are expected to launch in the next few years. The huge jump in revenue from the Covid vaccines “shot” the stock up around 900%. (The company’s revenue was $155 million in 2018, and at the end of 2022 its revenue was $19.3 billion.) But more recently, the shares have been in a steep decline and Morningstar now calls them 40% undervalued. The stock has pulled back further in the last week or so on news that results from some trials have not been positive enough to lead to early termination of the trials. The huge revenue–and the resulting profitability–from the Covid-19 vaccines put Moderna in a unique position for such a young biotech company. They’re able to fund their own research, clinical trials, and the development of new products internally. That means the company doesn’t have to sell off a share of future profits and revenue on new drugs or vaccines in order to fund research and development. I’ll be adding the stock to my Jubak Picks portfolio tomorrow, April 14.
Fed minutes from March meeting add the central bank to Recession coming camp
Minutes from the Federal Reserve’s March 21-22 meeting show the central bank’s staff projecting a mild recession later in 2023 with a recovery from 2024 to 2025. A key reason cited by the staff: stress in the banking sector.
Please Watch My New YouTube Video: Earnings Season Blues
Today’s topic is Earnings Season Blues. We’re looking at an earnings recession. First-quarter earnings reports will start dropping Friday with the big banks reporting numbers. And the projection from Wall Street analysts is for a 6.8% year-over-year drop in earnings from the companies in the Standard & Poor’s 500. This comes on the heels of a drop of 4.6% year over year for the fourth quarter. That would mark two negative quarters in a row. The second quarter 2023 projection is another year-over-year decline of 4.6%. These drops reflect higher inflation, higher costs, and slowing demand. Interestingly, the stock market has stayed within a range since December 2022–with stock prices not really reacting to negative earnings news. The market is showing investors and traders still hope the Fed will bail out the market by cutting rates in 2023 or 2024. This hope balances out the negative news coming from earnings reports and projections. That balance could start to falter if we continue to get negative earnings (which we will), and the Fed disappoints by continuing to raise interest rates. The most recent inflation numbers show that inflation is coming down (slowly) overall, but core inflation was actually up slightly, leaving the Fed’s decision on when to stop the hikes up in the air.
Yes, falling inflation; yes, sticky inflation–today’s CPI has both
All items inflation as measured by the Consumer Price Index rose by just 0.1% in March, the Bureau of Labor Statistics reported today. That is a big drop from the 0.4% increase in February. The year-over-year all-items inflation rate fell to 5.0% in March. from 6.0% in February. Inflation is coming down and it’s coming down pretty fast, right? Well, no. The core inflation rate, which excludes energy and food prices on the theory that they are too volatile to count as “real” inflation, rose 0.4% in March after climbing 0.5% in February. The year-over-year core inflation rate rose slightly to 5.6%. So inflation is proving to be very sticky.
Selling Intel out of Jubak Picks to take profits ahead of PC sales weakness
I will sell Intel (INTC) out of my Jubak Picks Portfolio tomorrow, April 12. The position was up 14.55% as of the close on April 11 since I added it on February 8, 2023.
Please Watch My New YouTube Video: Trend of the Week Houston, We Have a Trend Problem
This week’s Trend of the Week is Houston, We Have a Trend Problem. The problem with trends is that the data is always old. There is always a lag. Inflation numbers for March will come out on April 28, jobs numbers for March came out on April 7, and GDP first quarter numbers will be in around April 27. These month-old numbers tell us where we’ve been, but we need to know where we’re going–and importantly, the speed at which we’re moving. It’s not just the trend, it’s the momentum of the trend. Inflation is undoubtedly coming down. What we don’t know is how the combination of Fed actions, a slowing economy, and the banking crisis are affecting inflation and economic growth. Currently, core inflation numbers are around 4.5%, and the Fed still wants those numbers closer to 2%, but for how long will the Fed continue to raise rates, and how close will the central bank actually get to 2%?m All that is still up in the air. At the time of filming, the consensus (56%) was that the Fed will raise rates another 25 basis points in May, and then pause. The decision is data-dependent, but the problem with that is that the data right now is all past data. The data doesn’t show real-time momentum. Forward-looking data doesn’t actually exist, but boy, would it be great if it did!
Move #5 in my Special Report: 5 Moves for the Next 5 Months
I will add this last 5 Moves for 5 months post to the end of my post of the entire Special Report today. I’m also posting it here, however, as a stand-alone so you will get notice in your email box that Move #5 has gone up. Here’s what I will post for Move #5.
Rising consumer expectations on inflation NOT good news for the Fed
U.S. households project that inflation a year from now would stand at 4.7%, versus February’s 4.2%, according to the most recent survey from the New York Federal Reserve Bank. This was the first increase in year-ahead expected inflation since October.
PC sales didn’t fall in Q1;: they plummeted with Apple leading the way down
Shipments by all PC makers slumped 29% in the first quarter to a level below that in early 2019, according to tech market analysts at IDC. Lenovo Group and Dell Technologies registered drops of more than 30%, while HP (HPQ) was down 24.2%. No major brand was spared from the slowdown, with Asustek Computer Inc. rounding out the top 5 with a 30.3% fall. But Apple (AAPL)let the plunge with personal computer shipments down by 40.5% in the first quarter.
More evidence of a credit crunch–bank lending drops
Lending by U.S. banks contracted by the most on record in the last two weeks of March, according to the Federal Reserve’s latest H.8 report. Commercial bank lending dropped nearly $105 billion in the two weeks that ended March 29, the most in Federal Reserve data back to 1973. A more than $45 billion decrease in the latest week was primarily due to a drop in loans by small banks. But big banks weren’t immune. The Fed’s report showed that lending decreased $23.5 billion at the 25 largest domestically chartered banks in the latest two weeks, and plunged $73.6 billion at smaller commercial banks over the same period.
Saturday Night Quarterback says, For the week ahead expect…
Look for a disconcerting CPI inflation report for March on Wednesday, April 12. The headline, all-items inflation rate is expected to drop to an annual rate of 5.2% from 6%, according to economists surveyed by Bloomberg. That would be good news for the Federal Reserve’s effort to lower inflation. Except that economists expect the core Consumer Price Index inflation rate, which excludes more volatile energy and food prices, to rise to an annual rate of 5.6% from 5.5%. And the core rate is the inflation rate that the Fed watches.
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