January 15, 2025
What You Need to Know Today:
CPI inflation creeps higher in October; market still forecasts December interest rate cut
Inflation ticked up slightly on an annual basis in October, the latest evidence that further reductions in inflation are getting hard to achieve. The Consumer Price Index climbed 2.6% from a year earlier, up from September’s 2.4% annual rate, the Bureau of Labor Statistics reported today. Core inflation, which strips out more volatile food and energy prices, held steady at 3.3% annual rate.
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
I expect technology sector weakness to continue with earnings worries still unanswered. What could put an end to selling in tech stocks? The NASDAQ 100 is down almost 4% in the last week. Certainly earnings news that showed earnings growth at the companies in this sector robust enough to justify paying a premium for these shares would be a big help Unfortunately, the coming week isn’t going to bring enough earnings good news among tech shares to make this case. Among big tech stocks only Tesla (TSLA) and Alphabet (GOOG) are scheduled to report.
Tech rout continues as U.S. explores further tightening restrictions on chip exports to China
Even good earnings news and guidance from Taiwan Semiconductor Manufacturing (TSM) couldn’t reverse the drop in tech stocks that accelerated yesterday, July 17, when the NASDAQ Composite recorded its worst day since 2022 with a 2.7% decline.
Has the Fed waited too long to lower rates?
With the first Federal Reserve interest rate cut likely at the central bank’s September 18 meeting, some current economic data raise the possibility that the economy is slowing more than the Fed–and Wall Street–would desire.
Another day of small-cap outperformance–here’s the best ETF for this trend
The small-cap Russell 2000 index gained 1.90% yesterday, July 15. That beat the 0.28% gain for the Standard & Poor’s 500. And the 0.53% gain for the Dow Jones Industrial Average. And a 0.27% gain for the NASDAQ 100 index.And today, as of noon, New York time, the Russell 2000 is up another 2.25% versus a gain of just 0.30% for the S&P 500 and 1.21 for the Dow Industrials.The NASDAQ 100 is off o.20% All his continues the outperformance trend of last week that I wrote about in yesterday’s Saturday Night Quarterback post.
Saturday Night Quarterback says (on a Sunday), For the week ahead watch…
.Watch to see if we finally get that long-awaited, long-predicted, and never quite arriving rotation out of technology stocks (and especially those BIG tech stocks) and into smaller capitalization stocks, or consumer stocks or value stocks.
Step #7 in my Special Report: Sell GM and Ford sometime between now and December
I added Step #7 to my Special report: 8 Steps to Protect Your Portfolio from the Global Debt Bomb today. And my advice is to sell Ford and General Motors sometime between now and before the December 13 meeting of the Federal Reserve. Here’s what I wrote in that Special Report.
Live Market Report (20 minute delay)
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.
Rumors swirl around Pioneer Natural Resources again–this time that ExxonMobil is talking about an acquisition
The Wall Street Journal reported today, Friday, April 7, that Exxon Mobil (XOM) has held preliminary, informal talks with Pioneer Natural Resources (PXD) about a possible acquisition.
Economy adds 236,000 jobs in March–Economists worry, Is this the slowdown before the plunge?
U.S. payrolls rose by 236,000 in March. That was in line with forests from economists surveyed by Bloomberg. (The Bureau of Labor Statistics revised its February report upward to show 326,000 jobs added in that month.) The official unemployment rate slipped to 3.5% from 3.6%. Average hourly wages increased at a 4.2% rate year-over-year. That was below estimates and the slowest growth since June 2021. The lower total for new jobs in the month is better than a poke in the eye with a sharp stick for investors hoping that the Federal Reserve will decide its job is done and end its interest rate increases after one final 25 basis point increase at the Fed’s May 3 meeting. But the market read today was that the drop isn’t big enough to convince the Fed.
Move #4 in my Special Report: 5 Moves for the Next 5 Months
I will add this 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 #4 has gone up. Here’s what I posted for Move #4.
Ahead of tomorrow’s jobs report, initial claims for unemployment signals some softening in labor market
Applications for U.S. unemployment benefits last week were a stronger than expected 228,000, the Labor Department reported today. The department also revised the numbers from the week before to 246,000, up by 48,000 A separate report Thursday showed job-cut announcements from U.S.-based employers rose 15% in March from the prior month, marking the highest first-quarter total since 2020, according to Challenger, Gray & Christmas, Inc.
Please Watch My New YouTube Video: The Problem With Goldilocks
Today’s topic is The Problem With Goldilocks. This Goldilocks market is dependent on three things: there will be no recession, interest rates will stabilize after one more May hike from the Fed, and we’ll get falling inflation. These three factors are necessary for the porridge to be not too hot and not too cold. The problem? I don’t see how these three factors exist simultaneously. Falling inflation but no recession? I don’t see how we get to lower inflation without something at least close to a recession. I think we need a recession in order for the Fed to stop rate hikes. Oil isn’t helping the situation as OPEC+ voted to cut oil production for a year, and energy-reliant stocks are already showing the effects. Energy prices don’t immediately factor into the Fed’s decision-making, since the Fed focuses on core inflation, which excludes oil and food, but eventually, oil prices affect the market as a whole. Goldilocks may not be in immediate danger of being eaten by the bear, but I wouldn’t sell her an insurance policy.
Video post buy: Devon Energy
Just in case there are readers who don’t watch my videos, but do follow my picks. Today, April 5, I added Devon Energy (DVN) to my Jubak Picks, Dividend, and Volatility Portfolios.
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