November 16, 2024
What You Need to Know Today:
All-items CPI inflation falls; core inflation above expectations
Definitely a mixed bag in the Consumer Price Index inflation report for August released today. I think the mixed results lower the odds of an aggressive 50 basis point interest rate cut at next week’s Federal Reserve meeting. But they keep the odds of a cut–most likely 25 basis points–at 100%.
Saturday Night Quarterback says, For the week ahead wonder…
With a Federal Reserve interest rate cut now not looking likely until December, earnings are the only game in town when it comes to supporting this market. Or moving stocks higher. So far earnings have come through with surprises running slightly above the 10-year average. But it looks like the quarter is still on a path for a very modest 3.5% growth in earnings for the Standard & Poor’s 500.
Today’s PCE inflation numbers reinforce yesterday’s PCE inflation bad news
Yesterday we had a report of core Personal Consumption Expenditure for March that showed core inflation ticking up to an annual rate of 3.8% from 3.7%. Core inflation, if you remember, looks at prices after excluding more volatile food and energy prices, The reasonable conclusion was that inflation was remaining stubbornly higher than the Federal Reserves % target. And that the first cut to interior rates from the Fed wouldn’t come until December, instead of July or September. Today we got the report on all-items PCE inflation.
Now it’s one interest rate cut and not until December
How views on interest rates have changed since the start of 2024. Then, in January, the consensus view called for as many as six interest rate cuts from the Federal Reserve in 2024 for a total of 150 basis points in cuts to the Fed’s benchmark interest rate. Today, after a dip in first quarter GDP below a 2% annual rate and an uptick in core PCE inflation, the markets are pricing in just 33 basis points in rate cuts and quite possibly no cut until the Fed’s December 18 meeting.
Good news from Google (Alphabet) today–no repeat of yesterday’s Meta problem
After the close today, Alphabet (GOOG) reported revenue of $80.5 billion, easily beating the consensus projection of $78.7 billion. Earning per share came in at $1.89 versus expectations for $1.50 a share. And none of the worries before the news turned out to be problems. Advertising revenue rose 13% to $61.7 billion. Ad revenue for YouTube–an area of worry rose 21% to $8.09 billion. Subscriptions, platforms and devices revenue jumped 18%.
Please Watch My New YouTube Video: NOW I’m Worried About Stocks.
Today’s video is NOW I’m Worried About Stocks. Investors and analysts have shown a willingness to pay for vapor in the last couple of days. The market reaction to two companies, Tesla (TSLA) and Apple (AAPL), Â has made this clear me.. Tesla’s earnings were terrible at $0.45 a share, below the expectations of $0.52 and revenue was down 50% year over year. However, the stock was up the day after earnings thanks to expert spin from CEO Elon Musk. He announced that Tesla will move ahead with the Robotaxis and full self-driving cars but it will also advance plans to produce a $25,000 car to enter the lower end of the market and compete with China. Although the company previously waffled on offering a more affordable Tesla, Musk was now suggesting it may be available at the end of 2024 or early 2025. When asked for more specifics, Musk declined to offer a definitive date on any of these promises. Wall Street ate it up and jumped on the spin that Tesla will be selling a more affordable vehicle “soon.” At this point, these are totally imaginary revenues from a car that has no release date and a full self-driving technology that doesn’t fully exist yet, and investors are saying they’re willing to pay for it? What worries me here is that in the market paying for spin has become normal because stocks go up on spin. Even if the product is “vapor,” investors are willing to get in on the stock bump associated with the announcement of imagined prospects. Similarly, Bank of America recently predicted Apple (APPL) is going to go up 36% soon because the company will announce its plans for adding AI into the iPhone. This is speculation on an announcement, not of the product itself, but on the prospect of an announcement. Bank of America is likely right on this, but I’m not willing to pay up for this speculative announcement without a tangible product or date and it concerns me that the market IS willing to do that. I understand the spins and the anticipation but the reaction and willingness to buy on vapors isn’t a sign of a healthy market.
Special Report: 8 Steps to Protect Your Portfolio from the Global Debt Bomb–complete 8 steps
I’ve hi-lighted the key characteristics of the coming global debt bomb explosion that investors MUST include in any plan to protect a portfolio from the explosion of this bomb.
Live Market Report (20 minute delay)
Don’t forget tomorrow’s CPI inflation report for February
Tomorrow’s CPI inflation report for February will show whether the Federal Reserve faces a very difficult task in bringing down inflation without crashing the economy (and/or the banking system) or whether the job is simply impossible. Right now economists are pointing toward impossible. The annual inflation rate is likely to have come down in February from January but the month-to-month trend is likely to be flat. Which means that inflation has stopped declining with the annual rate well above the Fed’s 2% target rate.
Is today (or maybe tomorrow?) the moment of maximum short-term fear? I’m selling one of my Call Options on the VIX fear index today
Back on March 6, I bought Call Options on the CBEO S&P 500 Volatility Index (VIX) at a strike of 23 for the May 17 and June 21 expirations. My logic was that at 18 or so, the VIX was trading at a level that basically ignored all of the potential negative news and trends visible in the financial market for the next couple of weeks. I certainly didn’t count on the collapse of Silicon Valley Bank or the wave of fear that has today overwhelmed shares of every regional and fintech bank. I think the odds are that the crisis won’t go away, but that the extreme fear of today will turn into something less extreme over the next day or so. Fear tends to work like that in the financial markets: When investors and traders discover the sky has fallen today, they get more optimistic (not always reasonably) about tomorrow. So I’m selling the May 17 Call Option on the VIX that I bought on March 6. The purchase price that day was $$94 per contract. The price today closed at $420 per contract. That’s a gain of 116%.
What does the collapse of Silicon Valley Bank mean for your portfolio?
The collapse of Silicon Valley Bank means both a whole lot for your portfolio and very little. It depends. I’ll explain.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
Truthfully no one knows what’s going to happen as a result of the collapse of Silicon Valley Bank. Expect a lot of volatility, though, as the “smart money” tries to talk specific scenarios (watch out for shorts bearing expert commentary) and as the most likely scenario shifts from hour to hour.
Mixed news from February jobs report–jobs up more than expected, wage growth slows
The U.S. economy added 311,000 jobs in February, the Bureau of Labor Statistics reported on Friday, March 10. That was an expected drop from the January blowout of 504,000 new jobs. But it was significantly above the 225,000 jobs expected by economists surveyed by Bloomberg.
12 More Stocks to Sell Ahead of 10-days of Market Moving News (for Step 1 of my Special Report: 5 Steps for the Next 5 Months)
Back on February 16, I gave you a list of 12 stocks I’d sell into the rally after the February 1 meeting of the Federal Reserve. (Here’s the link https://jubakam.com/wednesdays-rally…re-the-12-stocks/). Yesterday in the first step of my Special Report: 5 Steps for the Next 5 Months” I promised another set of sell recommendations before Friday’s jobs report for February, the March 14 CPI inflation report, and the March 22 meeting of the Fed’s interest rate setting group, the Open Market Committee. Here’s that list of another 12 stocks to sell.
Please Watch My New YouTube Video: Quick Pick Apple (but not until it drops to $140 or so)
Today’s Quick Pick is Apple (NASDAQ: AAPL). For this Quick Pick, I’m suggesting you wait to buy until Apple falls to around $140 (which I think is coming.) Apple, like many tech stocks, is a seasonal stock, and we’re currently in one of the company’s traditionally weaker quarters. The Christmas buying quarters (the last two quarters of the year) are when Apple brings in the most revenue, and the first two calendar quarters are generally weaker. Apple took a hit during the big downward turn on the bear when all tech stocks were hit, but the stock recovered strongly during this early 2023 rally. If shares get down to $140, that’s a great place to get in before Apple announces new technology and updates to its product line. There are rumblings of an Apple VR headset announcement coming soon and we know that we’ll see new iMacs and Powerbooks. We can also look forward to the Apple Developer Conference in May and new product announcements in September. If you can get this cheap in the first half of the year, you can look for a big recovery in the second half of the year.
Stocks drop on fear of tomorrow’s jobs report even though data today shows labor market weakness
Two reports showing “some” labor market weakness haven’t been enough today to offset worry over tomorrow’s jobs report for February. At the close in New York, the Standard & Poor’s 500 was off by 1.85% and the Dow Jones Industrial Average was lower by 1.61%. Tech stocks led the market downward with the NASDAQ Composite lower by 2.05% and the NASDAQ 100 falling 1.80%. The small-cap Russell 2000 lost 2.81%.
Please Watch My New YouTube Video: How Long Before Climate Change Forces the Fed to Rethink Inflation?
Today’s topic is How Long Before Climate Change Forces the Fed to Rethink Inflation? In Jerome Powell’s most recent report to the House and Senate, he made it clear that interest rates would be raised higher than previous expectations and that 50 basis points weren’t off the table for the March 22 meeting. The CME’s Fed tool, which tracks how the market believes the Fed will move rates, was showing a 50/50 split of 25 and 50 basis points on March 7. The week before that, the odds of a 50 basis point hike were only at 24%. We can see the market is coming around to the idea of maintaining higher interest rate hikes. How does this relate to climate change? Well, another data point is coming out on Friday; the jobs report. The big blow-out in January jobs is directly related to climate change. January had about 200,000 additional jobs created due to the fact that it was warmer than usual for the month. Those actual numbers were seasonally adjusted with past trends of colder Januaries, when jobs had been lost due to the colder weather, leading to very questionable final numbers. The Fed’s division of inflation into an “all prices” number and a core rate is also becoming questionable. The Fed often focuses on the core rate, which leaves out food and energy price increases, but those are two categories that are likely to be central to the way that warming temperatures change the global economy. At some point, the Fed will have to figure out how it will handle those two categories of prices, and how climate change will lead to a new calculation of the neutral interest rate.
Special Report: 5 steps for 5 months–your first three moves for NOW
This is going to take me a while to get all five steps posted. The market situation is very complicated right now and the appropriate solutions are very specific. I’m going to start with the short-term moves you need to be making NOW and then gradually extend my recommendations to cover the entire next five months. I’ve now posted Steps #1, #2, and #3
First Quantum Minerals reaches copper deal in Panama; stock gains 3.86% Wednesday a.m.
First Quantum Minerals (FQVLF) has reached an agreement on a new concession contract with Panama’s government over its huge Cobre Panama copper mine. The agreeent, assuming tht a final signing goes ahead, would end a months-long dispute that has halted ore processing and export shipments. The Cobre Panama mine accounted, before the dispute, for 1.5% of global copper production.
ADP payroll report comes in hot; is that bad news for Friday’s February job report?
Private payrolls increased by 242,000 in February, according to the ADP National Employment Report. Economists surveyed by the Wall Street Journal had been looking for the economy to add 205,000 jobs in the month. The February increase was well above the revised January total of 119,000 new jobs. While the jobs report issued by the Bureau of Labor Statistics doesn’t always track closely to the ADP report, the stronger-than-expected new job total in today’s data certainly suggests that Friday’s official government report could also come in hotter than expected. Right now economists are looking for the economy to add 225,00 jobs in February according to the official data.
Stocks retreat on Fed chair Powell’s “higher and faster” testimony on interest rates
As the day wore on, the stock market decided that it liked Federal Reserve Chair Jerome Powell’s Senate testimony less and less. The Standard & Poor’s 500 was down just 0.72% at 11 a.m. New York time. The index closed down 1.53% for the day.
This negative sentiment from consumers isn’t good news on recession worries
According to Fannie Mae’s latest survey of consumer sentiment, less than one-third expect their personal financial situation to get better over the next year. That’s the lowest positive percentage in a series that goes back more than a decade. This isn’t good news for anyone worried about a recession in 2023 or 2024.
Please Watch My New YouTube Video: Trend of the Week Utilities Are Struggling as Inflation Surges
This week’s Trend of the Week video is Utilities are Struggling as Inflation Surges. As utilities start to update their grid infrastructure to support renewable energy sources, utility companies have filed for rate increases. Those rate increases have to be approved by state government regulators, and they’ve recently gotten some pushback, specifically from utility commissions in the Midwest, including Wisconsin, Minnesota, and Michigan. As an example, in Michigan, DTE applied for a $388 million rate increase and the utility got approval for just $31 million. Utility commissions are arguing that they can’t approve rate increases when consumers are already facing soaring utility bills. Investors have expected utilities to be a place to hide in this market, with projected growth and higher revenue, but due to this kind of resistance from regulators, you can’t count on utilities to revenue and income to fuel dividend increases at the same rate as in recent years. I suggest picking utilities one by one, as opposed to ETFs in order to stay away from some of those companies that do business in less accommodating states. You can find specific utility stocks in my Dividend Portfolio available on JubakPicks.com and JubakAM.com.
VIX “Fear Index” drops back to 18–time to put on an options play on the volatile months ahead
The CBOE S&P 500 Volatility Index (VIX) has dropped back near 18–the index was at 18.50 as of noon New York time on Monday, March 6–despite what looks like a month or two of potential volatility ahead. So, as of this morning, I’m buying Call Options on the VIX for May 17 with a strike price of 23 (at a cost of $197 a contract) and on the June 23 contract with a strike price of 23 (at a cost of $254 a contract) for my Volatility Portfolio.
China sets consumer-driven 5% growth goal, trade figures show China already on the rebound
On Sunday at the National People’s Congress Premier Li Keqiang announced an “around 5%” target for China’s economic growth in 2023. That was slightly less aggressive than the “above 5%” that investors had hoped for. The policies surrounding the goal went relatively light on the traditional engine of infrastructure spending and focused instead on consumer-led growth.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I expect that in the coming week, the financial markets will be dominated by fears that the February jobs report, to be issued by the Bureau of Labor Statistics Friday morning before the market opens, will repeat January’s huge blowout when the official data showed the economy adding a whopping 517,000 jobs. Nothing in that January number to suggest that the U.S. economy was slowing down or that the Federal Reserve should stop raising interest rates to fight inflation
A similar blowout report for February would, probably, convince investors and traders that the Fed will raise interest rates by at least 25 basis points at its March 22 meeting. And that the U.S. central bank will continue to raise interest rates in May and June.
Lithium Americas begins construction on Thacker Pass lithium mine
Lithium Americas (LAC) isn’t letting any grass grow under its feet. Just a day after the 9th U.S. Circuit Court of Appeals refused a request for an emergency injunction that would have blocked construction at the Thacker Pass, Nevada, the proposed site of what could become the largest North American source of lithium, the company announced that it had begun construction of the massive strip mine.
From California confirmation that nuclear power–and uranium producer Cameco–has more life thanks to global warming
When I added Cameco (CCJ), the big Canadian uranium producer, to my Jubak Picks Portfolio on February 22, 2023, I argued that plans by China and India to burn more coal, despite a potentially catastrophic increase in global temperatures, meant that the world would have to put plans to phase out nuclear power on hold. And that a world desperate to avoid the worst climate outcomes would lead to a revived nuclear power industry–and higher uranium sales for Cameco. Now California has provided a roadmap for exactly how and why this will happen.
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