January 16, 2025
What You Need to Know Today:
Saturday Night Quarterbacks says (on a Sunday), For the week ahead expect…
In normal times, the November 7 meeting of the Federal Reserve’s interest-rate setting body, the Open Market Committee would be the big event of the week. But these aren’t normal times in case you haven’t noticed. The country faces a stark choice on Tuesday and the polls show essentially a dead heat. And then add in fears that Donald Trump and/or his followers won’t accept the election results if he loses. Traders and portfolio managers have been adding hedges to protect against market volatility in the days around the election.
Hold India ETF Through Election Volatility
Over promising and undelivering is never a good recipe. In India’s recently concluded election Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) bragged that it would win more than 400 seats, enough to give the party outright control of parliament. When the...
Replace IVV with RSP in Perfect 5 ETF Portfolio
I’m trying to walk a fine line here. I don’t want to eliminate my exposure to the U.S. stock market, the world’s best performer recently, but I would like to take some profits and reduce my exposure to the highest priced stocks in the U.S. market.Switching from the iShares S&P 500 Core ETF (IVV) to the Invesco S&P 500 Equal Weight ETF will have that effect.
Saturday Night Quarterback says, For the week ahead watch out for…
When I was small, one of my favorite songs was The Teddy Bears’ Picnic with its warning refrain, “Don’t go out in the woods today, you’ve in for a big surprise. Not exactly designed as investment guidance, but pretty good investment advice all the same. This week will see two potentially big market moving surprises. Potentially.
Odds weaken on a Fed interest rate cut in September
After today’s surprisingly strong May jobs report, the odds for an initial interest rate cut from the Fed at its September 18 meeting weakened considerably
So much for that job market slowdown in May
Employers added 272,000 jobs in May, the Bureau of Labor Statistics reported this morning. That number was well above the 185,000n projected by economists and even higher above the 175,000 in the April report. The financial markets were disappointed with the news since it pushed out the schedule for an initial interest rate cut from the Federal Reserve.A cut a the July 31 Fed meting has now been priced out by the market. The Standard & Poor’s 500 fell 0.14% today and the NASDAQ Composite dropped 0.23%
I just added moves 5,6, and 7 to Part 2 of my Special Report: Your 10 Best Moves for the Rest of 2023
I added three more moves to the four that I’d posted yesterday to bring the total moves in Part 2 of my Special Report up to 7.
Live Market Report (20 minute delay)
Please Watch My New YouTube Video: 6% Is Coming
Today I posted my two-hundred-and-thirty-sixth YouTube video: 6% Is Coming This week’s Trend of the Week is: 6% is Coming. This song lyric keeps playing in my head: “They laughed at Christopher Columbus when he said the world was round.” I’ve maintained that peak interest rates from the Fed will be 6% and I’ve gotten blowback from people saying, “No way! We’ll barely get to 5%.” I’m sticking with 6% and I also think we’ll get more rate increases than the market was expecting. Keeping this in mind, I’m looking at the best time to buy Treasuries and setting some parameters. The yield on the 10-year treasury on February 7 was 3.63%. I won’t wait until 6% from the Fed, but I will wait until the yield reaches 4.25% for the 10-year Treasury. I’m looking for that yield sometime in late 2023. Buy at Treasuries at that 4.25% for the 10-year Treasury and watch that 6% peak rate from the Fed. The world is round.
Here’s the latest Wall Street consensus on tomorrow’s CPI inflation report
The consensus is that the headline all-in year-over-year inflation rate will come in at 6.2% for January when the Bureau of Labor Statistics reports the numbers before the New York market open tomorrow February 14. That would be down from an annual 6.5% rate in DecemberGood news for investors and traders hoping that the Fed will end its current cycle of interest rate increase soon (June or July) and with a peak rate of 5.2% or less. The worry remains the month-to-month move in inflation with the consensus looking for a 0.4% increase in the CPI inflation rate in January from December.
Saturday Night Quarterback says, For the week ahead expect…
It’s CPI inflation report time again. On Tuesday morning the Bureau of Labor Statistics will report the Consumer Price Index for January. Expectations are for a mixed result with the annual rate continuing to fall from the 6.5% year-over-year headline rate in December for the CPI. But with inflation rising month-over-month for the first time in three months.
Oil up on Russian production cuts
Russia plans to cut its oil output by 500,000 barrels a day next month, the Russian government announced today. That magnitude of cut would be roughly 5% of the country’s January output. Crude prices jumped on the news, with global benchmark Brent closing higher by 2.37% to $86.50 a barrel. U.S. benchmark West Texas Intermediate closed up 3.24% at $79.81 a barrel.
Initial claims for unemployment up week over week but closely watched 4-week moving average continues to fall
If a weaker labor market is what the Federal Reserve needs to see before it stops raising rates, the central bank didn’t get the necessary news in today’s report from the Labor Department. Initial unemployment claims rose by 13,000 to 196,000 in the week ended February 4. That’s a sign that the labor market might be weakening. Economists surveyed by Bloomberg were expecting 190,000 new claims for unemployment. However, the four-week moving average, a measure closely tracked by economists because it smooths out week-to-week volatility, dropped to the lowest level since April. The four-week moving average in initial claims edged down to 189,250.
So how does the market come to price in a 6% peak interest rate?
Right now the consensus has moved up to price in a peak interest rate of 5.1% in the Fed Funds rate with the peak coming sometime in June or July. I think that’s unrealistically low. We’re going to need a peak rate of 6% or more before the Fed can declare victory over inflation. (And just to be clear, I don’t think 6% will beat inflation down to the Fed’s target of 2% inflation. I just think that 6% is likely to result in a recession and that given the choice between leaving the fight with inflation still near 4% or causing a deep recession, the Fed will declare victory and punt. Punting will mean a decision to begin cutting interest rates.) The next step in getting to 6% will come, I believe, at the Fed’s March 22 meeting. The revised Dot Plot projections that will be released at that meeting are likely to show that the consensus at the Fefd is for a higher peak and later in 2023. Let’s say 5.25% as a new projection of the peak. The next unofficial steps, however, are likely to occur in the pronouncements of Wall Street portfolio managers. What we’re likely to see is a steady stream of higher projections,
Please Watch My New YouTube Video: Quick Pick C3.ai
Today I posted my two-hundred-and-thirty-fifth YouTube video: Quick Pick C3.ai Today’s Quick Pick: C3.ai (NYSE: AI). This is not a normal Quick Pick, this is, well, a little different. I’m not suggesting you buy this today, but instead, keep this one in your back pocket for the next big “risk-on” market rally. This is TICKER you’ll want to own when the market is shooting upward. Someone recently commented on Seeking Alpha that this ticker is worth more than the company–and I think they’re exactly right. When Microsoft came out with the news that they had invested $10 billion into OpenAI, it kicked off a frenzied buying spree for all things “AI.” C3.AI, with its ticker, AI, was no exception. AI saw its stock shoot up from $10.26 to $25 in approximately a month. I maintain that if you were to start an ice tea business, but call it “Ice Tea AI,” your stock would shoot up during this time as well. The company is a real company, run by Tom Siebel, a Silicon Valley pioneer. Overall, the company doesn’t have a lot of traction in the market just yet, and I’m not sure they have a big enough asset to be bought out at the moment. For now, keep this in mind for that small rocket section of your portfolio; if it blows up- no big deal, if it goes to the moon, fantastic!
Stocks struggle today as macro “facts” look more negative
As of the close in New York today, February 9, the Standard & Poor’s 500 was down 0.88% and the NASDAQ Composite was off 1.02%. That’s not a big absolute drop but it does mark quite a turnaround from earlier in the day. At 9:51 a.m. the S&P 500 was up 0.89% and the NASDAQ was higher by 1.21%. It’s a tribute to the strong bullish sentiment in this market (of which more later in this post) that stocks have held this ground. Certainly, macro “facts” continue to line up against an extension of this rally. Besides the continuing debate about where (and when) interest rates may peak, today we’ve got a continued inversion in the yield curve for Treasury bonds.
Adding Equinor as another energy play to my Jubak Picks Portfolio tomorrow
Today, Wednesday, February 8, Equinor (EQNR) reported a record $74.9 billion adjusted operating profit for 2022. That more than doubled the previous record. If you’re looking to add an energy stock to your portfolio ahead of a year that looks likely to be a good one for energy stocks, I’d suggest Equinor. I’ll be adding it to my Jubak Picks Portfolio tomorrow with a target price of $40 a share.
A 6% interest rate peak from the Fed starts gaining some traction
You’ll find it in the market for interest-rate options if you really dig through the data. Which Bloomberg has. On Tuesday, a trader amassed a large position in options that would make $135 million if the central bank keeps tightening until September and interest rates hit a peak of 6%.
Please Watch My New YouTube Video: Why March 22 Is the Next Big Date
Today I posted my two-hundred-and-thirty-fourth YouTube video: Why March 22 Is the Next Big Date Today’s topic is: Why March 22 Is the Next Big Date. March 22 is the date of the Fed’s next meeting. And it’s the first time we’ll get projections from the Fed on where interest rates will peak since the last Dot Plot in December. The market has been playing catch-up with the Fed since that December meeting. A hopeful market thought that the Fed was being too aggressive in their estimates of a peak of 5.00% to 5.10%, but the recent surge in jobs in January has made the market fall in line with the Fed’s expectations. As of February 7, the market had priced in a 25 basis point increase in March and May, with a peak hitting in June or July at 5.12% (nearly exactly the same as the Fed’s December projections). Just a week ago, the market was looking at a 4.9 peak in possibly May. The market has shifted to catch up with the Fed, but now we have to wait until March 22 to see if the Fed has moved the peak interest goalposts. In the meantime, I don’t expect the market to move much as we wait for the March 22 Fed meeting.
Odds rise that Intel will keep its dividend after bond sale, adding the stock to my Jubak Picks Portfolio
The possibility that Intel (INTC) would cut its dividend has been hanging over the stock price since the company announced one of the ugliest quarters I’ve seen in a while on January 26. No question why. Intel’s adjusted free cash flow was a negative $4.075 for the full 2022 year. And with the company looking to invest heavily in new fabs, the $6 billion a year in dividend payouts looked like a potential source of investing cash. And certainly, you wouldn’t want to buy into a stock paying 5.09% (as Intel did today) if the company was about to cut its dividend. But a dividend cut looks less likely today.
Yep, earnings are weaker than normal this quarter
Fewer U.S. companies are topping earnings estimates than normal this quarterly reporting season. Of the 283 companies in the Standard & Poor’s 500 that have announced results for the fourth quarter of 2022, 70% have posted better-than-expected earnings. That may seem like a lot. But given Wall Street and CEOs’ usual game of guide low and then beat, it is less than usual. A year ago 78% of companies in the S&P 500 beat earnings estimates, according to data compiled by Bloomberg.
Chipotle misses on sales and earnings–that’s not good news for the consumer economy
Chipotle Mexican Grill (CMG) missed comparable sales and profit expectations for the fourth quarter. Comparable store sales rose 5.6% in the period. Wall Street had expected a 7.1% increase. Earnings rose 48.6% to $8.29 a share. But analysts had expected earnings of $8.90 a share. Revenue climbed to $2.18 billion in the quarter. That was below analyst estimates of $2.23 billion. Shares fell 5.2% in after-hours trading on the news. A couple of red flags for the entire consumer sector
Microsoft launches AI-enhanced version of its search engine Bing; Google responds with Bard
This isn’t exactly unexpected. Microsoft (MSFT) today unveiled new versions of its Bing search engine and Edge browser powered by the newest artificial intelligence technology from ChatGPT maker OpenAI. Microsoft recently invested $10 billion in OpenAI.
You heard what you wanted to hear in Powell’s Fed talk today
On the one hand, stock markets heard Federal Reserve Chair Jerome Powell reiterate his comments of last week that “disinflation” had become visible. On the other hand, bond markets and investors betting on the direction of the Fed Funds rate heard the Fed chairman tell the audience at the Washington Economics Club this morning, that the labor market remains extraordinarily strong, and if the jobs market doesn’t cool, the Federal Reserve will need to take its peak interest rate higher.
Stocks fall as Wall Street tries to figure out what January’s huge job gain means
Do the huge January job gains mean that the Federal Reserve will raise interest rates to a higher peak? That was the worry today and it was enough to send the Standard & Poor’s 500 0.61% lower at the close and to knock a solid 1% off the NASDAQ Composite. The NASDAQ 100 fell 0.87% and the small-cap Russell 2000 lost 1.40%.
Please watch My New YouTube Video: Trend of the Week China Accelerates
Today I posted my two-hundred-and-thirty-third YouTube video: Trend of the Week China Accelerates This week’s Trend of the Week: China Accelerates. There is a horrific death toll in China as the country’s COVID policy changed dramatically, allowing COVID cases to surge wildly, spreading throughout the country and killing possibly a million people, but ultimately resulting (everyone hopes) in immunity. Now, Bloomberg is seeing a pick-up in China’s manufacturing activity and predicts 5.8% GDP growth in 2023, a huge bump from 3% in 2022. You can see this upswing by looking at the iShares China Large-Cap ETF (Nasdaq: FXI) as the market anticipates this GDP growth and a likely stimulus from the People’s Bank of China to make up for problems relating to the COVID crash. The iShares MSCI Emerging Markets ETF (EEM), which is an ETF that tracks at emerging markets as a whole and is heavily influenced by China, is also back on the upswing. I had been shorting EEM as China’s economy was dragging markets down, but I’ll be ending that short now. The bad thing about China being back is that it will start exporting inflation to the global economy, likely to the tune of about 100 basis points. Whether or not this will change the Fed’s timeline for pausing interest rates is unclear at this point. We can expect higher commodity prices, energy prices, and eventually, consumer prices as China continues its upswing. To follow more ETFs, go to my paysite, JubakAM.com.
Ukraine war costs and sanctions blow a huge hole in Russia’s budget
Russia’s tax revenues from oil and gas plunged 46% in January. A price cap on oil exports imposed by Western allies, combined with a 59% increase in spending largely thanks to the war in Ukraine, the drop pushed the deficit for the month to 1.76 trillion rubles ($25 billion), the Finance Ministry said. That’s the worst start to a budget year since 1998.
EuroZone economy looks really weak–retail sales dropped 2.7% in December
Eurozone retail sales dropped by 2.7% in December from a month earlier. November retail sales rose 1.2% from October. Economists were looking for a 2.4% month-to-month drop in December so these results were worse than expected. (The EuroZone figures are adjusted for inflation.) Retail sales decreased by 2.8% in December of 2022 on a year-over-year basis.
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