April 20, 2025
What You Need to Know Today:
Canada and Mexico tariffs postponed; is a China deal next?
Now that Canada and Mexico have earned a one-month delay in the 25% tariffs President Donald Trump had proposed to implement today, Tuesday, February 4, Wall Street is struggling to figure out if a similar deal with China will roll back the 10% hike in tariffs on imports from China that went into effect today. So far, Wall Street is betting on another deal to keep the global economy out of a full-scale trade war. Today the Standard & Poor’s 500 rose 0.72% and the NASDAQ Composite gained 1.35%. I can understand the optimism. I just don’t agree with it.
The Fed faces an impossible task in 2025
I think we can expect another huge tax cut package to extend the tax cuts from 2017, and a set of tariffs on China, the European Union, and other trading partners with duties of somewhere between 20% and 200%, and an effort to deport 11 million illegal immigrants (and maybe a few legal immigrants too) And in the face of that policy mix I don’t think there’s any way for the Federal Reserve to reach its goals of getting inflation down to 2%, of lowering interest rates from levels left from the pandemic emergency, and of keeping the economy strong enough to prevent unemployment from climbing. Can’t be done. The Fed doesn’t even begin to have the tools to tackle all those challenges at once. And there’s a non-zero and statistically significant chance of a really serious mistake that would take a big bite out of the economy and the prices of financial assets. Can I tell you why I believe this?
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.
Wall Street and the bond market see fewer interest rate cuts in 2025 from the Fed
Look out for more volatility in the bond market. BlackRock, JPMorgan Chase. and TCW Group have all warned that the bumpy ride is likely far from over. But also expect that the big overall trend for 2024 of rising bond prices and falling yields on hopes for aggressive interest rate cuts from the Federal Reserve is done.
Has inflation stopped slowing? Wednesday’s CPI will tell
With financial markets deeply conflicted about the effects of a Trump Administration’s policies on taxes, the deficit, mass deportations, and sky-high tariffs will have on the economy and interest rates the October Consumer Price Index (CPI) due Wednesday takes on added importance. Wall Street economists expect headline inflation rose 2.6% annually in October, an increase from the 2.4% rise in September. Core inflation, which strips out more volatile food and energy prices, is forecast to have climbed at a 3.3% rate year over year. That would be unchanged from September’s increase.
Saturday Night Quarterback say (on a Sunday), For the week ahead expect…
I expect more breathless speculation on who will fill the most important posts in the Trump Administration that will be sworn in on January 20, 2025. The consensus, which I agree with, is that this administration will be much different than the first Trump team with fewer figures with anything approaching old-style conservative Republican credentials. Thinkoif the contrast between second Trump administration vice-president J.D. Vance and first administration pick Mike Pence. That difference has made any meaningful handicapping of this race for power extremely difficult–even though the issue of who will fill what chair is incredibly important. For investors I think the most important pick to watch is Treasury Secretary.
Special Report: 10 Contrarian Bargains to Buy Now–My second of 10 Picks is Nidec
Today, October 12, I’m making Nidec, the Japanese company that is the leader in the market for small electric motors and a growing presence in the market for motors and drive trains for electric vehicles, the second pick in my Special Report: 10 Contrarian Bargains to Buy Now.
Live Market Report (20 minute delay)
Tesla margins worse than expected and stock tumbles today
Tesla’s (TSLA) first-quarter earnings, reported yesterday April 19, after the market close, met expectations. But first-quarter automotive gross profit margins came in worse than expected. Tesla reported a profit of 85 cents a share, meeting expectations, on sales of $23.33 billion, just a touch below forecasts for $23.67 billion. Tesla’s other business generated a record $303 million in gross profit. Tesla deployed 3.9 gigawatt hours of battery storage in the quarter, up about 300% year over year. But, automotive gross profit margins, excluding regulatory credits, came in below 16%, down from about 21%
Watch My New YouTube Video: Quick Pick Newmont
Today’s Quick Pick is Newmont Corporation (NYSE: NEM). Newmont is the world’s largest gold miner but the stock hasn’t benefited very much from the recent rallies in gold. Unlike Barrick Gold, Newmont is not a low-cost miner, but it does have huge reserves as well as promising joint ventures–including one with Barrick in Nevada. The company is growing production and produced about 2.2 million ounces of gold in 2022, with production going up to a forecasted 2.7 million by 2027. Newmont likely hasn’t seen a huge rally yet because of the cost of energy. Mining gold takes a lot of energy and with recently higher gas/diesel prices, costs of mining and production have gone up and margins have been squeezed. However, looking forward to mid or late 2023, those margins will, in my opinion, start to look a lot better. If we hit a recession while inflation remains relatively high and energy prices come down, Newmont will benefit from lower costs and recession gold rallies. I would call Newmont my second choice gold stock to Barrick. Morningstar rates Newmont at 10% undervalued right now. This is a good time to buy and look for it to outperform in the second half of 2023.
Wanta play Banc Whac-a-Mole?
Thank goodness the banking crisis is over. (Where’s that sarcasm emoji when you need it?) Today, shares of Western Alliance Bancorporation (WAL) closed up 24.12% after the bank reported that deposits hadn’t fled the bank in the first quarter as rapidly as was feared. Signature Bank (SBNY), which is being shut down by regulators rallied a huge 26.01%. Granted that was from a share price of just 16.5 cents a share. Excuse me when I remember that the stock traded at $143.17 on February 2. The SPDR S&P Banking ETF (KBE) closed up 3.07% on the day. The regional bank ETF, SPDR S&P Regional Banking ETF (KRE) closed p 3.94%
Please Watch My New YouTube Video: China’s Economy Is Back
Today’s topic is China’s Economy is Back. On April 18, China reported 4.5% year-over-year GDP growth for the first quarter. While it wasn’t the 5% growth rate that the Chinese government has set as a target, it was better than the 4% forecast by economists. This growth rate comes on the heels of a 4th quarter with only 2.9% year-over-year growth. Other numbers showed strength too. For example, retail sales rose 10.6% year-over-year beating forecasts of 7.4%. But the economy isn’t cooking on all burners: Industrial production was up only 3.9%, just missing the forecasts of 4%. The iShares China Large-Cap ETF (FXI) is a good way to buy into China’s economy. There was a big rally from November to December as investors anticipated China’s economy speeding out of its Covid slump. But that rally was followed by a drop as the Chinese economy struggled with a resurgence in Covid cases. Now we’re seeing that drop start turn around. Individual stocks like Alibaba (BABA) and JD.com (JD) show charts with a similar pattern and can be expected to start to climb as the economy continues to pick up.
Tesla’s latest price cut puts intense scrutiny on margins in tonight’s earnings report
With the company due to report first-quarter earnings after the market close on Wednesday, April 19, yesterday, April 18, Tesla (TSLA) cut prices of its Model 3 and Model Y electric vehicles again.
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!
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