September 19, 2024
What You Need to Know Today:
Even long-term China bulls are throwing in the towel on Chinese stocks
With Chinese stocks looking at an unprecedented fourth consecutive losing year, even some of Wall Street’s most conspicuous China bulls are throwing in the towel.
Over the past two weeks, long-standing China bulls UBS Global Wealth Management, Nomura Holdings, and JPMorgan Chase have all downgraded the country’s stocks. And there’s a growing consensus that China will fail to meet its economic growth target of around 5% this year. The money NOT flowing into China has made this a good year for stocks in India, Japan, and Taiwan.
Consumers more confident–but more worried about jobs
U.S. consumer confidence rose to a six-month high in August. The Conference Board’s gauge of sentiment increased to 103.3 from an upwardly revised 101.9 a month earlier, data out Tuesday showed. The median estimate in a Bloomberg survey of economists called for a reading of 100.7. But…
The argument for adding more gold even now
Gold hit a new all-time high today of $2554 an ounce on the Comex for December delivery. Gold’s 20% or so gain in 2024 to date (as of August 26) is a result of strong central-bank buying plus Asian purchases plus anticipation that the Federal Reserve was about to cut interest rates. Now that Fed chair Jerome Powell has just about promised a cut at the Fed’s September 18 meeting it looks like gold will climb further in 2024 on the fundamentals. Bullish Wall Street targets say $2700 to $3,000 by the end of 2024. That’s a decent reason to hold gold. But the very scary geopolitical landscape over the next six months makes me anxious to add more gold even at the record nominal high for the metal.
Saturday Night Quarterback says (on a Sunday), for the week ahead keep your eyes on two different events…
It wouldn’t hurt to be a crab this week so you’d be able to independently rotate your eyes to look in two different directions. With one eye this week, investors and traders will want to watch the Wednesday, August 28, earnings report from Nvidia (NVDA) to see if tech stocks can continue to regain the momentum they lost in the market tumble of early August.And with the other eye, watch for reaction to Fed chair Jerome Powell’s Friday Jackson Hole speech that promised an initial interest rate cut at the Fed’s September 18 meeting. Now market attention shifts to how many rate cuts there will be in 2024. Anything less than full 100 basis points at the September, November, and December meetings will disappoint some bond traders.
No surprise! Powell says Fed will cut rates at September 18 meeting
Speaking at the Kansas City Fed’s Jackson Hole central bankers gab fest, Jerome Powell, the chair of the Federal Reserve, clearly said on Friday that the central bank was poised to cut interest rates at its September 18 meeting. “The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” He then added: “We will do everything we can to support a strong labor market as we make further progress toward price stability.” All this shifts market attention from WHEN the Fed will begin cut interest rates to HOW FAST those cuts will be.
Big downward revision in jobs locks in September interest rate cut by the Fed, puts November cut in play
Monthly employment reports overstated the number of job created by the U.S. economy by 818,000 in the 12 months that ended in March 2024, the Labor Department reported on Wednesday, August 21. That revision, part of the annual process that reconciles job reports derived from monthly surveys with state records, says that employers added about 174,000 jobs per month on average during that period, down from the previously reported pace of about 242,000 jobs. That’s a drop of about 28%.
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.
Live Market Report (20 minute delay)
Slump in factory ISM raises question of how slow is too slow
Be careful what you wish for. Financial markets have been hoping to see signs of a slowing U.S. economy that would let the Federal Reserve begin to cut interest rates. But after the Institute for Supply Management’s (ISM) manufacturing gauge fell 0.5 point to 48.7 in May, the weakest in three months, in data released on Monday, investors have begun to worry if this much of a slowdown is a good thing.
Saturday Night Quarterback says, For the week ahead don’t expect…
Don’t expect inflation worries to go away. One thing that is keeping inflation worries at full boil is the problem of understanding why inflation has stayed higher than expected for so long. Has something fundamentally changed in the economy? And could that keep inflation higher than expected for longer than now expected? The answer according to a new and disconcerting study from the Cleveland Federal Reserve Bank is “yes.” The inflationary impacts from pandemic-era supply chain shocks have largely resolved and the remaining forces that are keeping inflation elevated are “very persistent,” Cleveland Fed economist Randal Verbrugge wrote in a report released on Thursday. Inflation may not return to the U.S. central bank’s 2% target until mid-2027.
PCE inflation rose at slowest pace of 2024 in April
The Federal Reserve’s preferred measure of U.S. inflation–the core personal consumption expenditures (PCE) price index, which strips out volatile food and energy prices–rose 0.2% in April from March.That was the smallest advance in 2024, according to Bureau of Economic Analysis data out Friday. And there was more evidence of a slowing economy today.
Tomorrow’s a big day for inflation, interest rates, and the economy
Friday brings more inflation data— price indexes for April personal income and spending, including the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure. The PCE ran at an annual 2.7% in March and has exceeded the Fed’s 2% inflation target since March 2021.
It’s a concentrated Magnificent 7 market again
Hedge funds’ exposure to the Magnificent Seven of Nvidia (NVDA), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOG), Tesla (TSLA), and Microsoft (MSFT) has reached a record high of approximately 20.7% of their total net exposure to individual U.S. stocks, according to a report from Goldman Sachs. The proximate cause of this surge is Nvidia’s recent consensus-beating earnings report, which renewed the frenzy around artificial intelligence stocks. Nvidia has added around $470 billion in market capitalization since that report. A slightly more long-term cause is that with the consensus projection for when the Federal Reserve will start cutting interest rates moving later and later in 2024, earnings growth is increasingly the only game in town when it comes to supporting higher stock prices.
Saturday Night Quarterback say (on a Memorial Day Sunday), For the week ahead expect…
I expect Wall Street’s last rate cut bulls to get gradually less bullish. With means, expect to see interest rates (and Treasury yields) continue to rise, and the consensus on when the first cut in rates from the Federal Reserve to continue to move later in 2024. This past week economists at Goldman Sachs threw in the towel on their projections for a July interest rate cut by the Federal Reserve. The investment company moved its forecast for an initial cut to September.“Earlier this week, we noted that comments from Fed officials suggested that a July cut would likely require not just better inflation numbers but also meaningful signs of softness in the activity or labor market data,” the economists wrote in a note.Goldman Sachs had been one of the last banks on Wall Street betting the Fed would start lowering interest rates in July. JPMorgan Chase and Citigroup are among the few holdouts still forecasting a July move. Goldman is still predicting two interest rate cuts in 2024. The swaps market now fully prices in a December cut. The odds of a second reduction in 2024 stand at less than 30%, compared with about 70% last week. At the end of 2023, the first Fed cut was expected as early as March.
Nvidia beats even the most optimistic earnings forecasts
Yesterday, May 22, after the market close, Nvidia (NVDA) crushed Wall Street projections for revenue and earnings for the company’s fiscal first quarter of 2025. Nvidia reported that revenue soared 262% year-over-year to a record $26 billion, marking an 18% quarter-over-quarter increase. Adjusted earnings per share climbed 461% to $6.12. The Wall Street consensus had called for revenue of $24.65 billion and earnings per share of $5.59. And it even beat the Wall Street “whisper number,” which in a bullish momentum situation like this runs considerably above the official consensus. Data center revenue hit a record $22.6 billion, up 427% year over year. Data center revenue represents 87% of Nvidia’s total sales. For the current fiscal second quarter of 2025 Nvidia told investors to expect sales of $28 billion, up 107% year over year.
Please Watch My New YouTube Video: The Uncertainty of Uncertainty
Today’s video is The Uncertainty of Uncertainty in the Stock Market. Right now we’re seeing uncertainty on top of uncertainty. The CPI numbers just came out and April showed a slightly lower annualized inflation rate than March. The market took this as a signal that we’ve moved past inflation stagnation and have resumed the march towards 2%. This is, of course, an uncertainty. Another uncertainty is the what we don’t know about the inner thinking at the Fed. How much of a decline does the Fed really need to see to start cutting rates? Right now, according to the CME Fedwatch tool, there is a 70% chance that we’ll see interest rate cuts at the September Fed meeting. This prediction has shifted a lot in the last few months and could continue to shift. These uncertainties mean that the market may be fully priced at 5,200. Some analysts suggest we could hit 5,600 by the end of the year, making it a 15-20% year. In the short term, it’s really hard to predict how people react to all these layers of uncertainty. It’s also difficult to hedge this market so I recommend looking at individual stocks in lithium or copper that will continue to go up, even if the market as a whole doesn’t move.
Saturday Night Quarterback say, For the week ahead expect…
I’m expecting a key moment for momentum in a market that keeps setting new records on Wednesday, May 22, when Nvidia (NVDA) announces revenue and earnings for the company’s first fiscal quarter of 2025 and the quarter that ended in calendar April 2024. The consensus among Wall Street analysts is looking for the company to earn $5.17 a share. That would be a huge leap from 88 cents a share in the April 2023 quarter. The projections for revenue are every bit as optimistic.
Please Watch My New YouTube video: Hot Button Moves NOW: Buy Equal Weight S&P 500 Index ETFs
Today’s Hot Button Moves NOW video is Buy Equal Weight S&P Indexes. If you’re concerned about volatility in the tech sector but want to stay in the market, equal weight S&P indexes may be a good alternative. Stocks like Nvidia with a market cap of around 2 trillion, have a lot more weight in the common version of the market cap weighted S&P 500 index than a stock with a smaller cap. In the last week or so, we’ve seen equal weight indexes converge with the longer-term out-performance of the weighted indexes. Using an equal weight index lowers your exposure to the big, now more volatile stocks while keeping you in the market. The Invesco S&P 500 Equal Weight ETF (RSP) is a low expense ratio ETF (.2%) with about $55 billion in assets under management. Year to date, RSP is up 4.68% versus 9.9% year to date for the market cap weighted ETF from Vanguard (VOO). However, for the last 3 months you see a 4.3% return for the equal weight index versus a 4.19% for the market cap weighted index. In the last week, for the first time in a long time, the equal weight index outperformed the weighted index. While one week isn’t a trend, it does seem like the returns are converged. Shifting some S&P exposure from the large cap stocks to this equal weight ETF is a good choice to stay in the game with less volatility. I’m going to make this shift in my Perfect 5 ETF Portfolio on my subscription JubakAM.com site tomorrow May 16.
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.
Please Watch My New YouTube Video: How big a danger is consumer debt?
Today’s video is How big a danger is consumer debt? The Federal Reserve has been slowly trying to get inflation down one more percentage point by slowing the economy (without crashing it). One of the things the Fed looks at is how consumers are doing. Consumer revenue is about 70% of the overall economy and consewuently the Fed has been keeping an eye on consumer debt. At the moment, debt as we can measure it, is at a high level with credit card delinquencies at 3.5% in December 2023, the highest since the current data series istarted in 2012. But that number doesn’t capture everything gong on with consumer debt since the increasingly popular Buy Now, Pay Later products aren’t included in the big consumer debt measurements. Thes products let people stretch or delay payments by cutting them into installlments. The Buy now/pay later market is currently only about $18 billion but is projected to hit $700 billion by 2029. What’s th deliquency ratw for Buy now/pay later? No one knows because the companies providing Buy Now, Pay Later programs don’t report delinquencies to credit bureaus. Anecdotally, the delinquwncy rate seems high. A Bloomberg survey found that about 43% of people in Buy Now, Pay Later programs say they’re behind or feeling pressure on their payments. 28% say they’re delinquent on other debt as a result of these payments. Th Fed faces a tough enough job of sailing the economy to a safe harbor without having to steer blind n a big and growing part of the markrt for consumer debt. My worry is that the economy may be slowing faster than the Fed would hope or can accurately measure. Keep an eye on this as the Fed continues to push rate cuts further and further down the road.
Please Watch My New YouTube Video: Quick Pick Cloud Stocks
Today’s Quick Pick is Cloud Service Infrastructure Stocks. Normally I’ll choose a specific individual stock for Quick Picks but in this case, I thought I should highlight the entire sector. It’s impossible to overstate the importance of AI technology’s effect on the economy as a whole but it’s also important to look at the individual companies and sectors that benefit from the demand this technology brings to the market. AI has created a revival of growth in the cloud service infrastructure sector, as demand for more processing on databases to run AI programming continues to increase. The sector has seen a revenue growth of about 21% year over year in the first quarter of 2024. The sector is dominated by three companies with Amazon (AMZN) holding the largest share at 31%, and Microsoft (MSFT) with 24% and Alphabet (Google) (GOOG) with 11.5%. This is a $300 billion market, and those three companies have about 66% of it. Smaller players like Alibaba (BABA) and Oracle (ORCL) have A LOT smaller shares at 4% and 3%. However, even that 3% of the market puts Oracle’s cloud revenue at $5.1 billion in the most recent quarter. Revenue in this sector is likely to continue to grow and it looks like good news for all of these companies that set the tone for the market. This is yet another way to get in on the AI boom.
This AI iPhone App isn’t from Apple
Artificial intelligence startup Anthropic is introducing its first smartphone app this week. The App will itself be free and will be to free and paid users of Claude, Anthropic’s Ai chatbot, Conversations on the app will synchronize with those conducted via the web-based version of the chatbot. The app will also be able to analyze pictures—such as from photos users take—to perform image recognition.
Finally some good news on Social Security and Medicare: They won’t be insolvent until 2035 and 2036
Social Security and Medicare will run out of money in just over a decade, a new government report warned Monday, May 6. Where’s the good news? Insolvency will come late than forecast last year thanks to the hot job market. The trustees for the massive retirement programs project that Social Security will be insolvent by 2035, and Medicare by 2036, which would force benefit cuts. Congress and the White House could act in 2025 as part of an intense debate on the extension of the Trump tax cuts of 2017, which are due to expire in 2027.
Please Watch My New YouTube video: Hot MoneyMoves NOW Tech worries
Today’s Hot Button Moves NOW video is Tech Worries. In my last video, I suggested the normal advice of “go away in May” may be valid again this year because of the revenue patterns I’m seeing in the technology sector, especially tech/consumer stocks, like Apple (AAPL). On May 2nd, Apple beat $1.50 expectations by reporting $1.53 a share. Revenue also beat at $90.8 billion (Wall Street expectations had it at $90.3 billion.) iPhone revenue was at $45.96 billion, down from $51.33 billion in 2023. The stock went up by about 6% after the report, even though it was a modest beat of already lowered expectations. Apple also announced an increase to its dividend of $.25 a share and a buyback program of $110 billion. CEO Tim Cook announced plans for the iphone to add AI in the future as Apple catches up with the use of AI at competitors such as Samsung. This promise of a wonderful future, combined with a modest beat, was enough to boost the stock. This is just one more example of a pattern I’m seeing in the sector currently where technology companies make vague, date-less promises of bigger and better things to come, with very little tangible proof or actual products. Investors are being asked to pay as if these are growth stocks, when in fact these promises may never come to fruition. The market is trying to extend a rally but “Go away in May” may be the safer bet.
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