From Barron’s, January 29, 2024 (Part 1, Market Week+)
Jan 27, 2024 11:11:33 GMT
chang, rhythmmethod, and 6 more like this
Post by yogibearbull on Jan 27, 2024 11:11:33 GMT
From Barron’s, January 29, 2024 (Part 1, Market Week+)
Pg 27, TRADER. The stock market has new HIGHS on an optimistic outlook that may not come through. The FED won’t act at the FOMC meeting ending on 1/31/24 but watch for its guidance. EARNINGS so far have been mixed. ECONOMIC data have been good (GDP, inflation, etc). The yield-curve is less inverted. Bears are waiting for recession in 2024 that looks unlikely. But be prepared for a pullback.
Small-caps are attractive (again) with fwd P/E 13.7 vs 19.8 for SP500. But use SP SC 600 (IJR, SPSM), not R2000 (IWM) with almost 40% of companies without profits.
Auto-chips maker NXP is attractive (fwd P/E 15.3 only; auto business is 56% of sales). It’s managing inventory well; margins are 58%. Auto sales should rise beyond 2013/Q4.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 1/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 3/20/24+ hold
FOMC 5/1/24+ cut
FOMC 6/12/24+ cut
FOMC 7/31/24+ cut
(Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.65%, SP500 +1.06%, Nasdaq Comp +0.94%, R2000 +1.75%. DJ Transports +1.98%; DJ Utilities -0.34%. (Rotating spot small-cap R2000 +1.75%) US$ index (spot) +0.17% (remains too strong over 100), oil/WTI futures +6.27%, gold futures -0.48%.
52-Week (index changes only), DJIA +12.16%, SP500 +20.15%, Nasdaq Comp +32.99%. (Rotating spot small-cap R2000 +3.50%) (SWITCHED to 52-week until YTD becomes meaningful)
SENTIMENTS
(ALL sentiments remain OK but peaked in mid-December)
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 5:2.
FUND INFLOWS +/OUTFLOWS - (4-weekMA). Stocks -, taxable bonds +, munis +, money-market funds +.
AAII Bull-Bear Spread +13.2% (above average). (Thursday-Wednesday)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 69.82% (positive; borderline w/overbought); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 80.5% (overbought); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 31, INTERNATIONAL TRADER. CHINESE EV makers are now #1 global EV producers (BYD, etc; top 10 have 80% market share, BYD has 35%, TSLA 8% only). They are suddenly under the radar of Chinese authorities for disorderly competitive behaviors. Chinese ICE car production may disappear in 5 years. Formal EV subsidies were phased out by 2022. China doesn’t export EVs to the US but is still the top global EV exporter. The EU has launched an anti-dumping investigation and European tariffs may rise. Chinese authorities may be reacting to that, and they don’t want 100 – 10 = 90 EV makers to fold. (Even Musk is complaining, and he has a large EV production facility in China)
Pg 32, OPTIONS. In this accident/event-prone market, use put-spreads for selected stocks and indexes (hedging everything is expensive). An example is given for tech XLK.
(SP500 VIX 13.26 (low), Nasdaq 100 VXN 17.03 (low), options SKEW 151.36 (high), bond MOVE 100.23 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A good week in EUROPE (Netherlands +7.93%, Italy +0.67%) and an up week in ASIA (HK +3.75%, Indonesia -2.70%).
TREASURY* 3-mo yield 5.44%, 1-yr 4.78%, 2-yr 4.34%, 5-yr 4.04%, 10-yr 4.15%, 30-yr 4.38%;
REAL yields 5-yr 1.78%, 10-yr 1.85%, 30-yr 2.10%;
FRNs Index** 5.295% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose to ^DXY 103.47, +0.2% (pg 50). GOLD fell to 2,018, -0.5% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 112.74, +0.71% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 22, COVER STORY, “Microsoft is the World’s Most Valuable Company. Now it has to Prove it can Stay There”. On the strength of AI (in partnership with OpenAI), Azure cloud and other businesses (Office 365; operating systems; gaming), MSFT (yield 0.7%; fwd P/E 33.1) is hot; but AI has yet to contribute meaningfully to earnings. It’s neck-to-neck with Apple/AAPL for the title of the most valuable company in the world. Satya NADELLA (56) has been the CEO since 02/2014 and the stock runup since then has been impressive. It has grown organically, and through 230 acquisitions since 1994. It sees GOOGL as its AI competitor. The RISK is that MSFT fails to deliver on the AI hype. Others such as Morgan Stanley/MS who adopted ChatGPT early for financial advising tools have pulled back – in financial advising, good enough advise isn’t just good enough. It’s possible that the current AI hype may go through a bust cycle before its next big leg up. Creative-AI is still a dream beyond the current generative-AI.
Pg 6, UP AND DOWN WALL STREET. The FOMC won’t act on rates on Wednesday but look for POWELL to address the large gap in the expectations of the fed fund futures market and the FOMC. The fed fund rate is above inflation, but below the nominal GDP growth – not a recipe for recession. The ECONOMIC data has been good, and STOCKS have been hitting new highs, so the Fed won’t be in rush to ease. Investors cannot have their cake and eat it too. Global pressures on SUPPLY-CHAINS may keep inflation higher for longer. TREASURY will announce its financing needs on Monday (overall) and Wednesday (mix of Bills, Notes, Bonds). Corporate borrowing is strong as the bond SPREADS over Treasuries are low.
If the FED cuts rates when inflation is coming down, that would be better than if it did that with recession or some crisis looming. New stock market highs are looking at good things to come.
Pg 8, STREETWISE. Exxon/XOM is attractive – yield 3.7%, safe until oil is $35; the FCF yield 8%; buybacks; huge cash flow; integrated upstream, midstream, downstream operations; growing alternate energy business.
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
LINK
Pg 27, TRADER. The stock market has new HIGHS on an optimistic outlook that may not come through. The FED won’t act at the FOMC meeting ending on 1/31/24 but watch for its guidance. EARNINGS so far have been mixed. ECONOMIC data have been good (GDP, inflation, etc). The yield-curve is less inverted. Bears are waiting for recession in 2024 that looks unlikely. But be prepared for a pullback.
Small-caps are attractive (again) with fwd P/E 13.7 vs 19.8 for SP500. But use SP SC 600 (IJR, SPSM), not R2000 (IWM) with almost 40% of companies without profits.
Auto-chips maker NXP is attractive (fwd P/E 15.3 only; auto business is 56% of sales). It’s managing inventory well; margins are 58%. Auto sales should rise beyond 2013/Q4.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 1/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 3/20/24+ hold
FOMC 5/1/24+ cut
FOMC 6/12/24+ cut
FOMC 7/31/24+ cut
(Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.65%, SP500 +1.06%, Nasdaq Comp +0.94%, R2000 +1.75%. DJ Transports +1.98%; DJ Utilities -0.34%. (Rotating spot small-cap R2000 +1.75%) US$ index (spot) +0.17% (remains too strong over 100), oil/WTI futures +6.27%, gold futures -0.48%.
52-Week (index changes only), DJIA +12.16%, SP500 +20.15%, Nasdaq Comp +32.99%. (Rotating spot small-cap R2000 +3.50%) (SWITCHED to 52-week until YTD becomes meaningful)
SENTIMENTS
(ALL sentiments remain OK but peaked in mid-December)
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 5:2.
FUND INFLOWS +/OUTFLOWS - (4-weekMA). Stocks -, taxable bonds +, munis +, money-market funds +.
AAII Bull-Bear Spread +13.2% (above average). (Thursday-Wednesday)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 69.82% (positive; borderline w/overbought); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 80.5% (overbought); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 31, INTERNATIONAL TRADER. CHINESE EV makers are now #1 global EV producers (BYD, etc; top 10 have 80% market share, BYD has 35%, TSLA 8% only). They are suddenly under the radar of Chinese authorities for disorderly competitive behaviors. Chinese ICE car production may disappear in 5 years. Formal EV subsidies were phased out by 2022. China doesn’t export EVs to the US but is still the top global EV exporter. The EU has launched an anti-dumping investigation and European tariffs may rise. Chinese authorities may be reacting to that, and they don’t want 100 – 10 = 90 EV makers to fold. (Even Musk is complaining, and he has a large EV production facility in China)
Pg 32, OPTIONS. In this accident/event-prone market, use put-spreads for selected stocks and indexes (hedging everything is expensive). An example is given for tech XLK.
(SP500 VIX 13.26 (low), Nasdaq 100 VXN 17.03 (low), options SKEW 151.36 (high), bond MOVE 100.23 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 45: A good week in EUROPE (Netherlands +7.93%, Italy +0.67%) and an up week in ASIA (HK +3.75%, Indonesia -2.70%).
TREASURY* 3-mo yield 5.44%, 1-yr 4.78%, 2-yr 4.34%, 5-yr 4.04%, 10-yr 4.15%, 30-yr 4.38%;
REAL yields 5-yr 1.78%, 10-yr 1.85%, 30-yr 2.10%;
FRNs Index** 5.295% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose to ^DXY 103.47, +0.2% (pg 50). GOLD fell to 2,018, -0.5% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 112.74, +0.71% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 22, COVER STORY, “Microsoft is the World’s Most Valuable Company. Now it has to Prove it can Stay There”. On the strength of AI (in partnership with OpenAI), Azure cloud and other businesses (Office 365; operating systems; gaming), MSFT (yield 0.7%; fwd P/E 33.1) is hot; but AI has yet to contribute meaningfully to earnings. It’s neck-to-neck with Apple/AAPL for the title of the most valuable company in the world. Satya NADELLA (56) has been the CEO since 02/2014 and the stock runup since then has been impressive. It has grown organically, and through 230 acquisitions since 1994. It sees GOOGL as its AI competitor. The RISK is that MSFT fails to deliver on the AI hype. Others such as Morgan Stanley/MS who adopted ChatGPT early for financial advising tools have pulled back – in financial advising, good enough advise isn’t just good enough. It’s possible that the current AI hype may go through a bust cycle before its next big leg up. Creative-AI is still a dream beyond the current generative-AI.
Pg 6, UP AND DOWN WALL STREET. The FOMC won’t act on rates on Wednesday but look for POWELL to address the large gap in the expectations of the fed fund futures market and the FOMC. The fed fund rate is above inflation, but below the nominal GDP growth – not a recipe for recession. The ECONOMIC data has been good, and STOCKS have been hitting new highs, so the Fed won’t be in rush to ease. Investors cannot have their cake and eat it too. Global pressures on SUPPLY-CHAINS may keep inflation higher for longer. TREASURY will announce its financing needs on Monday (overall) and Wednesday (mix of Bills, Notes, Bonds). Corporate borrowing is strong as the bond SPREADS over Treasuries are low.
If the FED cuts rates when inflation is coming down, that would be better than if it did that with recession or some crisis looming. New stock market highs are looking at good things to come.
Pg 8, STREETWISE. Exxon/XOM is attractive – yield 3.7%, safe until oil is $35; the FCF yield 8%; buybacks; huge cash flow; integrated upstream, midstream, downstream operations; growing alternate energy business.
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
LINK
