From Barron’s, February 26, 2024 (Part 1, Market Week+)
Feb 24, 2024 11:45:23 GMT
chang, Norbert, and 6 more like this
Post by yogibearbull on Feb 24, 2024 11:45:23 GMT
From Barron’s, February 26, 2024 (Part 1, Market Week+)
Pg 28, TRADER. False hopes of rate cuts started this RALLY, but now it has a life of its own – it’s beyond rate cut realities, AI hype, NVDA, tech. Among the sectors, tech, healthcare, and industrials also had new highs, and financials and materials are just within 5%. So, soon, it will be an everything-rally. But it will run into the harsh realities of “higher rates for longer”; corporate earnings and revenue outlooks haven’t changed much, and P/Es can only stretch so far. Sideline money is rushing into the market now (but see FUND FLOWS below) as Sentiments remain good (if not great). But eventually, even the Energizer Bunny runs out of batteries.
NATURAL GAS prices have crashed due to weak demand from warmer Winter. The US inventories are 15% above normal. The LNG exports are rising as prices elsewhere are relatively higher. Attractive for rebound are CHK, SWN, LNG.
Discover/DFS & Capital One/COF deal may face regulatory issues from the Federal Reserve, OCC, DOJ, and the self-appointed M&A-killer Senator Elizabeth WARREN, etc. DFS is trading at an 11% discount from the deal price and that indicates a 50-50 probability of it going through. Post-acquisition, COF will become #1 in credit card loans outstanding, far outdistancing now #1 JP Morgan Chase/JPM.
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 3/20/24+ hold (cycle peak 5.25-5.50%)
FOMC 5/1/24+ hold
FOMC 6/12/24+ cut
FOMC 7/31/24+ hold
FOMC 9/18/24+ 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 +1.30%, SP500 +1.66%, Nasdaq Comp +1.40%, R2000 -0.79% (SC not invited to the party). DJ Transports +1.87%; DJ Utilities +0.55%. (Rotating spot Nvidia/NVDA +8.54% (huge)) US$ index (spot) -0.33% (remains too strong over 100), oil/WTI futures -3.41%, gold futures +1.35%.
YTD (index changes only), DJIA +3.83%, SP500 +6.69%, Nasdaq Comp +6.56%. (Rotating spot Nvidia/NVDA +59.18% (huge-huge; need new words))
SENTIMENTS
(ALL sentiments remain good and steady but they peaked in mid-December)
NYSE cumulative (5-day) A/D LINE rose for a 5th week; ratio of winners:losers 4:3
FUND INFLOWS +/OUTFLOWS: Stocks -|0, taxable bonds +|0, munis +|-, money-market funds +|0. (NEW FORMAT: 4wMA|Weekly change)
(Observation in the TRADER that “Sideline money is rushing into the market now…” isn’t seen in the fund flows)
AAII Bull-Bear Spread +18.1% (above average). (Thursday-Wednesday)
(Sentiment Scale: v low << avg - 1*SD; low < avg - 1*SD; below avg, avg, above avg for in-between; high > avg + 1*SD, v high >> avg + 1*SD)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 60.28% (positive); (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 73.9% (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 for %Above: oversold < 30-; 30 < negative < 50-; 50 < positive < 70-; 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. GERMAN economy has been shrinking. Corporate earnings have fallen. It courts have ruled that the Government (a 3-party coalition) cannot repurpose the leftover/dedicated pandemic stimulus funds. It lost the most in Europe from Russia-Ukraine war because it relied heavily on cheap Russian energy. Its exports are lower due to weaker demand and growing competition. It was slow to move on EVs (but lately, that’s good). The government debt is a manageable 60% of GDP, but its annual budget deficit is constitutionally restricted to 0.35% of GDP. Among the positives, the job market is strong, inflation is in control, natural-gas prices are lower (but much higher than in the US). German stocks are cheap at fwd P/E 12. All it needs is a catalyst and strong political leadership.
Pg 32, OPTIONS. Things look very rosy now for the economy and the stock market. But higher rates for longer will be headwinds for a rising market. Volatility (VIX) is low at the index level, but individual companies move a lot on news. Recommended is a put spread – buy one near-put, sell two far-puts; risk is if the market keeps rising or crashes (a boom-bust scenario).
SP500 VIX 13.75 (low), Nasdaq 100 VXN 17.70 (low), options SKEW 144.00 (high), bond MOVE 108.31 (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 (Italy +2.91%, Norway -0.76%) and a good week in ASIA (China +2.97%, Singapore -1.29%) (Japan is finally at an all-time high, but it’s economy is in a technical recession; the BOJ should remain easy).
TREASURY* 3-mo yield 5.46%, 1-yr 5.00%, 2-yr 4.67%, 5-yr 4.28%, 10-yr 4.26%, 30-yr 4.37%;
REAL yields 5-yr 1.94%, 10-yr 1.96%, 30-yr 2.11%;
FRNs Index** 5.30% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell ^DXY 103.96, -0.3% (pg 50). GOLD rose to 2,027 (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 106.72, -1.06% 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 18, COVER STORY, “VIDEOGAMES Have Become a Gateway to GAMBLING. Millions of teenagers are at Risk”. There are concerns that young people hooked on videogames are vulnerable later to gambling apps. There are regulations that don’t allow direct tie-ins between videogaming and gambling apps but those are loosely enforced and can be bypassed easily. Gambling sites rely heavily on streaming ads on social-media. Media influencers also offer how-to tools for indirect connections between videogaming and gambling apps. Private Valve is mentioned for many related issues, and it has been under investigation for years without any results. Regulators face the difficulty that many gambling sites are based overseas, and when they ban one app, another similar crops up days later.
Pg 6, UP AND DOWN WALL STREET. Will the curse of the Dow hit Amazon/AMZN? Historically, new members into the DJIA relatively underperformed those booted out, although there have been exceptions (CVX, UNH). S&P Dow Jones Indices has a committee that oversees this odd price-weighted index and keeps alive by heavy marketing. Sure, AI WILL BE huge, but in the near-term, it won’t have much impact on company fundamentals. Growth investors may look at GARP strategies.
Elsewhere, what more can be said about Nvidia/NVDA that hasn’t been said already? It’s the yellow metal of the gold rush, Cisco/CSCO of the dot. com era, Taylor Swift of social-media, it’s in its own class (and then the Author runs out of superlatives). (One more: NVDA market-cap is higher that all but 11 countries)
Zero-coupon convertibles from SMCI? Only $1.5 billion in “free money” (there is a stiff 37.5% conversion premium from the sky-high price at issue). General corporate bond issuance at narrow spreads from Treasuries has been strong. Fed’s “open mouths” have started ditching the prospects of early rate cuts. Stock valuations will depend on their modest earnings growth, and now there is competition from bonds.
Pg 8, STREETWISE. For financial minimalists, mostly good US stocks (IVV) and some bonds (BND) should be enough. May be add some small-caps and international-developed. It seems too late to jump into expensive India. But one doesn’t really need risky HY, EMs, CEFs, or speculative commodities, private-equity, real estate, options, cryptos. Insurance isn’t even an investment – buy it for family protection only.
(More later….)
LINK
Pg 28, TRADER. False hopes of rate cuts started this RALLY, but now it has a life of its own – it’s beyond rate cut realities, AI hype, NVDA, tech. Among the sectors, tech, healthcare, and industrials also had new highs, and financials and materials are just within 5%. So, soon, it will be an everything-rally. But it will run into the harsh realities of “higher rates for longer”; corporate earnings and revenue outlooks haven’t changed much, and P/Es can only stretch so far. Sideline money is rushing into the market now (but see FUND FLOWS below) as Sentiments remain good (if not great). But eventually, even the Energizer Bunny runs out of batteries.
NATURAL GAS prices have crashed due to weak demand from warmer Winter. The US inventories are 15% above normal. The LNG exports are rising as prices elsewhere are relatively higher. Attractive for rebound are CHK, SWN, LNG.
Discover/DFS & Capital One/COF deal may face regulatory issues from the Federal Reserve, OCC, DOJ, and the self-appointed M&A-killer Senator Elizabeth WARREN, etc. DFS is trading at an 11% discount from the deal price and that indicates a 50-50 probability of it going through. Post-acquisition, COF will become #1 in credit card loans outstanding, far outdistancing now #1 JP Morgan Chase/JPM.
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 3/20/24+ hold (cycle peak 5.25-5.50%)
FOMC 5/1/24+ hold
FOMC 6/12/24+ cut
FOMC 7/31/24+ hold
FOMC 9/18/24+ 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 +1.30%, SP500 +1.66%, Nasdaq Comp +1.40%, R2000 -0.79% (SC not invited to the party). DJ Transports +1.87%; DJ Utilities +0.55%. (Rotating spot Nvidia/NVDA +8.54% (huge)) US$ index (spot) -0.33% (remains too strong over 100), oil/WTI futures -3.41%, gold futures +1.35%.
YTD (index changes only), DJIA +3.83%, SP500 +6.69%, Nasdaq Comp +6.56%. (Rotating spot Nvidia/NVDA +59.18% (huge-huge; need new words))
SENTIMENTS
(ALL sentiments remain good and steady but they peaked in mid-December)
NYSE cumulative (5-day) A/D LINE rose for a 5th week; ratio of winners:losers 4:3
FUND INFLOWS +/OUTFLOWS: Stocks -|0, taxable bonds +|0, munis +|-, money-market funds +|0. (NEW FORMAT: 4wMA|Weekly change)
(Observation in the TRADER that “Sideline money is rushing into the market now…” isn’t seen in the fund flows)
AAII Bull-Bear Spread +18.1% (above average). (Thursday-Wednesday)
(Sentiment Scale: v low << avg - 1*SD; low < avg - 1*SD; below avg, avg, above avg for in-between; high > avg + 1*SD, v high >> avg + 1*SD)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 60.28% (positive); (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 73.9% (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 for %Above: oversold < 30-; 30 < negative < 50-; 50 < positive < 70-; 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. GERMAN economy has been shrinking. Corporate earnings have fallen. It courts have ruled that the Government (a 3-party coalition) cannot repurpose the leftover/dedicated pandemic stimulus funds. It lost the most in Europe from Russia-Ukraine war because it relied heavily on cheap Russian energy. Its exports are lower due to weaker demand and growing competition. It was slow to move on EVs (but lately, that’s good). The government debt is a manageable 60% of GDP, but its annual budget deficit is constitutionally restricted to 0.35% of GDP. Among the positives, the job market is strong, inflation is in control, natural-gas prices are lower (but much higher than in the US). German stocks are cheap at fwd P/E 12. All it needs is a catalyst and strong political leadership.
Pg 32, OPTIONS. Things look very rosy now for the economy and the stock market. But higher rates for longer will be headwinds for a rising market. Volatility (VIX) is low at the index level, but individual companies move a lot on news. Recommended is a put spread – buy one near-put, sell two far-puts; risk is if the market keeps rising or crashes (a boom-bust scenario).
SP500 VIX 13.75 (low), Nasdaq 100 VXN 17.70 (low), options SKEW 144.00 (high), bond MOVE 108.31 (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 (Italy +2.91%, Norway -0.76%) and a good week in ASIA (China +2.97%, Singapore -1.29%) (Japan is finally at an all-time high, but it’s economy is in a technical recession; the BOJ should remain easy).
TREASURY* 3-mo yield 5.46%, 1-yr 5.00%, 2-yr 4.67%, 5-yr 4.28%, 10-yr 4.26%, 30-yr 4.37%;
REAL yields 5-yr 1.94%, 10-yr 1.96%, 30-yr 2.11%;
FRNs Index** 5.30% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell ^DXY 103.96, -0.3% (pg 50). GOLD rose to 2,027 (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 106.72, -1.06% 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 18, COVER STORY, “VIDEOGAMES Have Become a Gateway to GAMBLING. Millions of teenagers are at Risk”. There are concerns that young people hooked on videogames are vulnerable later to gambling apps. There are regulations that don’t allow direct tie-ins between videogaming and gambling apps but those are loosely enforced and can be bypassed easily. Gambling sites rely heavily on streaming ads on social-media. Media influencers also offer how-to tools for indirect connections between videogaming and gambling apps. Private Valve is mentioned for many related issues, and it has been under investigation for years without any results. Regulators face the difficulty that many gambling sites are based overseas, and when they ban one app, another similar crops up days later.
Pg 6, UP AND DOWN WALL STREET. Will the curse of the Dow hit Amazon/AMZN? Historically, new members into the DJIA relatively underperformed those booted out, although there have been exceptions (CVX, UNH). S&P Dow Jones Indices has a committee that oversees this odd price-weighted index and keeps alive by heavy marketing. Sure, AI WILL BE huge, but in the near-term, it won’t have much impact on company fundamentals. Growth investors may look at GARP strategies.
Elsewhere, what more can be said about Nvidia/NVDA that hasn’t been said already? It’s the yellow metal of the gold rush, Cisco/CSCO of the dot. com era, Taylor Swift of social-media, it’s in its own class (and then the Author runs out of superlatives). (One more: NVDA market-cap is higher that all but 11 countries)
Zero-coupon convertibles from SMCI? Only $1.5 billion in “free money” (there is a stiff 37.5% conversion premium from the sky-high price at issue). General corporate bond issuance at narrow spreads from Treasuries has been strong. Fed’s “open mouths” have started ditching the prospects of early rate cuts. Stock valuations will depend on their modest earnings growth, and now there is competition from bonds.
Pg 8, STREETWISE. For financial minimalists, mostly good US stocks (IVV) and some bonds (BND) should be enough. May be add some small-caps and international-developed. It seems too late to jump into expensive India. But one doesn’t really need risky HY, EMs, CEFs, or speculative commodities, private-equity, real estate, options, cryptos. Insurance isn’t even an investment – buy it for family protection only.
(More later….)
LINK
