From Barron’s, April 15, 2024 (Part 1, Market Week+)
Apr 13, 2024 10:10:20 GMT
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From Barron’s, April 15, 2024 (Part 1, Market Week+)
Pg 27, TRADER. FOMO (fear of missing out) is dead, long live OMO (OK missing out). That is good with high valuations (SP 500 fwd P/E 21) and uncertainties ahead for earnings (+3.6% only for Q1, mostly from tech) and interest rates (higher for longer). Analysts have backloaded good 2024 earnings to Q4. Consumers are wary of high prices (despite lower inflation) and that may hurt earnings.
Former FAANG stock NFLX should be in Magnificent 7 (easy to kick out AAPL, TSLA). It has expanded its contents to sports. Its earnings report on 4/18/24 should be good.
Speculative startup/ early-stage/ pre-IPO company CEF DXYZ soared out of the gate and then crashed. Such high CEF premiums aren’t justified. A cofounder is suing the firm for improperly ousting him.
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 5/1/24+ hold (cycle peak 5.25-5.50%)
FOMC 6/12/24+ hold
FOMC 7/31/24+ cut
FOMC 9/18/24+ hold
FOMC 11/7/24+ hold
FOMC 12/18/24+ 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 -2.37%, SP500 -1.56%, Nasdaq Comp -0.45%, R2000 -2.92%. DJ Transports -2.65%; DJ Utilities -1.70%. (Rotating spot energy XLE -1.99%) US$ index (spot) +1.64% (remains too strong over 100), oil/WTI futures -1.44%, gold futures +1.31%.
YTD (index changes only), DJIA +0.78%, SP500 +7.41%, Nasdaq Comp +7.75%. (Rotating spot energy XLE +14.66%)
SENTIMENTS
(Sentiments have deteriorated; they peaked in mid-December and a minor peak was at March-end))
NYSE cumulative (5-day) A/D LINE fell for a 2nd week; ratio of winners:losers 1:6
FUND INFLOWS +/OUTFLOWS-: Stocks +|-, taxable bonds +|0, munis +|+, money-market funds -|-. (NEW FORMAT: 4wMA|weekly change)
AAII Bull-Bear Spread +19.4% (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 43.64% (negative; collapsing); (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 72.6% (overbought; badly lagging other indicators); 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. S KOREAN stock market needs to overcome the Korean-discount (due to its neighbor North) and local chaebol ownerships. The inheritance tax peaks at 60%, so family-controlled chaebols have incentives to keep stock prices low, and lax corporate governance encourages that. There are great S Korean companies at large discounts vs their counterparts elsewhere. There may be better opportunities in smaller companies. But don’t expect Japanese-style market reforms soon. The political situation isn’t favorable for drastic reforms with the opposition gaining strength.
EXTRA, COMMODITIES. GOLD investors are partying like 1849 (California gold rush). One factor is central bank buying as they diversify away from the dollar. For many foreign investors, gold has suddenly become better for flight to safety than the old standbys, the US dollar and Treasuries (recent US dollar diplomacy is driving these moves). Gold-miners are badly lagging gold-bullion but that can change quickly (as gold price spreads over fixed costs simply flow into their bottom lines). Silver is also rising with gold.
Shanghai Exchanges imposed trading limits on gold and copper futures.
Pg 32, OPTIONS. Options traders are skeptical of high Q1 earnings that are cyclical, especially when rates may remain higher for longer. Despite low VIX (16; for SP500 index) and realized single-stock volatility (average 23), the implied single-stock volatility is high (average 29); there is a lot of volatility beneath the SP500 index. The options investors are buying more puts (i.e. SKEW is high) in all sectors except energy.
SP500 VIX 17.31 (low), Nasdaq 100 VXN 20.39, options SKEW 142.31 (high), bond MOVE 112.82 (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 down week in EUROPE (Greece +1.84%, Norway +1.73%, Spain -2.11%) and an up week in ASIA (Japan +2.06%, HK -1.95%).
TREASURY* 3-mo yield 5.45%, 1-yr 5.13%, 2-yr 4.88%, 5-yr 4.54%, 10-yr 4.50%, 30-yr 4.61%;
REAL yields 5-yr 2.07%, 10-yr 2.11%, 30-yr 2.27%;
FRNs Index** 5.295% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose ^DXY 106.01, +1.6% (pg 50). GOLD rose to 2,402, +4.5% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 136.11, -0.10% for the week; badly lagging gold-bullion but catching up fast to approach 52-wk high)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, Rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%. NEW variable rate for May 1, 2024 is 1.48 x 2 = 2.96%, but the fixed/base rate will be released only on 4/30/24 or 5/1/24.
(NOTE – The Social Security COLA for 2025, based on the Q3 average of CPI-W, is ?, est +3%)
*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, “OIL Giants Pivot to PLASTICS. Sizing up a Historic Glut”. With ENERGY TRANSITION diminishing the role of OIL eventually, the oil majors in the US, Europe, Asia are expanding their capacity for plastics. This will lead to a glut in the already oversaturated plastics market – many plants are operating only at 80% capacity when the breakeven level is 90%, and brand-new plastics are priced 42% less than those produced from recycled plastics. Global plastics demand may peak in 2024. This glut will negatively impact the efforts to reduce everlasting plastics in the environment. But oil companies see this as a path for their survival (renewable energy is another) and are hoping that the market issues will be sorted out somehow. Currently only 11.8% of crude oil goes into plastics production. A swing factor is the use of natural gas (vs oil) for plastics production. State-controlled/ owned Chinese producers are making the most aggressive moves into chemicals and plastics. Saudi Aramco also has very ambitious plans. These state-controlled/ owned entities aren’t price- or profit- sensitive and may cause huge headaches for private companies. European and Asian producers also face issues related to oil/gas feedstock imports vs the US and Midde Eastern producers with access to cheap oil/gas. The historical cyclical patterns in the chemicals and plastics industry may be disrupted, trapping many value investors (classic value-trap). Among the global chemicals/ plastics majors, only BASFY is downsizing – everyone else is in a mad rush to expand capacity. But with falling earnings, will the investors pay for rising P/Es? Mentioned are DOW, LYB, WLK.
Pg 7, UP & DOWN WALL STREET. SPORTS are attracting a lot of attention and money. The top 50 sports franchises are now valued at $256 billion; it’s fashionable for billionaires to own sports franchises. Player salaries have skyrocketed. “Sports” now include genuine sports and digital-sports – gaming and gambling. Private-equity is also getting into sports except for the NFL. The Kiawah global sports leaders conference earlier this month brought high profile celebrities, politicians, dealmakers, and CEOs. Mentioned are MSGS (with large Dolan-discount), BATRA, BATRK, MANU, DKNG, CHDN, GMVHY.
(More later….)
LINK
Pg 27, TRADER. FOMO (fear of missing out) is dead, long live OMO (OK missing out). That is good with high valuations (SP 500 fwd P/E 21) and uncertainties ahead for earnings (+3.6% only for Q1, mostly from tech) and interest rates (higher for longer). Analysts have backloaded good 2024 earnings to Q4. Consumers are wary of high prices (despite lower inflation) and that may hurt earnings.
Former FAANG stock NFLX should be in Magnificent 7 (easy to kick out AAPL, TSLA). It has expanded its contents to sports. Its earnings report on 4/18/24 should be good.
Speculative startup/ early-stage/ pre-IPO company CEF DXYZ soared out of the gate and then crashed. Such high CEF premiums aren’t justified. A cofounder is suing the firm for improperly ousting him.
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 5/1/24+ hold (cycle peak 5.25-5.50%)
FOMC 6/12/24+ hold
FOMC 7/31/24+ cut
FOMC 9/18/24+ hold
FOMC 11/7/24+ hold
FOMC 12/18/24+ 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 -2.37%, SP500 -1.56%, Nasdaq Comp -0.45%, R2000 -2.92%. DJ Transports -2.65%; DJ Utilities -1.70%. (Rotating spot energy XLE -1.99%) US$ index (spot) +1.64% (remains too strong over 100), oil/WTI futures -1.44%, gold futures +1.31%.
YTD (index changes only), DJIA +0.78%, SP500 +7.41%, Nasdaq Comp +7.75%. (Rotating spot energy XLE +14.66%)
SENTIMENTS
(Sentiments have deteriorated; they peaked in mid-December and a minor peak was at March-end))
NYSE cumulative (5-day) A/D LINE fell for a 2nd week; ratio of winners:losers 1:6
FUND INFLOWS +/OUTFLOWS-: Stocks +|-, taxable bonds +|0, munis +|+, money-market funds -|-. (NEW FORMAT: 4wMA|weekly change)
AAII Bull-Bear Spread +19.4% (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 43.64% (negative; collapsing); (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 72.6% (overbought; badly lagging other indicators); 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. S KOREAN stock market needs to overcome the Korean-discount (due to its neighbor North) and local chaebol ownerships. The inheritance tax peaks at 60%, so family-controlled chaebols have incentives to keep stock prices low, and lax corporate governance encourages that. There are great S Korean companies at large discounts vs their counterparts elsewhere. There may be better opportunities in smaller companies. But don’t expect Japanese-style market reforms soon. The political situation isn’t favorable for drastic reforms with the opposition gaining strength.
EXTRA, COMMODITIES. GOLD investors are partying like 1849 (California gold rush). One factor is central bank buying as they diversify away from the dollar. For many foreign investors, gold has suddenly become better for flight to safety than the old standbys, the US dollar and Treasuries (recent US dollar diplomacy is driving these moves). Gold-miners are badly lagging gold-bullion but that can change quickly (as gold price spreads over fixed costs simply flow into their bottom lines). Silver is also rising with gold.
Shanghai Exchanges imposed trading limits on gold and copper futures.
Pg 32, OPTIONS. Options traders are skeptical of high Q1 earnings that are cyclical, especially when rates may remain higher for longer. Despite low VIX (16; for SP500 index) and realized single-stock volatility (average 23), the implied single-stock volatility is high (average 29); there is a lot of volatility beneath the SP500 index. The options investors are buying more puts (i.e. SKEW is high) in all sectors except energy.
SP500 VIX 17.31 (low), Nasdaq 100 VXN 20.39, options SKEW 142.31 (high), bond MOVE 112.82 (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 down week in EUROPE (Greece +1.84%, Norway +1.73%, Spain -2.11%) and an up week in ASIA (Japan +2.06%, HK -1.95%).
TREASURY* 3-mo yield 5.45%, 1-yr 5.13%, 2-yr 4.88%, 5-yr 4.54%, 10-yr 4.50%, 30-yr 4.61%;
REAL yields 5-yr 2.07%, 10-yr 2.11%, 30-yr 2.27%;
FRNs Index** 5.295% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR rose ^DXY 106.01, +1.6% (pg 50). GOLD rose to 2,402, +4.5% (Handy & Harman spot, Thursday; pg 52); the gold-miners fell. (^XAU was at 136.11, -0.10% for the week; badly lagging gold-bullion but catching up fast to approach 52-wk high)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, Rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%. NEW variable rate for May 1, 2024 is 1.48 x 2 = 2.96%, but the fixed/base rate will be released only on 4/30/24 or 5/1/24.
(NOTE – The Social Security COLA for 2025, based on the Q3 average of CPI-W, is ?, est +3%)
*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, “OIL Giants Pivot to PLASTICS. Sizing up a Historic Glut”. With ENERGY TRANSITION diminishing the role of OIL eventually, the oil majors in the US, Europe, Asia are expanding their capacity for plastics. This will lead to a glut in the already oversaturated plastics market – many plants are operating only at 80% capacity when the breakeven level is 90%, and brand-new plastics are priced 42% less than those produced from recycled plastics. Global plastics demand may peak in 2024. This glut will negatively impact the efforts to reduce everlasting plastics in the environment. But oil companies see this as a path for their survival (renewable energy is another) and are hoping that the market issues will be sorted out somehow. Currently only 11.8% of crude oil goes into plastics production. A swing factor is the use of natural gas (vs oil) for plastics production. State-controlled/ owned Chinese producers are making the most aggressive moves into chemicals and plastics. Saudi Aramco also has very ambitious plans. These state-controlled/ owned entities aren’t price- or profit- sensitive and may cause huge headaches for private companies. European and Asian producers also face issues related to oil/gas feedstock imports vs the US and Midde Eastern producers with access to cheap oil/gas. The historical cyclical patterns in the chemicals and plastics industry may be disrupted, trapping many value investors (classic value-trap). Among the global chemicals/ plastics majors, only BASFY is downsizing – everyone else is in a mad rush to expand capacity. But with falling earnings, will the investors pay for rising P/Es? Mentioned are DOW, LYB, WLK.
Pg 7, UP & DOWN WALL STREET. SPORTS are attracting a lot of attention and money. The top 50 sports franchises are now valued at $256 billion; it’s fashionable for billionaires to own sports franchises. Player salaries have skyrocketed. “Sports” now include genuine sports and digital-sports – gaming and gambling. Private-equity is also getting into sports except for the NFL. The Kiawah global sports leaders conference earlier this month brought high profile celebrities, politicians, dealmakers, and CEOs. Mentioned are MSGS (with large Dolan-discount), BATRA, BATRK, MANU, DKNG, CHDN, GMVHY.
(More later….)
LINK