From Barron’s, April 29, 2024 (Part 1, Market Week+)
Apr 27, 2024 10:14:04 GMT
chang, fishingrod, and 7 more like this
Post by yogibearbull on Apr 27, 2024 10:14:04 GMT
From Barron’s, April 29, 2024 (Part 1, Market Week+)
Pg 28, TRADER. With strong earnings from GOOGL and MSFT, forget STAGFLATION – fears arose after a weak Q1 GDP report but strong PCE index. The Q2 and 2024 GDP projections look OK. The 10-yr Treasury yields rose and that would be a headwind for stocks. According to LEFKOWITZ (UBS), the SP500 may rise with bumps along the way. (The lead Trader piece is typically after the market close on Friday, but this piece was turned in around Friday noon.)
High Q1 REVENUE GROWTH is found in some unusual places – EXR (storage), XYL (water technologies), FSLR (commercial solar) in addition to the usual crowd (NVDA, SMCI, MU, QRVO, AVGO).
The FTC is on a roll to block M&A. Now it’s suing to block the merger of handbag makers Tapestry/TPR (Coach, Kate Spade) and Capri/CPRI (Michael Kors, Versace, Jimmy Choo). Regulators in the EU (home to LVMUY) and Japan have already cleared the merger. Both stocks sank, and with high discount for CPRI (from the bid price), the market expectations are that the merger may fail. But TPR (fwd P/E 8.8) looks attractive on this selloff regardless of the outcome of the merger (hint – avoid falling CPRI that may stabilize only in $20s).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 5/1/24+ hold (cycle peak 5.25-5.50%)
FOMC 6/12/24+ hold
FOMC 7/31/24+ hold
FOMC 9/18/24+ cut
FOMC 11/7/24+ hold
FOMC 12/18/24+ hold
(Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.67%, SP500 +2.67%, Nasdaq Comp +4.23%, R2000 +2.79%. DJ Transports +0.58%; DJ Utilities +0.99%. (Rotating spot LT Treasury TLT -1.02%) US$ index (spot) UNCH (remains too strong over 100), oil/WTI futures +0.85%, gold futures -2.65%.
YTD (index changes only), DJIA +1.46%, SP500 +6.92%, Nasdaq Comp +6.11%. (Rotating spot LT Treasury TLT -10.76%)
(What are (interest-sensitive) utilities telling? They are strong while bonds are weak.)
SENTIMENTS
Sentiments have collapsed; they peaked in mid-December and a minor peak was at March-end.
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers NA
FUND INFLOWS +/OUTFLOWS-: Stocks -|-, taxable bonds +|-, munis -|-, money-market funds -|-. (NEW FORMAT: 4wMA|weekly change)
AAII Bull-Bear Spread -1.8% (below average; negative after 18 months). (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 44.96% (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 50.5% (positive, barely); 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. The EM BOND spreads are low. But there are opportunities in Lat Am (Mexico, Brazil, Argentina), Asia (Indonesia, India, Pakistan), Middle East (Saudi Arabia). Their rate environments are different, credit ratings have improved, or the political picture has changed. Rising oil and commodity prices are also creating differentiations among the EMs. Don’t get blind sighted by the troubles in China and skip the EM bond indexes.
Pg 32, OPTIONS. Stock VOLATILITY is high during this earnings season. There is also tension between the STOCK and BOND markets. Consider selling puts on stocks you would like to own; trade calls and puts selectively; be reactive to events, not heroic; make small trading steps instead of giant trades; watch VIX (that may be hiding the stock volatility underneath).
SP500 VIX 15.03 (low), Nasdaq 100 VXN 19.33, options SKEW 140.86 (high), bond MOVE 104.40 (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 (Greece +4.90%, Spain +4.17%, Finland +0.38%) and a good week in ASIA (HK +9.04%, Indonesia -1.19%). (Global rally)
TREASURY* 3-mo yield 5.46%, 1-yr 5.21%, 2-yr 4.96%, 5-yr 4.68%, 10-yr 4.67%, 30-yr 4.78%;
REAL yields 5-yr 2.24%, 10-yr 2.24%, 30-yr 2.38%;
FRNs Index** 5.326% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR was flat ^DXY 106.09, UNCH (pg 50). GOLD fell -2% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 138.68, +1.96% for the week)
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, “Warren BUFFETT (93) Built Berkshire/BRK. What Happens When He’s No Longer There?”. Yield 0%, fwd P/E 22.4, P/B 1.5. Investors will be looking for clues at the BRK annual meeting on 5/4/24. For Q&As, WB will be joined by the likely successor-CEO Greg ABEL (61; head of noninsurance operations) and the head of insurance operations Ajit JAIN (72); his friend and partner Charlie MUNGER passed away at 99 in 2023. There are also 2 portfolio managers, Todd Combs (53; also runs GEICO) and Ted Weschler (61); why not give them some exposure at the annual meeting Q&A. BRK is a conglomerate with unusual decentralized operations; the HQ staff is only 26 (but all of net cash flow generated by units flows to the HQ to be deployed by WB). BRK post-WB may be quite different – higher stock volatility, new dividend policy (WB likes dividend-paying companies in BRK portfolio, but doesn’t like to pay dividends), unit spinoffs. Through trusts, WB’s family will have 15.1% economic interest, 31.2% voting power; son Howard may become the Chairman, and other family members will also be involved. Lot of BRK stock outperformance was years ago. The operating businesses now dominate the stock portfolio. There haven’t been any recent hits and there is $168+ billion (in T-Bills) waiting for “elephant” acquisitions/purchases (WB waited too long and missed out on recent market crises/turmoil in 2020 and 2022).
Pg 5, UP & DOWN WALL STREET. The FED may become an issue in this election. Both presidential candidates want lower rates, but the Fed may not oblige if inflation remains high. In fact, inflation seems to be rising again and that normally may call for a rate hike, but Powell said just in December that rates had peaked (would Powell flip-flop so soon?). Higher inflation also cut into the real GDP growth (the nominal GDP growth looked OK). The WSJ also reported that Trump advisors are drafting a document to cut Fed independence but only Congress may make such a drastic change(s). Nominally, the Fed is under the Treasury Department, and administrations have a channel to the Fed via regular meetings between the Fed Chair and the Treasury Secretary. Expect related questions at Powell’s presser on Wednesday but he may just punt.
TREASURY accounts are overflowing with tax receipts around $930 billion vs $750 billion projected. YELLEN may release $200 billion into the economy and a dramatic announcement is expected on May 1 AM just a few hours ahead of the (almost) no-action FOMC Statement (2pm Eastern) and POWELL’s presser (2:30pm Eastern). The FOMC may reduce the Treasury QT by half to -$30 billion/mo (vs -$60 billion/mo now) but keep the MBS QT the same (-$35 billion/mo). These combined liquidity moves may lower the bond yields and support the stock market ahead of the US elections and provide the Fed some cover for saying that it really isn’t political.
Pg 8, STREETWISE. Collateralized loan obligations (CLOs) now are better than splashy private-credits. The private-credit is the domain of nonfinancial firms, and this market grew as banks withdrew from these risky, lower-rated floating-rate loans to small/mid-size companies. As these loans don’t trade much, it’s hard to value them, and many aren’t even marked-to-market (MTM; so, they appear to be less risky or volatile). The IMF has warned that many of these companies have interest costs that exceed their earnings due to rising rates. Investors can get exposure to these via BDCs. These loans are bundled and sliced into CLO tranches that range from AAA* to BB, and the equity-tranche. WOODARD (BAC) cites ARISTOTLE who said that “a virtue is the mean between two vices” and that fits the current bond credit spectrum well. Treasuries have high rate sensitivity and then there is poor quality junk. The sweet spots are BBB (borderline investment-grade) and BB (highest quality junk). (*It’s manufactured-AAA; there are only 2 US companies with genuine AAA credit – JNJ and MSFT.)
(More later….)
LINK
Pg 28, TRADER. With strong earnings from GOOGL and MSFT, forget STAGFLATION – fears arose after a weak Q1 GDP report but strong PCE index. The Q2 and 2024 GDP projections look OK. The 10-yr Treasury yields rose and that would be a headwind for stocks. According to LEFKOWITZ (UBS), the SP500 may rise with bumps along the way. (The lead Trader piece is typically after the market close on Friday, but this piece was turned in around Friday noon.)
High Q1 REVENUE GROWTH is found in some unusual places – EXR (storage), XYL (water technologies), FSLR (commercial solar) in addition to the usual crowd (NVDA, SMCI, MU, QRVO, AVGO).
The FTC is on a roll to block M&A. Now it’s suing to block the merger of handbag makers Tapestry/TPR (Coach, Kate Spade) and Capri/CPRI (Michael Kors, Versace, Jimmy Choo). Regulators in the EU (home to LVMUY) and Japan have already cleared the merger. Both stocks sank, and with high discount for CPRI (from the bid price), the market expectations are that the merger may fail. But TPR (fwd P/E 8.8) looks attractive on this selloff regardless of the outcome of the merger (hint – avoid falling CPRI that may stabilize only in $20s).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 5/1/24+ hold (cycle peak 5.25-5.50%)
FOMC 6/12/24+ hold
FOMC 7/31/24+ hold
FOMC 9/18/24+ cut
FOMC 11/7/24+ hold
FOMC 12/18/24+ hold
(Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.67%, SP500 +2.67%, Nasdaq Comp +4.23%, R2000 +2.79%. DJ Transports +0.58%; DJ Utilities +0.99%. (Rotating spot LT Treasury TLT -1.02%) US$ index (spot) UNCH (remains too strong over 100), oil/WTI futures +0.85%, gold futures -2.65%.
YTD (index changes only), DJIA +1.46%, SP500 +6.92%, Nasdaq Comp +6.11%. (Rotating spot LT Treasury TLT -10.76%)
(What are (interest-sensitive) utilities telling? They are strong while bonds are weak.)
SENTIMENTS
Sentiments have collapsed; they peaked in mid-December and a minor peak was at March-end.
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers NA
FUND INFLOWS +/OUTFLOWS-: Stocks -|-, taxable bonds +|-, munis -|-, money-market funds -|-. (NEW FORMAT: 4wMA|weekly change)
AAII Bull-Bear Spread -1.8% (below average; negative after 18 months). (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 44.96% (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 50.5% (positive, barely); 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. The EM BOND spreads are low. But there are opportunities in Lat Am (Mexico, Brazil, Argentina), Asia (Indonesia, India, Pakistan), Middle East (Saudi Arabia). Their rate environments are different, credit ratings have improved, or the political picture has changed. Rising oil and commodity prices are also creating differentiations among the EMs. Don’t get blind sighted by the troubles in China and skip the EM bond indexes.
Pg 32, OPTIONS. Stock VOLATILITY is high during this earnings season. There is also tension between the STOCK and BOND markets. Consider selling puts on stocks you would like to own; trade calls and puts selectively; be reactive to events, not heroic; make small trading steps instead of giant trades; watch VIX (that may be hiding the stock volatility underneath).
SP500 VIX 15.03 (low), Nasdaq 100 VXN 19.33, options SKEW 140.86 (high), bond MOVE 104.40 (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 (Greece +4.90%, Spain +4.17%, Finland +0.38%) and a good week in ASIA (HK +9.04%, Indonesia -1.19%). (Global rally)
TREASURY* 3-mo yield 5.46%, 1-yr 5.21%, 2-yr 4.96%, 5-yr 4.68%, 10-yr 4.67%, 30-yr 4.78%;
REAL yields 5-yr 2.24%, 10-yr 2.24%, 30-yr 2.38%;
FRNs Index** 5.326% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR was flat ^DXY 106.09, UNCH (pg 50). GOLD fell -2% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 138.68, +1.96% for the week)
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, “Warren BUFFETT (93) Built Berkshire/BRK. What Happens When He’s No Longer There?”. Yield 0%, fwd P/E 22.4, P/B 1.5. Investors will be looking for clues at the BRK annual meeting on 5/4/24. For Q&As, WB will be joined by the likely successor-CEO Greg ABEL (61; head of noninsurance operations) and the head of insurance operations Ajit JAIN (72); his friend and partner Charlie MUNGER passed away at 99 in 2023. There are also 2 portfolio managers, Todd Combs (53; also runs GEICO) and Ted Weschler (61); why not give them some exposure at the annual meeting Q&A. BRK is a conglomerate with unusual decentralized operations; the HQ staff is only 26 (but all of net cash flow generated by units flows to the HQ to be deployed by WB). BRK post-WB may be quite different – higher stock volatility, new dividend policy (WB likes dividend-paying companies in BRK portfolio, but doesn’t like to pay dividends), unit spinoffs. Through trusts, WB’s family will have 15.1% economic interest, 31.2% voting power; son Howard may become the Chairman, and other family members will also be involved. Lot of BRK stock outperformance was years ago. The operating businesses now dominate the stock portfolio. There haven’t been any recent hits and there is $168+ billion (in T-Bills) waiting for “elephant” acquisitions/purchases (WB waited too long and missed out on recent market crises/turmoil in 2020 and 2022).
Pg 5, UP & DOWN WALL STREET. The FED may become an issue in this election. Both presidential candidates want lower rates, but the Fed may not oblige if inflation remains high. In fact, inflation seems to be rising again and that normally may call for a rate hike, but Powell said just in December that rates had peaked (would Powell flip-flop so soon?). Higher inflation also cut into the real GDP growth (the nominal GDP growth looked OK). The WSJ also reported that Trump advisors are drafting a document to cut Fed independence but only Congress may make such a drastic change(s). Nominally, the Fed is under the Treasury Department, and administrations have a channel to the Fed via regular meetings between the Fed Chair and the Treasury Secretary. Expect related questions at Powell’s presser on Wednesday but he may just punt.
TREASURY accounts are overflowing with tax receipts around $930 billion vs $750 billion projected. YELLEN may release $200 billion into the economy and a dramatic announcement is expected on May 1 AM just a few hours ahead of the (almost) no-action FOMC Statement (2pm Eastern) and POWELL’s presser (2:30pm Eastern). The FOMC may reduce the Treasury QT by half to -$30 billion/mo (vs -$60 billion/mo now) but keep the MBS QT the same (-$35 billion/mo). These combined liquidity moves may lower the bond yields and support the stock market ahead of the US elections and provide the Fed some cover for saying that it really isn’t political.
Pg 8, STREETWISE. Collateralized loan obligations (CLOs) now are better than splashy private-credits. The private-credit is the domain of nonfinancial firms, and this market grew as banks withdrew from these risky, lower-rated floating-rate loans to small/mid-size companies. As these loans don’t trade much, it’s hard to value them, and many aren’t even marked-to-market (MTM; so, they appear to be less risky or volatile). The IMF has warned that many of these companies have interest costs that exceed their earnings due to rising rates. Investors can get exposure to these via BDCs. These loans are bundled and sliced into CLO tranches that range from AAA* to BB, and the equity-tranche. WOODARD (BAC) cites ARISTOTLE who said that “a virtue is the mean between two vices” and that fits the current bond credit spectrum well. Treasuries have high rate sensitivity and then there is poor quality junk. The sweet spots are BBB (borderline investment-grade) and BB (highest quality junk). (*It’s manufactured-AAA; there are only 2 US companies with genuine AAA credit – JNJ and MSFT.)
(More later….)
LINK
