Tag: commodity

Powell could still hammer U.S. stocks on Wednesday even if the Fed doesn’t hike interest rates

[ad_1]

The past six weeks have left investors with more questions than answers about the outlook for U.S. monetary policy and, by extension, financial markets.

And although the Federal Reserve is expected to leave its policy interest rates on hold Wednesday, Chairman Jerome Powell could still rattle markets as he’s probed for clues about the central bank’s thinking.

Powell’s statement is expected to hew to what he said at the Jackson Hole, Wyoming, symposium in August and before that, during the central bank’s July press conference, but market analysts say the question-and-answer session with reporters and the updated “dot plot” of policy makers projections for interest rates could potentially furnish market-moving news.

See: U.S. economy is trending in the Fed’s direction, so expect Powell to tread carefully next week

“Just because this meeting isn’t widely considered to be ‘in play’ doesn’t mean it is insignificant,” said Steve Sosnick, chief strategist at Interactive Brokers, during a phone interview with MarketWatch.

“The fact is, the Vix is relatively low. That indicates a very sanguine, if not complacent market. And a complacent market can sometimes be more susceptible to a negative shock.”

The Cboe Volatility Index
VIX,
better known as “the Vix” or Wall Street’s “fear gauge,” finished below 14 on Friday, even as the Nasdaq Composite
COMP
and S&P 500
SPX
logged back-to-back weekly losses. Markets have seesawed recently as inflation has reaccelerated while the U.S. labor market and broader economy have slowed.

What will investors be looking for, exactly? Presently, investors expect the Fed could start cutting interest rates again by the middle of next year. Anything that could disabuse them of this notion could undercut U.S. stocks while boosting Treasury yields and the U.S. dollar, analysts said.

Liz Ann Sonders, chief market strategist at Schwab, said clues could potentially surface during the Q&A at the post-meeting press conference, which often has more of an impact on markets than Powell’s statement.

“It is that 45 minutes to an hour that tends to be more market moving,” Sonders said during a phone interview with MarketWatch. “It is what they say about higher for longer and expectations around rate cuts in 2024, and whether Powell pushes back against that.”

Since the beginning of August, more data has emerged to suggest that the U.S. economy might finally be starting to respond to the pressure from the Federal Reserve’s most aggressive campaign of interest-rate hikes since the 1980s. Corporate and personal bankruptcies have climbed.

See: Bankruptcies spiked in August — the post-COVID rebound ‘is becoming a reality’

There have also been indications that the torrid postpandemic labor market might be starting to cool. The Labor Department’s monthly jobs report showed fewer than 200,000 jobs were created in August, while figures from the prior two months were also revised lower, and the unemployment rate ticked higher to 3.8%.

At the same time, consumer-price inflation has accelerated for two months in a row. Some on Wall Street have started to worry about stagflation, and financial markets are now pricing in about even odds that the Fed will leave interest rates on hold.

A report earlier this week showed consumer prices rose 3.7% over the 12 months through August, while the rise for the month was 0.6%, the biggest increase in 14 months.

Adding to the complicated picture, the resumption of student loan payments in October has revived concerns about the consumer despite relatively robust retail-sales data released earlier this week, while an auto worker strike involving all of the “Big Three” U.S. carmakers and the threat of a government shutdown are also sowing fears about a hit to the economy.

“The triple threat from the resumption of student loan payments, a government shutdown and a strike by auto union workers could significantly weigh on GDP growth in Q4,” said EY Chief Economist Gregory Daco in emailed commentary.

Powell could be asked to weigh in on any or all of these. He also could be asked to directly address investors’ expectations for the timing of the Fed’s initial rate cut of the cycle. Expectations for a policy pivot already proved premature last summer, which caused a brief but powerful bear-market rally to fizzle.

A repeat of this could again create problems for stocks, Sosnick said.

“Let’s see if the Fed agrees with the market’s assumptions about rate cuts,” he added.

Traders expect the central bank to keep interest rates on hold Wednesday, with market-based odds seeing a pause as a virtual certainty, according to the CME’s FedWatch tool, which measures expectations based on trading in Fed funds futures. Expectations for another hike later this year are roughly split.

See also: 4 things to watch for at next week’s Fed policy meeting

[ad_2]

Source link

September 17, 2023
GM and Ford’s stocks are higher as UAW strike kicks off. Their bonds tell a different story.

[ad_1]

Ford Motor Co.’s and General Motors Co.’s stocks were higher Friday as workers kicked off a strike, but their bonds have been under selling pressure for some time.

Nearly 13,000 U.S. auto workers went on strike early Friday after the three automakers and the UAW failed to reach an agreement before their national contract expired just before midnight.

The union has opted for targeted strikes, so workers at a Ford
F,
-0.04%
plant in Michigan and a GM
GM,
+0.83%
plant in Missouri were first to down tools, along with workers at a Stellantis N.V.
STLA,
+2.12%
plant in Ohio.

UAW President Shawn Fain has said others could join later and asked all 150,000 members to be ready if and when they’re called to strike.

The strike at all three U.S. carmakers is a break with tradition, as the union for many years has elected to center strike efforts at one company to protect its strike fund and picket-line firepower.

For more, read: UAW strike: 12,700 Ford, GM and Stellantis auto workers walk off the job

Ford’s stock was last up 0.5%, while GM was up 1.4%.

But as the following charts from data solutions company BondCliQ Media Services shows, the bonds have seen far more selling than buying over the last 10 days. Bondholders are often viewed as “smarter” than shareholders, because they tend to be laser-focused on a company’s financials and cash flows, to ensure they will be repaid their principal when bonds mature.

Net customer flow of Ford and GM bonds (last 10 days). Source: BondCliQ Media Sources

The next chart shows that Ford has seen more selling than GM.

Ford and GM’s debt trading volumes (last 10 days). Source: BondCliQ Media Services

Most-active Ford issues with net customer flow (last 10 days). Source: BondCliQ Media Services

Most-active General Motors issue with net customer flow (last 10 days). Source: BondCliQ Media Services

Stellantis, meanwhile, was seeing strong buying of its U.S. dollar-denominated bonds. The company, the former Fiat Chrysler, has far less debt than Ford and GM.

Stellantis has about $26.5 billion of total debt, according to FactSet data, about $19.7 billion of which is in bonds.

Ford has $143 billion of debt and $124 billion of bonds. GM has $118 billion of debt, with about $107 billion in bonds, according to FactSet.

Most active Stellantis NV issues (USD) with net customer flow (last 10 days). Source: BondCliQ Media Services

Fitch Ratings said earlier Friday the strike will have a limited financial impact on the auto makers, at least for now with just three plants striking.

“It seems likely the UAW will try to ratchet up pressure on the automakers over time by shifting the strike to more impactful plants and adding more plants to the strike,” Stephen Brown, a senior director at Fitch, said in emailed comments. “The impact on the automakers of striking individual plants could be similar to the semiconductor-induced disruptions that we saw over the past few years.”

See also: Big Three need to step up for the automotive workers who keep them profitable

Fitch had already incorporated the potential impact of strikes in its recent decision to upgrade its ratings of Ford and GM, he said. The agency moved Ford to BBB- from BB+, moving it back into investment trade from speculative, or “junk,” status.

“Ford, GM and Stellantis all have robust liquidity positions that will help them to withstand a potentially drawn-out period of production disruption. Based on June 30 figures, we estimate Ford has over $50 billion of cash and credit facility capacity, while GM has nearly $40 billion,” said Brown.

Stellantis stock was up 2.2% Friday and has gained 36% in the year to date, outperforming GM’s 1.2% gain and Ford’s 9.0% gain. The S&P 500
SPX
has gained 17% in the same time frame.

For live coverage of the UAW strikes, click here.

[ad_2]

Source link

September 15, 2023
H&M shares fall as retailer misses sales expectations; CAC 40 leads advance

[ad_1]

H&M shares slumped Friday as the Swedish retail chain missed expectations for sales growth in a quarter in which it said it focused on profitability.

H&M stock
HM.B,
-5.62%
dropped 4% in early action, though it has rallied 47% this year.

In a brief statement, H&M said fiscal third-quarter sales in local currencies was “flattish,” missing analyst estimates for 5% sales growth. It said its goal of reaching a 10% operating margin next year “is going in the right direction” and that profitability and inventory levels have been priortized in the quarter.

Analysts at RBC said weather may have dampened sales, but that it also has become more expensive this season — for instance, pricing 10% below average in the U.K., versus 20% traditionally. Its publicly traded rivals — Inditex
ITX,
+0.58%,
the Primark unit of Associated British Foods
ABF,
+0.24%
and Next
NXT,
+0.64%
— have each reported stronger sales growth.

The broader tone in European markets was positive, except for tech stocks, with ASM International
ASM,
-5.44%
shares losing 5% and ASML Holding
ASML,
-2.51%
down 2%.

The French CAC 40
FR:PX1
led the major regional indexes with a 1.3% rise, as the U.K. FTSE 100
UK:UKX
and German DAX
DX:DAX
also rose. Better-than-expected Chinese retail sales figures helped Paris-listed luxury plays.

Stellantis shares
STLAM,
+0.69%
fell 1% as the United Auto Workers began a strike at an Ohio plant, along with one plant each at fellow Big Three automakers Ford and General Motors.

[ad_2]

Source link

September 15, 2023
Stocks are trapped in a trading range. Something’s got to give.

[ad_1]

The U.S. stock market, as measured by the S&P 500 Index SPX, is trapped in a trading range, and volatility seems to be damping down considerably. The significant edges of the trading range are support at 4330 and resistance at 4540. Both of those levels were touched in the latter half of August. A breakout from this range should give the market some strong directional momentum.

Since Labor Day, prices have hunkered down into an even narrower range. Typically, the latter half of September through the early part of October…

[ad_2]

Source link

September 14, 2023
Here’s the ‘triple power play’ that may rule stock-market returns, other assets for next 5 years

[ad_1]

Three powerful dynamics in the global economy are expected to play a significant role in investors’ multi-asset allocations over the next five years, according to a 132-page report from Rotterdam-based asset manager Robeco.

The first is labor’s likely increased bargaining power, with the outcome of any tussle between businesses and their workers probably being determined by wages in a sticky inflation environment, based on the report compiled by strategists Laurens Swinkels and Peter van der Welle on behalf of the multi-asset team at Robeco, which manages $194 billion in assets. The second is the end of monetary-policy leniency and the potential for central banks to lock “horns” with governments over the appropriate level of borrowing costs. The third is the dawn of “multipolarity” as the U.S. and China struggle for power.

Taken together, this “triple power play” is already starting to unfold, shifting investors into a world of higher risk-free rates and lower expected equity risk premiums, according to the asset manager. Risk premium is a gauge of relative value for stocks, helping investors understand what their short-term gain might be when taking on the additional risk of buying equities or investing in stock funds.

Robeco provided its forecasts for five-year annualized, projected returns on a range of assets held by euro- and dollar-based investors — including developed- and emerging-market equities, bonds, and cash.

The firm’s base-case scenario, which Robeco’s team refers to as a “stalemate,” calls for a mild recession in 2024, consumer-price inflation in developed economies to remain around 2.5% on average heading toward 2029, and real GDP in the U.S. to average 2.3% or below what the S&P 500 index
SPX
currently implies.

That benign growth outlook is expected to be accompanied by macroeconomic volatility, plus a “tug of war” between central bankers reluctant to lower interest rates and governments in need of low borrowing costs — which “means there is not enough monetary policy tightening to remove demand-pull inflation.” Under such a scenario, developed-market equities are likely to underperform their emerging market counterparts and domestic bonds should offer a higher return than cash for dollar-based investors, according to Robeco.

Source: Robeco. Returns shown are annualized.

“Looking ahead, a key question is: are we eyeing the start of a new bull market that will broaden and pave the way for another streak of above-historical excess equity return?” the Robeco team wrote in the report released on Tuesday. “In our base case, we expect developed markets’ earnings growth to end up below current 5Y forward consensus projections, which are high single-digit or even still low double-digit for the U.S. and eurozone.

“The reason we foresee a decline in profitability is linked to our overarching macro theme, the triple power play. Equities will likely bear the brunt of the power play in geopolitics,” according to the report. In addition, efforts by global corporations to shift production toward geopolitically-friendly powers or closer regions “will prove more costly and lower efficiency.” Plus, “further pressure from margins will come from a lagged response from past policy rate hikes.”

Under Robeco’s bull-case scenario, early and rapid adoption of artificial intelligence across sectors and industries would likely spawn above-trend growth and push inflation back to central banks’ targets. The result is “an almost Goldilocks scenario in which things are running neither too hot nor too cold,” central banks could take a break from tightening policy, and developed- and emerging-market equities may both be able to come out with double-digit annualized returns from 2024 to 2028.

The firm’s bear-case scenario envisions a world in which mutual trust between the world’s superpowers hits rock bottom, governments are “in the crosshairs” of central banks, and labor loses bargaining power in the services sector. A “stagflationary environment emerges, intensifying the policy dilemma for central bankers” as inflation stays stubbornly high at 3.5% on average and growth comes in at just 0.5% annually for developed economies. In that situation, developed-market equities would eke out an annualized return of 2.25% for dollar-based investors over the four-year period, which would be below the expected return on cash.

On Thursday, all three major U.S. stock indexes
DJIA

SPX

COMP
finished higher as investors digested a batch of better-than-expected U.S. data and continued to expect no action by the Federal Reserve next week. Officials are seen as likely to leave their main policy rate target at a 22-year high of 5.25%-5% on Wednesday.

As investors continued to monitor the possibility of a strike by United Auto Workers, 2-
BX:TMUBMUSD02Y
and 10-year Treasury yields
BX:TMUBMUSD10Y
ended at one-week highs and the ICE U.S. Dollar Index
DXY
jumped 0.6%. In a separate development earlier this week, Air Force Secretary Frank Kendall warned that China is preparing for a potential war with the U.S.

[ad_2]

Source link

September 14, 2023
Why Ray Dalio says cash is ‘temporarily’ good: ‘I don’t want to own debt’

[ad_1]

““I don’t want to own debt, you know bonds and those things.””

— Ray Dalio, founder of Bridgewater Associates

That was the response by the billionaire founder of one of the world’s biggest hedge funds when asked where he would put capital to work right now.

“Temporarily right now, cash, I think is good…and the interest rates are fine. I don’t think they will be sustained that way,” Bridgewater Associates’ Ray Dalio said Thursday at the Milken Institute’s 10th annual Asian Summit in Singapore.

The move into cash has been growing with the yield on the 30-day Treasury bills atop 5%, while investors can also get 4% on certificates of deposit and high-yield savings accounts, but there has also been pushback.

Wells Fargo Investment Institute strategist Veronica Willis told clients last month that even if cash yields stay higher in the near term, history shows investors lose out in the long run as cash tends to underperform and act as a drag on their investments.

Hence the word “temporarily” from Dalio. But his clear disdain for bonds might also run against the crowd, as the 10-year Treasury yield
BX:TMUBMUSD10Y
topped its highest since 2007 last month.

Saira Malik, chief investment officer at Nuveen, recently advised investors to make the shift into longer-dated bonds sooner than later because she says the broader market tends to outperform after a Federal Reserve pause on interest rates and often continues to do well in the following year.

Investors have become less concerned, as of late, that the Fed will keep hiking rates, with inflation data out Wednesday only showing a couple of surprises. Markets are pricing in slim chance of a Fed rate hike in borrowing costs after next week’s meeting, though a hike in November may still be up in the air.

Dalio, who has a net worth of $16.5 billion, according to Bloomberg’s Billionaires Index, said when it comes to investing, he wants to “be in the right places, geographies,” and have diversification. “What I don’t know is going to be much more important than what I do know.”

“Diversification can reduce your risk without reducing the return if you know how to do it well. And then I have to pay attention to the implications of the great disruptions that are going to take place because the world will be radically different tin five years…the next election, the debt situation, all of those things are going to change. And then with the new technologies…it’s going to be like a time warp. It’s a different world.”

And that will “disrupt the disrupters,” so it will be important to know who will be using those technologies in the best way, said Dalio.

Read: Investors need to be wary of ‘priced for perfection’ stock markets, warns Larry Summers

And: Don’t bet against the economy yet, says Bill Ackman

[ad_2]

Source link

September 14, 2023
When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

[ad_1]

Inflation is likely to fall below the Federal Reserve’s 2% annual target by late next year, according to David Kelly, chief global strategist at JP Morgan Asset Management.

Consumer prices rose again in August to reach a 3.7% yearly rate, based on Wednesday’s release of the monthly consumer-price index. That marked its biggest jump in 14 months and a higher reading than the recent 3% low set in June (see chart) as the toll of the Fed’s rate hikes kicked in.

U.S. consumer prices rose in August, after touching a recent low of 3% yearly in June, as energy prices shot up.

AllianceBernstein

The catalyst for increased price pressures in August was a roughly 30% surge in energy prices
CL00,
+1.32%
this quarter, according to Eric Winograd, director of developed market economic research at AllianceBernstein.

West Texas Intermediate Crude, the U.S. benchmark, settled at $88.52 a barrel on Wednesday, as traders focused on supply concerns following decisions by Saudi Arabia and Russia to cut crude supplies through year-end. WTI was trading at a low for the year below $65 a barrel in May.

“I don’t think that today’s upside surprise is sufficient to trigger a rate hike next week and I continue to expect the Fed to stay on hold,” Winograd said, in emailed commentary. “But with inflation sticky and growth resilient, the committee is likely to maintain a clear tightening bias—the dot plot may even continue to reflect expectations of an additional hike later this year.”

Federal Reserve officials increased the central bank’s policy rate to a 5.25%-5.5% range in July, the highest in 22 years.

Higher gasoline prices, however, also could act as a counterweight to inflation, according to JP Morgan’s Kelly. “Indeed, to the extent that higher gasoline prices cool other consumer spending, the recent energy price surge could contribute to slower growth and lower inflation entering 2024,” Kelly wrote in a Wednesday client note.

“We still believe that, barring some further shock, year-over-year headline consumption deflator inflation will be below the Fed’s 2% target by the fourth quarter of 2024.”

Kelly isn’t expecting the Fed to raise rates again in this cycle.

U.S. stocks ended mixed Wednesday following the CPI update, with the Dow Jones Industrial Average
DJIA
down 0.2%, the S&P 500 index
SPX
up 0.1% and the Nasdaq Composite Index
COMP
up 0.3%, according to FactSet.

But with oil prices well off their lows for 2023, Winograd said further progress on cooling headline inflation is unlikely this year, even though he expects core inflation to gradually decelerate, a process that will “keep the Fed on high alert.”

[ad_2]

Source link

September 13, 2023
‘Complicated’ inflation report produces wavering U.S. stocks, keeps higher-for-longer theme in rates intact

[ad_1]

Investors were evaluating a less-than-straightforward take on U.S. inflation Wednesday, with August’s consumer price index coming in close to or in line with expectations while providing reasons for the Federal Reserve to hike again by year-end.

U.S. stocks
DJIA

SPX

COMP
were higher, though wavering, in New York afternoon trading as traders weighed the chances of another rate hike in November. Three-month through 1-year T-bill rates were up slightly, though 2- through 30-year Treasury yields slipped. And the ICE U.S. Dollar Index
DXY,
which moves according to the market’s expectations for U.S. rates relative to the rest of the world, swung between gains and losses.

Rising gas prices in August had Wall Street anticipating higher headline inflation figures of 0.6% for last month and either 3.6% or 3.7% year-on-year ahead of Wednesday’s session, and on that score August’s CPI report met expectations. The as-expected headline readings appeared to offer some comfort to many investors, even though the monthly gain was the biggest increase in 14 months and the annual rate jumped versus the prior two months.

Still, Ed Moya, a senior market analyst for the Americas at OANDA Corp. in New York, said “this was a complicated inflation report” and price gains are failing to ease by enough for the central bank to abandon its hawkish stance. Core readings which matter most to Fed policy makers came in a bit above expectations at 0.3% for last month, driven partly by a jump in airline fares, as the annual core rate dipped to 4.3% from 4.7% previously. According to Moya, “inflation will likely still be running well above the Fed’s 2% target for the rest of the year.”

“Today’s uptick in CPI could slightly increase the likelihood of a November interest rate hike and potentially delay the timing of any rate cuts until deeper into 2024,” said Joe Tuckey, head of FX analysis at London-based Argentex Group, a provider of currency risk-management and payment services.

As of Wednesday afternoon, however, August’s CPI wasn’t putting much of a dent in expectations for fed funds futures traders. They see a 97% likelihood of no rate hike next Wednesday, which would keep the fed funds rate at between 5.25%-5.5%, and a more-than-50% chance of the same in November and December, according to the CME Fed Tool. They also continued to price in the likelihood of no rate cuts through the early part of 2024.

While August’s CPI report failed to move the needle in stocks, the dollar, or fed funds futures, there was one corner of the financial market where the data did make more a difference: Traders of derivatives-like instruments known as fixings now foresee five more 3%-plus annual headline CPI readings starting in September, after adjusting their expectations to include January.

If those expectations play out, that would bring the total number of 3%-plus readings to six months, including August’s data, and produce a scenario that investors may not be entirely prepared for — the possibility that headline inflation doesn’t meaningfully budge from current levels soon.

Read: Why financial markets may be unprepared for a fourth-quarter ‘inflation surprise’

Central bankers care more about less-volatile core readings, but pay attention to headline CPI figures because of their potential to affect household expectations.

“While these numbers do not change our, and the market’s, expectations that the Fed will hold the target fed funds rate unchanged at the September meeting, the slightly stronger number can influence the tone of the press conference and Summary of Economic Projections,” said Greg Wilensky, head of U.S. fixed income at Denver-based Janus Henderson Investors, which manages $322.1 billion in assets.

“We continue to expect some reduction in the number of participants projecting further hikes, but probably not enough to move the median projection of one more rate hike,” Wilensky said in an email. “That said, we believe that we have likely seen the last rate hike for this cycle, as the economic data that the Fed will see over the coming months will keep them on hold and allow the impact of 5.25% of prior hikes to slow the economy and inflation.”

[ad_2]

Source link

September 13, 2023

The economy is doing better than anyone thinks, but these troubles are in the pipeline, says Bill Ackman

[ad_1]

Stock investors are showing some hesitancy for Tuesday, with big signals on the economy coming this week via consumer prices and retail sales. Ahead of that, Apple is expected to tempt consumers with yet another new iPhone on Tuesday.

How much should investors be worrying right now? Our call of the day from Pershing Square Capital Management manager Bill Ackman says that in the near term, we can relax a little, but it isn’t all roses.

Read: Hedge funds have bailed on the U.S. consumer in a big way, Goldman Sachs data finds

He told the Julia La Roche Show in an interview where he felt like he had a “crystal ball of what was going to happen,” starting in January 2020 with the COVID-19 outbreak, and that carried on through interest rates and the economy. Indeed, the manager reportedly made nearly $4 billion on a couple of pandemic-related bets.

“I would say the crystal ball has clouded a bit in the last period. I think these are unusual economic times and perhaps we always say that, but I don’t think this is a pattern that has been repeated…or it hasn’t been for more than 100 years,” he said.

But he remains near-term upbeat. “For two years, people have been saying that recession’s around the corner and you know we’ve had a very different view, and continue to have this view that I think people are coming around to, that the economy is actually still quite strong,” he said.

And while those on lower-income rungs have burned through a lot of COVID savings, he thinks the economy has yet to really see impact from the big fiscal stimulus seen in recent years.

Looking down the road though, Ackman has got a stack of concerns over the economy. He sees about a third of federal debt due to get repriced meaning that over a relatively short period of time, “interest expense will become a much bigger part of the deficit that is not going to be a contributor to the economy.”

And while higher interest rates do help savers, ultimately that will be a big drag on the economy, he said, adding that rising inflation, mortgage rates, car payments and credit card rates, are all set to slow the economy.

“We’re still in the midst of a war and there’s political uncertainty you know with an upcoming election,” he said. That partly explains Pershing Square’s hedge via a short position on the 30-year Treasury bond
BX:TMUBMUSD30Y
that he laid out in a tweet in early August.

For roughly a year, long-term Treasury yields have been trading below short-dated ones, which is known as an inverted yield curve, a phenomenon that’s often seen as a precursor to recession.

“I don’t see inflation getting back to 2% so quickly, if at all, and if in fact we’re in a world of persistent 3% inflation, you know it doesn’t make sense to have a 4.3%, 4.25% Treasury yield,” he said.

Other risks? Ackman remains worried about regional banks following the spring crisis, as many have big fixed-rate portfolios of assets that have gotten less and less valuable as rates rise. “I would say the commercial real estate picture has not gotten better, if anything, you know, you’re going to start seeing real defaults, particularly with office assets,” he said.

“Regional banks have the most exposure to construction loans so they are going to be a lot of construction loans that won’t be able to repaid. There will be a lot of restructurings, so either the investors groups are gonna have to put in a lot more equity or the banks are going to start taking some losses,” he said.

Ackman says investors also face a presidential campaign that could add some stress. The hedge-fund manager said he’s surprised there have not been “more and better alternative candidates” for the 2024 campaign over President Joe Biden and former President Donald Trump.

He’d like to see JPMorgan Chase & Co. CEO Jamie Dimon toss his hat in the ring and believes Biden is “beatable,” by a strong candidate.

Ackman himself said it’s “possible,” he himself could run someday, but he’s more focused on having a better investment track record over Berkshire Hathaway Chairman and CEO Warren Buffett — and needs some 30 years to match the Oracle of Omaha.

Read: Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks

The markets

Stock futures
ES00,
-0.36%

NQ00,
-0.45%
are tilting south, led by tech, with Treasury yields
BX:TMUBMUSD02Y

BX:TMUBMUSD10Y
steady to a touch lower and the dollar
DXY
recovering some ground.

Read: Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Oracle shares
ORCL,
+0.31%
are down 10% in premarket trading after disappointing guidance from the cloud database group.

Apple’s
AAPL,
+0.66%
big event kicks off at 1 p.m. Eastern, with the launch of the pricier iPhone 15 expected to be on the agenda.

Hot ticket. Arm Holdings’ IPO is already 10 times oversubscribed and bankers will stop taking orders by Tuesday afternoon, Bloomberg reports, citing sources.

Tech’s wild week: How Apple, Google, AI, Arm’s mega IPO could set the agenda for years

Upbeat results are boosting shares of convenience-store operator Casey’s General Stores
CASY,
-1.02%.

Packaging giant WestRock
WRK,
-1.48%
and rival Smurfit Kappa
SK3,
-8.87%
have announced a stock and cash tie up. WestRock shares are up 8% in premarket.

Read: U.S. budget deficit will double this year to $2 trillion, excluding student loans

Best of the web

No better than gambling? Amateur investors are piling into 24-hour options.

Demand for oil, coal, gas to peak this decade, IEA chief says

U.S. takes on tech giant Google in landmark case.

The chart

Bank of America’s global fund manager survey for September sees investors still bearish, but no longer on the extreme side. Here’s the chart:

Read: Fund managers just made their biggest shift ever into U.S. stocks — and out of emerging markets

The tickers

These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:

Ticker	Security name
TSLA, +10.09%	Tesla
AMC, +2.23%	AMC Entertainment
CGC, +81.37%	Canopy Growth
NVDA, -0.86%	Nvidia
GME, -3.90%	GameStop
AAPL, +0.66%	Apple
ACB, +72.17%	Aurora Cannabis
NIO, +2.89%	Nio
MULN, +5.77%	Mullen Automotive
AMZN, +3.52%	Amazon

Random reads

“Worst investment ever.” Brady Bunch fan buys original house for cut-price $3.2 million.

And the house from the “Halloween” slasher films just sold for $1.8 million.

China may ban clothes that hurt people’s feelings.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.

[ad_2]

Source link

September 12, 2023

Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says

[ad_1]

Neuberger Berman, an asset manager with eight decades under its belt, is on the lookout for cracks in credit markets from the Federal Reserve’s rate-hiking campaign.

Erik Knutzen, chief investment officer of multi asset, worries that several factors could be a tipping point for the economy, from an economic slowdown in China to U.S. consumers finally becoming exhausted by higher rates.

Yet Knutzen expects the high-yield, or junk bond, market to serve as the “canary in the coal mine” for broader market volatility, acting as “perhaps the most visible threat, and therefore one we think could be priced in sooner than later.”

The Bloomberg U.S. High Yield Bond Index has returned 6.4% through the end of August, producing one of the year’s highest gains in fixed income, helped along by a “resilient U.S. economy coupled with still-available financial liquidity,” according to the Wells Fargo Investment Institute.

But Knutzen worries that as the high-yield maturity wall draws closer, “the first policy rate cuts get priced further and further out, raising the threat of expensive refinancings.”

The 10-year Treasury yield’s
BX: TMUBMUSD10Y
climb to a multidecade high in August of almost 4.4% left many major U.S. corporations in early September hesitant to borrow beyond 10 years.

Starting next year, some $700 billion of high-yield bonds are set to mature through the end of 2027, with a big slice of the refinancing need coming from companies with riskier credit ratings below the top BB ratings bracket.

The junk-bond maturity wall.

Bloomberg, Wells Fargo Investment Institute, Moody’s Investors Service

The two big U.S. exchange-traded funds linked to junk bonds are the SPDR Bloomberg High Yield Bond ETF
JNK
and the iShares iBoxx $ High Yield Corporate Bond ETF
HYG,
both up 1.8% and 1.5% on the year through Monday, respectively, while offering dividend yields of more than 5.8%, according to FactSet.

Of note, fixed-income strategists at the Wells Fargo Investment Institute also said they see risks emerging in junk bonds for companies rated B and below, particularly with spread in the sector trading less than 400 basis points above the risk-free Treasury rate since July. Spreads are the premium that investors are paid on bonds to help compensate for default risks.

Top corporate executives appear hopeful that the Federal Reserve will cut rates sooner than later. Fed Chairman Jerome Powell said in Jackson Hole, Wyo., in August that the central bank is prepared to keep its policy rate restrictive for a while to get inflation down to its 2% target.

To that end, Neuberger Berman, which has roughly $443 billion in managed assets, sees several sources of volatility lurking through year’s end, and has a “defensive inclination” in equity and credit, favoring high-quality companies with plenty of free cash flow, high cash balances and less expensive long-term debt.

U.S. stocks booked gains on Monday after a week of losses, with the S&P 500 index
SPX
and Nasdaq Composite Index
COMP
scoring their best daily percentage gains in about two weeks. The Dow Jones Industrial Average
DJIA
advanced 0.3%.

[ad_2]

Source link

September 11, 2023
Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

[ad_1]

Recent weakness in the U.S. stock market is likely to persist over the near-term, according to Wall Street’s most bullish strategist, who still thinks the S&P 500 is on a path to a record high this year.

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., in late July projected the S&P 500 would rise above 4,900 by the end of 2023. That is the highest price target for the large-cap index among 20 Wall Street firms surveyed by MarketWatch in August.

It implies the S&P 500 would rise above its earlier closing record high of 4,796 reached on Jan. 3, 2022 by the end of the year. The path up, however, could get bumpy.

“Bullishness [in the stock market] is relatively high while the Fed remains shy of its inflation target,” said a team of Oppenheimer strategists led by Stoltzfus in a Sunday note. They also said, “we persist in suggesting that investors curb their enthusiasm [in the stock market] for a long rate pause or even a rate cut and instead right-size expectations.”

Expectations that the Federal Reserve is nearing an end to its current interest-rate hiking cycle, as well as optimism around artificial intelligence boosted the U.S. stock market in the first seven months of 2023. However, the rally came to a brief halt in August as investors worried the Fed could be forced to keep rates elevated as a batch of stronger-than-expected economic data and rising oil prices fueled concerns that still-sticky inflation would mean that borrowing costs will stay higher for longer.

Investors should not brush off those pressures, even through the Fed appears to be nearing the end to its current rate-hike cycle, Stoltzfus and his team said. “The stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year,” they said.

See: When will consumers stop buying more stuff? It’s a key question for the stock market.

However, Stoltzfus doesn’t see current headwinds for stocks as something that would prevent the S&P 500 from achieving his team’s new peak target.

Stock-market investors expect this week’s August inflation report to offer more clarity on whether the central bank will continue to ratchet up its fight against inflation. The headline component of the consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal.

Meanwhile, a key Wall Street volatility index also pointed to “some choppiness” in the stock market in the near term to keep investors on their toes, said Stoltzfus. The CBOE Volatility Index
VIX,
at a level of 13.82 on Monday, hovered around its 12-month low and traded about 30% below its one-year average level of 19.9, and 37% below its two-year average of 21.88 (see chart below).

Stoltzfus and his team suggest that investors use market weakness to seek out “babies that get thrown out with the bath water” in periods of volatility. They said the S&P 500 Energy Sector
XX:SP500.10
looks increasingly attractive as policy makers in the U.S. and abroad strive to contain inflation and manage economic growth.

“We believe that prospects are looking better that the Fed’s success thus far in bringing down the rate of inflation could lead to a [rate] pause next year, thus lessening pressures on economic growth,” the strategists said. An improved economic growth, along with fiscal stimulus from investment in stateside infrastructure projects and stateside chip manufacturing efforts, could contribute to profitability in the energy sector into 2024, the team added.

The Energy Select Sector SPDR Fund
XLE,
which is seen as a proxy of the energy sector of the S&P 500, has advanced 3.9% year to date versus a 8.5% increase in the price of the U.S. benchmark West Texas Intermediate crude oil
CL00,
+0.03%

CL.1,
+0.03%,
according to FactSet data.

Oil futures
CLV23,
+0.03%
BRNX23,
-0.03%
traded at their highest levels of the year on Monday morning, a week after Russia and Saudi Arabia caught markets off guard with their output cut extension announcements, but they settled modestly lower on Monday afternoon.

See: Energy ETFs are outshining the S&P 500, but it’s not just because of the oil rally

Stoltzfus in late July projected the S&P 500
SPX
would rise above its record high by the end of 2023, lifting his year-end price target for the large-cap index to 4,900 from an earlier 4,400 projection from December. It implies a 9.2% advance from where the S&P 500 settled on Monday, at around 4,487.

See: S&P 500 has a new record high 2023 price target. Here’s a look at Wall Street’s official stock-market outlook.

U.S. stocks finished higher on Monday, boosted by technology shares as Nasdaq Composite
COMP
advanced 1.1%. The S&P 500 was up 0.7% and the Dow Jones Industrial Average
DJIA
ended 0.3% higher, according to FactSet data.

[ad_2]

Source link

September 11, 2023

Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks

[ad_1]

Investors in index funds have been well rewarded by a high concentration in the largest technology companies over the past decade. But there are also continuing warnings about the risk of such heavy concentrations, even in index funds that track the S&P 500. Solutions are offered to limit this risk, but if you expect Big Tech to continue to drive the broad market returns over the coming years, why not make an even more focused bet?

Comparisons of three index-fund approaches highlight how successful concentration in the “Magnificent Seven” has been.

The Magnificent Seven are Apple Inc.
AAPL,
+0.16%,
Microsoft Corp.
MSFT,
+0.72%,
Nvidia Corp.
NVDA,
-2.03%,
Amazon.com Inc.
AMZN,
+2.17%,
Alphabet Inc.
GOOGL,
-0.27%

GOOG,
-0.32%,
Tesla Inc.
TSLA,
+9.37%
and Meta Platforms Inc.
META,
+1.67%.
We have listed them in the order of their concentration within the Invesco S&P 500 ETF Trust
SPY,
which tracks the S&P 500
SPX.
The U.S. benchmark index is weighted by market capitalization, as is the Nasdaq Composite Index
COMP
and the Russell indexes.

SPY is 27.6% concentrated in the Magnificent Seven. One way to play the same group of 500 stocks but eliminate concentration risk is to take an equal-weighted approach to the index, which has worked well for certain long periods. But here, we’re focusing on how well the concentrated strategy has worked.

Let’s take a look at the group’s concentration in three popular index approaches, then look at long-term performance and consider what happened in 2022 as rising interest rates helped crush the tech sector.

Here are the portfolio weightings for the Magnificent Seven in SPY, along with those of the Invesco QQQ Trust
QQQ,
which tracks the Nasdaq-100 Index
NDX
and the Invesco S&P 500 Top 50 ETF
XLG
:

Company	Ticker	% of SPY	% of QQQ	% of XLG
Apple Inc.	AAPL, +0.16%	7.05%	10.85%	12.46%
Microsoft Cor.	MSFT, +0.72%	6.65%	9.53%	11.76%
Amazon.com Inc.	AMZN, +2.17%	3.30%	5.50%	5.84%
Nvidia Corp.	NVDA, -2.03%	3.02%	4.44%	5.33%
Alphabet Inc. Class A	GOOGL, -0.27%	2.17%	3.12%	3.83%
Alphabet Inc. Class C	GOOG, -0.32%	1.88%	3.11%	3.32%
Tesla Inc.	TSLA, +9.37%	1.79%	3.10%	3.17%
Meta Platforms Inc. Class A	META, +1.67%	1.77%	3.60%	3.12%
Totals		27.63%	43.25%	48.83%
Sources: Invesco Ltd., State Street Corp.

The same group of seven companies (eight stocks with two common share classes for Alphabet) is at the top of each exchange-traded fund’s portfolio, although the top seven for QQQ aren’t in the same order as those for SPY and XLG. QQQ’s weighting was changed recently as the underlying Nasdaq-100 underwent a “special rebalancing” last month.

Here’s a five-year chart comparing the performance of the three approaches. All returns in this article include reinvested dividends.

FactSet

QQQ has been the clear winner for five years, but it is also worth noting how well XLG has performed when compared with SPY. This “top 50” approach to the S&P 500 incorporates many stocks that aren’t listed on the Nasdaq and therefore cannot be included in QQQ, which itself is made up of the largest 100 nonfinancial companies in the full Nasdaq Composite Index
COMP,
+0.45%.

Examples of stocks held by XLG that aren’t held by QQQ include such non-tech stalwarts as Berkshire Hathaway Inc.
BRK.B,
+0.77%,
Johnson & Johnson
JNJ,
+0.79%,
Procter & Gamble Co.
PG,
+0.94%,
Home Depot Inc.
HD,
-0.12%
and Nike Inc.
NKE,
-0.42%.

Now let’s go deeper into long-term performance. First, here are the total returns for various time periods:

ETF	3 Years	5 Years	10 Years	15 Years	20 Years
SPDR S&P 500 ETF Trust SPY	40%	69%	223%	370%	531%
Invesco QQQ Trust QQQ	41%	113%	430%	882%	1,158%
Invesco S&P 500 Top 50 ETF XLG	41%	85%	262%	404%	N/A
Source: FactSet

Click on the tickers for more about each ETF, company or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

There is no 20-year return for XLG because this ETF was established in 2005.

For five years and longer, QQQ has been the runaway leader, but for 5, 10 and 15 years, XLG has also beaten SPY handily, with broader industry exposure.

Something else to consider is that during 2022, when SPY was down 18.2%, XLG fell 24.3% and QQQ dropped 32.6%.

For disciplined long-term investors, the tech pain of 2022 may not seem to have been a small price to pay for outperformance. And it may have been easier to take the pounding when holding SPY or even XLG that year.

Here’s a look at the average annual returns for the three ETFs:

ETF	3 years	5 years	10 years	15 years	20 years
SPDR S&P 500 ETF Trust SPY	11.8%	11.0%	12.4%	10.9%	9.6%
Invesco QQQ Trust QQQ	12.0%	16.3%	18.2%	16.4%	13.5%
Invesco S&P 500 Top 50 ETF XLG	12.2%	13.1%	13.7%	11.4%	N/A
Source: FactSet

So the question remains — do you believe that the largest technology companies will continue to lead the stock market for the next decade at least? If so, a more concentrated index approach may be for you, provided you can withstand the urge to sell into a declining market, such as the one we experienced last year.

Here is something else to keep in mind. In a note to clients on Monday, Doug Peta, the chief U.S. investment strategist at BCA, made a fascinating point: “The only novel development is that all the heaviest hitters now hail from Tech and Tech-adjacent sectors and are therefore more prone to move together than they were at the end of 2004, when the seven largest stocks came from six different sectors. “

Nothing lasts forever. Peta continued by suggesting that investors who are tired of big tech taking all the glory “need only wait.”

“[I]f history is any guide, their time at the top of the capitalization scale will be short,” he wrote.

Don’t miss: These four Dow stocks take top prizes for dividend growth

[ad_2]

Source link

September 11, 2023

Just how much is the AI discourse helping stocks? An analyst scoured earnings calls for clues

[ad_1]

Talking about AI alone has been pixie dust for big technology stocks this year. And as executives look for any way to shoehorn AI into their business plans, more S&P 500 index companies during their second quarter earnings calls mentioned “AI” than at any point since at least 2010, according to a report published on Friday.

What’s more, according to the report from FactSet, the companies talking about AI — even the ones that aren’t the big, obvious tech names — have seen their stocks fare better than shares of companies that haven’t.

For S&P 500 companies that mentioned “AI” on their second-quarter earnings calls, shares on average since June 30 dipped 0.8%, while rising 13.3% since Dec. 31, FactSet said. For companies that didn’t talk about AI on those calls, shares on average fell a bit more since the end of June — 2.3% — while inching only 1.5% higher since the end of last year.

“Even excluding the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla), the S&P 500 companies that cited ‘AI’ still outperformed the S&P 500 companies that did not cite ‘AI’ on average during these periods,” FactSet Senior Earnings Analyst John Butters said in the report.

Meanwhile, Wall Street has long believed corporate America’s profits would rebound for the second half of 2023, after a year ruled by anxieties over inflation’s impact on the economy. Still, that collective bounce-back, as it has through this year, will hinge on strong results from the world’s biggest tech players.

Wall Street analysts expect S&P 500 companies to eke out a 0.5% gain in per-share profit growth during the third quarter, according to the FactSet report. If that number holds, it would be the first quarter of earnings growth since the third quarter of last year.

Those potential gains, however, will largely depend on results from Amazon.com Inc.
AMZN,
+0.28%,
Meta Platforms Inc.
META,
-0.26%
and Alphabet Inc.
GOOG,
+0.73%

GOOGL,
+0.83%
— outsized companies with outsized influence on markets and S&P 500 company financials overall. Financials for those companies have rebounded this year, after big tech retrenched amid a drop-off in pandemic-related digital demand from people spending more time at home and online.

This week in earnings

Three years of supply disruptions have upended the economy and driven prices higher, forcing the Federal Reserve to embark on a delicate effort to bring them lower by discouraging borrowing and spending through a series of interest-rate hikes. But what about the impact on bowling? For answers, we turn to results this week from bowling-alley chain Bowlero Corp.
BOWL,
-3.43%,
which saw a jump in demand following the economy’s reopening but now faces questions about that demand as it shows signs of returning to Earth. Convenience-store chain Casey’s General Stores Inc.
CASY,
+0.85%
and homebuilder Lennar Corp.
LEN,
+0.50%
also report.

The call to put on your calendar

Adobe results: Digital-media, analytics and design firm Adobe Inc. reports quarterly results on Thursday. But Mizuho analyst Gregg Moskowitz said his focus was on the company’s broader digital transformation.

He cited stronger Web traffic, the potential for more deals with bigger customers, signs of improving trends in Adobe’s
ADBE,
-0.02%
analytics segment, as well as the segment that includes design tools like Photoshop. But he said the company’s moves in generative AI could be “a significant growth driver.” Adobe this year unveiled Firefly, an AI image and text-enhancement model that can be incorporated into Adobe’s software. Moskowitz said that “while very early, our checks indicate an already high level of large customer interest in GenAI projects, including Firefly for Enterprise.” However, he said the company’s $20 billion acquisition of online design platform Figma was still “a big question mark,” as costs and regulatory scrutiny accumulate.

The number to watch

Oracle results, supply situation: Cloud and IT-network developer Oracle Corp.
ORCL,
+0.98%
reports results on Monday. Like much of the tech world, Wall Street sees the company as an AI play. But UBS analysts said that as businesses race to secure the components that power AI, Oracle could have an “underappreciated edge” over rivals.

[ad_2]

Source link

September 10, 2023
These 6 Food Stocks Have Gotten Hit Hard. It’s Time to Chow Down.
[ad_1]
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

https://www.barrons.com/articles/6-beaten-down-food-stocks-buy-c93ad194
Sept. 8, 2023 5:54 pm ET

Order Reprints

Print Article

Food stocks are worth a nibble after their worst showing relative to the

S&P 500

in …
[ad_2]

Source link
September 8, 2023
Stock market’s 2023 run may hit roadblock after August’s energy-led boost to U.S. CPI

[ad_1]

August was a hot month and it wasn’t just about the weather. Financial markets are now bracing for what’s likely to be a rebound in headline U.S. inflation next week, fueled by higher energy prices.

Barclays
BARC,
+0.18%,
BofA Securities
BAC,
+0.62%,
and TD Securities expect August’s consumer price index to reflect a 0.6% monthly rise, up from the 0.2% monthly readings seen in July and in June. In addition, they put the annual CPI inflation rate at 3.6% or 3.7% for last month, which compares with the 3.2% and 3% figures reported respectively for the prior two months.

While Federal Reserve policy makers and analysts are loath to read too much into one report, August’s CPI has the potential to disrupt expectations that getting back to the central bank’s 2% target will be easy. Inflation has instead been nudging back up since June, with the likely rebound in August being regarded as primarily driven by the energy sector. What now remains to be seen is how much longer energy prices will remain elevated and whether they’ll begin to feed into narrower measures of inflation that matter most to the Fed.

Read: Stock-market investors just got reminded that the inflation fight isn’t over

“We’re going to see a spike in gas prices and other commodity prices driven by supply cuts, which means headline CPI goes back up,” said Alex Pelle, a U.S. economist for Mizuho Securities in New York. Via phone on Friday, Pelle said that prospects for a hotter August CPI report have already been factored in by financial markets, with all three major U.S. stock indexes heading for weekly losses.

How investors react to next Wednesday’s data will likely come down to whether the rebound in headline figures is seen as “a one-off” or something that gets repeated, and “what that means for the bottoming off of inflation,” Pelle said. “The equity market is going to have some trouble in the fourth quarter after a pretty impressive first half. Earnings expectations are still pretty high, but the macro-driven backdrop is challenging.”

Rising energy prices in August have already spilled into the month of September, with gasoline reaching the highest seasonal level in more than a decade this week. Voluntary production cuts by Saudi Arabia and Russia are a major contributing factor curtailing the supply of crude oil into year-end, and Goldman Sachs has warned that oil could climb above $100 a barrel.

In financial markets, there’s one group of traders which is telegraphing that the final mile of the road toward 2% inflation won’t be smooth.

Traders of derivatives-like instruments known as fixings anticipate that the next five CPI reports, including August’s, will produce annual headline inflation rates above 3%. Though policy makers care more about core readings that strip out volatile food and energy prices, they’re aware of how much headline figures can impact the public’s expectations.

Source: Bloomberg. The maturity column reflects the month and year of upcoming CPI reports. The forwards column reflects the year-ago period from which the year-over-year rate is based.

At BofA Securities, U.S. economist Stephen Juneau said August’s CPI won’t necessarily change his firm’s view that inflation is likely to move lower next year and fall back to the Fed’s target without the need for a recession. BofA Securities expects just one more Fed rate hike in November and will maintain that view if August’s CPI report comes in as he expects, Juneau said via phone.

After stripping out volatile food and energy items, BofA Securities, along with Barclays and TD Securities, expects August’s core CPI readings to come in at 0.2% month-over-month — matching June and July’s levels — and to fall to 4.3% on an annual basis.

Based on core measures, August’s report wouldn’t “change the narrative all that much: Everything points to a moderation in price growth,” Pelle said. “There’s a reason why food and energy are typically excluded,” and “we don’t want to put too much stock into one month.”

As of Friday afternoon, all three major U.S. stock indexes were headed higher, with the S&P 500 attempting to snap a three-day losing streak. Dow industrials
DJIA,
the S&P 500
SPX
and Nasdaq Composite
COMP
were respectively on track for weekly losses of 0.7%, 1.2%, and 1.7%. They’re still up for the year by more than 4%, 16% and 31%.

Meanwhile, Treasury yields turned were little changed on Friday as fed funds futures traders priced in a 93% chance of no action by the Fed at its next policy meeting in less than two weeks, and a more-than-50% likelihood of the same for November and December — which would leave the Fed’s main policy rate target between 5.25%-5.5%.

“There is a risk that investors are too complacent about the inflation report,” said Brian Jacobsen, chief economist at Annex Wealth Management in Elm Grove, Wis. “We might not get to 2% inflation as quickly as many hope.”

[ad_2]

Source link

September 8, 2023
U.S. economy seen growing at about a 2.2% annual rate in the July-September quarter, according to real-time New York Fed estimate

[ad_1]

The U.S. economy could expand at about a 2.2% annual rate in the current quarter, according to a revamped real-time estimate from the New York Federal Reserve released Friday.

According to the weekly New York Fed’s Staff Nowcast, the economy has been on an upward trend since late July.

The regional Fed bank had discontinued the real-time estimate during the pandemic. The New York Fed said the series will now be available weekly.

The New York Fed’s estimate is much lower than the Atlanta Fed’s GDPNow model, which shows growth could expand at a 5.6% annual rate in the current quarter.

Economists say the strength of the economy will be critical going forward in deciding whether the Federal Reserve needs to continue to raise its policy interest rate to cool inflation.

The Fed has been expecting the economy to slow in the second half of the year. Fed officials forecast only 1% growth for 2023. In the first six months of the year, U.S. gross domestic product is averaging about a 2% growth rate.

If the economy reaccelerates, it is likely that inflation will also move higher. Fed officials had been hoping that slower economic growth would continue push down inflation.

Faster growth means “you are probably going to get some inflation numbers that aren’t going to be as good as people were anticipating,” said James Bullard, the former president of St. Louis Fed president and now dean of Purdue’s business school.

“There is some risk that the Fed will have to go a little bit higher” even than the one more interest rate hike that the central bankers have penciled in this year, he said, in a recent CNBC interview.

The first official government estimate of third-quarter growth won’t be released until Oct. 26.

The picture of the health of the economy painted by U.S. GDP statistics can change quickly.

The growth estimates for the first half of the year could be revised at the end of September when the Commerce Department releases benchmark updates to GDP data.

The sharp revisions are one of the reasons why the Fed typically pays more attention to the unemployment rate and the inflation data.

[ad_2]

Source link

September 8, 2023
U.S. household wealth rises to record $154.28 trillion in second quarter

[ad_1]

The numbers: Total U.S. household net worth rose $5.5 trillion to a record $154.28 trillion in the second quarter, the Federal Reserve said Friday. This is the third straight quarterly increase.

Key details: The gain was boosted by a $2.6 trillion gain in stocks. The value of real estate holdings rose $2.5 trillion in the three months.

Household debt rose at a 2.7% annual rate in the second quarter. Mortgage debt grew at a 2.8% annual rate.

Big picture: The health of the consumer has been a big factor in the surprising strength of the U.S. economy this year. Talk of a recession has vanished and the economy seems to be strengthening as the year progresses.

Market reaction: Stocks
DJIA

SPX
were higher in Friday trading while the 10-year Treasury yield
BX:TMUBMUSD10Y
rose to 4.26%.

[ad_2]

Source link

September 8, 2023
Fed’s Williams says monetary policy is in a ‘good place,’ recession talk ‘has vanished’

[ad_1]

New York Fed President John Williams on Thursday sounded content with the current level of interest rates, but said he will be watching data closely to make sure the level of rates is high enough to keep inflation moving down.

“We’ve done a lot,” Williams said during a discussion at a conference sponsored by Bloomberg News.

“Right now, we’ve…

[ad_2]

Source link

September 7, 2023
Why crude-oil rally can’t be ignored by investors — or the Fed

[ad_1]

Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn’t mean that they, or investors, will be able to ignore a renewed surge in crude-oil prices.

In a Thursday note, DataTrek Research observed that the correlation between energy prices and the core reading of the consumer-price index has returned to levels seen in the 1970s and 1980s. It stands at 0.62 since 2020, compared with an average of 0.68 in those prior decades, and well above its long-run average of 0.31. A reading of 1.0 would mean the measures were moving in perfect lockstep. (See table below.)

DataTrek Research

Core measures of inflation typically strip out volatile items like food and energy. While that often leads to eye-rolling by commentators who note that food and energy make up a big chunk of what consumers spend money on, the logic behind the move holds that such items are less responsive to monetary policy.

Policy makers put more emphasis on the core reading for a better read on what they can influence. The core personal-consumption expenditures, or PCE, index, for example, is often described as the Federal Reserve’s favored inflation indicator.

But that doesn’t mean rising energy or food prices can be ignored. Energy, after all, is an input, and can have an influence on overall prices.

“Recent data says energy prices hold more sway on core inflation than any time since the 1970s/1980s, so rising oil prices are a legitimate concern for both the Fed and capital markets. Food inflation fits the same bill,” said DataTrek co-founder Nicholas Colas in the note.

Oil prices have been on a tear this summer, with the rally accelerating after Saudi Arabia announced earlier this week it would extend a production cut of 1 million barrels a day through the end of the year, with Russia also pledging to extend a supply cut.

West Texas Intermediate crude
CL00,
+0.48%,
the U.S. benchmark, extended a winning streak to nine days on Wednesday, while Brent crude
BRN00,
+0.60%,
the global benchmark, rose for a seventh straight day. Both grades ended at 2023 highs Wednesday before pulling back modestly in the Thursday session.

The surge in crude threatens to further drive up fuel prices, including gasoline and diesel.

And rising oil prices this week got a chunk of the blame from investors and analysts for a pickup in Treasury yields as market participants began to pencil in a longer stretch of higher interest rates — or weighed the possibility the Fed may need to deliver more monetary tightening. That’s also contributed to a rise in the U.S. dollar, with the ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, hitting a six-month high.

U.S. stocks have weakened in the face of rising yields, with technology and growth shares, which are particularly rate-sensitive, leading the way lower. The Nasdaq Composite
COMP
was on track for a 2% decline so far this holiday-shortened week, while the S&P 500
SPX
has pulled back 1.4% and the Dow Jones Industrial Average
DJIA
has lost 1%.

“With oil prices rising again, we got to wondering about the spillover effects of this move on inflation. Will pricier crude derail recent disinflationary trends?” Colas wrote.

[ad_2]

Source link

September 7, 2023
What’s missing for investors in new $60 billion corporate borrowing blitz

[ad_1]

Another big corporate borrowing blitz to kick off September has gotten under way, but this one isn’t looking like the rest.

Instead, the flurry of new bond issues shows how the Federal Reserve’s higher interest rate environment has begun to seep in a year later, by making major companies far more hesitant to tap credit for longer stretches.

“The…

[ad_2]

Source link

September 7, 2023