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  • Dividend stocks are dirt cheap. It may be time to back up the truck.

    Dividend stocks are dirt cheap. It may be time to back up the truck.

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    The stock market always overreacts, and this year it seems as if investors believe dividend stocks have become toxic. But a look at yields on quality dividend stocks relative to the market underlines what may be an excellent opportunity for long-term investors to pursue growth with an income stream that builds up over the years.

    The current environment, in which you can get a yield of more than 5% yield on your cash at a bank or lock in a yield of 4.57% on a10-year U.S. Treasury note
    BX:TMUBMUSD10Y
    or close to 5% on a 20-year Treasury bond
    BX:TMUBMUSD20Y
    seems to have made some investors forget two things: A stock’s dividend payout can rise over the long term, and so can it is price.

    It is never fun to see your portfolio underperform during a broad market swing. And people have a tendency to prefer jumping on a trend hoping to keep riding it, rather than taking advantage of opportunities brought about by price declines. We may be at such a moment for quality dividend stocks, based on their yields relative to that of the benchmark S&P 500
    SPX.

    Drew Justman of Madison Funds explained during an interview with MarketWatch how he and John Brown, who co-manage the Madison Dividend Income Fund, BHBFX MDMIX and the new Madison Dividend Value ETF
    DIVL,
    use relative dividend yields as part of their screening process for stocks. He said he has never seen such yields, when compared with that of the broad market, during 20 years of work as a securities analyst and portfolio manager.

    Dividend stocks are down

    Before diving in, we can illustrate the market’s current loathing of dividend stocks by comparing the performance of the Schwab U.S. Equity ETF
    SCHD,
    which tracks the Dow Jones U.S. Dividend 100 Index, with that of the SPDR S&P 500 ETF Trust
    SPY.
    Let’s look at a total return chart (with dividends reinvested) starting at the end of 2021, since the Federal Reserve started its cycle of interest rate increases in March 2022:


    FactSet

    The Dow Jones U.S. Dividend 100 Index is made up of “high-dividend-yielding stocks in the U.S. with a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios,” according to S&P Dow Jones Indices.

    The end results for the two ETFs from the end of 2021 through Tuesday are similar. But you can see how the performance pattern has been different, with the dividend stocks holding up well during the stock market’s reaction to the Fed’s move last year, but trailing the market’s recovery as yields on CDs and bonds have become so much more attractive this year. Let’s break down the performance since the end of 2021, this time bringing in the Madison Dividend Income Fund’s Class Y and Class I shares:

    Fund

    		 2023 return

    		 2022 return

    		 Return since the end of 2021
    SPDR S&P 500 ETF Trust

    		 14.9%

    		 -18.2%

    		 -6.0%
    Schwab U.S. Dividend Equity ETF

    		 -3.8%

    		 -3.2%

    		 -6.9%
    Madison Dividend Income Fund – Class Y

    		 -4.7%

    		 -5.4%

    		 -9.9%
    Madison Dividend Income Fund – Class I

    		 -4.7%

    		 -5.3%

    		 -9.7%
    Source: FactSet

    Dividend stocks held up well during 2022, as the S&P 500 fell more than 18%. But they have been left behind during this year’s rally.

    The Madison Dividend Income Fund was established in 1986. The Class Y shares have annual expenses of 0.91% of assets under management and are rated three stars (out of five) within Morningstar’s “Large Value” fund category. The Class I shares have only been available since 2020. They have a lower expense ratio of 0.81% and are distributed through investment advisers or through platforms such as Schwab, which charges a $50 fee to buy Class I shares.

    The opportunity — high relative yields

    The Madison Dividend Income Fund holds 40 stocks. Justman explained that when he and Brown select stocks for the fund their investible universe begins with the components of the Russell 1000 Index
    RUT,
    which is made up of the largest 1,000 companies by market capitalization listed on U.S. exchanges. Their first cut narrows the list to about 225 stocks with dividend yields of at least 1.1 times that of the index.

    The Madison team calculates a stock’s relative dividend yield by dividing its yield by that of the S&P 500. Let’s do that for the Schwab U.S. Equity ETF
    SCHD
    (because it tracks the Dow Jones U.S. Dividend 100 Index) to illustrate the opportunity that Justman highlighted:

    Index or ETF

    		 Dividend yield

    		 5-year Avg. yield 

    		 10-year Avg. yield 

    		 15-year Avg. yield 

    		 Relative yield

    		 5-year Avg. relative yield 

    		 10-year Avg. relative yield 

    		 15-year Avg. relative yield 
    Schwab U.S. Dividend Equity ETF

    		 3.99%

    		 3.41%

    		 3.20%

    		 3.16%

    		 2.6

    		 2.1

    		 1.8

    		 1.6
    S&P 500

    		 1.55%

    		 1.62%

    		 1.79%

    		 1.92%
    Source: FactSet

    The Schwab U.S. Equity ETF’s relative yield is 2.6 — that is, its dividend yield is 2.6 times that of the S&P 500, which is much higher than the long-term averages going back 15 years. If we went back 20 years, the average relative yield would be 1.7.

    Examples of high-quality stocks with high relative dividend yields

    After narrowing down the Russell 1000 to about 225 stocks with relative dividend yields of at least 1.1, Justman and Brown cut further to about 80 companies with a long history of raising dividends and with strong balance sheets, before moving further through a deeper analysis to arrive at a portfolio of about 40 stocks.

    When asked about oil companies and others that pay fixed quarterly dividends plus variable dividends, he said, “We try to reach out to the company and get an estimate of special dividends and try to factor that in.” Two examples of companies held by the fund that pay variable dividends are ConocoPhillips
    COP,
    -0.29%
    and EOG Resources Inc.
    EOG,
    +0.52%    .

    Since the balance-sheet requirement is subjective “almost all fund holdings are investment-grade rated,” Justman said. That refers to credit ratings by Standard & Poor’s, Moody’s Investors Service or Fitch Ratings. He went further, saying about 80% of the fund’s holdings were rated “A-minus or better.” BBB- is the lowest investment-grade rating from S&P. Fidelity breaks down the credit agencies’ ratings hierarchy.

    Justman named nine stocks held by the fund as good examples of quality companies with high relative yields to the S&P 500:

    Company

    		 Ticker

    		 Dividend yield

    		 Relative yield

    		 2023 return

    		 2022 return

    		 Return since the end of 2021
    CME Group Inc. Class A

    		 CME,
    +0.47%         		2.04%

    		 1.3

    		 31%

    		 -23%

    		 1%
    Home Depot, Inc.

    		 HD,
    -0.39%         		2.79%

    		 1.8

    		 -3%

    		 -22%

    		 -25%
    Lowe’s Cos., Inc.

    		 LOW,
    +0.27%         		2.17%

    		 1.4

    		 3%

    		 -21%

    		 -19%
    Morgan Stanley

    		 MS,
    -1.54%         		4.24%

    		 2.7

    		 -3%

    		 -10%

    		 -13%
    U.S. Bancorp

    		 USB,
    -0.25%         		5.89%

    		 3.8

    		 -22%

    		 -19%

    		 -37%
    Medtronic PLC

    		 MDT,
    -4.32%         		3.62%

    		 2.3

    		 1%

    		 -23%

    		 -22%
    Texas Instruments Inc.

    		 TXN,
    -0.21%         		3.30%

    		 2.1

    		 -3%

    		 -10%

    		 -12%
    United Parcel Service Inc. Class B

    		 UPS,
    -0.16%         		4.17%

    		 2.7

    		 -8%

    		 -16%

    		 -23%
    Union Pacific Corp.

    		 UNP,
    +1.52%         		2.52%

    		 1.6

    		 2%

    		 -16%

    		 -15%
    Source: FactSet

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

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

    Now let’s see how these companies have grown their dividend payouts over the past five years. Leaving the companies in the same order, here are compound annual growth rates (CAGR) for dividends.

    Before showing this next set of data, let’s work through one example among the nine stocks:

    • If you had purchased shares of Home Depot Inc.
      HD,
      -0.39%
      five years ago, you would have paid $193.70 a share if you went in at the close on Oct. 10, 2018. At that time, the company’s quarterly dividend was $1.03 cents a share, for an annual dividend rate of $4.12, which made for a then-current yield of 2.13%.

    • If you had held your shares of Home Depot for five years through Tuesday, your quarterly dividend would have increased to $2.09 a share, for a current annual payout of $8.36. The company’s dividend has increased at a compound annual growth rate (CAGR) of 15.2% over the past five years. In comparison, the S&P 500’s weighted dividend rate has increased at a CAGR of 6.24% over the past five years, according to FactSet.

    • That annual payout rate of $8.36 would make for a current dividend yield of 2.79% for a new investor who went in at Tuesday’s closing price of $299.22. But if you had not reinvested, the dividend yield on your five-year-old shares (based on what you would have paid for them) would be 4.32%. And your share price would have risen 54%. And if you had reinvested your dividends, your total return for the five years would have been 75%, slightly ahead of the 74% return for the S&P 500 SPX during that period.

    Home Depot hasn’t been the best dividend grower among the nine stocks named by Justman, but it is a good example of how an investor can build income over the long term, while also enjoying capital appreciation.

    Here’s the dividend CAGR comparison for the nine stocks:

    Company

    		 Ticker

    		 Five-year dividend CAGR

    		 Dividend yield on shares purchased five years ago

    		 Dividend yield five years ago

    		 Current dividend yield

    		 Five-year price change

    		 Five-year total return
    CME Group Inc. Class A

    		 CME,
    +0.47%         		9.46%

    		 2.44%

    		 1.55%

    		 2.04%

    		 20%

    		 42%
    Home Depot Inc.

    		 HD,
    -0.39%         		15.20%

    		 4.32%

    		 2.13%

    		 2.79%

    		 54%

    		 75%
    Lowe’s Cos, Inc.

    		 LOW,
    +0.27%         		18.04%

    		 4.14%

    		 1.81%

    		 2.17%

    		 91%

    		 109%
    Morgan Stanley

    		 MS,
    -1.54%         		23.16%

    		 7.62%

    		 2.69%

    		 4.24%

    		 80%

    		 108%
    U.S. Bancorp

    		 USB,
    -0.25%         		5.34%

    		 3.60%

    		 2.78%

    		 5.89%

    		 -39%

    		 -26%
    Medtronic PLC

    		 MDT,
    -4.32%         		6.65%

    		 2.90%

    		 2.10%

    		 3.62%

    		 -20%

    		 -9%
    Texas Instruments Inc.

    		 TXN,
    -0.21%         		11.04%

    		 5.24%

    		 3.10%

    		 3.30%

    		 59%

    		 82%
    United Parcel Service Inc. Class B

    		 UPS,
    -0.16%         		12.23%

    		 5.56%

    		 3.12%

    		 4.17%

    		 33%

    		 56%
    Union Pacific Corp.

    		 UNP,
    +1.52%         		10.20%

    		 3.37%

    		 2.07%

    		 2.52%

    		 34%

    		 49%
    Source: FactSet

    This isn’t to say that Justman and Brown have held all of these stocks over the past five years. In fact, Lowe’s Cos.
    LOW,
    +0.27%
    was added to the portfolio this year, as was United Parcel Service Inc.
    UPS,
    -0.16%    .
    But for most of these companies, dividends have compounded at relatively high rates.

    When asked to name an example of a stock the fund had sold, Justman said he and Brown decided to part ways with Verizon Communications Inc.
    VZ,
    -0.94%
    last year, “as we became concerned about its fundamental competitive position in its industry.”

    Summing up the scene for dividend stocks, Justman said, “It seems this year the market is treating dividend stocks as fixed-income instruments. We think that is a short-term issue and that this is a great opportunity.”

    Don’t miss: How to tell if it is worth avoiding taxes with a municipal-bond ETF

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  • U.S. stocks post 3-session climb as bond yields, oil retreat

    U.S. stocks post 3-session climb as bond yields, oil retreat

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    U.S. stocks booked a 3-session win streak Tuesday as oil prices and bond yields retreated. The Dow Jones Industrial Average
    DJIA,
    +0.40%
    climbed about 134 points, or 0.4%, ending near 33,739, according to preliminary FactSet data. That was the longest streak of straight wins for the blue-chip index in a month, and the best three days of gains since late August, according to Dow Jones Market Data. The S&P 500 index
    SPX,
    +0.52%
    advanced 0.5% and the Nasdaq Composite Index
    COMP,
    +0.58%
    gained 0.6%. It was the third session in a row of gains for all three indexes. The brighter backdrop for stock market came as oil prices
    CL00,
    -0.69%
    and bond yields
    TMUBMUSD10Y,
    4.663%
    retreated and after Raphael Bostic, head of the Atlanta Fed, said he didn’t think additional rate hikes were needed to bring inflation down to the central bank’s 2% annual target, but also that he still sees rates staying high for a “long time.”

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  • Stock market likely to see 12% retreat ahead of recession, says trader who called ’87 crash

    Stock market likely to see 12% retreat ahead of recession, says trader who called ’87 crash

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    “‘The stock market, typically, right before recession declines about 12%.That’s probably going to happen at some point from some level.’”


    — Paul Tudor Jones, founder and CIO, Tudor Investment Corp.

    That’s famed hedge-fund manager Paul Tudor Jones in an interview with CNBC Tuesday morning, explaining why he’s not enthusiastic about U.S. stocks and other risky assets as he awaits a recession induced by the Federal Reserve’s aggressive monetary tightening.

    Jones said it’s difficult to be positive on equities amid what he described as “the most threatening and challenging geopolitical environment that I’ve ever seen,” which is occurring “at the same time the United States is at its weakest fiscal position since World War II. It’s a really difficult time.”

    A 2023 rally in U.S. stocks has stalled, with the S&P 500 index
    SPX
    pulling back 5.5% from a 2023 high set on July 31, leaving the large-cap benchmark up 12.9% for the year to date through Monday’s close. The Dow Jones Industrial Average
    DJIA
    is up just 1.4% so far this year.

    Jones is widely credited with predicting, and profiting, from the stock-market crash on Oct. 19, 1987, which saw the Dow lose nearly 23% of its value, marking the largest one-day percentage decline for the blue-chip benchmark in its history.

    So what does Jones like?

    “I would love gold and bitcoin, together,” he said.

    “I think [bitcoin and gold] probably take on a larger percentage of your portfolio than historically they would because we’re going to go through a challenging political time here in the United States and…we’ve obviously got a geopolitical situation” in Israel and Ukraine, Jones said.

    Bitcoin
    BTCUSD,
    -0.72%
    was off 0.8% near $27,380 Tuesday morning and has rallied around 65% so far in 2023. Gold
    GC00,
    +0.59%
    has retreated from a high above $2,000 an ounce earlier this year, slumping below $1,850 last week as Treasury yields marched higher and the dollar strengthened.

    A pullback in U.S. bond yields has seen gold bounce 1.4% this week, trading recently near $1,871 an ounce.

    Large, speculative short positions in gold will provide fuel for a rally as a recession takes hold, the investor said.

    “In a recession, the market is typically really long assets like bitcoin and gold,” he said. “So there’s probably $40 billion worth of buying that has to come into gold at some point between now and if that recession actually occurs.

    “So yeah, I like bitcoin and I like gold right here,” Jones said.

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  • 1970s-style stagflation may be at risk of repeating itself, Deutsche Bank warns

    1970s-style stagflation may be at risk of repeating itself, Deutsche Bank warns

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    A major Wall Street bank is warning about the risk that inflation expectations could become unanchored in a fashion similar to the 1970s stagflation era.

    Weekend attacks on Israel by Hamas illustrate how geopolitical risks can suddenly return — adding to the surprise shocks of the current decade, such as the COVID-19 pandemic and Russia’s invasion of Ukraine, said macro strategist Henry Allen and research analyst Cassidy Ainsworth-Grace of Frankfurt-based Deutsche Bank
    DB,
    -1.40%    .

    Read: Questions emerge over how Israeli intelligence missed Hamas attack

    Oil prices settled more than 4% higher on Monday as traders weighed the impact of the war in the Middle East on crude supplies. The spike in energy prices is adding to the growing list of similarities to the 1970s era — which also includes consistently above-target inflation across major economies and repeated optimism about how quickly it would fall; strikes by workers; and even increasing chances that this winter will be dominated by the El Niño weather pattern, similar to what took place in 1971 and which is historically tied to higher commodity prices, according to Deutsche Bank.

    Inflation remains above central banks’ targets in every G-7 country — the U.S., Canada, France, Germany, Italy, Japan, and the United Kingdom. How long it will remain high is one of the most important questions facing financial markets, and a destabilization of expectations would make it even harder for policy makers to restore price stability.

    “So given inflation is still above its pre-pandemic levels, it is important not to get complacent about its path,” Allen and Ainsworth-Grace wrote in a note released on Monday. “After all, if there is another shock and inflation remains above target into a third or even a fourth year, it is increasingly difficult to imagine that long-term expectations will repeatedly stay lower than actual inflation.”

    History indicates that the last mile of inflation is often the hardest. One of the key lessons of the 1970s was that inflation failed to return to previous levels after the first oil shock of 1973 and U.S. recession of 1973-1975, and went even higher following a second oil shock in 1979. Now that inflation has been above target for the last two years, “a fresh inflationary spike could well lead expectations to become unanchored,” according to the Deutsche Bank note.


    Source: Bloomberg, Deutsche Bank

    For now, the public’s inflation expectations, as measured by a New York Fed survey of consumers in August, remain largely stable, though still above the Federal Reserve’s 2% target.

    The current period differs from the 1970s era in a number of ways, the Deutsche Bank team also points out. Long-term inflation expectations remain “impressively” well-anchored, commodity prices have fallen substantially from their peaks over the past 12 to 18 months, and supply-chain disruptions that emerged during the pandemic have “broadly healed.” In addition, the U.S. is less energy intensive than in the past and less susceptible to damage from a 1970s-style energy shock.

    Even so, “it is vitally important to avoid complacency,” Allen and Ainsworth-Grace wrote. “Indeed, with the benefit of hindsight, one of the mistakes of the 1970s was that policy was eased up too early, which contributed to a resurgence in inflation.”

    Risk-off sentiment prevailed in financial markets during the early part of Monday, before stocks turned higher during the New York afternoon. All three major U.S. stock indexes
    DJIA

    SPX

    COMP
    finished higher in a volatile session. Trading in U.S. government-debt futures reflected greater demand and gold rallied as a flight to safety took hold. The cash market for Treasurys was closed for Columbus Day and Indigenous Peoples Day.

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  • 1970’s-style stagflation may be at risk of repeating itself, bank warns

    1970’s-style stagflation may be at risk of repeating itself, bank warns

    [ad_1]

    A major Wall Street bank is warning about the risk that inflation expectations could become unanchored in a fashion similar to the 1970s stagflation era.

    Weekend attacks on Israel by Hamas illustrate how geopolitical risks can suddenly return — adding to the surprise shocks of the current decade, such as the COVID-19 pandemic and Russia’s invasion of Ukraine, said macro strategist Henry Allen and research analyst Cassidy Ainsworth-Grace of Frankfurt-based Deutsche Bank
    DB,
    -1.45%    .

    Read: Questions emerge over how Israeli intelligence missed Hamas attack

    Oil prices jumped by more than 4% on Monday as traders weighed the impact of the war in the Middle East on crude supplies. The spike in energy is adding to the growing list of similarities to the 1970s era — which also includes consistently above-target inflation across major economies and repeated optimism about how quickly it would fall; strikes by workers; and even increasing chances that this winter will be dominated by the El Niño weather pattern, similar to what took place in 1971 and which is historically tied to higher commodity prices, according to Deutsche Bank.

    Inflation remains above central banks’ targets in every Group-of-7 country — the U.S., Canada, France, Germany, Italy, Japan, and the United Kingdom. How long it will remain high is one of the most important questions facing financial markets, and a destabilization of expectations would make it even harder for policy makers to restore price stability.

    “So given inflation is still above its pre-pandemic levels, it is important not to get complacent about its path,” Allen and Ainsworth-Grace wrote in a note released on Monday. “After all, if there is another shock and inflation remains above target into a third or even a fourth year, it is increasingly difficult to imagine that long-term expectations will repeatedly stay lower than actual inflation.”

    History indicates that the last mile of inflation is often the hardest. One of the key lessons of the 1970s was that inflation failed to return to previous levels after the first oil shock of 1973 and U.S. recession of 1973-1975, and went even higher following a second oil shock in 1979. Now that inflation has been above target for the last two years, “a fresh inflationary spike could well lead expectations to become unanchored,” according to the Deutsche Bank note.


    Source: Bloomberg, Deutsche Bank

    For now, the public’s inflation expectations, as measured by a New York Fed survey of consumers in August, remain largely stable, though still above the Federal Reserve’s 2% target.

    The current period differs from the 1970s era in a number of ways, the Deutsche Bank team also points out. Long-term inflation expectations remain “impressively” well-anchored, commodity prices have fallen substantially from their peaks over the past 12 to 18 months, and supply-chain disruptions that emerged during the pandemic have “broadly healed.” In addition, the U.S. is less energy intensive than in the past and less susceptible to damage from a 1970s-style energy shock.

    Even so, “it is vitally important to avoid complacency,” Allen and Ainsworth-Grace wrote. “Indeed, with the benefit of hindsight, one of the mistakes of the 1970s was that policy was eased up too early, which contributed to a resurgence in inflation.”

    Risk-off sentiment prevailed in financial markets on Monday, with all three major U.S. stock indexes
    DJIA

    SPX

    COMP
    down in New York afternoon trading. Trading in U.S. government-debt futures reflected greater demand and gold rallied as a flight to safety took hold. The cash market for Treasurys was closed for Columbus Day and Indigenous Peoples Day.

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  • U.S. stocks staged a surprising rally on Friday. But can the party last?

    U.S. stocks staged a surprising rally on Friday. But can the party last?

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    U.S. stocks saw a surprising bounce on Friday, culminating in the S&P 500 index’s biggest intraday comeback since the March banking crisis, even though a monthly jobs report for September came in much higher than expected.

    So, are investors no longer worried about the Federal Reserve’s inflation fight or higher interest rates wrecking the U.S. economy?

    “Stocks initially sold off on the blockbuster jobs report which indicates the Fed may not be done,” said Gina Bolvin, president of Bolvin Wealth Management Group. “However, after digesting the strong labor market is still strong, stocks rallied. And why shouldn’t they? Will good news- finally – be good news?”

    Bolvin said part of the rally could be seasonal, with September typically being a rough months for stocks. There also has been increased optimism that the earnings recession for American corporations may be over, she said.

    Analysts are predicting corporate earnings growth rates of 5.9% for the fourth quarter for S&P500 companies, according to John Butters, senior earnings analyst at FactSet. Estimates are for the third-quarter of 2023 after the stock index’s fourth straight quarterly earnings decline on a year-over-year basis.

    At Friday’s session lows, the S&P 500 index
    SPX
    was down 0.9%, but it ended up posting a 1.2% advance, its largest intraday comeback since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average
    DJIA
    booked a 0.9% gain and the Nasdaq Composite Index
    COMP
    rose 1.6% higher.

    “The movement in stocks today is certainly encouraging given yields are up as well,” said Chris Fasciano, portfolio manager, Commonwealth Financial Network. “But we will need to see follow through next week.”

    The yield on 10-year Treasury
    BX:TMUBMUSD10Y
    note rose for five straight weeks in a row to 4.783% on Friday, while the 30-year yield
    BX:TMUBMUSD30Y
    rose to 4.941%, according to Dow Jones Market Data.

    Read: Why 5% bond yields could wreak havoc on the market

    While the U.S. stock-market will be open for business on Monday, the bond market will be closed for Columbus Day and Indigenous Peoples Day holiday, giving investors somewhat of a pause before a big week of economic data that could shape the Fed’s next decision on interest rates.

    “Ultimately, stocks and bonds will take their cues next week from the economic releases,” Fasciano told MarketWatch.

    Key items on the calendar for the week will be September inflation reports, with the producer-price index on Wednesday and the consumer-price index due Thursday. In between, Fed minutes of its policy meeting in September also are due to be released Wednesday.

    “That makes next week an important week for the future direction of both the bond and equity markets as the Fed will certainly be focused on those reports prior to their next meeting on Oct. 31-Nov. 1,” Fasciano said.

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  • U.S. stocks stage a surprising rally on Friday. But can the party last?

    U.S. stocks stage a surprising rally on Friday. But can the party last?

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    U.S. stocks saw a surprising bounce on Friday, culminating in the S&P 500 index’s biggest intraday comeback since the March banking crisis, even though a monthly jobs report for September came in much higher than expected.

    So, are investors no longer worried about the Federal Reserve’s inflation fight or higher interest rates wrecking the U.S. economy?

    “Stocks initially sold off on the blockbuster jobs report which indicates the Fed may not be done,” said Gina Bolvin, president of Bolvin Wealth Management Group. “However, after digesting the strong labor market is still strong, stocks rallied. And why shouldn’t they? Will good news- finally – be good news?”

    Bolvin said part of the rally could be seasonal, with September typically being a rough months for stocks. There also has been increased optimism that the earnings recession for American corporations may be over, she said.

    Analysts are predicting corporate earnings growth rates of 5.9% for the fourth quarter for S&P500 companies, according to John Butters, senior earnings analyst at FactSet. Estimates are for the third-quarter of 2023 after the stock index’s fourth straight quarterly earnings decline on a year-over-year basis.

    At Friday’s session lows, the S&P 500 index
    SPX
    was down 0.9%, but it ended up posting a 1.2% advance, its largest intraday comeback since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average
    DJIA
    booked a 0.9% gain and the Nasdaq Composite Index
    COMP
    rose 1.6% higher.

    “The movement in stocks today is certainly encouraging given yields are up as well,” said Chris Fasciano, portfolio manager, Commonwealth Financial Network. “But we will need to see follow through next week.”

    The yield on 10-year Treasury
    BX:TMUBMUSD10Y
    note rose for five straight weeks in a row to 4.783% on Friday, while the 30-year yield
    BX:TMUBMUSD30Y
    rose to 4.941%, according to Dow Jones Market Data.

    Read: Why 5% bond yields could wreak havoc on the market

    While the U.S. stock-market will be open for business on Monday, the bond market will be closed for Columbus Day and Indigenous Peoples Day holiday, giving investors somewhat of a pause before a big week of economic data that could shape the Fed’s next decision on interest rates.

    “Ultimately, stocks and bonds will take their cues next week from the economic releases,” Fasciano told MarketWatch.

    Key items on the calendar for the week will be September inflation reports, with the producer-price index on Wednesday and the consumer-price index due Thursday. In between, Fed minutes of its policy meeting in September also are due to be released Wednesday.

    “That makes next week an important week for the future direction of both the bond and equity markets as the Fed will certainly be focused on those reports prior to their next meeting on Oct. 31-Nov. 1,” Fasciano said.

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  • These 20 stocks in the S&P 500 are expected to soar after rising interest rates have pushed down valuations

    These 20 stocks in the S&P 500 are expected to soar after rising interest rates have pushed down valuations

    [ad_1]

    Two things investors can be sure about: Nothing lasts forever and the stock market always overreacts. The spiking of yields on long-term U.S. Treasury securities has been breathtaking, and it has led to remarkable declines for some sectors and possible bargains for contrarian investors who can commit for the long term.

    First we will show how the sectors of the S&P 500

    have performed. Then we will look at price-to-earnings valuations for the sectors and compare them to long-term averages. Then we will screen the entire index for companies trading below their long-term forward P/E valuation averages and narrow the list to companies most favored by analysts.

    Here are total returns, with dividends reinvested, for the 11 sectors of the S&P 500, with broad indexes below. The sectors are sorted by ascending total returns this year through Monday.

    Sector or index

    		 2023 return

    		 2022 return

    		 Return since end of 2021

    		 1 week return

    		 1 month return
    Utilities

    		 -18.4%

    		 1.6%

    		 -17.2%

    		 -11.1%

    		 -9.6%
    Real Estate

    		 -7.1%

    		 -26.1%

    		 -31.4%

    		 -3.0%

    		 -8.8%
    Consumer Staples

    		 -5.4%

    		 -0.6%

    		 -6.0%

    		 -2.2%

    		 -4.4%
    Healthcare

    		 -4.2%

    		 -2.0%

    		 -6.1%

    		 -1.7%

    		 -3.3%
    Financials

    		 -2.5%

    		 -10.5%

    		 -12.7%

    		 -2.5%

    		 -4.7%
    Materials

    		 1.3%

    		 -12.3%

    		 -11.2%

    		 -1.9%

    		 -7.0%
    Industrials

    		 3.5%

    		 -5.5%

    		 -2.1%

    		 -1.8%

    		 -7.3%
    Energy

    		 4.0%

    		 65.7%

    		 72.4%

    		 -1.9%

    		 -1.4%
    Consumer Discretionary

    		 27.0%

    		 -37.0%

    		 -20.0%

    		 -0.6%

    		 -5.2%
    Information Technology

    		 36.5%

    		 -28.2%

    		 -2.0%

    		 0.8%

    		 -5.9%
    Communication Services

    		 42.5%

    		 -39.9%

    		 -14.3%

    		 1.1%

    		 -1.3%
    S&P 500
    		 13.1%

    		 -18.1%

    		 -7.4%

    		 -1.1%

    		 -4.9%
    DJ Industrial Average
    		 2.5%

    		 -6.9%

    		 -4.5%

    		 -1.7%

    		 -4.0%
    Nasdaq Composite Index
    COMP     		28.0%

    		 -32.5%

    		 -13.7%

    		 0.3%

    		 -5.1%
    Nasdaq-100 Index
    		 36.5%

    		 -32.4%

    		 -7.7%

    		 0.5%

    		 -4.2%
    Source: FactSet

    Returns for 2022 are also included, along with those since the end of 2021. Last year’s weakest sector, communications services, has been this year’s strongest performer. This sector includes Alphabet Inc.
    GOOGL
    and Meta Platforms Inc.
    META,
    which have returned 52% and 155% this year, respectively, but are still down since the end of 2021. To the right are returns for the past week and month through Monday.

    On Monday, the S&P 500 Utilities sector had its worst one-day performance since 2020, with a 4.7% decline. Investors were reacting to the jump in long-term interest rates.

    Here is a link to the U.S. Treasury Department’s summary of the daily yield curve across maturities for Treasury securities.

    The yield on 10-year U.S. Treasury notes

    jumped 10 basis points in only one day to 4.69% on Monday. A month earlier the 10-year yield was only 4.27%. Also on Monday, the yield on 20-year Treasury bonds

    rose to 5.00% from 4.92% on Friday. It was up from 4.56% a month earlier.

    Market Extra: Bond investors feel the heat as popular fixed-income ETF suffers lowest close since 2007

    The Treasury yield curve is still inverted, with 3-month T-bills

    yielding 5.62% on Monday, but that was up only slightly from a month earlier. An inverted yield curve has traditionally signaled that bond investors expect a recession within a year and a lowering of interest rates by the Federal Reserve. Demand for bonds pushes their prices down. But the reverse has happened over recent days, with the selling of longer-term Treasury securities pushing yields up rapidly.

    Another way to illustrate the phenomenon is to look at how the Federal Reserve has shifted the U.S. money supply. Odeon Capital analyst Dick Bove wrote in a note to clients on Friday that “the Federal Reserve has not deviated from its policy to defeat inflation by tightening monetary policy,” as it has shrunk its balance sheet (mostly Treasury securities) to $8.1 trillion from $9 trillion in March 2022. He added: “The M2 money supply was $21.8 trillion in March 2022; today it is $20.8 trillion. You cannot get tighter than these numbers indicate.”

    Then on Tuesday, Bove illustrated the Fed’s tightening and the movement of the 10-year yield with two charts:


    Odeon Capital Group, Bloomberg

    Bove said he believes the bond market has gotten it wrong, with the inverted yield curve reflecting expectations of rate cuts next year. If he is correct, investors can expect longer-term yields to keep shooting up and a normalization of the yield curve.

    This has set up a brutal environment for utility stocks, which are typically desired by investors who are seeking dividend income. In a market in which you can receive a yield of 5.5% with little risk over the short term, and in which you can lock in a long-term yield of about 5%, why take a risk in the stock market? And if you believe that the core inflation rate of 3.7% makes a 5% yield seem paltry, keep in mind that not all investors think the same way. Many worry less about the inflation rate because large components of official inflation calculations, such as home prices and car prices, don’t affect everyone every year.

    We cannot know when this current selloff of longer-term bonds will end, or how much of an effect it will have on the stock market. But sharp declines in the stock market can set up attractive price points for investors looking to go in for the long haul.

    Screening for lower valuations and high ratings

    A combination of rising earnings estimates and price declines could shed light on potential buying opportunities, based on forward price-to-earnings ratios.

    Let’s look at the sectors again, in the same order, this time to show their forward P/E ratios, based on weighted rolling 12-month consensus estimates for earnings per share among analysts polled by FactSet:

    Sector or index

    		 Current P/E to 5-year average

    		 Current P/E to 10-year average

    		 Current P/E to 15-year average

    		 Forward P/E

    		 5-year average P/E

    		 10-year average P/E

    		 15-year average P/E
    Utilities

    		 82%

    		 86%

    		 95%

    		 14.99

    		 18.30

    		 17.40

    		 15.82
    Real Estate

    		 76%

    		 80%

    		 81%

    		 15.19

    		 19.86

    		 18.89

    		 18.72
    Consumer Staples

    		 93%

    		 96%

    		 105%

    		 18.61

    		 19.92

    		 19.30

    		 17.64
    Healthcare

    		 103%

    		 104%

    		 115%

    		 16.99

    		 16.46

    		 16.34

    		 14.72
    Financials

    		 88%

    		 92%

    		 97%

    		 12.90

    		 14.65

    		 14.08

    		 13.26
    Materials

    		 100%

    		 103%

    		 111%

    		 16.91

    		 16.98

    		 16.42

    		 15.27
    Industrials

    		 88%

    		 96%

    		 105%

    		 17.38

    		 19.84

    		 18.16

    		 16.56
    Energy

    		 106%

    		 63%

    		 73%

    		 11.78

    		 11.17

    		 18.80

    		 16.23
    Consumer Discretionary

    		 79%

    		 95%

    		 109%

    		 24.09

    		 30.41

    		 25.39

    		 22.10
    Information Technology

    		 109%

    		 130%

    		 146%

    		 24.20

    		 22.17

    		 18.55

    		 16.54
    Communication Services

    		 86%

    		 86%

    		 94%

    		 16.41

    		 19.09

    		 19.00

    		 17.43
    S&P 500
    		 94%

    		 101%

    		 112%

    		 17.94

    		 19.01

    		 17.76

    		 16.04
    DJ Industrial Average
    		 93%

    		 98%

    		 107%

    		 16.25

    		 17.49

    		 16.54

    		 15.17
    Nasdaq Composite Index
    		 92%

    		 102%

    		 102%

    		 24.62

    		 26.71

    		 24.18

    		 24.18
    Nasdaq-100 Index
    		 97%

    		 110%

    		 126%

    		 24.40

    		 25.23

    		 22.14

    		 19.43

    There is a limit to how many columns we can show in the table. The S&P 500’s forward P/E ratio is now 17.94, compared with 16.79 at the end of 2022 and 21.53 at the end of 2021. The benchmark index’s P/E is above its 10- and 15-year average levels but below the five-year average.

    If we compare the current sector P/E numbers to 5-, 10- and 15-year averages, we can see that the current levels are below all three averages for four sectors: utilities, real estate, financials and communications services. The first three face obvious difficulties as they adjust to the rising-rate environment, while the real-estate sector reels from continuing low usage rates for office buildings, from the change in behavior brought about by the COVID-19 pandemic.

    Your own opinions, along with the pricing for some sectors, might drive some investment choices.

    A broader screen of the S&P 500 might point to companies for you to research further.

    We narrowed the S&P 500 as follows:

    • Current forward P/E below 5-, 10- and 15-year average valuations. For stocks with negative earnings-per-share estimates for the next 12 months, there is no forward P/E ratio so they were excluded. For stocks listed for less than 15 years, we required at least a 5-year average P/E for comparison. This brought the list down to 138 companies.

    • “Buy” or equivalent ratings from at least two-thirds of analysts: 41 companies.

    Here are the 20 companies that passed the screen, for which analysts’ price targets imply the highest upside potential over the next 12 months.

    There is too much data for one table, so first we will show the P/E information:

    Company

    		 Ticker

    		 Current P/E to 5-year average

    		 Current P/E to 10-year average

    		 Current P/E to 15-year average
    SolarEdge Technologies Inc.

    		 SEDG 89%

    		 N/A

    		 N/A
    AES Corp.

    		 AES 66%

    		 75%

    		 90%
    Insulet Corp.

    		 PODD 18%

    		 N/A

    		 N/A
    United Airlines Holdings Inc.

    		 UAL 42%

    		 50%

    		 N/A
    Alaska Air Group Inc.

    		 ALK 51%

    		 57%

    		 N/A
    Tapestry Inc.

    		 TPR 39%

    		 49%

    		 70%
    Albemarle Corp.

    		 ALB 39%

    		 50%

    		 73%
    Delta Air Lines Inc.

    		 DAL 60%

    		 63%

    		 21%
    Alexandria Real Estate Equities Inc.

    		 ARE 59%

    		 68%

    		 N/A
    Las Vegas Sands Corp.

    		 LVS 96%

    		 78%

    		 53%
    Paycom Software Inc.

    		 PAYC 61%

    		 N/A

    		 N/A
    PayPal Holdings Inc.

    		 PYPL 33%

    		 N/A

    		 N/A
    SBA Communications Corp. Class A

    		 SBAC 27%

    		 N/A

    		 N/A
    Advanced Micro Devices Inc.

    		 AMD 58%

    		 39%

    		 N/A
    LKQ Corp.

    		 LKQ 92%

    		 44%

    		 78%
    Charles Schwab Corp.

    		 SCHW 75%

    		 54%

    		 73%
    PulteGroup Inc.

    		 PHM 94%

    		 47%

    		 N/A
    Lamb Weston Holdings Inc.

    		 LW 71%

    		 N/A

    		 N/A
    News Corp Class A

    		 NWSA 93%

    		 73%

    		 N/A
    CVS Health Corp.

    		 CVS 75%

    		 61%

    		 67%
    Source: FactSet

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

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

    News Corp
    NWSA
    is on the list. The company owns Dow Jones, which in turn owns MarketWatch.

    Here’s the list again, with ratings and consensus price-target information:

    Company

    		 Ticker

    		 Share “buy” ratings

    		 Oct. 2 price

    		 Consensus price target

    		 Implied 12-month upside potential
    SolarEdge Technologies Inc.

    		 SEDG 74%

    		 $122.56

    		 $268.77

    		 119%
    AES Corp.

    		 AES 79%

    		 $14.16

    		 $25.60

    		 81%
    Insulet Corp.

    		 PODD 68%

    		 $165.04

    		 $279.00

    		 69%
    United Airlines Holdings Inc.

    		 UAL 71%

    		 $41.62

    		 $69.52

    		 67%
    Alaska Air Group Inc.

    		 ALK 87%

    		 $36.83

    		 $61.31

    		 66%
    Tapestry Inc.

    		 TPR 75%

    		 $28.58

    		 $46.21

    		 62%
    Albemarle Corp.

    		 ALB 81%

    		 $162.41

    		 $259.95

    		 60%
    Delta Air Lines Inc.

    		 DAL 95%

    		 $36.45

    		 $58.11

    		 59%
    Alexandria Real Estate Equities Inc.

    		 ARE 100%

    		 $98.18

    		 $149.45

    		 52%
    Las Vegas Sands Corp.

    		 LVS 72%

    		 $45.70

    		 $68.15

    		 49%
    Paycom Software Inc.

    		 PAYC 77%

    		 $260.04

    		 $384.89

    		 48%
    PayPal Holdings Inc.

    		 PYPL 69%

    		 $58.56

    		 $86.38

    		 48%
    SBA Communications Corp. Class A

    		 SBAC 68%

    		 $198.24

    		 $276.69

    		 40%
    Advanced Micro Devices Inc.

    		 AMD 74%

    		 $103.27

    		 $143.07

    		 39%
    LKQ Corp.

    		 LKQ 82%

    		 $49.13

    		 $67.13

    		 37%
    Charles Schwab Corp.

    		 SCHW 77%

    		 $53.55

    		 $72.67

    		 36%
    PulteGroup Inc.

    		 PHM 81%

    		 $73.22

    		 $98.60

    		 35%
    Lamb Weston Holdings Inc.

    		 LW 100%

    		 $92.23

    		 $123.50

    		 34%
    News Corp Class A

    		 NWSA 78%

    		 $20.00

    		 $26.42

    		 32%
    CVS Health Corp.

    		 CVS 77%

    		 $69.69

    		 $90.88

    		 30%
    Source: FactSet

    A year may actually be a short period for a long-term investor, but 12-month price targets are the norm for analysts working for brokerage companies.

    Don’t miss: This fund shows that industry expertise can help you make a lot of money in the stock market

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  • Stocks end mostly higher Monday despite resumed U.S. debt selloff

    Stocks end mostly higher Monday despite resumed U.S. debt selloff

    [ad_1]

    Stocks closed mostly higher to kick off October as a sharp selloff in longer-dated U.S. government debt resumed. The Dow Jones Industrial Average
    DJIA,
    -0.22%
    fell about 74 points, or 0.2%, ending near 33,433, according to preliminary FactSet data. The S&P 500 index
    SPX,
    +0.01%
    ended flat at 4,288, while the Nasdaq Composite Index
    COMP,
    +0.67%
    gained 0.7%. Surging long-term borrowing costs remain a key focus in the final quarter of 2023, with the fear being they could derail the U.S. economy and spark more corporate defaults. The benchmark 10-year Treasury yield was punching higher to about 4.682% on Monday. Evidence of the debt rout could be found in the popular iShares 20+Year Treasury Bond ETF,
    TLT,
    -1.98%
    which cemented its lowest close since since August 2007 and in the iShares Core U.S. Aggregate Bond ETF,
    AGG,
    -0.70%
    which finished at its lowest since October 2008, according to Dow Jones Market Data. Investors in short U.S. government T-bills, however, have been mostly insulated from recent volatility, with yields steady in the 5.5% range, according to TradeWeb data.

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  • BBVA to Launch $1.1 Bln Buyback After ECB Approval

    BBVA to Launch $1.1 Bln Buyback After ECB Approval

    [ad_1]

    By Adria Calatayud

    Banco Bilbao Vizcaya Argentaria is launching a share buyback program of up to 1 billion euros ($1.06 billion) after it received authorization from the European Central Bank.
    

    The Spanish bank said Monday that the buyback program, under which it intends to repurchase up to 564.6 million shares, will start Monday and end no later than September 2024.
    

    

    BBVA said in July it had requested ECB authorization to launch a buyback program alongside its second-quarter results.
    

    Write to Adria Calatayud at adria.calatayud@dowjones.com
    

    

    

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  • 
		
		
    
			
    How 10-year Treasurys could produce 20% returns, according to UBS
    
			
    How 10-year Treasurys could produce 20% returns, according to UBS
    
			
     [ad_1]
    

    

    Carnage in the bond market in September could tee up an opportunity for investors to earn big returns on U.S. government debt in a year.
    

    Owners of 10-year Treasury
    
        BX:TMUBMUSD10Y
    
       notes at recent yields of around 4.5% could reap up to 20% in total returns in a year if the U.S. economy stumbles into a recession, according to UBS Global Wealth Management.
    

    

    The key would be for U.S. debt to rally significantly as investors scramble for safety in the roughly $25 trillion treasury market.
    

    “U.S. yields remain well above long-term equilibrium levels, providing scope for them to fall as the macroeconomic outlook becomes more supportive for bonds,” a team led by Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, wrote in a Friday client note.
    

    Their base-case call is for the 10-year Treasury yield to fall to 3.5% in 12 months, with it easing back to 4% in an upside scenario for growth, and for the economy’s benchmark rate to tumble as low as 2.75% in a downside scenario of a U.S. recession.
    

    “That would translate into total returns over the period of 14% in our base case, 10% in our upside economic scenario, and 20% in our downside scenario.”
    

    See: The market ‘may be overpaying you’ on a 10-year Treasury, says Lloyd Blankfein
    

    A rally in Treasury debt could help boost funds that track the Treasury market and the broader U.S. bond sector. The popular iShares 20+ Year Treasury Bond ETF
    
        TLT
    
       was down 10.9% on the year through Friday, while the iShares Core U.S. Aggregate Bond ETF
    
        AGG
    
       was 3% lower, according to FactSet.
    

    A tug of war has been developing in the Treasury market, with fear gripping investors this week as bond yields spike in the wake of signals last week from the Federal Reserve that interest rates may need to stay higher for longer than many on Wall Street anticipated.
    

    “Bond vigilantes” unhappy about the U.S. deficit have been demanding higher yields, while households and hedge funds have been piling into Treasury securities since the Fed began raising rates in 2022. 
    

    Much hinges on how painful things get if rates stay high, which would ratchet up borrowing costs for households, companies and the U.S. government as the Fed works to get falling inflation down to its 2% target.
    

    Hedge-fund billionaire Bill Ackman this week said he thinks Treasury yields are going higher in a hurry, as part of his bet that the 30-year Treasury yield
    
        BX:TMUBMUSD30Y
    
       has more room to climb. 
    

    The 10-year Treasury edged lower to 4.572% on Friday, after adding almost 50 basis points in September, which helped the stock market reclaim some lost ground in a dismal month, while the 30-year Treasury yield pulled back to 4.709%, according to FactSet. 
    

    The Dow Jones Industrial Average
    
        DJIA
    
       posted a 3.5% decline in September, its biggest monthly loss since February, the S&P 500 index
    
        SPX
    
       fell 4.8% and the Nasdaq Composite Index
    
        COMP
    
       shed 5.8% for the month.
    

    

    

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  • 
		
		
    
			
    Biden calls on Republicans to ‘keep their word about support for Ukraine’
    
			
    Biden calls on Republicans to ‘keep their word about support for Ukraine’
    
			
     [ad_1]
    

    

    President Joe Biden, speaking at the White House on Sunday some 12 hours after signing stopgap legislation to avert a federal government shutdown, called on House Speaker Kevin McCarthy and fellow Republicans to maintain the U.S.’s commitment to assist Ukraine in its ongoing defense against the Russian invasion that began in February 2022. McCarthy, the president said, has committed to bring a Ukraine assistance bill to the House floor, after McCarthy, who has to varying degrees publicly expressed support for the Ukraine cause, removed Ukraine funds from the 45-day continuing resolution passed Saturday, with Democratic backing, to assuage his own intraparty detractors. “Let’s be clear,” said Biden. “I hope my friends on the other side [of the aisle] keep their word about support for Ukraine. They said they’re going to support Ukraine in a separate vote.” Biden called the government-shutdown near-miss “a manufactured crisis” brought about when Republicans walked away from the compromises reached in May, when McCarthy and Biden came together to resolve a debt-ceiling impasse. “I’m sick and tired of the brinksmanship.”
    

    

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  • 
		
		
    
			
    Dow falls 160 points Friday, S&P 500 posts worst monthly drop since December
    
			
    Dow falls 160 points Friday, S&P 500 posts worst monthly drop since December
    
			
     [ad_1]
    

    

    Stocks closed mostly lower on Friday, with the S&P 500 cementing its biggest drop in a month since December, as a surge in bond yields knocked the wind out of this year’s rally in equities. The Dow Jones Industrial Average
    
        DJIA,
    
        -0.47%
    
       fell about 157 points, or 0.5%, ending near 33,508, according to preliminary FactSet data. The S&P 500 index
    
        SPX,
    
        -0.27%
    
       shed 0.3% and the Nasdaq Composite index
    
        COMP,
    
        +0.14%
    
       gained 0.1%. September was the worst month for the Dow since February, with its 3.5% loss, while the S&P 500 shed 4.9% and the Nasdaq lost 5.8%, marking their worst months since December 2022, according to Dow Jones Market Data. Yearly core inflation edged higher in August, according to Friday’s release of the latest PCE price index. The focus over the weekend will likely be a U.S. government shutdown. Given the negative backdrop for markets, the S&P 500, Dow and Nasdaq all booked declines in the third quarter.
    

    

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  • 
		
		
    
			
    Why consumer delinquencies are at their highest level since 2020
    
			
    Why consumer delinquencies are at their highest level since 2020
    
			
     [ad_1]
    

    

    Delinquency rates on consumer loans last month hit their highest level since the spring of 2020, a potential sign that inflation and rising interest rates are taking a toll on household finances. 
    

    Banks are keeping a close watch on delinquency rates, spending trends and credit originations to determine the health of the most powerful driver of the U.S. economy. Consumer spending accounts for about 70% of the country’s economic output, and banks and other businesses are eager to find out whether consumer spending will help the U.S. economy avoid a recession in 2024.
    

    The share of consumer loans between 30 and 59 days past due rose 0.84% in August, up from 0.65% in August 2022, according to data from VantageScore. About 0.29% of loans were between 60 and 89 days past due in August, up from 0.21% a year ago. And 0.13% of consumer loans were between 90 and 119 days past due, up from 0.09% the previous year. 
    

    

    

      
    

    

    The delinquency rate for each of the three past-due timeframes was higher in August than any month since April 2020.
    

    “People are relying on their credit more and in some cases are having trouble meeting their obligations,” said Jeff Richardson, senior vice president at VantageScore Solutions, the consumer credit scoring company behind VantageScore.
    

    The combination of inflation and rising interest rates over the past 18 months has made it more difficult for Americans to stay on top of their loan payments. When the costs of goods and services rise, consumers often face higher monthly debt payments, and they may have to choose between necessities and debt payments.
    

    Credit cards and auto loans saw the largest jump in delinquency rates between August 2022 and August 2023, according to the VantageScore data. Because the interest rate paid on cards is tied to short-term interest rates, those monthly payments can rise more quickly than consumers had anticipated.
    

    “Your monthly obligation, because of the rate increases, is much harder to meet now than it was 13 or 15 months ago,” Richardson said.
    

    Still, consumers as a whole are proving resilient, according to bank executives.
    

    Consumer spending will likely help the U.S. avoid a recession in 2024, Bank of America CEO Brian Moynihan said this week. Spending by consumers at the $3.1 trillion-asset bank is up 4.8% this year, he said, but that growth is declining.
    

    Credit card utilization increased just 0.1% between July and August, according to VantageScore data, a potential indicator that consumers are wary about the prospect of taking on more debt. Originations for personal loans, auto loans and mortgages also fell in August, thanks to lenders’ tighter standards and slowing demand growth for consumer loans. Only credit card originations increased in August.
    

    Economic growth is expected to slow to 1.3% in 2024, down from 2.3% in 2023, according to a forecast released Wednesday by S&P Global. Lower consumer spending on nonessential items is expected to drive much of that decline, analysts said.
    

    “The increase in subprime auto loan and credit card delinquencies suggests consumer discretionary spending will soon weaken,” S&P analysts wrote. “Moreover, student loan payments restart next month at a time when excess household savings have been largely depleted.”
    

    Pandemic-era payment pauses and grace periods helped keep past-due rates on consumer loans low during the pandemic. Many U.S. consumers used stimulus funds and unemployment payments to stay up-to-date on debt payments and add to their savings accounts.
    

    But much of those excess savings have since been spent, and consumers drove their credit card balances up by double-digit percentages in 2022. The high rate of spending continued for much of 2023 before slowing in recent months.
    

    For banks, that means a cooling of consumer lending this year. Consumer loan growth at U.S. commercial banks was 5.6% in August, down from 12.3% a year ago, according to data from the Federal Reserve.
    

    Consumers are set to further “tighten their purse strings” in 2024, S&P analysts wrote.
    

    

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    Risk of government shutdown soars as House Republicans leave town in disarray amid hard-right revolt
    
			
    Risk of government shutdown soars as House Republicans leave town in disarray amid hard-right revolt
    
			
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    WASHINGTON — With House Speaker Kevin McCarthy’s latest funding plan in ruins and lawmakers leaving town for the weekend, there’s no endgame in sight as hard-right Republicans push closer to a federal government shutdown.
    

    The White House will tell federal agencies on Friday to prepare for a shutdown, according to an official with the Office of Management and Budget who insisted on anonymity to discuss the upcoming instructions.
    

    

    That’s a standard seven days out from a federal disruption.
    

    

              
    

    

    
        “ ‘This is a whole new concept of individuals who just want to burn the whole place down.’ ”
      
    

            
    
          — Kevin McCarthy on his intraparty Republican critics
    
        
    

    

    McCarthy, the Republican speaker whose narrow majority and intraparty detractors meant it took 15 votes in January before he secured the gavel, has repeatedly tried to appease his hard-right flank by agreeing to the steep spending cuts they are demanding to keep government open. But, cheered on by Donald Trump, the former Republican president who is the current frontrunner for the party’s 2024 presidential nomination, the right wingers are flexing their outsize influence.
    

    In a crushing defeat for McCarthy on Thursday, a handful of Republican hardliners blocked a typically popular defense bill from advancing — the second time this week it was set back, an unheard-of loss for a House speaker.
    

    Even a stopgap bill to keep government funding past the Sept. 30 deadline, called a continuing resolution, or CR, is a nonstarter for some on the right flank who have essentially seized control of the House.
    

    Read on: How a partial government shutdown would affect you
    

    “This is a whole new concept of individuals who just want to burn the whole place down,” McCarthy said after Thursday’s vote, acknowledging he was frustrated. “It doesn’t work.”
    

    The open revolt was further evidence that McCarthy’s strategy of repeatedly giving in to the conservatives — in evidence as early as January when McCarthy is believed to have made undisclosed concessions to secure holdout GOP votes for his long-desired speakership — is seemingly only emboldening them, allowing them to run roughshod over their own House majority. Their far-right bills have almost no chances in the Senate.
    

    See: Gaetz threatens to oust McCarthy from House speaker post
    

    Trump urged the hardliners to hold the line against the higher funding levels McCarthy had agreed to with President Joe Biden earlier this year and to end the federal criminal indictments against him.
    

    “This is also the last chance to defund these political prosecutions against me and other Patriots,” Trump wrote on social media.
    

    “They failed on the debt limit, but they must not fail now. Use the power of the purse and defend the Country!” the former president wrote.
    

    The White House and Democrats, along with some Republicans, warn that a shutdown would be devastating for people who rely on their government for everyday services and would undermine America’s standing in the world.
    

    Rep. Jamie Raskin, a Maryland Democrat, observed Friday on the MSNBC program “Morning Joe” that investigations into, and prosecutions of, Trump are funded by continuing, indefinite appropriations and thus would be unaffected by a federal government shutdown.
    

    Also see: Government shutdown: Analysts warn of ‘perhaps a long one lasting into the winter’
    

    Raskin went on to voice a hope that Republicans ultimately would honor the government-funding agreement McCarthy struck in May with the Biden White House — but conceded Democrats are aware operating in a bipartisan fashion could cost McCarthy the speakership. 
    

    “We need the extreme MAGA Republicans to get their act together,” said House Democratic leader Hakeem Jeffries of New York, referring to Trump’s “Make America Great Again” slogan.
    

    “End the civil war,” Jeffries urged the Republicans. “Get your act together.”
    

    But one of Trump’s top allies, Rep. Matt Gaetz, a Florida Republican, who is leading the hard-right flank in the current skirmish, said the House Republicans now have almost no choices left but to spend the time it takes to pass each of the 12 spending bills needed to fund the government — typically a laborious process — even if it means going into a shutdown.
    

    Or they can join with Democrats to pass a CR, putting McCarthy at risk.
    

    What Gaetz said he, and several others, would not do is vote for a continuing resolution that fails to slash spending. “I’m giving a eulogy for the CR right now,” Gaetz told reporters after a late afternoon meeting Thursday at the Capitol.
    

    “I represent Florida’s First Congressional District, where, during the shutdown, tens of thousands of people will go without a paycheck, and so I know the impact of a shutdown,” Gaetz said. “So it may get worse before it gets better, and I have little to offer but blood, sweat, toil and tears, but that may be what it takes.”
    

    A government closure is increasingly likely as time runs out for Congress to act.
    

    McCarthy’s bid to move ahead with a traditionally popular defense funding bill as a first step toward keeping the government running was shattered, on a vote of 216-212. Five Republicans refused to vote with the increasingly endangered speaker. A sixth Republican voted no on procedural grounds so the bill could be reconsidered.
    

    Moving forward with the defense bill was supposed to be a way for McCarthy to build goodwill among the GOP House majority as he tries to pass a temporary measure just to keep government running for another month. It, too, had catered to other hard-right priorities, such as slashing spending by 8% from many services and earmarking further funds for security at the U.S.-Mexico border.
    

    Many on the right flank opposed the deal McCarthy struck with Biden this year over the spending levels and are trying to dismantle it now. They want to see progress on the individual appropriations bills that would fund the various federal departments at the lower levels these lawmakers are demanding.
    

    From the archives (May 2023): How Joe Biden and Kevin McCarthy got to yes on their debt-ceiling compromise
    

    The morning test vote on Thursday shattered a McCarthy strategy that had emerged just the night before. Republicans had appeared on track, in a tight roll call, to advancing the measure. Then the Democrats who had not yet voted began rushing into the chamber.
    

    New York Rep. Alexandria Ocasio-Cortez and fellow Democrats yelled out to hold open the vote. She was a “no.” A few others came in behind her and tipped the tally toward defeat.
    

    The Democrats oppose the military bill on many fronts, including Republican provisions that would gut diversity programs at the Pentagon.
    

    As passage appeared doomed, attention turned to the five Republican holdouts to switch their votes.
    

    GOP leaders spent more than an hour on the floor trying to recruit one of them, Rep. Dan Bishop of North Carolina, to vote “yes.”
    

    “Every time there’s the slightest relief of the pressure, the movement goes away from completing the work,” Bishop said.
    

    When asked what it would take to gain his vote, Bishop said, “I think a schedule of appropriations bills over Kevin McCarthy signature would be meaningful to you, to me.”
    

    Others were dug in, including some who had supported advancing the defense bill just two days ago when it first failed.
    

    Rep. Marjorie Taylor Greene, a Georgia Republican and a clamorous opponent of more aid for Ukraine in its defense against the unprovoked Russian invasion, said she voted against the defense bill this time because her party’s leadership refused to separate out war money.
    

    Her stand came as Ukraine’s president, Volodymyr Zelensky, was at the Capitol during a high-profile visit to Washington.
    

    McCarthy had pledged to keep House lawmakers in session this weekend for as long as it took to finish their work. But they were sent home and told they could be called back on ample notice.
    

    Many Republicans were starting to speak up more forcefully against their hard-right colleagues.
    

    Mike Lawler, who represents a swing district in New York carried handily by Joe Biden in 2020, said he would not “be party to a shutdown.”
    

    “There needs to be a realization that you’re not going to get everything you want,” he said. “Just throwing a temper tantrum and stomping your feet — frankly, not only is it wrong — it’s just pathetic.”
    

    Lawler had said in an interview with CNN earlier in the week that barreling toward a shutdown was not Republican conservatism but “stupidity.”
    

    MarketWatch contributed.
    

    

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    Here’s what Germany should be called instead of the ‘sick man of Europe,’ says Deutsche Bank
    
			
    Here’s what Germany should be called instead of the ‘sick man of Europe,’ says Deutsche Bank
    
			
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    The hurdles facing Germany’s economy in recent years have been plentiful, but the “sick man of Europe,” label is unfair, say Deutsche Bank strategists, who see promise for investors in the region’s biggest economy.
    

    Contrary to the rest of the eurozone, Germany has only managed to get back to its pre-COVID growth level, yet a title of “sore athlete” is more accurate, say Maximilian Uleer, head of European equity and cross asset strategy and Carolin Raab, European equity and cross asset strategists, in a note to clients that published Friday.
    

    

    “Germany has been facing multiple challenges, from rising energy costs, its high manufacturing exposure, to weak demand from its export destinations. Some of the challenges are ‘homemade’ and might persist, while others could start to unwind and soon turn into opportunities,” the pair said.
    

    Germany’s economy is the worst-performing of the developed world this year, with both the International Monetary Fund and European Union forecasting contractions in growth. 
    

    Read: Germany’s economy struggles with an energy shock that’s exposing longtime flaws
    

    But the strategists say economic growth is a poor proxy for German equity performance. The German DAX index
    
        DX:DAX
    
       is up 18% since the end of 2019. DAX constituents generate just 18% of their revenues domestically, compared to 22% from the U.S. and 15% from China. 
    

    Across the broader HDAX index of 100 members, manufacturing, information technology and financial services are the main contributors to equity performance.  That’s as public services, trade, business services and real estate, all of which contributed significantly to GDP over the past four years, are underrepresented in the indexes. 
    

    

              
    

    

    
      
    

    

    Germany has also managed to grow its real GDP by 26% over the past 20 years , and keep its debt-to-GDP ratio stable, while the eurozone (including Germany) has seen that debt ratio climb 30% since 2003. The short term has seen lower growth since COVID-19, and rising leverage owing to fiscal support measures to mitigate the pandemic and the war in Ukraine. 
    

    Again, the strategists see a silver lining. “Going forward, in our view, Germany has bigger leeway with regards to its fiscal support capacity, as its absolute debt/GDP ratio remains one of the lowest among the eurozone members,” said Uleer and Raab. 
    

    

              
    

    

    
        
      
    
          
    
            *Since 2003: Q3 2003-Q2 2023 / since Covid: Q4 2019-Q2 2023. Source: Bloomberg Finance LP, Deutsche Bank Research 09/20/2023
    
          
    
  
    

    

    Among the country’s big hurdles is rising energy costs, with the pair noting that the country’s net-zero goals are laudable, but pose a “substantial challenge” to its energy-intensive industries. Power prices remain substantially higher than three years ago and are double the cost of those in the U.S.
    

    Also read: Inside Germany’s industrial-sized effort to wean itself off Putin and Russian natural gas
    

    “This price differential, combined with stronger fiscal support for energy-intensive companies in the U.S. via the Inflation Reduction Act, weigh on the competitiveness of German corporates,” said the strategists. 
    

    As for opportunities, China’s reopening remains a positive for DAX companies, though that country also seems to be making slow progress. Chinese households are sitting on massive savings still waiting to be spent, said the strategists. They advise investors to wait for data that confirms a stabilization of the country’s bumpy property market before they would turn more positive. 
    

    Overall, Deutsche Bank expects inflation to normalize in the coming 12 months and low growth in 2024, but a rebound in 2025. 
    

    Plus: A 1-liter stein of beer at Munich’s famed Oktoberfest will cost nearly $15 this year
    

    And what’s priced into the DAX already? Even after a gain of 12% this year so far — French
    
        FR:PX1
    
       and Greek stocks
    
        GR:GD
    
       — are beating Germany by a respective 20% and 30% — the index is still cheap and trading at a 20% discount to its 10-year average on a forward one-year price/earnings basis. Germany can count on stronger U.S. data, even if Europe continues on a weak path. 
    

    “We expect the DAX to hold up in 2024, and do not forecast the index to underperform, despite lower German GDP growth as compared with the rest of the eurozone,” they said.
    

    

    

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    Medical debt should be fully removed from credit reports, Biden administration says
    
			
    Medical debt should be fully removed from credit reports, Biden administration says
    
			
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    The Consumer Financial Protection Bureau is taking steps toward removing all medical debt information from Americans’ credit reports, a move meant to help the millions of Americans whose credit scores drop after bills for expenses like unexpected hospital visits go unpaid.
    

    While the information surrounding most unpaid medical debts has already been removed from credit reports by the three major reporting agencies — Equifax, Experian and TransUnion — the CFPB on Thursday announced plans for a rule- making process that would…
      
    

    

    

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    This former Fed insider has 3 big takeaways from Powell’s press conference
    
			
    This former Fed insider has 3 big takeaways from Powell’s press conference
    
			
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    This former Fed insider has 3 big takeaways from Powell’s press conference
    

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    Block’s stock has been a laggard lately. Will management shakeup provide a needed jolt?
    
			
    Block’s stock has been a laggard lately. Will management shakeup provide a needed jolt?
    
			
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    Block Inc.’s stock has been a sizable laggard this year, and now it’s losing the leader of a critical business — albeit one that hasn’t necessarily lived up to investor expectations lately. 
    

    Alyssa Henry, the head of Block’s
    
        SQ,
    
        -2.99%
    
       Square merchant business, is stepping down after a long tenure with the company, and Jack Dorsey will assume her role while continuing to lead Block on the whole, the company announced in a Monday filing. 
    

    

    The announcement comes as Block shares have declined 18% so far this year, while the S&P 500
    
        SPX
    
       has risen 16%. Other payment-technology stocks, including Shift4 Payments Inc.,
    
        FOUR,
    
        -0.54%
    
       Toast Inc.
    
        TOST,
    
        +1.34%
    
       and even PayPal Holdings Inc.
    
        PYPL,
    
        -1.98%
    
       have logged better year-to-date performances. 
    

    Block’s stock closed at its lowest level since April 7, 2020 on Monday, according to Dow Jones Market Data. It was down about 2% in after-hours trading.
    

    The stock is also down 82% from its all-time closing high achieved Aug. 5, 2021. 
    

    See also: PayPal’s ‘fresh start’ isn’t enough to help its stock, analyst cautions
    

    The performance of the Square merchant business, which includes payment processing and other tools for sellers, has been a sore point for investors recently. Wolfe Research analyst Darrin Peller notes that Block’s second-quarter U.S. gross payment volume (GPV) was up 10% from a year earlier, a four-point spread above Visa Inc.’s
    
        V,
    
        +1.49%
    
       domestic growth. Historically, the spread has been in double digits, he said. 
    

    Additionally, while the 12% overall growth in Square’s GPV “continues to imply that Square is a market-share gainer, we note that this growth spread relative to the industry has trended lower and also suggests slightly softer growth trends versus competitors like Clover,” which is part of Fiserv Inc.
    
        FI,
    
        +0.12%    ,
    
       whose shares are up 20% on the year.
    

    “While some of Square’s success over the years should be attributed to Alyssa’s execution, the company’s more recent performance remains a concern for investors (and we suspect for management, internally),” Peller wrote. 
    

    He pointed to “mixed” feedback from investors thus far. 
    

    “Bulls argue that this change is positive, indicating that management is taking change seriously,” Peller said. “Further, it’s worth noting that Jack has been more receptive to cost management and other adjustments. Meanwhile, bears are citing that Alyssa was the ‘face’ of Seller and was more receptive to changes in Square’s business model compared to Jack (particularly around outsourced distribution).”
    

    Block, for its part, said in its filing that Henry “provided significant contributions” to the company during a tenure that spanned more than nine years.
    

    UBS downgraded Block shares earlier this month, in part due to concerns about the Square business. Analyst Rayna Kumar said she was concerned about a potential slowdown in gross-profit growth owing to a moderation in consumer spending. 
    

    

    

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    Why the Fed’s next decisions on rates could lead to a wave of commercial-debt defaults
    
			
    Why the Fed’s next decisions on rates could lead to a wave of commercial-debt defaults
    
			
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    Getting staff back to the office is only part of the battle.
    

    Regional banks that went big lending on office properties also face a ticking time bomb of maturing debt that they helped create, particularly if the Federal Reserve holds its policy rate near the current 22-year high well into next year.
    

    

    “The area of greatest concerns for banks is office space,” says Tom Collins, senior partner focused on regional banks and credit unions at consulting firm firm West Monroe. Should rates stay high, “borrowers are going to face a tough decision of whether they refinance or default,” he said.
    

    The fight to bring more staff back to half-empty office buildings comes as an estimated $1 trillion wall of commercial real-estate loans is set to mature through 2024. While tenants haven’t shied away from signing up to pay top rents at trophy buildings, the same can’t be said for the rows of lower-rung properties lining financial districts in big cities.
    

    See: Labor Day is just a ‘milestone’ in the marathon to get workers back to the office
    

    The Fed embarks on a two-day policy meeting on Tuesday, with expectations running high for rates to stay steady, giving more time to study the impact of earlier rate increases.
    

    The central bank’s rate hikes have further complicated matters for landlords, and fresh debt for office buildings no longer looks cheap nor abundant. Regional banks also have been piling back on lending after Silicon Valley Bank and Signature Bank collapsed in March and as deposits fled for yield elsewhere.
    

    Related: FDIC kicks off $33 billion sale of seized assets from Signature Bank 
    

    Loan volumes from Wall Street similarly have been anemic. This year it has produced slightly more than $10 billion in “conduit,” or multi-borrower, commercial mortgage-backed securities deals through the end of August, the least since 2008, according to Goldman Sachs. Coupons, a proxy for mortgage rates, have climbed above 7%, the highest since the early 2000s.
    

    “I don’t think this is a wash out here,” Collins said of the threat of more regional bank failures, but he does anticipate pain for lenders heavily exposed to lower quality class B and C office buildings in urban areas. 
    

    Banks can help mitigate the wall of debt coming due by stepping up the pace of loan modifications to help borrowers keep properties, but Collins said he also anticipates lenders will need to increase loan sales, write downs and mergers or acquisitions.
    

    “There is no doubt there will be private equity and other investors that will be interested in buying some of these loans, taking them off the balance sheets of banks,” Collins said. 
    

    “The obvious question there is at what discount?” he said, adding, “I think investors will wait until things get more dire to try to get a better deal.” 
    

    Another offset to banks’ office exposure has been the relatively stable performance of hotels, industrial and other property types. But Collins said that if rates stay high and the economy falters, those sectors are likely to face challenges as well.
    

    The 10-year Treasury yield,
    
        BX:TMUBMUSD10Y
    
       a benchmark lending rate for the commercial real estate industry, was near 4.32% on Monday, hovering around a 16-year high ahead of the Fed meeting, while the policy-sensitive 2-year Treasury rate
    
        BX:TMUBMUSD02Y
    
       was near 5.06%. Stocks
    
        SPX
    

            DJIA
    
       were edging higher.
    

    Office distress intensified in August, with the special servicing rate of loans in bond deals hitting 7.72%, compared with a 6.67% rate for all property types, according to Trepp, which tracks the commercial mortgage-backed securities market. A year ago, the rate of problem office loans was 3.18%.
    

    “If I was an investor, I would be patient around this, because values are only going to come down, I would imagine,” Collins said.
    

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

    

    

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