Tag: Economic growth

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.78%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+6.14%
and Advanced Micro Devices Inc.
AMD,
+3.69%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.79%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.09%,
Microsoft Corp.
MSFT,
+3.88%,
Amazon.com Inc.
AMZN,
+6.63%
and Alphabet Inc.
GOOG,
+3.91%

GOOGL,
+3.73%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.77%,
Danaher Corp.
DHR,
+2.64%
and Linde PLC
LIN,
+2.25%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+2.32%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.12%,
which tracks the PHLX Semiconductor Index
SOX,
+2.29%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company	Ticker	2022 price change	Forward P/E	Forward P/E as of Dec. 31, 2021
Apple Inc.	AAPL, +3.09%	-22%	22.2	30.2
Adobe Inc.	ADBE, +2.32%	-49%	19.4	40.5
Amazon.com Inc.	AMZN, +6.63%	-36%	62.1	64.9
Advanced Micro Devices Inc.	AMD, +3.69%	-61%	14.7	43.1
ASML Holding N.V. ADR	ASML, +3.79%	-52%	22.7	41.2
Danaher Corp.	DHR, +2.64%	-23%	24.3	32.1
Alphabet Inc. Class C	GOOG, +3.91%	-33%	17.5	25.3
Linde PLC	LIN, +2.25%	-21%	22.2	29.6
Microsoft Corp.	MSFT, +3.88%	-32%	22.5	34.0
Nvidia Corp.	NVDA, +6.14%	-62%	28.9	58.0
UnitedHealth Group Inc.	UNH, +1.77%	2%	21.5	23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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October 17, 2022

Official: China mining more coal but increasing wind, solar

BEIJING (AP) — China plans to boost coal production through 2025 to avoid a repeat of last year’s power shortages, an official said Monday, adding to setbacks in efforts to cut climate-changing carbon emissions from the biggest global source.

China is a big investor in wind and solar, but jittery Communist Party leaders called for more coal-fired power after economic growth slumped last year and shortages caused blackouts. That prompted warnings that carbon emissions will rise faster through 2030, when they government says they should peak.

The ruling party aims for annual coal production to rise to 4.6 billion tons in 2025, a deputy director of the Cabinet’s National Energy Administration, Ren Jingdong, said at a news conference held during a ruling party congress. That would be a 12% increase over last year’s 4.1 billion tons.

Ensuring an adequate power supply is especially sensitive after economic growth slid to 2.2% over a year earlier in the first six months of this year, less than half the official target of 5.5%. The ruling party earlier called for this year’s production to rise by 300 million tons, or about 7% of last year’s output.

The challenges of relying on renewable sources were highlighted by a dry summer that left reservoirs in China’s southwest too low to generate hydropower. That forced power cuts in Sichuan province and the major city of Chongqing.

Beijing will “give full play to the ‘ballast role’ of coal and the basic regulating role of coal power,” Ren said. He said the country will “vigorously enhance oil and gas exploration and development.”

Ren said officials are trying to ensure China meets targets in the ruling party’s latest five-year development plan for non-fossil fuel sources to supply 20% of power by 2025 and 25% by 2030. He said that includes wind, solar, hydro, nuclear and geothermal.

China will “comprehensively build a clean energy supply system,” Ren said.

Another official, Zhao Chenxin, deputy director of the Cabinet’s planning agency, the National Development and Reform Commission, said plans include building 450 million kilowatts of “large-scale wind and solar bases” in the Gobi Desert in China’s north.

Beijing has spent tens of billions of dollars on solar and wind farms to reduce reliance on imported oil and gas and clean up its smog-choked cities. China accounted for about half of global investment in wind and solar in 2020.

Still, coal is expected to supply 60% of its power in the near future.

Authorities say they are shrinking carbon emissions per unit of economic output. The government reported a reduction of 3.8% last year, an improvement over 2020′s 1% gain but down from a 5.1% cut in 2017.

Last year’s total energy use increased 5.2% over 2020 after a revival of global demand for Chinese exports propelled a manufacturing boom, according to the National Bureau of Statistics.

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October 16, 2022
Fed more worried about risks of ‘unacceptably high’ inflation than overdoing rate hikes, meeting minutes show

Calling inflation “unacceptably high,” Federal Reserve leaders saw their strategy of fighting price pressures aggressively as less risky to the economy than doing too little, minutes of the bank’s last meeting show.

The Fed approved another jumbo-size increase in U.S. interest rates at its Sept. 21-22 meeting. It also signaled plans for another pair of big increases before year-end in a surprise to Wall Street
DJIA,
-0.10%.

The minutes of the Fed’s meeting underscore that top officials were disappointed and worried about persistently high inflation.

“A sizable portion of the economic activity has yet to display much response,” the Fed minutes said. “Inflation had not yet responded appreciably to a policy tightening.”

While some senior Fed officials also worried the bank could go too far and damage the economy, the majority appeared to believe it was vital for the central bank to squelch inflation, even if that meant keeping rates high for a prolonged period.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.

The Fed predicts the economy will eventually slow as rates rise, but it noted the labor market remains extremely tight.

Fed officials also expressed concern that oil prices could rise again, supply chains would not heal as quickly as expected and that rising wages could exacerbate inflation.

“Inflation was declining more slowly than [Fed officials] had been anticipating,” the minutes said.

The internal Fed debate has also playing out publicly since the last meeting.

Some senior officials such as Atlanta Federal Reserve President Raphael Bostic hope the bank will make enough progress in its fight against inflation to “pause” rate hikes at the end of this year.

Fed critics contend the bank is going to go too far and could plunge the economy into a second recession in four years. A pause would allow the Fed to see how much its prior rate hikes have succeeded in lowering the rate of inflation, they say.

Others such as Minneapolis Fed chief Neel Kashkari and Cleveland Fed boss Loretta Mester say the Fed needs to take whatever steps necessary to quell inflation as soon as possible.

Failing to do so, they contend, would make it even harder to get prices back under control if Americans come to view high inflation as the norm. That would do even more damage to the economy in the long run.

Jennifer Lee, senior economist at BMO Capital Market, downplayed the debate and said the Fed in unified on its next few steps.

“The Federal Reserve is pretty much in sync and is not going to be easing anytime soon,” she said.

Since March the Fed has lifted a key short-term interest rate from near zero to an upper end of 3.25%. And the central bank has telegraphed plans to raise the so-called fed funds rate to as high as 4.75% by next year.

Rising U.S. interest rates has done little so far to douse inflation.

The rate of inflation, using the Fed’s preferred PCE price index, rose at a yearly rate of 6.2% as of August. That’s a long way off from the Fed’s forecast for inflation to fall to 2.8% in 2023 and 2.3% by 2024.

The higher cost of borrowing has only chilled a few parts of the economy, most notably housing.

The rate on a 30-year mortgage has surged above 7% to a 16-year high from less than 3% one year ago. The result has been a slowdown in home buying and construction and softer sales of home furnishings.

Most consumer and business loans are influenced by the fed funds rate.

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October 12, 2022
IMF warns of higher recession risk and darker global outlook

WASHINGTON (AP) — Two principal economists painted very different pictures Thursday of what the global economy will look like in the coming years.

Kristalina Georgieva, managing director of the International Monetary Fund, told an audience at Georgetown University on Thursday that the IMF is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.

“Things are more likely to get worse before it gets better,” she said, adding that the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy. “The risks of recession are rising,” she said, calling the current economic environment a “period of historic fragility.”

Meanwhile, U.S. Treasury Secretary Janet Yellen, on the other side of town at the Center for Global Development, focused on how the U.S. and its allies could contribute to making longer-term investments to the global economy.

She called for ambitious policy solutions and didn’t use the word “recession” once. But despite Yellen’s more measured view, she said “the global economy faces significant uncertainty.”

The war in Ukraine has driven up food and energy prices globally — in some places exponentially — with Russia, a key global energy and fertilizer supplier, sharply escalating the conflict and exposing the vulnerabilities to the global food and energy supply.

Additionally, the ongoing COVID-19 pandemic, rising inflation and worsening climate conditions are also impacting world economies and exacerbating other crises, like high debt levels held by lower-income countries.

Georgieva said the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year and added that the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.

The bleak IMF projections come as central banks around the world raise interest rates in hopes of taming rising inflation. The U.S. Federal Reserve has been the most aggressive in using interest rate hikes as an inflation-cooling tool, and central banks from Asia to England have begun to raise rates this week.

Georgieva said “tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.” Maurice Obstfeld, an economist at the University of California, Berkeley, recently wrote that too much tightening by the Federal Reserve could “drive the world economy into an unnecessarily harsh contraction.”

Yellen agreed Thursday that “macroeconomic tightening in advanced countries can have international spillovers.”

The two economists’ speeches come ahead of annual meetings next week of the 190-nation IMF and its sister-lending agency, the World Bank, which intend to address the multitude of risks to the global economy.

Georgieva said the updated World Economic Outlook of the fund set to be released next week downgrades growth figures for next year.

Many countries are already seeing major impacts of the invasion of Ukraine on their economies, and the IMF’s grim projections are in line with other forecasts for declines in growth.

The Organization for Economic Cooperation and Development last week said the global economy is set to lose $2.8 trillion in output in 2023 because of the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices in a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections in November.

Yellen said since many developing countries are facing all challenges simultaneously, from debt to hunger to exploding costs, “this is no time for us to retreat.”

“We need ambition in updating our vision for development financing and delivery. And we need ambition in meeting our global challenges,” she said.

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October 6, 2022
IMF warns of higher recession risk and darker global outlook

WASHINGTON — The International Monetary Fund is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.

Kristalina Georgieva, managing director of the IMF, told an audience at Georgetown University on Thursday that “things are more likely to get worse before it gets better,” saying the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy.

The ongoing COVID-19 pandemic, rising inflation and worsening climate conditions are also impacting world economies, exacerbating other crises, like food insecurity and high debt levels held by lower-income countries.

“The risks of recession are rising,” she said, adding that the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year.

Georgieva said the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.

The bleak projections come as central banks around the world raise interest rates in hopes of taming rising inflation. The U.S. Federal Reserve has been the most aggressive in using interest rate hikes as an inflation-cooling tool, though central banks from Asia to England have begun to raise rates this week.

Georgieva said “tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Many countries are already seeing major impacts of the invasion of Ukraine on their economies, and the IMF’s grim projections are in line with other forecasts for declines in growth.

The Organization for Economic Cooperation and Development last week said the global economy is set to lose $2.8 trillion in output in 2023 because of the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices in a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections in November.

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October 6, 2022
GDP set to turn positive again due to shrinking U.S. trade deficit and end ‘rule-of-thumb’ recession

The numbers: The U.S. international trade deficit fell in August to a 15-month low of $67.4 billion, paving the way for a resumption of growth in gross domestic product in the third quarter.

The deficit narrowed 4.3% from $70.5 billion in July, the government said Wednesday. It was the fifth decline in a row.

Economists polled by The Wall Street Journal had forecast a deficit of $67.7 billion.

GDP contracted in the first two quarters, meeting an old rule-of-thumb for when an economy is in recession.

The group of prominent economists that makes the official declaration, however, uses a broader definition that suggests the economy has avoided a recession.

Big picture: The U.S. trade deficit has tumbled since peaking at a record $106.9 billion in March. Exports have risen and imports have declined, particularly because of falling oil prices.

Lower trade deficits add to GDP, the official scorecard of the economy. The shrinking trade gap is set to add a whopping 3 points to third-quarter GDP, according to estimates from S&P Global Market Intelligence.

That’s the mirror opposite of what happened in the first quarter, when the record trade gap caused GDP to turn negative for the first time since early in the pandemic.

The result: GDP is set to rise for the first time in three quarters, ending at least for now any talk that the U.S. is already in recession.

Which way the trade deficit trends in the months ahead is less clear. A strong dollar is hurting U.S. exporters while a slowing economy could force Americans to reduce spending on imports even though they are cheaper to buy.

Ditto for the economy. While it’s still growing, the pace of expansion is expected to slow as the Federal Reserve jacks up interest rates to try to tame high inflation.

Key details: Exports slipped 0.3% in August to a $258.9 billion, but it’s still the second highest level on record.

Imports dropped 1.1% to $326.3 billion, marking the lowest level since early 2021.

Looking ahead: “The further sharp decline in the trade deficit… means that net exports provided a big boost to third-quarter GDP growth,” said senior U.S. economist Andrew Hunter at Capital Economics. “But the twin drags from the surging dollar and the deteriorating global economy suggest that strength will fade soon.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.27%
and S&P 500
SPX,
+0.20%
sank in Wednesday trades following a two-day rally.

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October 5, 2022
After years of EU scrutiny, Greece promises balanced budget

ATHENS, Greece — Greece has promised to return to a budget surplus in 2023, submitting its first spending blueprint in 12 years that is not under the direct scrutiny of European bailout lenders.

Finance Ministry officials said Monday that Greece was planning to return to a primary surplus — the annual balance before debt servicing costs — of 0.7% of gross domestic product in 2023 from a primary deficit of 1.7% of GDP this year.

Achieving a balanced budget was a key demand from lenders during three successive international bailouts between 2010 and 2018 funded by European Union institutions and the International Monetary Fund. A so-called enhanced surveillance monitoring program of Greek public finances by European lenders expired earlier this year.

Deficit rules in the 19 countries that use the euro currency were suspended in 2020 due to the COVID-19 pandemic, but budgets remain under pressure due to high energy costs and additional defense spending — both related to the war in Ukraine.

“The 2023 budget is being prepared under conditions of extremely high uncertainty, regarding geopolitical developments at a global level,” Finance Minister Christos Staikouras said.

Budget forecasts, he said, are subject to change due to “geopolitical challenges” including the war in Ukraine, supply of natural gas to Europe, energy and fuel prices more broadly and European monetary policy.

The European Commission, the EU’s executive arm, wants to reform fiscal rules, making them more growth friendly, before they are due to be fully implemented again in 2024.

Under budget figures submitted to Greece’s parliament Monday, growth is expected to be 2.1% next year, and debt-to-GDP reduced further to 161.6%, from over 200% in 2020.

The growth forecast for 2022 was revised upward to 5.3%, thanks in large part to a better-than-expected tourism season this year.

Staikouras said the budget provided for a 1 billion euro ($978 million) cash reserve — above planned support for businesses and households to cope with energy bills — to address potential additional price increases.

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October 3, 2022
UK’s Truss meets with fiscal watchdog amid economic crisis

LONDON — British Prime Minister Liz Truss and her Treasury chief met with the independent Office of Budget Responsibility on Friday amid efforts to ease concerns about unfunded government tax cuts that have unleashed turmoil on financial markets.

The meeting was significant because it was the government’s failure to publish the OBR’s analysis of its tax-cutting plans that spooked investors, sending the pound to a record low against the dollar earlier this week and forcing the Bank of England to intervene in the bond market to protect pension funds.

The OBR promised an analysis by Oct. 7, far sooner than the date previously suggested — Nov. 23 — when the government releases more details on its economic plans. The oversight body promised that its forecast “will, as always, be based on our independent judgment about economic and fiscal prospects, and the impact of the government’s policies.”

The chairman of the House of Commons’ Treasury committee said the meeting was an opportunity for the government to change course. Truss and Treasury chief Kwasi Kwarteng were likely to have “difficult” conversations with the OBR because investors want to see independent analysis showing that their plans won’t push government borrowing to unsustainable levels, said Mel Stride, a member of Truss’ Conservative Party.

“The judgment so far of the markets, and indeed myself and many others, is that what was announced last Friday, unfortunately, doesn’t stack up fiscally and some changes are almost certainly going to need to be made,” Stride told the BBC.

Truss defended her plan Thursday and shrugged off the market chaos, saying she was willing to make “controversial and difficult decisions” to get the U.K. economy growing. She said the problems facing the economy — namely high inflation driven by soaring energy prices — were global and spurred by Russia’s invasion of Ukraine.

She got a piece of good news Friday, with revised figures showing the U.K. economy grew slightly in the three months through June, indicating the country isn’t technically in a recession, with two consecutive quarters of shrinking GDP being one definition.

Her government’s economic stimulus program calls for 45 billion pounds ($48 billion) of tax cuts and no spending reductions, meaning a surge of borrowing would be used to pay for the cuts that many see as benefiting the wealthy. She also has capped energy bills for households and businesses that are driving a cost-of-living crisis, though prices are still going up Saturday as natural gas prices soar.

Treasury minister Andrew Griffith had played down the significance of the meeting between the government and OBR, but nonetheless described it as a “very good idea.”

“Just like the independent Bank of England, they have got a really important role to play,’’ Griffith said of the OBR during an interview with Sky News. “We all want the forecasts to be as quick as they can, but also as a former finance director, I also know you want them to have the right level of detail.”

The decision to meet with the OBR also was welcomed by Conservative lawmakers and senior party figures, including former Chancellor George Osborne, who oversaw the creation of the independent spending watchdog in 2010.

“Turns out the credibility of the institution we created 12 years ago to bring honesty to the public finances is more enduring than that of its critics,” Osborne said on Twitter.

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September 30, 2022
India raises interest rate to 5.90% to tame inflation

FILE – Reserve Bank of India (RBI) Governor Shaktikanta Das gestures during a press conference after RBI’s bi-monthly monetary policy review meeting in Mumbai, India, on Feb. 6, 2020. India’s central bank on Friday, Sept. 30, 2022, raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said the economies of developing countries were confronted with challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation. (AP Photo/Rajanish Kakade, File)

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September 30, 2022
India raises interest rate to 5.90% to tame inflation

India’s central bank has raised its key interest rate to 5.90% and said developing economy were facing slowing growth, elevated food and energy prices, debt distress and currency depreciation

NEW DELHI — India’s central bank on Friday raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said developing economies were facing challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation.

Reserve Bank of India Governor Shaktikanta Das projected inflation at 6.7% in the current fiscal year which runs to next March. June was the sixth consecutive month with inflation above the central bank’s tolerance level of 6%, he said in a statement after a meeting of the bank’s monitoring committee.

He said the central bank will remain focused on the withdrawal of the accommodative monetary policy.

The bank’s monetary committee slashed the real economic growth forecast to 7% for the current financial year from 7.2% forecast in August. The economic growth for the first quarter of the next financial year is expected around 6.7%.

Das said the world has been confronted with one crisis after another, but India has withstood shocks from the coronavirus pandemic and the conflict in Ukraine.

Das also said the Indian rupee has depreciated by 4% since April against 14% appreciation in the U.S. dollar. “The rupee has fared better than many other currencies” and the Reserve Bank Of India’s foreign exchange reserves umbrella remains strong, he said.

The Indian rupee has plunged to an all-time low of 81.58 rupees to one U.S. dollar.

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September 30, 2022