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Tag: Funding/Capital

  • Oaktree Capital calls commercial real estate ‘most acute area of risk’ right now

    Oaktree Capital calls commercial real estate ‘most acute area of risk’ right now

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    Distressed-debt giant Oaktree Capital sees big opportunities in credit unfolding over the next few years as a wall of debt comes due.

    Oaktree’s incoming co-chief executives Armen Panossian, head of performing credit, and Bob O’Leary, portfolio manager for global opportunities, see a roughly $13 trillion market that will be ripe for the picking.

    Within that realm is high-yield bonds, BBB-rated bonds, leveraged loans and private credit — four areas of the market that have only mushroomed from their nearly $3 trillion size right before the 2007-2008 global financial crisis.

    “Clearly, the most acute area of risk right now is commercial real estate,” the co-CEOs said in a Wednesday client note. “That’s because the maturity wall is already upon us and it’s not going to abate for several years.”

    More than $1 trillion of commercial real-estate loans are set to come due in 2024 and 2025, according to the Mortgage Bankers Association.

    A retreat in the benchmark 10-year Treasury yield
    BX:TMUBMUSD10Y,
    to about 4.1% on Wednesday from a 5% peak in October, has provided some relief even though many borrowers likely will still struggle to refinance.

    Related: Commercial real estate a top threat to financial system in 2024, U.S. regulators say

    “There’s a need for capital, especially for office properties where there are vacancies, rental growth hasn’t materialized, or the rate of borrowing has gone up materially over the last three years. This capital may or may not be readily available, and for certain types of office properties, it absolutely isn’t available,” the Oaktree team said.

    With that backdrop, the firm expects to dust off its playbook from the financial crisis and acquire portfolios of commercial real-estate loans from banks, but also plans to participate in “credit-risk transfer” deals that help lenders reduce exposure.

    Oaktree also sees opportunities brewing in private credit, as well as in high-yield and leveraged loans, where “several hundred” of the estimated 1,500 companies that have issued such debt are likely “to be just fine” even if defaults rise, they said.

    Another area to watch will be the roughly $26 trillion Treasury market, where Oaktree has some concerns “about where the 10-year Treasury yield goes from here” — given not only the U.S. budget deficit and the deluge of supply that investors face, but also how foreign buyers, once the “largest owners in prior years, may be tapped out.”

    Related: Here are two reasons why the 10-year Treasury yield is back above 4%

    U.S. stocks
    SPX

    DJIA

    COMP
    fell Wednesday after strong retail-sales data for December pointed to a resilient U.S. economy, despite the Federal Reserve having kept its policy rate at a 22-year high since July.

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  • Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

    Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

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    Yields on 3-month
    BX:TMUBMUSD03M
    and 6-month
    BX:TMUBMUSD06M
    Treasury bills have been seeing yields north of 5% since March when Silicon Valley Bank’s collapse ignited fears of a broader instability in the U.S. banking sector from rapid-fire Fed rate hikes.

    Six months later, the Fed, in its final meeting of the year, opted to keep its policy rate unchanged at 5.25% to 5.5%, a 22-year high, but Powell also finally signaled that enough was likely enough, and that a policy pivot to interest rate cuts was likely next year.

    Importantly, the central bank chair also said he doesn’t want to make the mistake of keeping borrowing costs too high for too long. Powell’s comments helped lift the Dow Jones Industrial Average
    DJIA
    above 37,000 for the first time ever on Wednesday, while the blue-chip index on Friday scored a third record close in a row.

    “People were really shocked by Powell’s comments,” said Robert Tipp, chief investment strategist, at PGIM Fixed Income. Rather than dampen rate-cut exuberance building in markets, Powell instead opened the door to rate cuts by midyear, he said.

    New York Fed President John Williams on Friday tried to temper speculation about rate cuts, but as Tipp argued, Williams also affirmed the central bank’s new “dot plot” reflecting a path to lower rates.

    “Eventually, you end up with a lower fed-funds rate,” Tipp said in an interview. The risk is that cuts come suddenly, and can erase 5% yields on T-bills, money-market funds and other “cash-like” investments in the blink of an eye.

    Swift pace of Fed cuts

    When the Fed cut rates in the past 30 years it has been swift about it, often bringing them down quickly.

    Fed rate-cutting cycles since the ’90s trace the sharp pullback also seen in 3-month T-bill rates, as shown below. They fell to about 1% from 6.5% after the early 2000 dot-com stock bust. They also dropped to almost zero from 5% in the teeth of the global financial crisis in 2008, and raced back down to a bottom during the COVID crisis in 2020.

    Rates on 3-month Treasury bills dropped suddenly in past Fed rate-cutting cycles


    FRED data

    “I don’t think we are moving, in any way, back to a zero interest-rate world,” said Tim Horan, chief investment officer fixed income at Chilton Trust. “We are going to still be in a world where real interest rates matter.”

    Burt Horan also said the market has reacted to Powell’s pivot signal by “partying on,” pointing to stocks that were back to record territory and benchmark 10-year Treasury yield’s
    BX:TMUBMUSD10Y
    that has dropped from a 5% peak in October to 3.927% Friday, the lowest yield in about five months.

    “The question now, in my mind,” Horan said, is how does the Fed orchestrate a pivot to rate cuts if financial conditions continue to loosen meanwhile.

    “When they begin, the are going to continue with rate cuts,” said Horan, a former Fed staffer. With that, he expects the Fed to remain very cautious before pulling the trigger on the first cut of the cycle.

    “What we are witnessing,” he said, “is a repositioning for that.”

    Pivoting on the pivot

    The most recent data for money-market funds shows a shift, even if temporary, out of “cash-like” assets.

    The rush into money-market funds, which continued to attract record levels of assets this year after the failure of Silicon Valley Bank, fell in the past week by about $11.6 billion to roughly $5.9 trillion through Dec. 13, according to the Investment Company Institute.

    Investors also pulled about $2.6 billion out of short and intermediate government and Treasury fixed income exchange-traded funds in the past week, according to the latest LSEG Lipper data.

    Tipp at PGIM Fixed Income said he expects to see another “ping pong” year in long-term yields, akin to the volatility of 2023, with the 10-year yield likely to hinge on economic data, and what it means for the Fed as it works on the last leg of getting inflation down to its 2% annual target.

    “The big driver in bonds is going to be the yield,” Tipp said. “If you are extending duration in bonds, you have a lot more assurance of earning an income stream over people who stay in cash.”

    Molly McGown, U.S. rates strategist at TD Securities, said that economic data will continue to be a driving force in signaling if the Fed’s first rate cut of this cycle happens sooner or later.

    With that backdrop, she expects next Friday’s reading of the personal-consumption expenditures price index, or PCE, for November to be a focus for markets, especially with Wall Street likely to be more sparsely staffed in the final week before the Christmas holiday.

    The PCE is the Fed’s preferred inflation gauge, and it eased to a 3% annual rate in October from 3.4% a month before, but still sits above the Fed’s 2% annual target.

    “Our view is that the Fed will hold rates at these levels in first half of 2024, before starting cutting rates in second half and 2025,” said Sid Vaidya, U.S. Wealth Chief Investment Strategist at TD Wealth.

    U.S. housing data due on Monday, Tuesday and Wednesday of next week also will be a focus for investors, particularly with 30-year fixed mortgage rate falling below 7% for the first time since August.

    The major U.S. stock indexes logged a seventh straight week of gains. The Dow advanced 2.9% for the week, while the S&P 500
    SPX
    gained 2.5%, ending 1.6% away from its Jan. 3, 2022 record close, according to Dow Jones Market Data.

    The Nasdaq Composite Index
    COMP
    advanced 2.9% for the week and the small-cap Russell 2000 index
    RUT
    outperformed, gaining 5.6% for the week.

    Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years

    Year Ahead: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.

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  • 'Smidcap' companies are becoming a big deal. Here's a look at some of the best.

    'Smidcap' companies are becoming a big deal. Here's a look at some of the best.

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    The stocks of long-neglected small companies are finally showing signs of life as the market rally broadens. But these tiny companies still remain vastly undervalued. So, they are one of the best buys in the stock market right now.

    Small- and medium-cap companies, or smidcaps, have not been this cheap since the Great Financial Crisis 15 years ago. “Smidcaps relative to large caps look very attractive,” says says portfolio manager Aram Green, at the ClearBridge Select Fund LBFIX, which specializes in this space.  “Over the long term you will be rewarded.” 

    Green is worth listening to because he is one of the better fund managers in the smidcap arena. ClearBridge Select beats both its midcap growth category and Morningstar U.S. midcap growth index over the past five- and 10 years, says Morningstar Direct. This is no easy feat, in a mutual fund world where so many funds lag their benchmarks. 

    The timing for smidcap outperformance seems about right, since these stocks do well coming out of recessions. Technically, we have not recently had a recession. But there was an economic slowdown in the first half of the year, and the U.S. did have an earnings recession earlier this year. So that may count. 

    To get smidcap exposure, consider the funds of outperforming managers like Green, and if you want to throw in some individual stocks, Green is a great guide on how to find the best names in this space. 

    I recently caught up with him to see what we can learn about analyzing smidcaps. Below are four tactics that contribute to his fund’s outperformance, with nine company examples to consider.  

    1. Look for an entrepreneurial mindset: Green’s background gives him an edge in investing. He’s an entrepreneur who co-founded a software company called iCollege in 1997. It was bought out by BlackBoard in 2001. He knows how to understand innovative trends, identify a good idea, secure capital and quickly ramp up a business. This experience gives him a “private market mindset” that helps him pick stocks to this day. 

    “Founder-run companies regularly outperform.”

    Green looks for managers with an entrepreneurial mindset. You can glean this from company calls and filings, but it helps a lot to meet management — something most individual investors cannot do. But Green offers a shortcut, one which I regularly use, as well. Look for companies that are run by founders. This will give you exposure to managers with entrepreneurial spirit. 

    Here, Green cites the marketing software company HubSpot
    HUBS,
    +0.79%    ,
    a 1.9% fund position as of the end of the third quarter. It was founded by Massachusetts Institute of Technology college buddies Brian Halligan and Dharmesh Shah. They’re on the company’s board, and Shah is chief technology officer. 

    Academic studies confirm founder-run companies regularly outperform. My guess is this is because many founders never lose the entrepreneurial spirit, no matter how easy it would be to quit and sip Mai Tai’s on a beach after making a bundle.  

    In the private market, Green cites Databricks, a data management and analytics company with an AI angle. This competitor of Snowflake
    SNOW,
    -0.92%
    is likely to go public in 2024. If you feel like an outsider because you lack access to private market investing, note that Green says he typically buys more exposure to private companies on the initial public offering (IPO), and then in the market.  “We like to spend time with them when they are private so we can pounce when they are public,” Green says.

    2. Look for organic growth: When companies make acquisitions their stocks often decline, and for good reason. Managers make mistakes in acquisitions because they overestimate “synergies.” Or they get wrapped up in ego-enhancing empire building. 

    “We favor entrepreneurial management teams that do not make a lot of acquisitions to grow, but use their resources to develop new products to keep extending the runway,” says Green. 

    Here, he cites ServiceNow
    NOW,
    +2.62%    ,
    which has grown by “extending the runway” with new offerings developed internally. It started off supporting information technology service desks, and has expanded into operations management of servers and security, onboarding employees, data analytics, and software that powers 911 emergency call systems. Green obviously thinks there is a lot more upside to come, given that this is an overweight position, at 4.6% of the portfolio (the fund’s biggest holding).

    Green also puts the “Amazon.com of Latin America” MercadoLibre
    MELI,
    +0.17%
    in this category, because it continues to expand geographically and in areas such as logistics and payment systems. “They have really morphed into a fintech company,” Green says. He puts HubSpot and the marketing software company Klaviyo
    KVYO,
    -5.73%
    in this category, too. 

    3. Look for differentiated business models: Green likes companies with offerings that are special and different. That means they’ll take market share, and face minimal competition. They’ll also enjoy pricing power. “This leads to high margins. You don’t have someone beating you up on price,” he says. 

    Green cites the decking company Trex
    TREX,
    +0.10%    ,
    which offers composite decking and railing made from recycled materials. This gives it an eco-friendly allure. Compared to wood, composite material lasts longer and requires less maintenance. It costs more up front but less over the long term. Says Green: “The alternative decking market has taken about 20% of the market and that can get to 50%.”

    Of course, entrepreneurs notice success, and try to imitate it. That’s a risk here. But Trex has an edge in its understanding of how to make the composite material. It has a strong brand. And it is building relationships with big-box retailers Home Depot and Lowe’s. These qualities may keep competitors at bay. 

    4. Put some ballast in your portfolio: Green likes to keep the fund’s portfolio balanced by sector, size, and business dynamic. So the portfolio includes the food distributor Performance Food Group
    PFGC,
    -1.69%    .
    The company is posting mid-single digit sale growth, expanding market share and paying down debt. Energy drinks company Monster
    MNST,
    -0.85%
    also offers ballast. Monster’s popular product line up helps the company to take share and enjoy pricing power, Green says.

    It’s admittedly unusual to see a food companies in a portfolio loaded with high-growth tech innovators. But for Green, it’s all part of the game plan. “Rapid growth, disrupting businesses are not going to work year in year out. There are times they fall out of favor, like 2022. So, having that balance is important because it keeps you invested in the equity market.” 

    In other words, keeping some ballast means you’re less likely to get shaken out by sharp declines in high-growth and high-beta tech innovators when trouble strikes the market.

    Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN, TSLA and MELI. Brush has suggested AMZN, TSLA, NOW, MELI, HD and LOW in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks

    More: Nvidia, Disney and Tesla are among 2023’s buzziest stocks. Can they continue to sizzle in 2024?

    Also read: Presidential election years like 2024 are usually winners for U.S. stocks

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  • UiPath’s stock soars after profit, revenue and ARR rise above forecasts

    UiPath’s stock soars after profit, revenue and ARR rise above forecasts

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    Shares of UiPath Inc. soared late Thursday after the automation-software company reported fiscal-third-quarter earnings and revenue that rose above expectations, amid strength in the licenses and subscription-services businesses.

    The stock
    PATH,
    -0.55%
    shot up 11% in after-hours trading, putting it on a path to trade at the highest closing levels seen since April 2022.

    Net losses for the quarter to Oct. 31 narrowed to $31.5 million, or 6 cents a share, from $57.7 million, or 10 cents a share, in the same period a year ago. Excluding nonrecurring items, such as stock-based compensation expenses, adjusted earnings per share rose to 12 cents from 5 cents to beat the FactSet consensus of 7 cents.

    Total revenue grew 24% to $325.9 million, above the FactSet consensus of $315.6 million.

    Licenses revenue jumped 25.3% to $148.1 million, well above the FactSet consensus of $137.5 million, and subscription-services revenue climbed 28.7% to $167.5 million to top expectations of $166.9 million. Meanwhile, professional services and other revenue dropped 28.4% to $10.3 million, to miss forecasts of $11.2 million.

    Annual recurring revenue increased 24% to $1.38 billion, above the FactSet consensus of $1.36 billion.

    For the fourth quarter, the company expects revenue of $381 million to $386 million, which surrounds the FactSet consensus of $383 million.

    The stock, which fell 0.6% during Thursday’s regular session after closing the previous session at a 15-month high, has run up 26.6% over the past three months, while the SPDR S&P Software & Services ETF
    XSW,
    -0.60%
    has tacked on 1.3% and the S&P 500
    SPX,
    +0.38%
    has edged up 1.2%.

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  • No, Jeff Bezos hasn’t been unloading Amazon stock

    No, Jeff Bezos hasn’t been unloading Amazon stock

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    A number of Amazon.com Inc. executives have disclosed sales of some of their Amazon stock holdings in recent weeks, but Jeff Bezos, the company’s executive chair and a mega-shareholder, was not among them.

    Despite some reports to the contrary, Bezos hasn’t disclosed any sales of Amazon shares AMZN for two years, but he has given some shares away to nonprofit organizations.

    There…

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  • Microsoft stock surges toward another record close, has added about $308 billion in market cap in 11 days

    Microsoft stock surges toward another record close, has added about $308 billion in market cap in 11 days

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    Shares of Microsoft Corp.
    MSFT,
    +2.49%
    hiked up 2.4% afternoon trading Friday, toward its third record close in the past four sessions. The stock has now soared 12.6% over the past 11 sessions, in which is has gained 10 times, including a nine-day winning streak through Nov. 8 that was the longest such streak since the 9-day stretch that ended Nov. 19, 2019. During those 11 sessions, the stock has added $307.8 billion to its market capitalization. Microsoft is the second-largest component in the S&P 500
    SPX,
    +1.56%
    with a market cap of $2.745 trillion, behind only Apple Inc.
    AAPL,
    +2.32%
    at $2.891 trillion. The rally kicked off a couple days after Microsoft reported bumper quarterly results. Market research firm Bespoke Investment said Friday that Microsoft has joined Apple as the second individual company that has a larger market cap that the combined market caps of the companies that make up the Russell 2000 index
    RUT,
    +1.07%
    of small-capitalization companies.

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  • These are the biggest money mistakes we make in our 20s, 30s and 40s

    These are the biggest money mistakes we make in our 20s, 30s and 40s

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    Financial literacy peaks at age 54, according to a 2022 study. That’s around the time you’ve gained enough knowledge and experience to make sound money decisions — and before your cognitive ability might start to ebb.

    “As we get older, we seem to rely more on past experience, rules of thumb, and intuitive knowledge about which products and strategies are better,” said Rafal Chomik, an economist in Australia who led the study.

    If people in their mid-50s tend to make smart financial moves, where does that leave younger generations?

    Advisers often educate clients at different stages of life to avoid money mistakes. While those in their 50s usually demonstrate optimal prudence  in navigating investments and savings, advisers keep busy helping others — from twentysomethings to mid-career professionals — avoid costly financial blunders:

    Navigate your 20s

    Perhaps the biggest blunder for young earners is spending too much and saving too little. They may also lack the long-term perspective that encourages long-range planning.

    “The mistake is not establishing the saving habit early, and not appreciating the power of compounding” over time, said Mark Kravietz, a certified financial planner in Melville, N.Y.

    Similarly, it’s common for young workers to delay enrolling in an employer-sponsored retirement plan. Not participating from the get-go comes with a steep long-term cost.

    “ Better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run. ”

    People in their 20s process incoming information quickly. But their high level of fluid intelligence can work against them. Cursory research into a consumer trend or hot sector of the stock market can spur them to make rash investments. Such impulsive moves might backfire.

    “It’s important to resist the hype,” Kravietz said. “Don’t chase fads or try to make fast money” by timing the market.

    Many young adults with student debt juggle multiple loans. Eager to chip away at their debt, they fall into the trap of choosing the wrong loan to tackle first, says Megan Kowalski, an adviser in Boca Raton, Fla.

    Rather than pay off the highest-interest rate loan first (so-called avalanche debt), they mistakenly focus on the smallest loan (a.k.a. snowball debt). It’s better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run.

    Navigate your 30s

    “ Resist the temptation to lower your 401(k) contribution to boost your take-home pay. ”

    By your 30s, insurance grows in importance. You want to protect what you have — now and in the future. But many people in this age group neglect their insurance needs. Or they misunderstand which coverages matter most.

    “If you have a life partner and kids, get the proper life insurance while in your 30s,” Kravietz said. 

    It’s easy to get caught up in your career and assume you can put off life insurance. But even low odds of your untimely death doesn’t mean you can ignore the risk of leaving your loved ones without a cash cushion.

    Another common blunder involves disability insurance. If your employer offers short-term disability insurance as an employee perk, you may think you’re all set.

    However, the real risk is how you’d earn income if you suffer a serious and lasting illness or injury. Don’t confuse short-term disability insurance (which might cover you for as long as one year) with long-term disability coverage that pays benefits for many years.

    Assuming you were wise enough to enroll in your employer-sponsored retirement plan from the outset, don’t slough off in your 30s. Resist the temptation to lower your 401(k) contribution to boost your take-home pay.

    “You want to give till it hurts,” Kravietz said. “Keep putting money away” in your 401(k) or other tax-advantaged plan until you feel a sting. Weigh the minor pain you feel now against the major relief of having a much bigger nest egg decades from now.

    Navigate your 40s

    “ ‘The 40s are often the most expensive in anyone’s life. Life is getting more complicated.’”

    For Kravietz, the 40s represent a decade of heavy spending pressures. Mid-career professionals face a mortgage and mounting tuition bills for their children.

    “The 40s are often the most expensive in anyone’s life,” he said. “Life is getting more complicated.”

    As a result, it’s easy to overlook seemingly minor financial matters like updating beneficiaries on your 401(k) plan or completing all the appropriate estate documents such as a will.

    “People in their 40s sometimes fail to update beneficiaries,” Kravietz said. For example, a new marriage might mean changing the beneficiary from a prior partner or current parent to the new spouse.

    It’s also easy to get complacent about your investments, especially if you’re the conservative type who favors a set-it-and-forget-it strategy. Instead, think in terms of tax optimization.

    “In your 40s, you want to take advantage of what the government gives you,” Kravietz said. “If you have a lot of money in a bank money market account and you’re in a top tax bracket, shifting some of that money into municipal bonds can make sense” depending on your state of residence and other factors.

    If you’re saving for a child’s college tuition using a 529 plan — and you have parents who also want to chip in — work together to strategize. Don’t make assumptions about how much (or how little) your parents might contribute to your kid’s education.

    “Rather than assume you’ll have to pay a certain amount for educational expenses, coordinate between generations of parents and grandparents” on how much they intend to give, Kowalski said. “That way, you’re not duplicating efforts and you won’t put extra funds in a 529 plan.”

    More: 7 more ways to save that you may not have considered

    Also read: ‘We live a rather lavish lifestyle’: My wife and I are 33, live in New York City and earn $270,000. Can we retire at 55?

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  • Charles Schwab stock drops after revenue falls a bit shy of expectations, amid trading weakness

    Charles Schwab stock drops after revenue falls a bit shy of expectations, amid trading weakness

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    Shares of Charles Schwab Corp.
    SCHW,
    +5.42%
    fell 1.5% toward a five-month low in premarket trading Monday, after the financial services and discount brokerage giant beat third-quarter profit expectations but fell a bit shy on revenue. Net income dropped to $1.02 billion, or 56 cents a share, from $1.88 billion, or 99 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of 77 cents beat the FactSet consensus of 74 cents. Revenue declined 16.3% to $4.606 billion, below the FactSet consensus of $4.615 billion. Net interest revenue fell 23.5% to $2.237 billion to beat the FactSet consensus of $2.218 billion, while asset management and administration fee revenue rose 16.9% to $1.224 billion, in line with expectations, and trading revenue was down 17.4% to $768 million to miss expectations of $804 million. New brokerage accounts were flat from a year ago but down 7% from the sequential second quarter. The stock has declined 12.3% over the past three months through Friday while the S&P 500
    SPX,
    +1.19%
    has slipped 3.9%.

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  • These are the biggest money mistakes we make in our 20s, 30s and 40s

    These are the biggest money mistakes we make in our 20s, 30s and 40s

    [ad_1]

    Financial literacy peaks at age 54, according to a 2022 study. That’s around the time you’ve gained enough knowledge and experience to make sound money decisions — and before your cognitive ability might start to ebb.

    “As we get older, we seem to rely more on past experience, rules of thumb, and intuitive knowledge about which products and strategies are better,” said Rafal Chomik, an economist in Australia who led the study.

    If people in their mid-50s tend to make smart financial moves, where does that leave younger generations?

    Advisers often educate clients at different stages of life to avoid money mistakes. While those in their 50s usually demonstrate optimal prudence  in navigating investments and savings, advisers keep busy helping others — from twentysomethings to mid-career professionals — avoid costly financial blunders:

    Navigate your 20s

    Perhaps the biggest blunder for young earners is spending too much and saving too little. They may also lack the long-term perspective that encourages long-range planning.

    “The mistake is not establishing the saving habit early, and not appreciating the power of compounding” over time, said Mark Kravietz, a certified financial planner in Melville, N.Y.

    Similarly, it’s common for young workers to delay enrolling in an employer-sponsored retirement plan. Not participating from the get-go comes with a steep long-term cost.

    “ Better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run. ”

    People in their 20s process incoming information quickly. But their high level of fluid intelligence can work against them. Cursory research into a consumer trend or hot sector of the stock market can spur them to make rash investments. Such impulsive moves might backfire.

    “It’s important to resist the hype,” Kravietz said. “Don’t chase fads or try to make fast money” by timing the market.

    Many young adults with student debt juggle multiple loans. Eager to chip away at their debt, they fall into the trap of choosing the wrong loan to tackle first, says Megan Kowalski, an adviser in Boca Raton, Fla.

    Rather than pay off the highest-interest rate loan first (so-called avalanche debt), they mistakenly focus on the smallest loan (a.k.a. snowball debt). It’s better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run.

    Navigate your 30s

    “ Resist the temptation to lower your 401(k) contribution to boost your take-home pay. ”

    By your 30s, insurance grows in importance. You want to protect what you have — now and in the future. But many people in this age group neglect their insurance needs. Or they misunderstand which coverages matter most.

    “If you have a life partner and kids, get the proper life insurance while in your 30s,” Kravietz said. 

    It’s easy to get caught up in your career and assume you can put off life insurance. But even low odds of your untimely death doesn’t mean you can ignore the risk of leaving your loved ones without a cash cushion.

    Another common blunder involves disability insurance. If your employer offers short-term disability insurance as an employee perk, you may think you’re all set.

    However, the real risk is how you’d earn income if you suffer a serious and lasting illness or injury. Don’t confuse short-term disability insurance (which might cover you for as long as one year) with long-term disability coverage that pays benefits for many years.

    Assuming you were wise enough to enroll in your employer-sponsored retirement plan from the outset, don’t slough off in your 30s. Resist the temptation to lower your 401(k) contribution to boost your take-home pay.

    “You want to give till it hurts,” Kravietz said. “Keep putting money away” in your 401(k) or other tax-advantaged plan until you feel a sting. Weigh the minor pain you feel now against the major relief of having a much bigger nest egg decades from now.

    Navigate your 40s

    “ ‘The 40s are often the most expensive in anyone’s life. Life is getting more complicated.’”

    For Kravietz, the 40s represent a decade of heavy spending pressures. Mid-career professionals face a mortgage and mounting tuition bills for their children.

    “The 40s are often the most expensive in anyone’s life,” he said. “Life is getting more complicated.”

    As a result, it’s easy to overlook seemingly minor financial matters like updating beneficiaries on your 401(k) plan or completing all the appropriate estate documents such as a will.

    “People in their 40s sometimes fail to update beneficiaries,” Kravietz said. For example, a new marriage might mean changing the beneficiary from a prior partner or current parent to the new spouse.

    It’s also easy to get complacent about your investments, especially if you’re the conservative type who favors a set-it-and-forget-it strategy. Instead, think in terms of tax optimization.

    “In your 40s, you want to take advantage of what the government gives you,” Kravietz said. “If you have a lot of money in a bank money market account and you’re in a top tax bracket, shifting some of that money into municipal bonds can make sense” depending on your state of residence and other factors.

    If you’re saving for a child’s college tuition using a 529 plan — and you have parents who also want to chip in — work together to strategize. Don’t make assumptions about how much (or how little) your parents might contribute to your kid’s education.

    “Rather than assume you’ll have to pay a certain amount for educational expenses, coordinate between generations of parents and grandparents” on how much they intend to give, Kowalski said. “That way, you’re not duplicating efforts and you won’t put extra funds in a 529 plan.”

    More: 7 more ways to save that you may not have considered

    Also read: ‘We live a rather lavish lifestyle’: My wife and I are 33, live in New York City and earn $270,000. Can we retire at 55?

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  • Subprime car-loan rates are hitting 17%-22%. Should investors be worried?

    Subprime car-loan rates are hitting 17%-22%. Should investors be worried?

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    Many borrowers with subprime credit have been paying 17% to 22% rates on new auto loans this year as the Federal Reserve’s inflation fight takes a toll on lower-income households.

    That borrowing range reflects the average cost, or annual percentage rate, for a loan in recent subprime auto bond deals, according to Fitch Ratings, an increase from last year’s average APR of closer to 14%.

    Higher borrowing costs can mean households need to put more of their income into monthly auto payments, ramping up the risks of late payments, defaults and car repossessions. Those risks, however, have yet to make investors flinch.

    The subprime auto sector already has cleared almost $30 billion of new bond deals this year, according to Finsight, a pace that’s slightly below volumes from the past two years, but still above historical levels since 2008.

    The subprime auto bond market is revved up, even as borrowing rate soar


    Finsight

    “I do believe there has to be a reckoning if rates stay higher for longer,” said Tracy Chen, a portfolio manager on Brandywine Global Asset Management’s global fixed income team.

    Figuring out when the tumult might hit has proven difficult. Instead of slowing, the economy has shown resilience despite the Fed lifting its policy rate to a 22-year high of 5.25% to 5.5%. The central bank also indicated it might need to keep rates higher for some time to fight inflation. Longer-duration bond yields, as a result, have pushed higher, but still hover below 5%.

    Subprime standoff

    Inflation eats away at paychecks, especially those of lower-wage workers, a problem the Fed hopes to solve by keeping borrowing rates elevated. A gauge of inflation out Thursday showed consumer prices were steady at a 3.7% yearly rate in September, above the Fed’s 2% target.

    “This recession has been on everyone’s mind for the past three years,” Chen said. While she thinks the economy will likely contract in the middle of 2024, a lot of damage could be done before that. “The longer rates stay here, the harder the landing.”

    For now, the Fed is widely expected to hold rates steady at its next meeting in November. “Fed policy makers are now shifting their focus from ‘how high’ to raise the policy rate to ‘how long’ to maintain it at restrictive levels,” said EY Chief Economist Gregory Daco, in emailed comments.

    Stocks were flat to slightly higher in choppy trade at midday Thursday after the inflation report came in hotter than forecast, with the Dow Jones Industrial Average
    DJIA
    near unchanged and the S&P 500 index
    SPX
    up 0.2%.

    Past recessions and the burden of higher interest costs typically hit lower-wage workers harder, making subprime credit a canary in the coal mine for the rest of financial markets. Even so, investors in subprime auto bonds have yet to demand significantly more spread, or compensation, to offset potentially higher defaults among these borrowers.

    Related: Subprime auto defaults on path toward 2008 crisis levels, say portfolio managers

    Take the AAA rated 2-year slice of a new bond deal issued in mid-October by one of the subprime auto sector’s biggest players. It priced at a spread of 115 basis points above relevant risk-free rate, up from a spread of 90 basis points on a similar bond issued in August, according to Finsight, which tracks bond data.

    When factoring in Treasury rates, the yield on the bonds bumped up to about 6% and 5.7%, respectively. The shot at higher returns and low delinquencies in subprime auto bonds have likely helped with investor confidence. The rate of subprime auto loans at least 60-day past due in bond deals was about 5% in September, according to Intex, up from historic lows around 2.5% two years ago.

    “I think people still feel confident,” Chen said of subprime auto bonds. When putting a recent bond out on a Wall Street list to gauge its market value, she said bids come in right away.

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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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  • Rivian shares sink after preliminary sales estimates, plan to offer $1.5 billion in convertible notes

    Rivian shares sink after preliminary sales estimates, plan to offer $1.5 billion in convertible notes

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    Shares of Rivian Automotive Inc. slid in the extended session Wednesday after the EV maker issued preliminary quarterly sales estimates that were on par with Wall Street’s forecasts and announced plans to offer $1.5 billion worth of convertible notes.

    Rivian
    RIVN,
    +9.22%    ,
    in a filing, gave a preliminary third-quarter sales estimate of between $1.29 billion and $1.33 billion. Analysts polled by FactSet expected sales of $1.31 billion. The company estimated it had cash, cash equivalents and short-term investments of $9.1 billion as of Sept. 30.

    Rivian also said it plans to offer, subject to market and other conditions, $1.5 billion worth of “green” convertible senior notes due in 2030. That would be in a private offering to “qualified institutional buyers,” Rivian said.

    The plan would give buyers the option to purchase up to an additional $225 million in notes. The notes will be senior, unsecured obligations of Rivian. Noteholders will have the right to convert their notes in certain circumstances and during specified periods, the company said.

    Shares fell 8% after hours.

    Rivian stock ended the regular trading day up 9.2%, and so far this year has gained around 28%, which compares with an advance of around 10% for the S&P 500 index
    SPX,
    +0.81%    .

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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

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    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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  • 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

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    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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  • Instacart stock indicated to soar 30% at its open

    Instacart stock indicated to soar 30% at its open

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    Shares of Instacart
    CART,

    are set to receive a warm reception in their Wall Street debut, as early indications are for the grocery delivery app’s stock to open about 30% above where the initial public offering priced. While the stock isn’t expected to trade for a while, perhaps hours, the first indication from the Nasdaq was for the first trade to be around $39.00, while the IPO priced at $30 a share, according to FactSet data. At that price, the company, which is officially named Maplebear Inc. and doing business as Instacart, would be valued at about $13.2 billion, based on 338.8 million common shares outstanding (as-converted, fully diluted). In last week’s high-profile IPO of semiconductor-design company Arm Holdings PLC, the stock’s
    ARM,
    -4.59%
    first trade was 10% above the IPO price, but it closed 24.7% above the IPO price on the first day.

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  • Instacart prices IPO at $30 a share, at upper end of expected range

    Instacart prices IPO at $30 a share, at upper end of expected range

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    The grocery-delivery app Instacart on Monday priced its IPO at $30 a share, at the upper end of its expected range, raising $660 million with a fully-diluted valuation of around $10 billion after backing away from a stock-market debut last year.

    The company said it plans to begin trading on the Nasdaq Global Select Market on Tuesday under the ticker symbol “CART.” It will offer 22 million shares in the IPO. On Friday, Instacart had said it expected to price the offering at between $28 and $30 a share.

    Goldman Sachs and J.P. Morgan are acting as lead book-running managers for the offering. Instacart said it also granted the underwriters a 30-day option to purchase up to an extra 3.3 million shares at the IPO price. The offering is expected to close on Thursday.

    The debut would come amid what appears to be a thaw in the IPO market, following a year of concerns about inflation and the broader economy. But the public debut of chip designerArm Holdings
    ARM,
    -4.53%
    last week made big waves. The digital-marketing platform Klaviyo is set to debut this week as well.

    Instacart’s valuation in 2021 stood at $39 billion. Last year, as pandemic-era digital demand fizzled, the company cut its valuation multiple times, but raised it this year, according to The Information.

    Instacart, in its IPO filing, said the way people shop for groceries is undergoing a “massive digital transformation.” Evercore analysts have said the company controls around a fifth of the U.S. online grocery-delivery market.

    But the company faces steep competition — from the likes of Walmart Inc.
    WMT,
    -0.74%    ,
    Amazon.com Inc.
    AMZN,
    -0.29%
    and DoorDash Inc.
    DASH,
    -0.01%
    — and relies on a handful of grocery chains for a big chunk of its demand. And delivery fees on top of higher-priced groceries remain threats to demand.

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  • Nasdaq ends 1% down, leading stocks lower as tech shares slump

    Nasdaq ends 1% down, leading stocks lower as tech shares slump

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    U.S. stocks closed lower on Tuesday, with the Nasdaq Composite leading the way down, as Apple’s unveiling of its new iPhone and watch failed to boost appetite for equities. The Dow Jones Industrial Average
    DJIA,
    -0.05%
    shed about 16 points, or about 0.1%, to end near 34,647, while the S&P 500 index
    SPX,
    -0.57%
    closed 0.6% lower and the Nasdaq Composite Index
    COMP,
    -1.04%
    slumped 1%, according to preliminary FactSet data. That was the biggest daily percentage drop in about a week for the Nasdaq. Shares of Apple Inc.
    AAPL,
    -1.71%
    were a focus Tuesday as it rolled out a lineup of new consumer products, including its iPhone Pro Max, which will now start at $1,199 instead of $1,099, while its Pro model’s price stays the same. Investors also remain focused on the inflation data, including the release on Wednesday of the consumer-price index for August, before the U.S. stock market’s open. Apple shares fell 1.9% on Tuesday. Climbing bond yields can pressure high-growth stocks as borrowing costs rise. The benchmark 10-year Treasury yield
    TMUBMUSD10Y,
    4.297%
    edged down 2.4 basis points to 4.263% Tuesday, but was still near its highest level of the year.

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  • Canopy Growth stock soars on heavy volume again, amid cannabis investor optimism over possible favorable legislation

    Canopy Growth stock soars on heavy volume again, amid cannabis investor optimism over possible favorable legislation

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    Shares of Canopy Growth Corp.
    CGC,
    +22.61%
    shot up 21.7% toward a near four-month high in very active afternoon trading, putting them on track for the fifth double-digit percentage gain in seven sessions. The stock has rocketed 130% over the past seven session. Trading volume was 107.7 million shares as of Friday afternoon, to mark the fourth 100+-million-share volume day in the past six sessions, while the average volume over the past 30 days was about 36.3 million shares. The stock’s surge comes as Senate Banking Committee chair Sherrod Brown said Wednesday that there is “an agreement imminent” on the SAFE Banking Act, according to a Politico report, which could make it easier for the financial industry to work with cannabis companies. Among other cannabis stocks, shares of Tilray Brands Inc.
    TLRY,
    +2.03%
    gained 2.4%, of Cronos Group Inc. climbed 6.0% and of Aurora Cannabis Inc.
    ACB,
    +14.75%
    jumped 12.5%. The AdvisorShares Pure US Cannabis ETF
    MSOS,
    +3.88%
    rose 7.5% on volume of 13.9 million shares, compared with the full-day average of about 5.6 million shares, while the S&P 500
    SPX,
    +0.14%
    slipped 0.1%. The cannabis ETF has soared 77% over the past seven sessions.

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  • What’s missing for investors in new $60 billion corporate borrowing blitz

    What’s missing for investors in new $60 billion corporate borrowing blitz

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

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

    “The…

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