investors may soon get a read on one of the company’s better deals in the past decade—a 2017 purchase for nearly $3 billion of a 38.6% interest in Pilot Flying J, the country’s leading operator of truck stops.
The Berkshire Hathaway (ticker: BRK/A, BRK/B) stake in the company will rise to 80% in the current quarter under the terms of the original agreement reached by CEO Warren Buffett with the founding Haslam family, which will retain the remaining 20% stake.
Tesla shares surged 22% in the past week, making it one of the top performers in a portfolio of stocks recommended by Barron’s.
Eric Thayer/Bloomberg
A portfolio of stocks picked by Barron’s has enjoyed a rally in the past week, as the market anticipates the end of the Federal Reserve’s interest rate hikes. A buoyant performance from the auto industry also juiced the portfolio.
The entire stock market has enjoyed a gain in the past week. The S&P 500 is up about 3% in that span, including a pop in the last couple of days. Wednesday, the Fed announced a small interest rate hike, but markets interpreted Chairman Jerome Powell’s comments to mean that the end of rate increases is coming soon.
The rally has helped the average stock in the Barron’s portfolio post a 3.8% gain in the past week. The measure differs from a value-weighted index like the S&P 500, where stocks with bigger market capitalizations have bigger effects on the index.
Almost three quarters of 86 stocks in the Barron’s portfolio are up in the past week, with some of the winners posting mammoth gains. Top performers include Generac
(GNRC), PoolCorp
(POOL) and Olaplex
(OLPX), which gained 15%, 14% and 19%, respectively in the past week.
Some stocks posted even larger gains.
Tesla
(TSLA) gained 22% since last Thursday’s close. In its fourth quarter of 2022 reported on Jan. 25, sales of $24.3 billion beat expectations for $24 billion, while earnings per share of $1.19 came in above estimates of $1.12. Wall Street is confident that, even with the company lowering prices as consumers feel the pain of higher rates, Tesla can keep boosting sales and profit growth. Analysts expect vehicle deliveries to grow 40% from a year earlier to almost 1.85 million in 2023, better than the 31% growth seen in the reported quarter.
“The key debates from here will be on whether vehicle deliveries can reaccelerate (we expect that they will especially starting in 2Q23),” writes Goldman Sachs
analyst Mark Delaney.
Barron’s recommended Tesla stock on Jan. 6, arguing that the the worst of the company’s challenges—including delivery growth—are behind it. The stock is up 67% since then.
Lithia Motors
(LAD), a $7 billion by market capitalization auto dealer, has seen its stock rise 23% in the past week. It reports fourth-quarter earnings Feb 15, but the stock has risen as the picture for auto sales has improved. Tesla’s quarterly performance helped, but so did General Motors‘ (GM). The automating giant reported better-than-expected sales and EPS and said on its earnings call that 2023 will be a “strong year,” one in which analysts expect sales growth.
Barron’s recommended Lithia Motors in April 2022, arguing that the stock was cheap and that production constraints that held sales back would soon be a thing of the past. Since then, the stock is up about 4%.
Lucid Group
(LCID), a $20 billion electric vehicle and battery maker, is up 39% since last Thursday. Earnings are Feb. 22, but strong auto trends already have helped. Lucid, too, is expected to lower prices and aggressively grow deliveries. The stock got a pop late in January on speculation that Saudi Arabia’s Public Investment Fund could buy the rest of the company. The fund recently invested $1.5 billion and holds just over 60% of the company.
U.S. stocks struggled for direction at the open on Tuesday, as investors weighed earnings from Goldman Sachs Group Inc. and Morgan Stanley as trading resumed following a three-day weekend honoring Martin Luther King Jr. The Dow Jones Industrial Average DJIA, -0.94%
was down 0.2% soon after the opening bell, while the S&P 500 SPX, -0.02%
edged up 0.1% and the Nasdaq Composite COMP, +0.11%
was trading about flat, according to FactSet data, at last check. Goldman Sachs and Morgan Stanley on Tuesday reported their results for the fourth quarter, with Goldman GS, -7.48%
missing earnings estimates while Morgan Stanley MS, +6.71%
beat analysts’ forecasts. In economic data released Tuesday, the New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, tumbled to the lowest level since the worst of the pandemic in 2020.
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
Doing well in Warzone is often about making the most out of what you can find on the field. But with the ability to recover or purchase your loadout, one of the best ways to gain an advantage over the competition is to grab your curated selection of guns and perks.
Call of Duty: Warzone 2.0 has a ton of guns. Like, a lot. There’s nothing wrong with picking one that looks, sounds, and feels great for your personal playing style, but with the game having been out for a little while, a specific meta is starting to emerge. Let’s jump into some of the best choices out there, broken down by category (I’ll also briefly cover how to get access to your loadout as well).
Best assault rifle loadout for Warzone 2.0
It doesn’t get any more steak and potatoes than an assault rifle in Warzone. While the trusty M4 is always a reliable and performant weapon, the TAQ-56 stuck out early on as one of the best assault rifles in Modern Warfare II.
You may prefer different attachments for different uses, but most assault rifles in Modern WarfareII benefit from prioritizing boosts to medium-range effectiveness. Sniper rifles, battle rifles, and marksman rifles will usually outpace an assault rifle at long distance, while SMGs are typically great for up-close engagements. Your mileage may vary, but here are some attachments to consider for the TAQ-56 assault rifle:
Maybe you shouldn’t use the grenade launcher, but c’mon where’s the fun in that?Screenshot: Activision / Kotaku
Muzzles: Harbinger D20 or Echoline GS-X Barrels: 17.5 Tundra Pro Barrel Underbarrel: FTAC Ripper 56 or Hellscream 40mm (for the lulz) Ammo Type: High Velocity or Armor Piercing (pierces walls and is effective against vehicles. Does fuck-all against armor tho) Magazine Size: 60 rounds
If you want to swap one of these out to gain an Optic, the Aim-OP V4 is a good choice. I personally prefer the Lonewolf, but that’s more of an aesthetic choice than a functional one.
And if the Taq V ain’t to your liking, you might also want to consider the M4, Kastov 762 or 74U. Folks out there also really like the Chimera, which you need to extract from Building 21 in the DMZ to obtain (good luck). I also like the STB 556 a fair bit.
Best SMG loadout for Warzone 2.0
SMGs put out a lot of bullets, and fast. Your running speed will usually be higher with one equipped as well, so having one of these will benefit you in more ways than just damage output.
While the FSS Hurricane and Vel 46 aren’t bad choices, when it comes to SMGs, the Fennec 45 is easily one of the best in Warzone 2. It’s not uncommon to find these on enemies, kitted out to an extreme degree for good reason: It fires bullets real-fuckin’-fast™ and feels damn stable while doing so.
The Hacksaw is a pretty fun Fennec blueprint.Screenshot: Activision / Kotaku
Here are some attachments to consider for the Fennec 45:
Optic: Cronen Mini Pro or SZ Holotherm Muzzles: XTEN RR-40 or Singuard MKV Barrels: Covert Force or ZLR 16.5 Ignition Barrel Underbarrels: FSS Skarkfin 90 or Agent Grip Magazine Size: 45 rounds
And if the Fennec isn’t your cup of high-bullet-output tea, you may wish to consider the Vaznev-9K.
Best Sniper Rifle loadout for Warzone 2.0
I expect opinions on this to diverge more than any other category on this list. Sniper rifles are a little rare out there in Al Mazrah, particularly for Warzone 2.0 proper which tends to see fights break out at close enough distances that a sniper would be somewhat of a disadvantage. In the DMZ, however, they’re often indispensably valuable.
Warzone 2.0 has a nice selection of sniper rifles which some might say don’t differ a whole lot between each other. For the most part, you can rely on powerful, bolt-action rifles doing substantial damage and frequently downing enemies with a single hit. But that Signal-50’s semi-auto rate of fire is hard to argue with. The Victus XMR has lately emerged as the go-to sniper rifle. If you struggle to land solid shots, one at a time, however, you might want to fall back on the Signal-50 for its higher rate of fire.
Screenshot: Activision / Kotaku
Here’re some great attachments choices for the Victus XMR:
Muzzles: Bruen Counter-Ops Muzzle or Bruen Agent 90 Silencer (reduced damage, but no negative to ADS speed) Barrel: Mack 8 33.5 Super Barrel Stock: XRK Rise 50 or FTAC Homeland Ammo Type: 50 Caliber High Velocity Guard: Corvus Responder
The RPK (why are we even considering other LMGs?)
The RPK sometimes feels like a damn Swiss Army knife. With high damage, fast rate of fire, and a decent-sized magazine that reloads nearly as quickly as an assault rifle, the slow-ass reload rates of other LMGs like the Rapp H or Sakin MG38 are left in the dust by this one clear standout. The RPK isn’t just one of the best LMGs, it’s one of the best guns in the game.
And though we’re talking about the battle royale, here’s a quick tip for DMZ: If you’re low on weapons, securing an RPK is your first objective. Most enemies tend to have them, and having a stash of these to fall back on when your insured weapon is on cooldown can help you build some momentum in the next deployment. Have I told you about my personal lord and savior, DMZ, yet? By the way, extraction shooters are amazing, in case you didn’t know.
Back to Warzone. Here are some great attachment choices for the RPK:
Screenshot: Activision / Kotaku
Optics: Aim-OP V4 or SZ Vortex-90 Muzzles: Polarfire-S or Zulu-60 Stock: Heavy Support Underbarrels: FTAC Ripper or VX Pineapple Rear Grips: Demo-X2 or Ivanov ST-70 Grip
What about battle rifles, marksman rifles, and other weapon loadout choices in Warzone 2.0?
Right now the Warzone meta centers around assault rifles, SMGs, and that darn RPK. Unless you’re going for some counter-cultural personal expression or are trying a new experimental build, everything listed above is likely your best choice when curating a loadout. But let’s consider a few alternatives if what I’ve mentioned so far isn’t to your liking.
Battle Rifles: Taq-V, FTAC Recon. (Some people like the SO-14. I fell off this in favor of the other two listed here). Marksman Rifles: EBR-14, TAQ-M Shotguns: LOL None.Season 01 Reloaded nerfed Shotguns pretty badly. The Bryson 800 is probably the best of these right now, but you’re better off just ignoring this category for now.
Recon: Double Time, Tracker, Focus, Birdseye Great for: Moving fast, keeping your aim on point under pressure, and gathering intel on your enemies
Things can get quite hot in Warzone. The Recon perk package will help you move faster with Double Time, spot enemy footprints with Tracker, avoid flinching when aiming at enemies with Focus, and Birdseye will reveal enemy locations and the direction they’re facing on the mini-map whenever you call up a UAV.
Specter: Double Time, Tracker, Spotter, Ghost Great for: Moving fast, spying on enemies, and laying low
Specter is similar to Recon in that it has Double Time and Tracker, but it adds Spotter for locating enemy equipment, and Ghost, making you invisible to UAVs, Portable Radars, and even that darn Heartbeat Sensor. That last perk kinda makes Specter a must-have.
Screenshot: Activision / Kotaku
Vanguard: Double Time, Bomb Squad, Resupply, High Alert Great for: Moving fast, reducing explosion damage, extra lethal equipment, and supernatural senses
Vanguard also comes with Double Time, so you’ll have your speed to rely on. You’ll also be able to move with less concern for explosions, as Bomb Squad will reduce damage from any non-Killstreak explosive. Resupply will help you stay stocked on lethal equipment, but High Alert is the real appeal of Vanguard as it will let you know when you’ve been spotted by an enemy you can’t see. If you value your privacy, grab this one for sure.
Screenshot: Activision / Kotaku
Weapon Specialist: Overkill, Strong Arm, Spotter, Survivor Great for: Carrying two primary weapons, throwing grenades more accurately, and staying alive
If you want your loadout to come with two assault rifles, an assault rifle and an SMG, an RPK and a sniper, or just about any combo of two primary weapons, look no further than the Weapon Specialist perk package. Overkill lets you slot two primaries into your loadout, and that’s by and large the main appeal here. But having the ability to accurately throw grenades, spot enemy equipment, and ping foes who down you (very handy for duos, trios, and quads) isn’t bad either.
What about tactical and lethal equipment?
Choosing the best tactical equipment in Warzone is often a matter of playing to the strengths of your playstyle. Also, in Warzone (as well as DMZ), tactical equipment might be something you frequently change up as you find new stuff on the map.
If you like to play it safe and keep some distance between you and other players, consider the Spotter Scope or Heartbeat Sensor.
Both Warzone and DMZ take place on a biiiig map. The Spotter Scope (essential in DMZ, imho) will help you spot potential danger ahead or behind you, while the Heartbeat Sensor is pretty handy when clearing a building. Watch the battery life on the Heartbeat Sensor, however, that thing evaporates quicker than a Steam Deck running Cyberpunk 2077.
Stims can save your life when you’re out of armor.
You’ll go into Warzone with two-plate armor vests (in DMZ you default to just one, which is even deadlier). Stims can often mean the difference between life and death as they’ll quickly juice your health back up. If you ask me, I save Stims for recovery on the battlefield, but you might decide to toss it in your loadout if you find you like to advance on an enemy even after your plates are broken.
Flash, Stun, Tear Gas and Smoke grenades are versatile and effective.
Want to piss off an advancing enemy who looks armed to the teeth? Blind ‘em with a flash grenade. Stun grenades can achieve similar results. Tear gas is also an effective way to screw with an enemy, exposing precious seconds of vulnerability. But if you want to vanish quickly, a big ploom of smoke can be very advantageous.
And if you’re a DMZ fan, I recommend saving more than a few Smoke grenades to spam the chopper when you’re exfiltrating. It’s a great way to obscure your location at a distance and confuse foes rushing the chopper. Be warned, however, thermal scopes (which include the Spotter Scope and Recon Drone) can see through that smoke.
What about Field upgrades?
Field upgrades don’t just give you an advantage, they can help your whole team. But they’re not a part of your loadout in Warzone (though they are in DMZ). You’ll have to find them on the field or grab ‘em at a Buy Station. Packing or finding a Munitions Box or Armor Box is one of the best options. Revive Pistols will also save you or a friendly if they’ve been downed, keeping you in the fight and out of the Gulag.
Beyond that, Battle Rage ain’t a bad choice if you like to get in people’s faces, and it pairs well with a high-output SMG like the Fennec 45.
I am personally a huge fan of the Recon Drone. In DMZ, at least, I’m never without it. In Warzone things might border too close to constant chaos for a Recon Drone to be of use, but it is a quick and effective way to get a bird’s eye perspective on what’s around you, following you, or just up ahead.
Inflatable Decoys can be hilarious when used well, but they take up a slot that might be better filled by other Field Upgrades mentioned here.
And how do I find my loadout?
Jeez this game has a lot of stuff you can find and use. You’ll spawn in on Warzone with a scrawny little pistol, so you’ll need to get that loadout from a few different places.
If you clear out an AI Stronghold, you’ll find a chest where you can acquire your loadout. Alternatively, you can wait until the announcer calls out random supply drops—but be warned, everyone will be gunning for those. You can now, thankfully, also buy your loadout via a Loadout Drop Grenade. This was added (back) into the game recently, and according to Raven Software might be subject to some changes and alterations.
Here’s the price breakdown for loadout drop grenades according to squad player counts:
Solos: $8,000
Duos: $16,000
Trios: $24,000
Quads: $32,000
Once you have one of these, you can just toss it out and wait for your Loadout to drop from the sky, ready to equip and slaughter the opposition with.
Like many battle royales, smart, in-the-moment decision making is just as essential as any weapon in the game. The weapon choices here will help you find the right loadout for your playstyle. I can’t help you with the exploding helicopters though.
U.S. stocks are about to cap off their worst year since 2008. But investors wouldn’t know it by glancing at what’s often referred to as Wall Street’s favorite fear gauge, which has recently failed to reach new heights as stocks tumbled to fresh lows.
The Cboe Volatility Index VIX, -3.16%,
better known as the VIX, is on track to finish 2022 not far off its long-term average despite widespread pain across markets. The VIX, based on trading in S&P 500 index options, serves as an indicator of expected volatility in the index over the coming 30-day period.
After topping out at 36.45 on March 7, it repeatedly failed to make new highs for the year, according to data from FactSet, even as stocks tumbled to their lowest levels in years in June and again in September and October.
Nicholas Colas, co-founder of DataTrek Research, highlighted the phenomenon in several research notes to his clients this year.
Not only is the S&P 500 on track to finish the year down roughly 20%, 2022 has also been the most consistently choppy year for stocks in more than a decade by at least one measure.
The index has recorded 46 moves of 2% in either direction since the start of the year, the most since 2009, according to Dow Jones Market Data — narrowly surpassing the number from 2020. That’s roughly four times the 10-year average of 11.3 per year.
The VIX fell 3% on Thursday to 21.46 in afternoon trading as the S&P 500 SPX, +1.75%,
Dow Jones Industrial Average DJIA and Nasdaq Composite COMP all headed for daily gains after the Nasdaq booked its lowest closing level of the year on Wednesday.
A ‘really terrible year’
Perhaps counterintuitively, Colas and others see the subdued VIX as a potential cause for concern. This is because a spike in the fear gauge has typically preceded stock-market bottoms in recent decades.
Colas and others refer to the phenomenon as “capitulation,” meaning that a surge in the VIX means that sentiment in the market has grown so dire that the beginning of a market turnaround is likely at hand.
The VIX surged above 80 before stocks bottomed out in March 2009, and again in March 2020. Colas has said in the past that levels above 40 are needed to signal that capitulation is at hand. Volatility typically rises fastest when stocks are falling, market strategists said.
The lack of a clear signal that bears are reaching a point of exhaustion has made some analysts wonder if the market’s lows might still lie ahead.
“Volatility seems too low,” said Danny Kirsch, head of the options desk at Piper Sandler, during a phone interview with MarketWatch this week. “I’d say the VIX should be in its mid-to-high 20s, as opposed to barely 20.”
“We had a really terrible year. There was massive wealth destruction, and yet the cost to hedge going forward hasn’t really changed,” Kirsch added.
Is the VIX ‘broken’?
Comparing the VIX’s 2022 performance to 2008 recently led Michael Kramer, founder of Mott Capital, to conclude that the gauge may be “broken” in a tweet published on Wednesday.
Others have pushed back against this notion, arguing that while the VIX has been “somewhat low,” it’s still elevated compared with recent market history.
To wit, the VIX’s current level is still more than twice its record low from Nov. 3, 2017, when the volatility gauge closed at 9.14, according to data from FactSet. This occurred at a time when U.S. stocks were drifting consistently higher. The S&P 500 went on to finish 2017 with a gain of more than 20%.
“It’s been a high VIX year, just not as high as some people think it should have been, given volatility elsewhere in markets,” said Rocky Fishman, the head of index volatility research at Goldman Sachs Group Inc.
The VIX has also maintained its strong inverse correlation to the S&P 500, as Callie Cox, a U.S. equity analyst at eToro, pointed out. Data shared by Cox showed that the VIX has moved inversely with the S&P 500 SPX, +1.75%
roughly 80% of the time since its inception in 1990.
Why so low?
So, why has the VIX been so subdued? Cox, Kirsch and others rattled off several factors that might be contributing to its malaise.
One popular explanation is that as institutional investors dumped stocks and shifted more of their portfolios to cash this year, they were left with smaller levels of long-equity exposure in need of hedging.
“VIX is basically a measure of demand for hedges by the biggest investors in the market. But when institutional investors are liquidating their equity positions, they no longer have a need for the associated hedges, so they unwind those positions in the derivatives markets and ultimately that pressures” the VIX, said analysts at Sevens Report Research in a note entitled “Is the VIX broken?” published earlier this month.
Also, a generally bearish outlook for markets means that institutional investors are “fairly well hedged,” Kirsch said, which helps keep a lid on the VIX when large selloffs materialize.
Others cited traders’ increasing reliance on short-term options for tactical trades.
While the VIX is designed to interpret increased options buying as a sign that investors are growing more anxious, it specifically incorporates only options with roughly one month left until expiration.
This has become an issue as trading in shorter-dated options, including contracts with less than one day left until they expire, has surged in popularity this year, according to data from Goldman Sachs.
Trading in zero-day to expiration S&P 500 options has surged in the fourth quarter to more than four times its average level from 2021, according to data shared by Goldman in a research note dated Dec. 15.
“The VIX doesn’t accurately measure fear these days because there’s so much trading in short-dated options,” said Steve Sosnick, chief strategist at Interactive Brokers.
Is a blowup looming?
The question for investors now is whether a subdued VIX might lead to a volatility-inspired reckoning for markets, like what happened in February 2018, when a popular short-volatility trade rapidly unwound, contributing to the death of short-volatility products like the VelocityShares Daily Inverse VIX Short Term ETN.
It’s possible that markets could undergo a volatility-driven “washout” as some of the trades helping to suppress the VIX are unwound, Kirsch said. Although he doesn’t expect the impact on markets to be as severe as it was in 2018 or 2020, he told MarketWatch.
But whatever happens, it’s possible analysts who rely on the VIX to inform their trading might need to adjust their expectations around what constitutes a capitulation signal, Cox told MarketWatch. Still, this doesn’t necessarily mean that the VIX is “broken.”
“It’s still measuring what it’s intended to measure,” she said. “This is more a story of how much the options market has evolved over the past few years.”
“People just aren’t using classic one-month options to hedge or speculate as much. Investors are choosing to get more precise with their options strategies, which makes a lot of sense — it’s cheaper and more adaptable,” Cox added.
What worked well during the years-long bull market through 2021 — a focus on growth, regardless of price — has ground to a halt this year. The rebirth of the value style of investing — and modest valuations overall — has taken hold.
The approach taken by the Invesco S&P 500 GARP ETF has paid off through both bull and bear markets.
Let’s begin with a 10-year chart comparing total returns with dividends reinvested for the Invesco S&P 500 GARP ETF SPGP, +0.67%
and the SPDR S&P 500 ETF Trust SPY, +0.78%,
which tracks the benchmark S&P 500:
FactSet
So far this year, SPGP is down 12%, while SPY is down 16%. But the long-term chart shows significant and consistent outperformance for SPGP, even during the bull market.
The S&P 500 GARP Index
GARP stands for “growth at a reasonable price.” SPGP tracks the S&P 500 GARP Index, which is reconstituted and rebalanced twice a year, on the third Fridays of June and December. The next change occurs Dec. 16.
S&P Dow Jones Indices assigns a growth score to each component of the S&P 500 by averaging the three-year compound annual growth rate (CAGR) for earnings and sales per share.
The top 150 components of the S&P 500 by growth score are eligible for inclusion in the GARP index. Those 150 are ranked by “quality/value composite score,” which is the average of these three ratios:
Financial leverage — total debt to book value.
Return on equity — trailing 12 months’ earnings per share divided by book value per share.
Earnings-to-price — 12 months’ earnings per share divided by the share price.
The top 75 of the 150 by QV rankings are then included in the GARP index and weighted by the growth score, with portfolio weightings ranging from 0.5% to 5%.
There is a weighting limitation of 40% to any one of the 11 S&P sectors.
Addressing concentration risk
The benchmark S&P 500 Index SPX, +0.75%
is weighted by market capitalization, which means it is more heavily concentrated than you might expect — success is rewarded, with rising stocks more heavily weighted over time.
That can backfire during a bear market, with Amazon.com Inc. AMZN, +2.14%
down 47% and Tesla Inc. TSLA, -0.34%
down 51% this year, to name two prominent examples.
Looking at the SPDR S&P 500 ETF Trust SPY, +0.78%,
which is the first and largest exchange traded fund and tracks the benchmark index by holding all of its components, six companies (Apple Inc. AAPL, +1.21%,
Microsoft Corp. MSFT, +1.24%,
Amazon, both common share classes of Alphabet Inc. GOOGL, -1.30%
That percentage has come down this year, but a lot of risk remains concentrated in a handful of companies. (Apple alone makes up 6.4% of the SPY portfolio. Tesla is now the ninth-largest holding, making up 1.4% of the portfolio.)
One way to address high concentration in an index fund is to use an equal-weighted approach, which Mark Hulbert recently discussed.
For the Invesco S&P 500 GARP ETF, the underlying index’s selection methodology has resulted in much less portfolio concentration than we see in SPY, with the top five holdings making up 10.9% of the portfolio.
The Goldman Sachs Group, Inc. engages in global investment banking, securities, and investment management, which provides financial services. It operates through the following business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The Investment Banking segment serves public and private sector clients around the world and provides financial advisory services, helping companies raise capital to strengthen and grow their businesses and provide financing to corporate clients. The Global Markets segment serves its clients who buy and sell financial products, funding and managing risk. The Asset Management segment provides investment services to help clients preserve and grow their financial assets. The Consumer & Wealth Management segment helps clients to achieve their individual financial goals by providing wealth advisory and banking services. The company was founded by Marcus Goldman in 1869 and is headquartered in New York, NY.
With the S&P 500 holding above 4,000 and the CBOE Volatility Gauge, known as the “Vix” or Wall Street’s “fear gauge,” VIX, +0.74%
having fallen to one of its lowest levels of the year, many investors across Wall Street are beginning to wonder if the lows are finally in for stocks — especially now that the Federal Reserve has signaled a slower pace of interest rate hikes going forward.
But the fact remains: inflation is holding near four-decade highs and most economists expect the U.S. economy to slide into a recession next year.
The last six weeks have been kind to U.S. stocks. The S&P 500 SPX, -0.03%
continued to climb after a stellar October for stocks, and as a result has been trading above its 200-day moving average for a couple of weeks now.
What’s more, after having led the market higher since mid-October, the Dow Jones Industrial Average DJIA, +0.23%
is on the cusp of exiting bear-market territory, having risen more than 19% from its late-September low.
Some analysts are worried that these recent successes could mean that U.S. stocks have become overbought. Independent analyst Helen Meisler made her case for this in a recent piece she wrote for CMC Markets.
“My estimation is that the market is slightly overbought on an intermediate-term basis, but could become fully overbought in early December,” Meisler said. And she’s hardly alone in anticipating that stocks might soon experience another pullback.
Morgan Stanley’s Mike Wilson, who has become one of Wall Street’s most closely followed analysts after anticipating this year’s bruising selloff, said earlier this week that he expects the S&P 500 will bottom around 3,000 during the first quarter of next year, resulting in a “terrific” buying opportunity.
With so much uncertainty plaguing the outlook for stocks, corporate profits, the economy and inflation, among other factors, here are a few things investors might want to parse before deciding whether an investable low in stocks has truly arrived, or not.
Dimming expectations around corporate profits could hurt stocks
Earlier this month, equity strategists at Goldman Sachs Group GS, +0.68%
and Bank of America Merrill Lynch BAC, +0.24%
warned that they expect corporate earnings growth to stagnate next year. While analysts and corporations have cut their profit guidance, many on Wall Street expect more cuts to come heading into next year, as Wilson and others have said.
This could put more downward pressure on stocks as corporate earnings growth has slowed, but still limped along, so far this year, thanks in large part to surging profits for U.S. oil and gas companies.
History suggests that stocks won’t bottom until the Fed cuts rates
One notable chart produced by analysts at Bank of America has made the rounds several times this year. It shows how over the past 70 years, U.S. stocks have tended not to bottom until after the Fed has cut interest-rates.
Typically, stocks don’t begin the long slog higher until after the Fed has squeezed in at least a few cuts, although during March 2020, the nadir of the COVID-19-inspired selloff coincided almost exactly with the Fed’s decision to slash rates back to zero and unleash massive monetary stimulus.
BANK OF AMERICA
Then again, history is no guarantee of future performance, as market strategists are fond of saying.
Fed’s benchmark policy rate could rise further than investors expect
Fed funds futures, which traders use to speculate on the path forward for the Fed funds rate, presently see interest-rates peaking in the middle of next year, with the first cut most likely arriving in the fourth quarter, according to the CME’s FedWatch tool.
However, with inflation still well above the Fed’s 2% target, it’s possible — perhaps even likely — that the central bank will need to keep interest rates higher for longer, inflicting more pain on stocks, said Mohannad Aama, a portfolio manager at Beam Capital.
“Everyone is expecting a cut in the second half of 2023,” Aama told MarketWatch. “However, ‘higher for longer’ will prove to be for the entire duration of 2023, which most folks haven’t modeled,” he said.
Higher interest rates for longer would be particularly bad news for growth stocks and the Nasdaq Composite COMP, -0.52%,
which outperformed during the era of rock-bottom interest rates, market strategists say.
But if inflation doesn’t swiftly recede, the Fed might have little choice but to persevere, as several senior Fed officials — including Chairman Jerome Powell — have said in their public comments. While markets celebrated modestly softer-than-expected readings on October inflation, Aama believes wage growth hasn’t peaked yet, which could keep pressure on prices, among other factors.
Earlier this month, a team of analysts at Bank of America shared a model with clients which showed that inflation might not substantially dissipate until 2024. According to the most recent Fed “dot plot” of interest rate forecasts, senior Fed policy makers expect rates will peak next year.
But the Fed’s own forecasts rarely pan out. This has been especially true in recent years. For example, the Fed backed off the last time it tried to materially raise interest rates after President Donald Trump lashed out at the central bank and ructions rattled the repo market. Ultimately, the advent of the COVID-19 pandemic inspired the central bank to slash rates back to the zero bound.
Bond market is still telegraphing a recession ahead
Hopes that the U.S. economy might avoid a punishing recession have certainly helped to bolster stocks, market analysts said, but in the bond market, an increasingly inverted Treasury yield curve is sending the exact opposite message.
The yield on the 2-year Treasury note TMUBMUSD02Y, 4.479%
on Friday was trading more than 75 basis points higher than the 10-year note TMUBMUSD10Y, 3.687%
at around its most inverted level in more than 40 years.
At this point, both the 2s/10s yield curve and 3m/10s yield curve have become substantially inverted. Inverted yield curves are seen as reliable recession indicators, with historical data showing that a 3m/10s inversion is even more effective at predicting looming downturns than the 2s/10s inversion.
With markets sending mixed messages, market strategists said investors should pay more attention to the bond market.
“It’s not a perfect indicator, but when stock and bond markets differ I tend to believe the bond market,” said Steve Sosnick, chief strategist at Interactive Brokers.
Ukraine remains a wild card
To be sure, it’s possible that a swift resolution to the war in Ukraine could send global stocks higher, as the conflict has disrupted the flow of critical commodities including crude oil, natural gas and wheat, helping to stoke inflation around the world.
But some have also imagined how continued success on the part of the Ukrainians could provoke an escalation by Russia, which could be very, very bad for markets, not to mention humanity. As Clocktower Group’s Marko Papic said: “I actually think the biggest risk to the market is that Ukraine continues to illustrate to the world just how capable it is. Further successes by Ukraine could then prompt a reaction by Russia that is non-conventional. This would be the biggest risk [for U.S. stocks],” Papic said in emailed comments to MarketWatch.
A massive selloff in bonds. A plunge in tech stocks. The implosion of cryptocurrencies. The highest inflation in four decades.
Amid a brutal and uncertain climate, we asked six heavyweights in the world of finance to share their thoughts on the state of the markets, how they have handled this year’s carnage and what they anticipate in the future.
U.S. stocks ended higher Tuesday, booking back-to-back gains, as investors digested earnings results from companies including Goldman Sachs Group Inc. The Dow Jones Industrial Average DJIA, +1.12%
closed 1.1% higher, while the S&P 500 SPX, +1.14%
gained around 1.2% and the Nasdaq Composite rose 0.9%, according to preliminary data from FactSet. Goldman GS, +2.33%
was among the Dow’s best performers with a gain of more than 2%, FactSet data show. Shares of the Wall Street bank rallied after topping its third-quarter earnings target and confirming a reorganization plan.
The Goldman Sachs Group, Inc. engages in global investment banking, securities, and investment management, which provides financial services. It operates through the following business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The Investment Banking segment serves public and private sector clients around the world and provides financial advisory services, helping companies raise capital to strengthen and grow their businesses and provide financing to corporate clients. The Global Markets segment serves its clients who buy and sell financial products, funding and managing risk. The Asset Management segment provides investment services to help clients preserve and grow their financial assets. The Consumer & Wealth Management segment helps clients to achieve their individual financial goals by providing wealth advisory and banking services. The company was founded by Marcus Goldman in 1869 and is headquartered in New York, NY.
John Foley, the co-founder and former chief executive of Peloton Interactive faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.
As Peloton’s shares slumped over the past year, Goldman Sachs Group asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.
