Tag: industrial news

Ardelyx wins long battle for FDA approval of kidney-disease treatment

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Ardelyx Inc.
ARDX,
-0.58%
on Tuesday won its long fight for U.S. regulatory approval of a treatment designed to help patients with chronic kidney disease.

The biopharma company said late Tuesday that the U.S. Food and Drug Administration approved tenapanor, marketed under the brand name Xphozah, for control of serum phosphorus in patients with chronic kidney disease on dialysis. A high level of phosphorus in the blood is often a sign of kidney damage and can lead to weak bones, joint pain, cardiovascular problems and other issues.

The approval concludes an extraordinary comeback for Xphozah. Ardelyx’s application for approval of the treatment was previously rejected by the FDA in July 2021, when the agency said the drug’s effect was “small and of unclear clinical significance.” To preserve cash, Ardelyx a few months later said it would cut its workforce by 65%, but it also pursued multiple appeals of the agency’s decision. An FDA advisory committee voted last November that the benefits of Xphozah outweigh its risks. The agency late last year ultimately granted Ardelyx’s appeal, and the company resubmitted its Xphozah application to the FDA in April.

More than 550,000 people in the U.S. have chronic kidney disease and are on maintenance dialysis. The vast majority of them have high phosphorus levels, also called hyperphosphatemia, according to Ardelyx.

High phosphorus levels “must be taken care of in these patients, and the current therapies are mostly insufficient in doing so,” Ardelyx CEO Mike Raab told MarketWatch.

Chronic kidney disease patients with high phosphorus levels have traditionally been treated with phosphate binders that can soak up phosphorus from food during digestion, but that approach can require patients to swallow a large number of pills. The Xphozah treatment requires two pills a day, “each the size of a Tic Tac,” Raab said.

The FDA approved Xphozah as add-on therapy in patients who can’t tolerate or have an inadequate response to phosphate binders, Ardelyx said in a release.

Xphozah, which will be Ardelyx’s second U.S. product launch, should be available sometime in November, Raab said.

Ardelyx will present updated data on Xphozah for hyperphosphatemia at an American Society of Nephrology meeting in early November, the company said in a release Monday.

Ardelyx shares jumped in late September after Japanese regulators approved tenapanor for hyperphosphatemia in adults with chronic kidney disease on dialysis.

Ardelyx shares fell 0.6% on Tuesday and have gained 21% in the year to date, while the S&P 500
SPX
has gained 13.9%.

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October 17, 2023
AI stole the show this year, but earnings will drag Wall Street back to reality

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Nearly a year ago, OpenAI released ChatGPT 3 into the world, and investors got visions of dollar signs in their heads as they imagined the ways that artificial intelligence could make big money for businesses.

Wall Street’s now coming to terms with the fact that those sorts of paydays are going to take time. As investors have already seen from the past two quarters of earnings, AI has only really delivered financial benefits for a select few hardware companies so far — while spurring new costs for many others.

“The AI boom has already bifurcated into the contenders and pretenders,” said Daniel Newman, chief executive and principal analyst of Futurum Research. And while Advanced Micro Devices Inc., Intel Corp. and Arm Holdings PLC
ARM,
+0.38%
have stirred up interest, Nvidia Corp.
NVDA,
-4.68%
has established itself as far and away the greatest “contender,” with AI driving strong demand for its chips tuned for AI training.

Nvidia last quarter reported record earnings, including a 141% jump in revenue for its graphics chips used in AI infrastructure building up data centers. Nvidia, which reports near the end of earnings season on Nov. 21, posted record revenue of $13.5 billion last quarter and is expected to easily top that with $16 billion in the most recent quarter, a surge of 170% versus a year ago. Those estimates include $12.3 billion of revenue coming from data-center sales.

Other chip companies could post gains from AI as well, but to far lesser extents. Candidates include Broadcom Corp.
AVGO,
-2.01%
and system maker Super Micro Computer Inc.
SMCI,
+2.35%,
as well as Marvell Technology Inc.
MRVL,
-0.91%,
which last quarter told analysts that it expects to end the year at a revenue run rate of about $800 million this year from cloud/data-center chips related to AI.

“This is well above what we had outlined last quarter. Put this in perspective: This would put us at the run rate we had previously communicated for all of next year,” Marvel Chief Executive Matthew Murphy told analysts.

Super Micro is also riding the AI wave with its customized data-center servers that are designed to consume less power. But revenue in the September quarter is forecast to rise just 15% from a year ago and drop on a sequential basis, as supply constraints from Nvidia likely hampered Super Micro’s ability to meet all its demand.

Much as Advanced Micro Devices Inc.
AMD,
-1.24%
and Intel Corp.
INTC,
-1.37%
want to be in the AI conversations with the graphics chips they hope will be used for AI data-center applications, they won’t see much of an impact yet from AI revenue. Plus, those companies are experiencing a slowdown in PC sales that may overshadow any small benefit from AI chips.

The AI boom in chips is clearly not providing enough of a boost to lift finances for the overall semiconductor sector, which is forecast to see earnings fall 3.3% in the third quarter and post a revenue decline of 0.6%, according to FactSet. The industry is being dragged down in part by Micron Technology Inc.
MU,
-0.12%,
which reported a 40% drop in revenue and a whopping fiscal fourth-quarter loss in late September for the quarter ended Aug. 31, which is included in FactSet’s third-quarter data. Even so, the company called a bottom to the memory-chip downturn.

Read also: Micron’s AI focused chip won’t help financial results anytime soon.

“Most of the consumer-based tech is still struggling, [including] PCs, laptops and to a certain extent smartphones,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co. Wall Street has tempered expectations related to the impact of Apple Inc.’s
AAPL,
-0.88%
iPhone 15 launch on the quarter, as estimates call for an overall 1% drop in September-quarter revenue. Last quarter, Apple executives forecast that both Mac and iPad sales would be down by double-digits and that revenue performance would be similar to its June quarter, when revenue fell 1.3%

In addition, when asked about AI, Apple CEO Tim Cook said the company views AI and machine learning “as core fundamental technologies that are integral to virtually every product that we build.” Those comments, though, can also apply to the bulk of tech companies, where AI is built into software as another layer to improve a product. Internet companies such as Meta Platforms Inc.
META,
+0.89%
and Alphabet Inc.
GOOG,
+0.36%

GOOGL,
+0.45%
incorporate AI into their software and algorithms but don’t treat it as a specific, revenue-generating product.

Other software companies are building AI into their products as separate features or add-ons, but they are still in the early stages of seeing whether or not customers will pay more for them. Take Microsoft Corp.,
MSFT,
-0.17%
which has showed off Copilot, an extra AI feature for customers of Microsoft 365.

“[Microsoft] can distinguish itself by providing more details around its AI revenue
ramp since we don’t expect much information from Google, who really doesn’t seem
to have the monetization plan for Bard and AI-assisted search (SGE) ready to
articulate yet,” Melius Research analyst Ben Reitzes said in a note to clients this week. He also noted that the cost of offering AI products to consumers is steep, and requires lots of investment.

“There are sophisticated issues to contend with for Microsoft, including balancing the potential for higher revenue from Copilots with the high costs per query and much-needed investment,” Reitzes said. “The balance of AI adoption vs. cost was implied when Microsoft guided to flat operating margins year over year for fiscal 2024.”

Earlier this year, the Information reported that OpenAI, the creator of ChatGPT and recipient of a hefty investment from Microsoft, has costs of up to $700,000 a day, because the massive amounts of computing power needed to run queries. In February, OpenAI launched ChatGPT Plus, for $20 a month, a service that will give subscribers access to its AI during peak times and faster response times.

Another example is Adobe Inc.
ADBE,
+1.70%,
which has a few AI offerings, including a subscription service called Generative Credits, tokens that let customers turn text-based prompts into images. Another is Firefly, a generative AI service for images, and an AI option in Photoshop, currently called Photoshop Beta AI, to help users fill in images and other collaborative tools. Adobe did not provide any forecasts on potential revenue generation during its analyst day earlier this month.

Toni Sacconaghi, a Bernstein Research analyst, said AI could drive a massive increase in enterprise productivity, and companies could dramatically increase IT spending on servers in order to invest in productivity-enhancing AI. “However, we note that enterprise adoption appears to be in early stages,” he said in a recent note to clients, adding that it was feasible that spending on AI infrastructure could take money away from other IT projects in process. “We do worry that projected AI infrastructure build out may be occurring too quickly, necessitating a digestion period, which could result in a commensurate stock pullback in AI-related names.”

Overall, the information-technology sector itself is expected to see anemic revenue growth this quarter. The consensus on FactSet forecasts a meager 1.35% revenue uptick in the third quarter, with earnings growth of 4.65%. FactSet’s estimates for IT companies exclude internet companies like Meta and Alphabet, which are under the category of communications/interactive media services. That sector is expected to see sales growth of 12%, and earnings growth of 51%, thanks to a 116% boost in Meta’s net income, after it hit a low point in the year-ago quarter.

Amazon.com Inc.
AMZN,
-0.81%,
in the category of consumer discretionary/broadline retail, is forecast to see earnings growth of 109%, and revenue growth of 11%. Amazon’s cloud services business, AWS, is expected to also see a potential uplift from customers spending money on AI projects, according to a TD Cowen & Co. survey, in which 41% of respondents said they were “highly considering” allocating a budget for generative AI.

“This trend could bode well for Amazon’s AWS,” TD Cowen analyst John Blackledge said in a recent report, adding that he expects AWS revenue growth to reaccelerate in the second half of this year and in 2024, boosted by the move of additional workloads to the cloud, possibly including generative AI.

As companies build up their infrastructure, or their spending on cloud computing to add or improve AI capabilities, they are seeing higher costs, which is affecting margins — especially if revenue has slowed down, as it has in some sectors. Across both the broader S&P 500
SPX,
and the IT sector, earnings are lower than a year ago.

As Newman of Futurum pointed out, “AI stole the budget this year.” And that is a mixed bag for tech.

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October 17, 2023
United Airlines’ stock falls after bleak outlook for end of the year

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United Airlines Holdings Inc. reported third-quarter earnings late Tuesday that were better than Wall Street expected, but the airline’s stock fell as the company called for lower profits later in the year.

United
UAL,
+1.49%
earned $1.1 billion, or $3.42 a share, in the quarter, compared with $942 million, or $2.86 a share, in the same quarter a year earlier. Adjusted for one-time items, the airline earned $3.65 a share.

Sales rose to $14.5 billion from $12.9 billion a year ago.

Analysts polled by FactSet expected United to report adjusted earnings of $3.38 a share on sales of $14.4 billion.

United said it expects fourth-quarter earnings of about $1.80 a share if flights to Tel Aviv are suspended through October, and of around $1.50 a share if the Tel Aviv flights are suspended through the end of the year. The Israel-Hamas war has raged for a little over a week.

Wall Street forecast fourth-quarter earnings of $2.09 a share. United’s stock dropped more than 4% in the extended session Tuesday after ending the regular trading day up 1.5%.

The airline also called for pricier jet fuel for the fourth quarter, seeing a gallon going for $3.28 on average by that time. That compares with a third-quarter fuel average price of $2.95 a gallon.

Fourth-quarter operating revenues are seen 10% higher year-on-year, and 9% higher if the Tel Aviv flights are still halted through the end of 2023. The FactSet analysts are calling for fourth-quarter revenue of $13.6 billion, from $12.4 billion in the fourth quarter of 2022.

United earlier this month said it placed orders for an additional 110 new jets from Boeing Co.
BA,
+0.36%
and Airbus SE
AIR,
+3.55%
as it expected air-travel demand to continue unabated.

The airline in 2021 launched its United Next plan, promising more savings by using newer, more fuel-efficient jets. These newer planes often offer premium seating, allowing the airline to sell more profitable, rarely discounted first-class and business seats.

United’s stock has gained 7% so far this year, compared with an advance of about 14% for the S&P 500 index
SPX.

United is slated to hold a conference call to discuss the third-quarter results and the update through the end of the year on Wednesday at 10:30 a.m. Eastern.

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October 17, 2023
House speaker election: Jim Jordan isn’t a lock for the post before vote this afternoon

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It wasn’t clear Tuesday if Rep. Jim Jordan would be successful in his push to become the next speaker of the U.S. House of Representatives, with a floor vote drawing near and the Ohio Republican needing the support of a majority of the chamber.

The narrowly divided chamber is expected to vote in the early afternoon to select a speaker, with the move coming after former Speaker Kevin McCarthy was ousted two weeks ago and after No. 2 House Republican Steve Scalise ended his bid for the post last Thursday.

An ally of former President Donald Trump who secured his party’s nomination for the role on Friday, Jordan needs to have 217 votes in his favor, so he can only afford to have four fellow Republicans vote against him as no Democrats are expected to support him. The House has 221 Republicans and 212 Democrats, with two vacancies.

While Jordan racked up significant endorsements Monday, more than four House Republicans are on record as being against him and others are leaning toward “no” votes, as shown in the chart below that comes from a CNN producer.

McCarthy needed 15 rounds of voting in January to secure the speakership. The California congressman repeatedly saw around 20 fellow Republicans vote against him before finally prevailing.

There are “plenty of reasons to think” House Judiciary Committee Chairman Jordan will “be able to grind it out once people are on record,” but the situation is still “unsettled,” said Liam Donovan, a former GOP operative who is now a principal at law and lobbying firm Bracewell, in a post on X.

One possible key is whether support for Jordan declines or not in a second round of voting, according to Matt Glassman, a senior fellow at Georgetown University’s Government Affairs Institute. He made that point in his post below.

Analysts have been discussing whether a Jordan speakership could mean a greater likelihood of a government shutdown that weighs on markets
SPX
in mid-November, when funding is due to run out from last month’s continuing resolution, or CR.

“Jordan voted against the CR a few weeks ago and has opposed most government spending bills in the past, so some people think he would be comfortable with a government shutdown next month. That view has some merit, however, as speaker, Jordan would be responsible for helping vulnerable House Republicans who represent competitive districts,” said Brian Gardner, Stifel’s chief Washington policy strategist, in a note.

“His new role could put Mr. Jordan in the position of having to make compromises with Democrats — new territory for him. The more likely outcome is that, if elected speaker, Jordan will support an extension of the CR.”

U.S. stocks
DJIA

COMP
were advancing Tuesday, helped by encouraging earnings from big banks. Investors also are weighing rising geopolitical risks and better-than expected retail sales.

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October 17, 2023
Retail sales rise on strong car sales and Internet buying. Economy not slowing much.

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Developing story. Check back for updates.

The numbers: Sales at U.S. retailers jumped a bigger-than-expected 0.7% in September in a sign households have enough buying power to keep the economy expanding.

The increase was spurred by strong demand at auto dealers and Internet stores. Higher gas prices also played a role, however.

Economists polled by The Wall Street Journal had forecast a 0.2% increase in sales.

Retail sales represent about one-third of all consumer spending and usually offer clues on the strength of the economy.

Yet September also falls between the busy back-to-school and holiday-shopping seasons and tends to reveal less about how consumers are doing.

Key details: Auto dealers posted a 1% gain in sales and helped to inflate the headline number. Auto sales account for about 20% of all retail sales.

Receipts at gas stations also rose nearly 1%, but that largely reflected higher gas prices. That’s not a good thing for households.

Retail sales advanced a still-robust 0.6% when car dealers and gas stations are set aside, which gives a better idea of consumer demand.

Sales at internet retailers stayed on a hot streak. They rose 1.1%.

Sales climbed 0.9%% at bars and restaurants. Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales decline during times of economic stress.

Over the past year, restaurant sales have surged 9.2% — more than twice as fast as inflation.

On the negative side of the ledger, sales fell at big-box electronics stores, clothing stores and home centers such as Home Depot
HD,
+1.85%
and Lowe’s
LOW,
+1.28%.

Sales in August were also revised up to show a 0.8% increase instead of 0.6%.

Big picture: The retail sales report is the latest to suggest the economy is still expanding at solid pace and perhaps not decelerating as much as the Federal Reserve would like to help slow the rate of inflation.

Consumer spending has stayed fairly healthy because of rising wages and the lowest unemployment rate in decades. What’s more, incomes are finally increasing faster than inflation for the first time in a few years.

Yet higher interest rates are pinching households and businesses and are bound to slow the economy in the months ahead. If so, retail spending is also likely to soften.

Looking ahead: “Consumer spending shows little sign of flagging, especially when purchases increased on everything from durable goods, such as autos, to the least durable goods, food and drink at bars and restaurants,” said Robert Frick, corporate economist at Navy Federal Credit Union.

“As long as the jobs market remains healthy, consumers should have the cash and confidence to maintain spending.”

Market reaction: Before the markets opened, the Dow Jones Industrial Average
DJIA
and S&P 500
SPX
were set to open lower in Tuesday trades.

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October 17, 2023
Lonza Warns on 2024 Profitability Hit From Lost Moderna Revenue

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Updated Oct. 17, 2023 2:47 am ET

Lonza Group warned that its profitability will take a hit next year from losing revenue from an agreement with Moderna and the risk of a smaller business with Kodiak Sciences.

Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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October 16, 2023

Rolls-Royce to Cut 2,000-2,500 Jobs Globally in Strategic Overhaul

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By Ian Walker and Joe Hoppe

Rolls-Royce Holdings is set to cut 2,000-2,500 jobs worldwide as part of a transformation program and strategy review.

The U.K.-based aircraft engine manufacturer, which announced the review plan in January, said Tuesday that the new structure will create a more agile business better able to serve customers, and help it improve its capabilities in areas such as procurement and supply-chain management.

Rolls-Royce currently employs 42,000 people worldwide.

Write to Ian Walker at ian.walker@wsj.com and Joe Hoppe at joseph.hoppe@wsj.com

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October 16, 2023

House speaker election: Jim Jordan racks up endorsements before vote at noon Tuesday

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Rep. Jim Jordan made progress Monday in his push to become the next speaker of the House of Representatives, winning endorsements from some fellow Republicans who just last week had refused to back him.

The narrowly divided chamber of Congress is expected to vote around noon Eastern Tuesday to select a speaker, with the move coming after former Speaker Kevin McCarthy was ousted two weeks ago and after No. 2 House Republican Steve Scalise ended his bid for the post last week.

GOP Rep. Ann Wagner of Missouri, who previously said a Jordan speakership was a non-starter for her, switched her stance on Monday. She said in a post on X that her colleague from Ohio “has allayed my concerns about keeping the government open with conservative funding, the need for strong border security, our need for consistent international support in times of war and unrest … as well as the need for stronger protections against the scourge of human trafficking and child exploitation.”

Similarly, GOP Rep. Mike Rogers of Alabama, who chairs the House Armed Services Committee, announced in a post on X that he was backing Jordan after saying last week that there was nothing that Jordan could do to win his support. Rogers pointed to an accord on an annual Pentagon bill, the National Defense Authorization Act, saying he and Jordan had “agreed on the need for Congress to pass a strong NDAA, appropriations to fund our government’s vital functions, and other important legislation like the Farm Bill.”

Republican Rep. Vern Buchanan of Florida offered his support for Jordan as well on Monday, though he noted that he’s “deeply frustrated by the way this process has played out.” Another endorsement came from GOP Rep. Ken Calvert of California, who chairs the House Appropriations Committee’s defense subpanel.

Jordan — who has been endorsed by former President Donald Trump — sent a letter to his colleagues in which he called for coming together after a chaotic two weeks, saying: “It is time we unite to get back to work on behalf of the American people.” The congressman, a co-founder of the hardline House Freedom Caucus and chairman of the House Judiciary Committee, also told CNN that he was confident about Tuesday’s vote, saying: “I feel good about it.”

Analysts have been warning that the process of finding a replacement for McCarthy is preventing the House from addressing crucial matters, such as avoiding a government shutdown next month and supporting Israel in its war against Hamas.

House Republicans made Jordan their nominee for speaker on Friday, but he drew just 124 votes while 81 lawmakers backed another candidate for speaker, GOP Rep. Austin Scott of Georgia. In another round of voting on Friday, Jordan still had 55 colleagues voting against him, but he now appears to be flipping some of them to his side.

One betting market, Smarkets, was giving Jordan a 33% chance of becoming speaker.

Spending cuts and shutdown coming?

Having Jordan as speaker could mean a 1% cut in defense
ITA
and non-defense spending, noted Philip Wallach, senior fellow at the American Enterprise Institute, a conservative think tank. That’s because this year’s debt-limit deal includes a provision that calls for such reductions if there aren’t bipartisan agreements on a dozen funding bills before Jan. 1 and instead a reliance on short-term measures known as continuing resolutions, or CRs.

“It is now clear,” Wallach said during an AEI event on Monday, that Jordan’s “plan is to have us live off continuing resolutions and implement this 1% cut.”

“That’s a concrete thing where he could say, ‘Well, we’re moving in the right direction. We’ve taken a hard stand,’” the AEI expert added.

The CEO of one financial advisory firm also sees standoffs in the future.

“We expect the next U.S. speaker will be less inclined to make deals than McCarthy; in many ways it makes more sense for them, politically, not to be a deal-maker in the current environment,” said deVere Group’s Nigel Green in a statement.

“We believe that a U.S. government shutdown is now more likely with a new speaker of the House, and this has the potential to create a domino effect in global financial markets
SPX.
”

BTIG analysts Isaac Boltansky and Isabel Bandoroff said the speaker drama suggests that next year’s election will also be full of twists and turns.

“We have followed every twist and turn of the speakership race, and there is only one takeaway we can share with absolute certainty: This confirms that the 2024 election cycle will be exhausting, volatile, and just downright weird from beginning to end,” they wrote in a note.

U.S. stocks
DJIA

COMP
closed higher Monday, as investors looked ahead to earnings season and unwound the flight-to-safety trades seen last week on fears the Israel-Hamas war could escalate into a wider conflict.

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October 16, 2023
Ford Executive Chairman Calls for End to UAW Strike

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Updated Oct. 16, 2023 2:28 pm ET

Ford Motor Executive Chair Bill Ford called for a resolution to an “acrimonious” round of talks with the United Auto Workers and warned that a continuing strike could hurt the company’s ability to keep factory jobs in the U.S.

Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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October 16, 2023
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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October 16, 2023
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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October 16, 2023
Debt-ridden Rite Aid files for bankruptcy, will close more stores

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Drugstore chain Rite Aid Corp. filed for bankruptcy Sunday, as it faces billions of dollars of debt related to opioid lawsuits.

In a statement Sunday night, Rite Aid
RAD,
-16.81%
said it will close some “underperforming” stores and announced Jeffrey Stein as its new chief executive and chief restructuring officer. Interim CEO Elizabeth Burr will remain on the company’s board.

The bankruptcy filing had been expected for months, and the Wall Street Journal reported in August that Rite Aid was more than $3.3 billion in debt, due largely to hundreds of lawsuits related to its distribution of opioid painkillers. The bankruptcy filing stays pending litigation against the company.

Earlier this month, the New York Stock Exchange warned Rite Aid that it was “no longer in compliance” with the exchange’s minimum pricing and valuation standards, and gave it six months for the stock to regain compliance. Rite Aid shares have plunged about 80% year to date.

Rite Aid said Sunday that lenders will provide $3.45 billion in financing for the chain to continue operating through the chapter 11 bankruptcy process.

“With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives and accelerating the execution of our turnaround strategy,” Stein said in a statement. “In doing so, we will be even better able to deliver the healthcare products and services our customers and their families rely on — now and into the future.”

Rite Aid said it would work to minimize the effect of store closures on its customers so there is no disruption of services, and will transfer affected workers to different locations when possible.

Rite Aid has about 2,100 stores and employs around 47,000 people. It has closed more than 200 stores in the past couple of years.

Rite Aid also said it had reached a deal for pharmacy benefit-solutions company MedImpact Healthcare Systems Inc. to acquire its Elixer Solutions business. A price for the transaction was not disclosed.

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October 15, 2023
Debt-ridden Rite Aid files for bankruptcy, will close more stores

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Drugstore chain Rite Aid Corp. filed for bankruptcy Sunday, as it faces billions of dollars of debt related to opioid lawsuits.

In a statement Sunday night, Rite Aid
RAD,
-16.81%
said it will close some “underperforming” stores and announced Jeffrey Stein as its new chief executive and chief restructuring officer. Interim CEO Elizabeth Burr will remain on the company’s board.

The bankruptcy filing had been expected for months, and the Wall Street Journal reported in August that Rite Aid was more than $3.3 billion in debt, due largely to hundreds of lawsuits related to its distribution of opioid painkillers. The bankruptcy filing stays pending litigation against the company.

Earlier this month, the New York Stock Exchange warned Rite Aid that it was “no longer in compliance” with the exchange’s minimum pricing and valuation standards, and gave it six months for the stock to regain compliance. Rite Aid shares have plunged about 80% year to date.

Rite Aid said Sunday that lenders will provide $3.45 billion in financing for the chain to continue operating through the chapter 11 bankruptcy process.

“With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives and accelerating the execution of our turnaround strategy,” Stein said in a statement. “In doing so, we will be even better able to deliver the healthcare products and services our customers and their families rely on — now and into the future.”

Rite Aid said it would work to minimize the effect of store closures on its customers so there is no disruption of services, and will transfer affected workers to different locations when possible.

Rite Aid has about 2,100 stores and employs around 47,000 people. It has closed more than 200 stores in the past couple of years.

Rite Aid also said it had reached a deal for pharmacy benefit-solutions company MedImpact Healthcare Systems Inc. to acquire its Elixer Solutions business. A price for the transaction was not disclosed.

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October 15, 2023
Wall Street’s Q3 expectations have been all over the place. Now, a swing to profit growth is ‘likely’ — with a bigger rebound next year

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Wall Street spent much of this year getting more tepid on third-quarter corporate profits, with expectations for subdued growth giving way to expectations for a slight decline.

But after results from a handful of companies soundly beat estimates in recent days, one analyst who tracks the ebbs and flows of earnings data says at least a slight profit gain for the quarter is more likely — with potentially double-digit percentage growth next year.

FactSet Senior Earnings Analyst John Butters, in a report out Friday, said that of the 32 companies in the S&P 500 Index
SPX
that reported third-quarter results through Friday, 84% have reported per-share profits that were above Wall Street’s expectations, and he said they were beating those expectations by a greater degree than usual.

The index collectively, so far, was putting up a third-quarter earnings growth rate of 0.4% — compared to estimates on Oct. 6 for a 0.3% decline. Most companies, he said, tend to turn in earnings results that beat estimates.

“Based on the average improvement in the earnings growth rate during the earnings season, the index will likely report year-over-year growth in earnings or more than 0.4% for Q3,” he said.

That assessment follows quarterly results from big companies like JPMorgan Chase & Co. and Delta Air Lines, Inc.. Both the bank and the airline reported better-than-expected profits. JPMorgan
JPM,
+1.50%
Chief Executive Jamie Dimon said U.S. consumers and businesses “generally remain healthy,” despite thinning pandemic-era savings, while Delta
DAL,
-2.99%
pointed to enduring “robust” travel demand.

More broadly, the quarter will be a look at how customers are faring amid still-high prices, an approaching holiday season and borrowing costs that could stay higher for longer. Recession pessimism has shown signs of easing. But Citigroup Inc.’s chief financial officer, Mark Mason, said on Friday that the bank expected a soft economic landing with a “mild recession” in the first half of 2024. However, he said such an outcome was “hard to call,” amid a strong job market.

Financial forecasts tend to fluctuate as analysts digest real-life financial data. For now, they expect S&P 500 index earnings growth of 7.6% for the fourth quarter, and 0.9% for 2023 overall, according to FactSet. Next year, at the moment, looks better, with expected earnings growth of 12.2%.

This week in earnings

More names from the financial sector will report in the week ahead, following results from JPMorgan, Citigroup
C,
-0.24%
and Wells Fargo & Co.
WFC,
+3.07%.
Reports from Morgan Stanley
MS,
-0.03%
and Goldman Sachs Group Inc.
GS,
-0.18%
will offer more context on deal-making and market sentiment, while earnings from credit-card giants Discover Financial Services
DFS,
-1.47%
and American Express
AXP,
-0.12%
will get more granular on customer spending.

More airlines, like United Airlines Holdings Inc.
UAL,
-2.76%
and American Airlines Group Inc.
AAL,
-2.82%,
will also report, providing more detail on whether revenge travel still has any life left. Earnings are also due from Johnson & Johnson
JNJ,
+0.33%
and AT&T Inc.
T,
-0.62%.

In total 55 S&P 500 companies total will report quarterly results this week, including five from the Dow, according to FactSet.

The call to put on your calendar

Has Netflix become a utility? Hollywood’s writers will start returning to work, while talks with actors and studios have stalled. But the TV-and-film production limbo hasn’t been the only headache for streaming platform Netflix Inc., which reports quarterly results on Wednesday. The company will report amid greater pressure to boost profits, as the entertainment industry tries to find its footing in the streaming era. Ahead of the results, Wolfe Research analyst Peter Supino recently expressed concern that Netflix’s
NFLX,
-1.53%
ad-supported plan was slow to catch on with viewers. Bernstein analysts likened the company to a mature, durable “utility.” But they also compared the stock to a long-running TV show that, while still good, might be starting to bore its audience. Executives will be hoping for better a better reception from investors.

The number to watch

Tesla margins: When EV maker Tesla Inc. reports results on Wednesday, it will be “all about margins,” Deepwater Asset Management’s Gene Munster said in note recently. Those results, and the focus on margins, will follow price cuts, and questions over profit growth and enthusiasm for Tesla’s
TSLA,
-2.99%
new Cybertruck. And Morgan Stanley analyst Adam Jonas, in a research note, said the year ahead could be “volatile.”

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October 15, 2023
Mortgage bankers expect the 30-year rate to drop to 6.1% by the end of 2024

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PHILADELPHIA — High mortgage rates are hammering home buyers, but expect rates to fall over the next year, one industry group says.

Mortgage rates are over 7.5% as of mid-October, but expect rates to fall to 6.1% by the end of 2024, according to a forecast by the Mortgage Bankers Association. The group also expects the 30-year mortgage rate to fall to 5.5% by the end of 2025.

A big driver pushing down rates will be a slowing U.S. economy, Mike Fratantoni, chief economist and senior vice president at the MBA, said during the group’s annual convention in Philadelphia on Sunday.

Not only is the group expecting a recession in the first half of 2024, but the MBA also forecasts unemployment to rise and inflation to slow, which are signs of a weakening U.S. economy. That will, in turn, push rates down, as the market will expect the Fed to back off on hiking interest rates, they said.

“The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected,” Fratantoni said.

Consequently, mortgage lenders could see origination volume to increase 19% in 2024, to $1.95 trillion from the $1.64 trillion expected this year. Purchase originations are expected to rise by 11%, the MBA said.

The pandemic years were boom times for the mortgage industry. 2021 was a record year, when $4.4 trillion in mortgages were originated.

But after the Fed began hiking interest rates in the middle of 2022, surging rates have put a damper on home-buying activity. Homes are far more expensive to purchase due to high rates, with the median principal and interest payment rising to $2,170 in August, compared to $1,284 in August 2021, according to MBA data.

Fratantoni on Sunday said that he believed the “Fed is done” with rate hikes. There are two Fed meetings left this year. The MBA said it does not expect the Fed to hike interest rates in November, and to potentially hold off in December, depending on the data.

But for now, lenders should brace for “a little bit more pain” for the next few months, which is generally a slower season for home sales, until a turnaround at the end of spring in 2024, Marina Walsh, vice president of industry analysis at the MBA, said during a presentation.

Home prices will still continue to rise over the next three years, the MBA added, due to the persistence of tight inventory.

Millennials are entering their prime home-buying years, said Joel Kan, deputy chief economist at the MBA, which will keep prices from falling.

“The forecast is for low single-digit growth over the next few years supported by [low] inventory,” he said. “We’re not expecting national declines yet.”

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October 15, 2023
Israeli exec who hired Palestinians in tech boom still hopes for peace while mourning slain daughter

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When Eyal Waldman thinks of his youngest daughter and her boyfriend, he sees them dancing.

“Danielle and Noam loved dancing, and I hope they continue dancing somewhere up there,” Eyal Waldman told MarketWatch.

Danielle Waldman and Noam Shay were killed at a music festival in southern Israel last week, part of a campaign by the Hamas terrorist group that has led to further bloodshed.

Danielle’s father — an Israeli tech executive who co-founded Mellanox, which became the largest acquisition in Nvidia Corp.’s
NVDA,
-3.16%
history — spoke with MarketWatch as Friday turned to Saturday in Israel, in hopes of increasing attention on the hostages who are still held in Gaza as well as to memorialize his daughter, who was 24, and Shay, who was 26.

“They loved to celebrate life,” Eyal Waldman said of his daughter and her boyfriend, before adding “they went down on Friday night to celebrate life, love and freedom, and they were massacred.”

Courtesy of Eyal Waldman

Danielle Waldman — who was born in Palo Alto, California, but moved back to Israel with her family at age 4 — and Israeli native Shay were students who met six years ago in the army, and her father said they had been inseparable since. They attended the Supernova music festival in early October with friends, and were killed while attempting to escape Hamas terrorists in a car that Eyal Waldman found bullet-riddled near the festival’s location.

“Danielle and Noam have done nothing bad to anyone, and they were murdered only because they were Israelis,” he said.

Eyal Waldman, a onetime Israeli combat fighter, founded Mellanox in 1999, and sold it 20 years later to Nvidia for $6.9 billion. He is known internationally for attempting to foster peace between Israelis and Palestinians through his work in technology — Mellanox hired Palestinian tech workers in Gaza, Nablus and the West Bank town of Rawabi, which led to a “60 Minutes” appearance.

“We wanted to make peace, to work together, to bring prosperity to the Palestinian people, the same as we have in Israel,” he said. “I brought even Apple
AAPL,
-1.03%
to open a design center in Rawabi and I brought other companies to open design centers in Rawabi.”

The death of his daughter and Shay and the scope of the attacks and counter-attacks dominating headlines in recent days have not changed Waldman’s hope for peace in the future, he said, but not the near future. He believes this time, the violence “took us back several years, if not decades.”

“We need time to build the trust, if at all, between the two nations and start working together to be able to talk about peace,” he said. “Until then, we will continue protecting ourselves in a very direct manner in Gaza and everywhere else around Israel.”

Waldman also said he would continue to try to hire Palestinians and work with them to be a part of the Israeli tech ecosystem, as long as they state “that they are working for peace, and they are not supporting — not financially and not in any other way — any terror actions, or any actions that are not civilian economics between the two nations.”

“Our hands are always reaching out for peace. But at the same time, before we do this, we need people to understand that Israel is strong, Israel is united, and we will never let anyone harm the citizens of the state of Israel again.”

Read: Israel-Gaza war scenarios: Here’s what might lift oil prices to $95, $100 and $115 a barrel

Waldman was thankful for U.S. aid and was forceful in discussing the need to find hostages that were still missing. One of Nvidia’s current employees was kidnapped, according to an email that Chief Executive Jensen Huang sent to employees that was obtained by Insider, which reported that the employee was also at the Supernova music festival.

Nvidia has more than 3,000 employees in Israel mostly working for Mellanox, which makes networking gear that connects Nvidia’s high-performance data-center products. In an emailed statement, an Nvidia spokesman said “our focus now is working with our Israel leadership to ensure our employees and their families are safe and well cared for. We will then turn our focus to shoring up [the company’s] execution if necessary to ensure continued operations of our business.”

Waldman said the return of hostages is top of mind.

“What’s important now is to focus on bringing back the hostages, and that is the No. 1 priority for the State of Israel and for the international community,” he said.

Continuing to worry about others while suffering his own tragedy is a trait that Eyal Waldman seems to have passed down to his youngest daughter. He said that he had received a note from another festival attendee who was wounded in the eye in the initial attack. That victim told him that Danielle Waldman had stopped to attend to her and make sure she was safe before attempting to escape in a car that was later believed to have been attacked by Hamas terrorists with rifles.

“They loved to celebrate life,” Waldman said of his daughter and her boyfriend.

“And they went down on Friday night to celebrate life, love and freedom, and they were massacred.”

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October 13, 2023
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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October 13, 2023
Jim Jordan nominated for speaker by House GOP amid worries over government shutdown and support for Israel

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Rep. Jim Jordan won the nomination Friday to be speaker of the U.S. House of Representatives after launching a fresh bid for the position, as analysts warned that the process of finding a replacement for former Speaker Kevin McCarthy was preventing the Republican-run chamber from addressing crucial matters.

Jordan, an Ohio Republican who chairs the House Judiciary Committee, said “yup” on Friday morning when he was asked if he was running again for speaker after House Majority Leader Steve Scalise, a Louisiana Republican, ended his bid late Thursday.

House Republicans voted in favor of Jordan in the afternoon, with 124 supporting him and 81 backing another candidate for speaker, GOP Rep. Austin Scott of Georgia, according to multiple reports. Republican lawmakers then left for the weekend and were expected to reconvene Monday.

Rep. Austin Scott, a Georgia Republican, also spoke to reporters about the House speaker position on Friday.

Getty Images

Scott, who has been in office since 2011, said in a post on X that he wanted to “lead a House that functions in the best interest of the American people.”

To become speaker of the GOP-led chamber, a candidate must earn the support of a majority of House Republicans. Jordan has crossed that hurdle but now must prevail in a vote on the House floor. Scalise bowed out of the running after it appeared he did not have sufficient support for a floor vote.

See: House speaker election — how it works

“[W]e need to be unified and get to the floor, and we want that to happen as soon as possible,” Jordan told Cleveland.com before the GOP vote on Friday.

Scalise’s decision to drop his bid “delays the resumption of meaningful legislative
business at least well into next week,” Benjamin Salisbury, director of research at Height Capital Markets, said in a note on Friday.

A similar warning came from Greg Valliere, chief U.S. policy strategist at AGF Investments. The House has had a temporary speaker — GOP Rep. Patrick McHenry of North Carolina — since Oct. 3, when McCarthy was ousted in a historic vote.

“This paralysis in the House is becoming a serious issue, as major legislation has stalled,” Valliere said in a note. “A government shutdown can’t be ruled out as the next deadline approaches on Nov. 17. More aid to Israel and Ukraine is widely supported in both parties and in both houses, but can this funding overcome procedural hurdles in the House?”

Related: Kevin McCarthy’s ouster means chance of government shutdown next month ‘just went up to 80%,’ analyst says

One betting market, Smarkets, was giving Jordan, a co-founder of the hard-line House Freedom Caucus, a 42% chance of becoming speaker. The Ohio congressman “faces difficult math,” as at least five Republican lawmakers are expected to vote against him on the House floor, and their ranks “may balloon by the time a floor vote is called,” Height’s Salisbury said.

Other options that have gotten attention include giving more power to McHenry, the temporary speaker, or making a bipartisan deal on a speaker.

U.S. stocks
SPX

DJIA

COMP
closed mostly lower Friday, with the selling blamed in part on the Israel-Hamas war.

Now read: What U.S. political dysfunction means for the stock market and investors

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October 13, 2023
Homes are expensive right now, but these mortgage bonds look cheap

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U.S. homes may be wildly unaffordable for first-time buyers, but mortgage bonds backed by those same properties could be dirt cheap.

Shocks from the Federal Reserve’s dramatic rate increases have walloped the $8.9 trillion agency mortgage-bond market, the main artery of U.S. housing finance for almost the past two decades.

Spreads, or compensation for investors, have hit historically wide levels, even through the sector is underpinned by home loans that adhere to the stricter government standards set in the wake of the subprime-mortgage crisis.

Bond prices also have tumbled, sinking from a peak above 106 cents on the dollar to below 98, despite guarantees that mean investors will be fully repaid at 100 cents on the dollar.

From $106 to $98 cents, agency mortgage-bond prices are falling.

Bloomberg, Goldman Sachs Global Investment Research

“It’s really, really struggled,” Nick Childs, portfolio manager at Janus Henderson Investors, said of the agency mortgage-bond market during a Thursday talk on the firm’s fixed-income outlook.

Yet Childs and other investors also see big opportunities brewing. While mortgage bonds have gotten cheaper with the sector’s two anchor investors on the sidelines, the stalled housing market should breed scarcity in the bonds, which could help lift the sector out of a roughly two-year slump.

Prices have tumbled since rate shocks hit, but also since the Fed continued winding down its large footprint in the sector by letting bonds it accumulated to help shore up the economy roll off its balance sheet.

Banks awash in underwater securities have pulled back too. The repricing of similar bonds helped hasten the collapse of Silicon Valley Bank in March.

“Banks have been not only absent, but selling,” said Childs, who helps oversee the Janus Henderson Mortgage-Backed Securities exchange-traded fund
JMBS,
an actively managed $2 billion fund focused on highly rated securities with minimal credit risk.

“But we’re moving into an environment where supply continues to dwindle,” he said, given anemic refinancing activity and the dearth of new home loans being originated since 30-year fixed mortgage rates topped 7%.

The bulk of all U.S. mortgage bonds created in the past two decades have come from housing giants Freddie Mac
FMCC,
+0.66%,
Fannie Mae
FNMA,
+1.09%
and Ginnie Mae, with government guarantees, making the sector akin to the $25 trillion Treasury market. But unlike investors in Treasurys, investors in mortgage bonds also earn a spread, or extra compensation above the risk-free rate, to help offset its biggest risk: early repayments.

While homeowners typically take out 30-year loans, most also refinanced during the pandemic rush to lock in ultralow rates, instead of continuing to make three decades of payments on more expensive mortgages. If someone refinances, sells or defaults on a home, it leads to repayment uncertainty for bond investors.

“To put this another way, the biggest risk to mortgages is now off the table, yet spreads are at or near historic wides,” said Sam Dunlap, chief investment officer, Angel Oak Capital Advisors, in a new client note.

That spread is now far above the long-term average, topping levels offered by relatively low-risk investment-grade corporate bonds.

Agency mortgage bonds are offering far more spread that investment-grade corporate bonds. But these mortgage bonds will fully repay if borrowers default.

Janus Henderson Investors

Agency mortgage bonds typically are included in low-risk bond funds and can be found in exchange-traded funds. While they have been hard hit by the sharp selloff in long-dated Treasury bonds
BX:TMUBMUSD10Y

BX:TMUBMUSD30Y,
there has also been hope that the worst of the storm could be nearly over.

Goldman Sachs credit analysts recently said they favored the sector but warned in a weekly client note that it still faces “high rate volatility and a dearth of institutional demand.”

As evidence of the U.S. bond selloff, the popular iShares 20+ Year Treasury Bond ETF
TLT
recently sank to its lowest level in more than a decade. It also was on pace for a negative 10% total return on the year so far, according to FactSet. Janus Henderson’s JMBS ETF was on pace for a negative 2.7% total return on the year through Friday.

“Frankly, why they fit portfolios so well is that because the government backs agency mortgages, there is no credit risk,” Childs said. “So if a borrower defaults, you get par back on that. It just comes through as a typical payment.”

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October 13, 2023
Long U.S. dollar now seen as the most crowded trade, but bodes ill for the greenback

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Long positions in the U.S. dollar is now considered the most crowded trade, according to a survey conducted by the Bank of America with global fund managers, but the greenback is likely near a peak, the bank said.

The bank surveyed 67 fund managers managing $997 billion assets under management from the United States, United Kingdom, Continental Europe and Asia from October 6 to 11.

The response represents a shift from early August as fund managers surveyed became more concerned about interest rates in September, according to the Bank of America note.

The latest survey bodes ill for the U.S. dollar
DXY,
as the equity rally this year has partially corrected and bond yields risen, after earlier making it to the most crowded trade, according to the bank’s strategists.

“We believe USD is near the peak, further strength requires a change in narrative,” the strategists wrote.

The ICE U.S. Dollar Index
DXY,
which measures the greenback’s strength against a basket of rivals, has slightly pulled back from its highest close in 11 months at 107 reached on Oct. 3, according to FactSet data. The index is mostly flat on Friday at around 106.6.

Strong economic data in the U.S. coupled with a relatively more hawkish Federal Reserve than other major central banks, could be the most likely reason to support further strength in the dollar, according to the fund managers surveyed.

BofA Global Research

Meanwhile, the biggest downside risk to the greenback is if the U.S. economy sees a hard landing which will prompt the Federal Reserve to cut its policy interest rates.

BofA Global Research

Respondents of the survey think that rate cuts are currently underpriced, and they think the Fed is likely to cut rates the most among major central banks.

“This should erode faith in USD strength, and suggests that USD longs may indeed be vulnerable,” the strategists noted.

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October 13, 2023