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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.
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This is a transcribed excerpt of the “Bitcoin Magazine Podcast,” hosted by P and Q. In this episode, they are joined by Vijay Boyapati to talk about the “Bullish Case For Bitcoin” and how a bear market is where true conviction pays off.
Watch This Episode On YouTube Or Rumble
Listen To The Episode Here:
Vijay Boyapati: I think we’re in a bear market. I think I called the bear market. I think I was a little bit early, but I think I called it somewhere in June or July. I thought the bear market was starting. I think it’s probably correct to say it started a little bit later in 2021.
I think what we’re seeing is a compounding of both Bitcoin’s natural cycle, which we’ve seen with these bear markets before with the macroeconomic picture. That explains why this bear market feels as painful as it does. I don’t really think this is — it doesn’t feel that long.
I’ve been observing Bitcoin since 2011. The longest bear market in my memory was the one from 2013 until the beginning of 2017. I thought that was the most painful and is still the most painful bitcoin bear market because it really did feel like, “Wow, this thing might not come back.” It just felt like crickets during the bear market. There was no interest in Bitcoin. Some of the big voices in the community had rage quit. Mike Hearn was a very well respected developer at the time and he fully rage quit. He wrote a piece in the New York Times like, “This thing is dead. I’m not interested in it. I’m out.”
There was very little interest anywhere. People weren’t talking about Bitcoin; it wasn’t being written about. That was a really tough time for people who believed in Bitcoin. I think this is actually very different. I think Bitcoin is now fully established as a macro asset. The price has dropped, yeah OK. It’s down to 20,000, but if someone had told you three or four years ago that bitcoin is gonna crash to $19,000/$20,000, you’d be like, “Whoa! That’s amazing! We’ve made it!”
This illustrates one of the aspects of money that people don’t really understand, which is path dependence. You can’t value money based on its cash flow because gold and bitcoin are monetary assets; they don’t produce cash flow. They get valued by a market process of people trying to determine — it’s a game-theoretic process — is this better money than all the other monies that are out there? Is it better than gold? Is it better than dollars? Is it better than silver? Is it better than Ethereum or all the competitors that are out there? That process works in these cycles that we’ve seen where people get really enthusiastic, and then run out of steam and then you have a crash. The point I’m trying to make about monetary assets is that they don’t have cash flow, so you have to measure their worth as a monetary asset against other competitors and along the attributes that make for a good money.
What are those attributes? They are things like visibility, portability, transmissibility — how easy is it to transmit — and most importantly, scarcity. Along this one critical attribute that all monies need, bitcoin is the best form of money that’s ever existed. This hasn’t changed. This fundamental aspect of what makes bitcoin good — or I think the best — money hasn’t changed. It’s just the market goes through these cycles of people trying to understand what it is and people getting over excited and then losing hope.
Each one of these cycles is defined by a group of people. In the first cycle, the group of people was very small. There were only people who could understand bitcoin: cypherpunks, computer scientists and maybe some hardcore libertarians. It was a very small circle of people, but each cycle that circle gets bigger and bigger and so we have gone through a cycle where we actually brought in a lot of retail investors, but there’s many more retail investors. There’s many more institutions. There’s many more nation states out there, and a lot of them got a taste of bitcoin. They may have given up and said, “Oh, this thing has failed,” but maybe they bought a little bit. Maybe they bought say, 1% of their portfolio, or maybe even $100 and they gave up on bitcoin, but those people are primed to come back in the next cycle.
I’ll give you one example of this: Stanley Druckenmiller is a very famous macro investor billionaire. [He’s] very successful over a very long period of time, investing in making macro bets. He owned bitcoin during this last cycle, and very recently I heard him say that he doesn’t own any bitcoin. Now that sounds bad: He’s given up on bitcoin. He has been mentally captured. He’s always going to pay attention to the price of bitcoin, and when bitcoin starts — as it always does in every cycle — slowly but surely coming back, he will be paying attention. He’ll be like, “Oh, it hasn’t died. It’s been stuck around $20,000,” or whatever it is, wherever it finds its plateau. “It’s been stuck around that level for a long time. It hasn’t gone away and it looks like it’s creeping up.” Now it’s $23,000, $24,000, $25,000, maybe $30,000. People like him will come back because they’ve been exposed to bitcoin, they’ve been mentally captured. They’ve had enough touch points where they’ve heard about it enough or they’ve invested a little bit and they’re gonna come back.
This is the same thing that happens every cycle. The same thing happened back in 2017 where a bunch of people got burned when they bought bitcoin at $19,000 or $20,000 and it dropped to $3,000 and they’re like, “Oh. Why did I do that? It was a terrible investment,” but then they were paying attention in the current cycle, which is finished, and they came back in because they noticed bitcoin. They knew about it; they knew how to invest. They were primed to put more capital in. So each cycle, the [amount of] people who are primed to come in is much bigger. The number of people who are ready to come in the next cycle, especially institutions and high networth individuals is gigantic. Some of the things that we saw, I think people got overly excited. They saw Michael Saylor coming in, they saw El Salvador and they thought this cycle is the cycle when we’re gonna have every high networth individual, every corporation, every nation state; they’re all gonna pile in.
I actually think what you got was just a taste of what we’ll see in the next cycle. I was really surprised to see El Salvador come in. I didn’t think a nation state would do what El Salvador did for a few cycles into the future and so what happened is what I expected, which is that most nation states will stand back and not do anything, but now I think many more of them are gonna be primed in the coming cycles to come in and do what El Salvador did. So I think there are many reasons to be bullish about bitcoin. None of the fundamentals have changed, none of the attributes that make bitcoin superior to all its competitors, none of that has changed.
The number of people who have been exposed to Bitcoin is much, much larger. What you have, if you’ve been around for a while, or you listen to people who have been around for a while is an incredible opportunity. The best time — if you are one of those people around in a bear market — to invest is right now. The best time to get exposure to learn more about Bitcoin, to do something for Bitcoin, to go and build a business in the Bitcoin space is right now. The people who are around now who are either building businesses, investing or learning about Bitcoin, they are the people who are gonna be most successful in the coming cycle.
What you don’t want to be and what always disappoints me is the people, friends and family I speak to, they only get interested right at the end of the cycle. It’s the same every single cycle; I’ve been through four of them now. People come to me at the end of the cycle and they’re like, “Tell me about Bitcoin. How do I invest in bitcoin?”
I’m like, “I’m really glad you’re interested in Bitcoin. Just be careful because Bitcoin is cyclical; it goes through cycles. Learn about investing in bitcoin; put a small percentage of your portfolio in there.” I usually think about it as they’re not really ready. They’re gonna come back the cycle after and they’re gonna get a little bit burned. I don’t want them to get too burned so they never come back. But if you are around now, if you are listening, there’s a huge opportunity. They don’t come around that often; it’s once every four years.
Eventually, these cycles are gonna stop when Bitcoin gets to complete, full adoption. And I think we’re only maybe three or four cycles away from that. So I am really excited. I think this is the best time to be interested in Bitcoin. None of the fundamentals have changed, so get out there and learn about it.
Get out there and invest. Get out there and build it. Now is the time.
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Bitcoin Magazine
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Mobileye Global Inc. priced its initial public offering higher than its targeted range late Tuesday to raise nearly $1 billion, most of which will go to Intel Corp.
Mobileye priced its initial public offering at $21 late Tuesday, the company announced in a news release, after previously stating a targeted range of $18 to $20; shares are expected to begin trading on the Nasdaq under the ticker symbol “MBLY” on Wednesday. Intel
INTC,
will sell at least 41 million shares of Mobileye, which would raise $861 million, and also agreed to a $100 million concurrent sale of stock to General Atlantic, which would make the total raised at least $961 million.
Intel paid $15.3 billion to acquire Mobileye in 2017, and was reportedly aiming for a valuation as high as $50 billion when originally planning this IPO, but instead will settle for a basic valuation of roughly $16.7 billion. After a record year with more than 1,000 offerings in 2021, the IPO market has largely dried up in 2022.
Read: Mobileye IPO: 5 things to know about the Intel autonomous-driving spinoff
Underwriting banks — Intel listed two dozen underwriters, led by Goldman Sachs Group Inc.
GS,
and Morgan Stanley
MS,
— have access to an additional 6.15 million shares for overallotments, which could push the total raised higher than $1 billion and make Mobileye the second-largest offering of the year. Only two offerings thus far this year have raised at least $1 billion — private-equity firm TPG Inc.
TPG,
raised exactly $1 billion in January, and American International Group Inc.
AIG,
spinoff Corebridge Financial Inc.
CRBG,
raised at least $1.68 billion in September.
Intel will receive the bulk of the proceeds of the offering — after promising to make sure that Mobileye has $1 billion in cash and equivalents, the chip maker will take the rest of the proceeds for its own coffers. Wells Fargo analysts calculated that Mobileye will need about $225 million to hit that level, leaving at least $736 million for Intel before fees and other costs.
Intel will also maintain control of the company after spinning it off, keeping class B shares that will convey 10 votes for each share while selling class A shares that convey one vote per share. Intel will retain more than 99% of the voting power and nearly 94% of the economic ownership of the company, and the Mobileye board is expected to include four members with ties to Intel, including Chief Executive Pat Gelsinger serving as chairman of the board.
Read also: Intel files for Mobileye IPO, creating a share structure that will keep the chipmaker in control
Mobileye will continue to be led by founder Amnon Shashua, who served as chief executive before Intel acquired the company and stayed at the helm while it was part of the Silicon Valley chip maker. Shashua founded Mobileye in 1999 and turned it into a pioneer in the field of automated-driving technology and one of Israel’s most prominent tech companies.
Mobileye filed for the initial public offering at the end of September, when executives were still reportedly hoping for a $30 billion valuation.
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Up until recently, investing in large residential and commercial real estate was off-limits to you, me and the 99%. Now, more and more companies are offering low-cost ways to access all those exclusive investment opportunities that used to be for just the rich. The majority of options allow you to collect quarterly dividends and interest, all without the hassle of actually becoming a landlord.
But just because you can invest in real estate doesn’t mean you know what to do or where to start. And, all this inflation and recession talk makes dropping money into real estate seem 10 times scarier: Yesterday, housing prices were out of control. Today, mortgage rates are skyrocketing. Tomorrow, real estate companies will be reporting their quarterly losses. Why risk all that volatility — especially when you’re still trying to figure out where to start?
Luckily a company called Connect Invest lets you earn passive income from real estate investments but offers a more stable investment style that’s perfect for newbies. And you can get started for just $500.
Buy a Rich Developer’s Debt and Make Them Pay You Back with Up to 9% In Interest
Connect Invest allows you to invest in debt and make money on those high interest rates. How? By investing in real estate short notes. And, you only need $500 to do it.
What are real estate short notes? So glad you asked.
To put it simply, investing in real estate short-term notes means you purchase the debt that wealthy developers take on to fund real estate projects. Each note has a defined term length of six, 12 or 24 months, so you know exactly how long it will take for the note to be paid back to you. On top of that, when you invest with Connect Invest, you’ll receive monthly fixed interest payments between 5.5% and 9% throughout the investment term.
You could earn a legit passive income with those rates! And even the lowest 5.5% is way better than what you’d get if your money was just sitting in the bank. Oh, joy. I’ve received my 0.03 cents in interest for the year.
While short notes are generally safer than other forms of real estate investments, there’s still an element of risk involved. For example, if the borrower defaults on their loan, you’re likely to lose some money.
That’s why you’ll want to work with companies like Connect Invest who have the experience and know how to minimize your risk.
So, how would Connect Invest protect your investments? For starters, each real estate project is carefully reviewed based on things like loan-to-value ratio, borrower history, project location, etc.
Next, all loans are collateral-backed by real estate. In the rare event of a default, Connect Invest’s sister company forecloses on the property upon the investors’ approval to recover your investment.
And finally, your invested funds are spread across a portfolio of real estate loans rather than a single project, greatly reducing your overall risk.
Connect Invest lets you decide your risk tolerance and for how long you’d like to invest your money, then your funds are invested in a diverse portfolio of residential and commercial real estate projects.
Just that short notes make great short-term investments! As soon as the six, 12 or 24-month note term is over, you’re free to do with your money as you please — whether that’s cashing out or buying back into short notes. In certain cases, you can even withdraw your investment before a note-term is over if you need to.
The only thing you need to start investing in short notes is $500 and an internet connection.
You don’t need to be an accredited investor, but you do need to be at least 18-years-old and a U.S. citizen or permanent resident. Sign up for your free account here. Then just browse through Connect Invest’s listings to select the right short notes for you and sit back and watch while all those wealthy developers make your money grow.
Past performance does not guarantee future results or success. The material contained herein does not constitute an offer to sell or a solicitation of any offer to purchase these securities, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful.
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clara.stratford@clearlink.com (Clara Stratford)
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U.S. stocks advanced on Monday, adding to their gains after the best week for at least two of the three major indexes — the S&P 500 and the Dow — since June. The S&P 500
SPX,
finished 44.59 points, or 1.2%, higher at 3,797.34. The Dow Jones Industrial Average
DJIA,
rose 417.06 points, or 1.3%, to climb to 31,499.62. The Nasdaq Composite
COMP,
advanced 92.90 points, or 0.9%, to close at 10,952.61. The rally comes as investors cling to hopes that the Federal Reserve will slow the pace of its interest rate hikes after November, market strategists said.
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Might the bear market’s losses at its recent low have gotten so bad that it was actually good news?
Some eager stock bulls I monitor are advancing this convoluted rationale. The outline of their argument is that when things get bad enough, good times must be just around the corner.
But their argument tells us more about market sentiment than its prospects.
At the market’s recent closing low, the S&P 500
SPX,
had dropped to 25% below its early-January high. According to one version of this “so-bad-it’s-good” argument, the stock market in the past was a good buy whenever bear markets fell to that threshold. Following those prior occasions, they contend, the market was almost always higher in a year’s time.
This is not an argument you’d normally expect to see if the recent low represented the final low of the bear market. On the contrary, it fits squarely within the third of the five-stage progression of bear market grief, about which I have written before: denial, anger, bargaining, depression and acceptance.
With their argument, the bulls are trying to convince themselves that they can survive the bear market, rationalizing that the market will be higher in a year’s time. As Swiss-American psychiatrist Elisabeth Kübler-Ross put it when creating this five-stage scheme, the key feature of the bargaining stage is that it is a defense against feeling pain. It is far different than the depression and eventual acceptance that typically come later in a bear market.
Though not all bear markets progress through these five stages, most do, as I’ve written before. Odds are that we have two more stages to go through. That suggests that the market’s rally over the past couple of weeks does not represent the beginning of a major new bull market.
Further support for this bearish assessment comes from the discovery that the bulls’ argument is not supported historically. Only in relatively recent decades was the market reliably higher in a year’s time following occasions in which a bear market had reached the 25% pain threshold. It’s not a good sign that the bulls are basing their optimism on such a flimsy foundation.
Consider what I found upon analyzing the 21 bear markets since 1900 in the Ned Davis Research calendar in which the Dow Jones Industrial Average
DJIA,
fell at least 25%. I measured the market’s one-year return subsequent to the day on which each of these 21 bear markets first fell to that loss threshold. In seven of the 21 cases, or 33%, the market was lower in a year’s time.
That’s the identical percentage that applies to all days in the stock market over the past century, regardless of whether those days came during bull or bear markets. So, based on the magnitude of the bear market’s losses to date, there’s no reason to believe that the market’s odds of rising are any higher now than at any other time.
This doesn’t mean that there aren’t good arguments for why the market might rise. But the 25%-loss concept isn’t one of them.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
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U.S. stocks opened higher on Monday after a volatile night of trading for futures as investors continued to react to shifting expectations about the future pace of Federal Reserve rate hikes. The S&P 500
SPX,
rose 12 points, or 0.3%, to 3,763. The Dow Jones Industrial Average
DJIA,
gained 184 points, or 0.6%, to 31,277. The Nasdaq Composite
COMP,
fell 44 points, or 0.4%, to 10,812.
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Some investors are on edge that the Federal Reserve may be overtightening monetary policy in its bid to tame hot inflation, as markets look ahead to a reading this coming week from the Fed’s preferred gauge of the cost of living in the U.S.
“Fed officials have been scrambling to scare investors almost every day recently in speeches declaring that they will continue to raise the federal funds rate,” the central bank’s benchmark interest rate, “until inflation breaks,” said Yardeni Research in a note Friday. The note suggests they went “trick-or-treating” before Halloween as they’ve now entered their “blackout period” ending the day after the conclusion of their November 1-2 policy meeting.
“The mounting fear is that something else will break along the way, like the entire U.S. Treasury bond market,” Yardeni said.
Treasury yields have recently soared as the Fed lifts its benchmark interest rate, pressuring the stock market. On Friday, their rapid ascent paused, as investors digested reports suggesting the Fed may debate slightly slowing aggressive rate hikes late this year.
Stocks jumped sharply Friday while the market weighed what was seen as a potential start of a shift in Fed policy, even as the central bank appeared set to continue a path of large rate increases this year to curb soaring inflation.
The stock market’s reaction to The Wall Street Journal’s report that the central bank appears set to raise the fed funds rate by three-quarters of a percentage point next month – and that Fed officials may debate whether to hike by a half percentage point in December — seemed overly enthusiastic to Anthony Saglimbene, chief market strategist at Ameriprise Financial.
“It’s wishful thinking” that the Fed is heading toward a pause in rate hikes, as they’ll probably leave future rate hikes “on the table,” he said in a phone interview.
“I think they painted themselves into a corner when they left interest rates at zero all last year” while buying bonds under so-called quantitative easing, said Saglimbene. As long as high inflation remains sticky, the Fed will probably keep raising rates while recognizing those hikes operate with a lag — and could do “more damage than they want to” in trying to cool the economy.
“Something in the economy may break in the process,” he said. “That’s the risk that we find ourselves in.”
Higher interest rates mean it costs more for companies and consumers to borrow, slowing economic growth amid heightened fears the U.S. faces a potential recession next year, according to Saglimbene. Unemployment may rise as a result of the Fed’s aggressive rate hikes, he said, while “dislocations in currency and bond markets” could emerge.
U.S. investors have seen such financial-market cracks abroad.
The Bank of England recently made a surprise intervention in the U.K. bond market after yields on its government debt spiked and the British pound sank amid concerns over a tax cut plan that surfaced as Britain’s central bank was tightening monetary policy to curb high inflation. Prime minister Liz Truss stepped down in the wake of the chaos, just weeks after taking the top job, saying she would leave as soon as the Conservative party holds a contest to replace her.
“The experiment’s over, if you will,” said JJ Kinahan, chief executive officer of IG Group North America, the parent of online brokerage tastyworks, in a phone interview. “So now we’re going to get a different leader,” he said. “Normally, you wouldn’t be happy about that, but since the day she came, her policies have been pretty poorly received.”
Meanwhile, the U.S. Treasury market is “fragile” and “vulnerable to shock,” strategists at Bank of America warned in a BofA Global Research report dated Oct. 20. They expressed concern that the Treasury market “may be one shock away from market functioning challenges,” pointing to deteriorated liquidity amid weak demand and “elevated investor risk aversion.”
“The fear is that a debacle like the recent one in the U.K. bond market could happen in the U.S.,” Yardeni said, in its note Friday.
“While anything seems possible these days, especially scary scenarios, we would like to point out that even as the Fed is withdrawing liquidity” by raising the fed funds rate and continuing quantitative tightening, the U.S. is a safe haven amid challenging times globally, the firm said. In other words, the notion that “there is no alternative country” in which to invest other than the U.S., may provide liquidity to the domestic bond market, according to its note.
“I just don’t think this economy works” if the yield on the 10-year Treasury
TMUBMUSD10Y,
note starts to approach anywhere close to 5%, said Rhys Williams, chief strategist at Spouting Rock Asset Management, by phone.
Ten-year Treasury yields dipped slightly more than one basis point to 4.212% on Friday, after climbing Thursday to their highest rate since June 17, 2008 based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.
Williams said he worries that rising financing rates in the housing and auto markets will pinch consumers, leading to slower sales in those markets.
Read: Why the housing market should brace for double-digit mortgage rates in 2023
“The market has more or less priced in a mild recession,” said Williams. If the Fed were to keep tightening, “without paying any attention to what’s going on in the real world” while being “maniacally focused on unemployment rates,” there’d be “a very big recession,” he said.
Investors are anticipating that the Fed’s path of unusually large rate hikes this year will eventually lead to a softer labor market, dampening demand in the economy under its effort to curb soaring inflation. But the labor market has so far remained strong, with an historically low unemployment rate of 3.5%.
George Catrambone, head of Americas trading at DWS Group, said in a phone interview that he’s “fairly worried” about the Fed potentially overtightening monetary policy, or raising rates too much too fast.
The central bank “has told us that they are data dependent,” he said, but expressed concerns it’s relying on data that’s “backward-looking by at least a month,” he said.
The unemployment rate, for example, is a lagging economic indicator. The shelter component of the consumer-price index, a measure of U.S. inflation, is “sticky, but also particularly lagging,” said Catrambone.
At the end of this upcoming week, investors will get a reading from the personal-consumption-expenditures-price index, the Fed’s preferred inflation gauge, for September. The so-called PCE data will be released before the U.S. stock market opens on Oct. 28.
Meanwhile, corporate earnings results, which have started being reported for the third quarter, are also “backward-looking,” said Catrambone. And the U.S. dollar, which has soared as the Fed raises rates, is creating “headwinds” for U.S. companies with multinational businesses.
Read: Stock-market investors brace for busiest week of earnings season. Here’s how it stacks up so far.
“Because of the lag that the Fed is operating under, you’re not going to know until it’s too late that you’ve gone too far,” said Catrambone. “This is what happens when you’re moving with such speed but also such size, he said, referencing the central bank’s string of large rate hikes in 2022.
“It’s a lot easier to tiptoe around when you’re raising rates at 25 basis points at a time,” said Catrambone.
In the U.S., the Fed is on a “tightrope” as it risks over tightening monetary policy, according to IG’s Kinahan. “We haven’t seen the full effect of what the Fed has done,” he said.
While the labor market appears strong for now, the Fed is tightening into a slowing economy. For example, existing home sales have fallen as mortgage rates climb, while the Institute for Supply Management’s manufacturing survey, a barometer of American factories, fell to a 28-month low of 50.9% in September.
Also, trouble in financial markets may show up unexpectedly as a ripple effect of the Fed’s monetary tightening, warned Spouting Rock’s Williams. “Anytime the Fed raises rates this quickly, that’s when the water goes out and you find out who’s got the bathing suit” — or not, he said.
“You just don’t know who is overlevered,” he said, raising concern over the potential for illiquidity blowups. “You only know that when you get that margin call.”
U.S. stocks ended sharply higher Friday, with the S&P 500
SPX,
Dow Jones Industrial Average
DJIA,
and Nasdaq Composite each scoring their biggest weekly percentage gains since June, according to Dow Jones Market Data.
Still, U.S. equities are in a bear market.
“We’ve been advising our advisors and clients to remain cautious through the rest of this year,” leaning on quality assets while staying focused on the U.S. and considering defensive areas such as healthcare that can help mitigate risk, said Ameriprise’s Saglimbene. “I think volatility is going to be high.”
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On Friday shares of VZ sank to a new 52-week low on the heels of missing analyst estimates of Q3 subscribers.
Let’s check the charts and indicators.
In this daily bar chart of VZ, below, we can see a downside price gap on Friday. A new 52-week low was reached. Prices are well below the declining 50-day moving average line and below the weak 200-day line.
The On-Balance-Volume (OBV) has made new lows for the move down as well and confirms the observation that sellers of VZ have been more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator is bearish.
In this weekly Japanese candlestick chart of VZ, below, we have a negative picture. Prices have made a “parabolic” decline the past few months. VZ is below the bearish 40-week moving average line. The weekly trading volume has not given us a clue that weak hands have sold and strong hands have bought.
The weekly OBV line is bearish and the MACD oscillator is bearish.
In this daily Point and Figure chart of VZ, below, we can see that prices have reached and exceeded a downside price target in the $36 area.
In this weekly Point and Figure chart of VZ, below, we used a five box reversal filter. Here the software suggests a price target in the $31 area.
Bottom line strategy: In full disclosure I have been a VZ customer for over 25 years but that loyalty does not make the charts more attractive. VZ could fall further in the weeks ahead.
Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.
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Thanks to teams of financial experts with savvy investment strategies, the ultra wealthy keep getting richer.
But what about the rest of us? The average person can’t afford to put their money into exclusive hedge funds or private investment funds — the kind that typically require you to have at least $1 million in assets.
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Avidus, on the other hand, thinks long-term, seeking to grow your (and their) wealth over time. They invest alongside you in companies they find remarkable at a fair price that they believe will grow your investment at the highest long-term rate.
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Just download the Avidus app from the Apple AppStore and link a bank account to get started.
Taylor Hoffman Capital Management, LLC, d/b/a Avidus (referred to herein as “Avidus” or the “Firm”) is an SEC-registered investment adviser with a principal place of business in the Commonwealth of Virginia. Registration does not imply a certain level of skill or training. Avidus may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This website is limited to the dissemination of general information regarding the Firm’s investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Avidus’ website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice.
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qplummer@thepennyhoarder.com (Quinten Plummer)
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People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.
For 401(k)s, that’s an almost 10% increase from 2022’s contribution limit of $20,500. For IRAs, it’s a more than 8% rise from 2022’s limit of $6,000.
As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked to approximately 7%.
When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.
“Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” Rita Assaf, vice president of retirement products at Fidelity Investments, said after the IRS released the 2023 contribution limits.
Seven in 10 people are “very concerned” how inflating costs will impact their readiness for retirement according to a Fidelity study, Assaf noted. “Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.
The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.
Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.
Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through a workplace retirement plan and yearly income. Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.
For 2023, a single taxpayer covered by a workplace retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during 2022.
For a married couple filing jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” the IRS said.
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.
There are also changes coming for the Roth IRA, which people fund with after-tax money and then can tap tax-free later.
Read also: Here’s when you should choose a Roth IRA over a traditional account
The Roth IRA contribution limits also climb to $6,500. Retirement savers putting money in their 401(k) can’t also put pre-tax money in a traditional IRA, but they can contribute to a Roth account.
Still, the eligibility to contribute to Roth IRA accounts is pegged to income, subject to phase-out ranges.
In 2023, the income phase-out range on Roth IRA contributions climbs to between $138,000 – $153,000 for individuals and people filing as head of household. (That’s up from a range between $129,000 and $144,000, the IRS noted.)
With a married couple filing jointly, next year’s phase-out range goes to $218,00 – $228,000. That’s a step up from this year’s $204,000 – $214,000 range.
The income limit surrounding the saver’s credit, which is geared toward low- and moderate-income households, is also getting a lift. The credit lets taxpayers claim 10%, 20% or one-half of contributions to eligible retirement plans, including a 401(k) or an IRA. The credit’s income limits are climbing, the IRS said.
The 2023 income limit will be $73,000 for married couples filing jointly, $54,750 for heads of household and $36,500 for individuals and married individuals filing separately, according to the IRS.
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U.S. stocks finished lower on Thursday for the second day in a row as yields on the 10-year and 2-year Treasury notes advanced to their highest levels in more than 14 years, causing early earnings-inspired gains in equities to evaporate. The S&P 500
SPX,
finished off 29.38 points, or 0.8%, at 3,665.78. The Dow Jones Industrial Average
DJIA,
dropped 90.22 points, or 0.3%, to close at 30,333.59. The Nasdaq Composite
COMP,
shed 65.66 points, or 0.6%, to close at 10,614.84. The yield on the 2-year Treasury note rose to 4.608%, its highest level since Aug. 8, 2007, based on 3 p.m. figures from Dow Jones Market Data. The yield on the 10-year Treasury advanced 9.8 basis points to 4.225%, the highest since June 17, 2008.
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Did you know that the short-term rental market has now soared past a $1.2 trillion valuation? This stat comes directly from Airbnb‘s recent IPO filing, which we should remind you took place against all odds…in the middle of a pandemic. What is even more staggering is that there is more potential for the valuation of this market to soar even more when you look at the combination of existing demand, the post-pandemic travel boom, and the shift towards remote working.
reAlpha
Airbnb CEO Brian Chesky recently went on record stating that they are short millions of hosts. If you remember your first year economics class, this means that demand is outpacing supply. So, one might conclude that now may be a great time to start buying some short-term rentals of your own. However, real estate startups are on a historic climb and a look at national and even international Airbnb listings is enough to give anyone sticker shock.
There was a 25 percent surge in demand for short-term rentals in destination and resort locations between 2019 and 2021. This year, the average cost on an Airbnb rental was about $160 a day during the first quarter, a rise of about 35 percent over the same period in 2020. By the third quarter, hosts generated a staggering $12.8 billion through the platform.
It’s all just the latest proof that the age-old path of property ownership is key to investing riches. Of course, that morsel of knowledge is nothing new. Many billionaires hold anywhere from 20 percent to 40 percent of their net worth in real estate. However, real estate investing (especially with short-term rentals) can be expensive and time-consuming, effectively screening out the everyday investor from this lucrative sector. Simply put, it’s much more tricky than just investing in $ABNB stock on Robinhood.
However, Real estate startup reAlpha is changing that. They use artificial intelligence and the power of their world-class team to revolutionize investment in this growing market for everyone, enabling them to purchase partial property ownership and make passive profits without any of the headaches of most real estate deals.
Right now, investors aren’t limited only buying into short term rental properties with reAlpha. They can literally buy into reAlpha itself during its current Reg A+ stock offer, becoming a shareholder in the company’s entire portfolio and industry-disrupting business model.
The reAlpha approach to finding and buying high earning potential rental properties is as simple as it is groundbreaking. Using their proprietary algorithm fueled by machine learning, reAlpha scores each property on a variety of factors, predicting the short-term rental viability and long term value of each property.
Under the guidance of a broker-dealer, reAlpha investors search those top-rated prospective properties, then buy into the ones they like, just like they’d buy a stock on Robinhood. The reAlpha process pairs those like-minded investors together to buy the property, often with just 10 percent as a down payment as opposed to the usual 25 percent required.
Unlike when you buy a property yourself, reAlpha is a 51 percent stakeholder as well and handles all the particulars, including renovations, rentals, and all the ongoing maintenance. While reAlpha does all the heavy lifting, members can sit back and benefit from the fractional ownership model, earning their share of rental profits, all while the property appreciates in value. And, syndicate members can even stay at the properties they’ve invested in during select black-out dates—making their investment all the more real.
Of course, property values aren’t the only things growing. During their current Reg A+ public offering, reAlpha is offering company stock to those who see the potential in disrupting the $1.2 Trillion short-term rental market.
To purchase shares in reAlpha, interested investors can visit their page, access offering information, and find out more about buying into the company. reAlpha is poised to turn the short-term rental market on its ear, so savvy investors can help build the company. Invest in reAlpha’s future before their fundraising campaign ends on December 8th,2022..
Prices are subject to change
AN OFFERING STATEMENT REGARDING THIS OFFERING HAS BEEN FILED WITH THE SEC. THE SEC HAS QUALIFIED THAT OFFERING STATEMENT, WHICH ONLY MEANS THAT THE COMPANY MAY MAKE SALES OF THE SECURITIES DESCRIBED BY THE OFFERING STATEMENT. IT DOES NOT MEAN THAT THE SEC HAS APPROVED, PASSED UPON THE MERITS OR PASSED UPON THE ACCURACY OR COMPLETENESS OF THE INFORMATION IN THE OFFERING STATEMENT. THE OFFERING CIRCULAR THAT IS PART OF THAT OFFERING STATEMENT IS AT: HTTPS://SEC.REPORT/DOCUMENT/0001213900-21-047649/ YOU SHOULD READ THE OFFERING CIRCULAR BEFORE MAKING ANY INVESTMENT.
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U.S. stocks finished lower on Wednesday, with the major indexes logging their first loss in three days, as Treasury yields and the dollar continued to climb, outweighing more strong earnings reports from American firms. The S&P 500
SPX,
finished down 24.82 points, or 0.7%, at 3,695.16. The Dow Jones Industrial Average
DJIA,
closed off 99.99 points, or 0.3%, at 30,423.81. The Nasdaq Composite
COMP,
shed 91.89 points, or 0.9%, at 10,680.51. The ICE U.S. Dollar Index, a gauge of the dollar’s strength against a basket of rivals, was up 0.7% at 112.96. Treasury yields continued to advance past 4% across the curve.
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You probably already know that because of market-capitalization weighting, a broad index such as the S&P 500
SPX,
can be concentrated in a handful of stocks. Index funds are popular for good reasons — they tend to have low expenses and it is difficult for active managers to outperform them over the long term.
For example, look at the SPDR S&P 500 ETF Trust
SPY,
which tracks the S&P 500 by holding all of its stocks by the same weighting as the index. Five stocks — Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
Alphabet Inc.
GOOG,
GOOGL,
and Tesla Inc.
TSLA,
make up 21.5% of the portfolio.
But there are other considerations when it comes to diversification — namely, factors. During an interview, Scott Weber of Vaughan Nelson Investment Management in Houston explained how groups of stock and commodities can move together, adding to a lack of diversification in a typical portfolio or index fund.
Weber co-manages the $293 million Natixis Vaughan Nelson Select Fund
VNSAX,
which carries a five-star rating (the highest) from investment-researcher Morningstar, and has outperformed its benchmark, the S&P 500.
Vaughan Nelson is a Houston-based affiliate of Natixis Investment Managers, with about $13 billion in assets under management, including $5 billion managed under the same strategy as the fund, including the Natixis Vaughan Nelson Select ETF
VNSE,
The ETF was established in Sept, 2020, so does not yet have a Morningstar rating.
Weber explained how he and colleagues incorporate 35 factors into their portfolio selection process. For example, a fund might hold shares of real-estate investment trusts (REITs), financial companies and energy producers. These companies are in different sectors, as defined by Standard & Poor’s. Yet their performance may be correlated.
Weber pointed out that REITs, for example, were broken out of the financial sector to become their own sector in 2016. “Did that make REIT’s more sensitive to interest rates? The answer is no,” he said. “The S&P sector buckets are somewhat better than arbitrary, but they are not perfect.”
Of course 2022 is something of an exception, with so many assets dropping in price at the same time. But over the long term, factor analysis can identify correlations and lead money managers to limit their investments in companies, sectors or industries whose prices tend to move together. This style has helped the Natixis Vaughan Nelson Select Fund outperform against its benchmark, Weber said.
Getting back to the five largest components of the S&P 500, they are all tech-oriented, even though only two, Apple and Microsoft, are in the information technology sector, while Alphabet is in the communications sector and Tesla is in the consumer discretionary sector. “Regardless of the sectors,” they tend to move together, Weber said.
Exposure to commodity prices, timing of revenue streams through economic cycles (which also incorporates currency exposure), inflation and many other items are additional factors that Weber and his colleagues incorporate into their broad allocation strategy and individual stock selections.
For example, you might ordinarily expect inflation, real estate and gold to move together, Weber said. But as we are seeing this year, with high inflation and rising interest rates, there is downward pressure on real-estate prices, while gold prices
GC00,
have declined 10% this year.
Digging further, the factors also encompass sensitivity of investments to U.S. and other countries’ government bonds of various maturities, credit spreads between corporate and government bonds in developed countries, exchange rates, and measures of liquidity, price volatility and momentum.
The largest holding of the Select fund is NextEra Energy Inc.
NEE,
which owns FPL, Florida’s largest electric utility. FPL is phasing-out coal plants and replacing power-generating capacity with natural gas as well as wind and solar facilities.
Weber said: “There’s not a company on the planet that is better at getting alternate (meaning solar and wind) generation deployed. But because they own FPL, some of my investors say it is one of the largest carbon emitters on the planet.”
He added that “as a consequence of their skill in operating, they re generating amazing returns for investors.” NextEra’s share shave returned 446% over the past 10 years. One practice that has helped to elevate the company’s return on equity, and presumably its stock price, has been “dropping assets down” into NextEra Energy Partners LP
NEP,
which NEE manages, Weber said. He added that the assets put into the partnership tend to be “great at cash-flow generation, but not on achieving growth.”
When asked for more examples of stocks in the fund that may provide excellent long-term returns, Weber mentioned Monolithic Power Systems Inc.
MPWR,
as a way to take advantage of the broad decline in semiconductor stocks this year. (The iShares Semiconductor ETF
SOXX,
has declined 21% this year, while industry stalwarts Nvidia Corp.
NVDA,
and Advanced Micro Devices Inc.
AMD,
are down 59% and 60%, respectively.)
He said Monolithic Power has been consistently making investments that improve its return on invested capital (ROIC). A company’s ROIC is its profit divided by the sum of the carrying value of stock it has issued over the years and its current debt. It doesn’t reflect the stock price and is considered a good measure of a management team’s success at making investment decisions and managing projects. Monolithic Power’s ROICC for 2021 was 21.8%, according to FactSet, rising from 13.2% five years earlier.
“We want to see a business generating a return on capital in excess of its cost of capital. In addition, they need to invest their capital at incrementally improving returns,” Weber said.
Another example Weber gave of a stock held by the fund is Dollar General Corp.
DG,
which he called a much better operator than rival Dollar Tree Inc.
DLTR,
which owns Family Dollar. He cited DG’s roll-out of frozen-food and fresh food offerings, as well as its growth runway: “They still have 8,000 or 9,000 stores to build-out” in the U.S., he said.
In order to provide a full current list of stocks held under Weber’s strategy, here are the 27 stocks held by the the Natixis Vaughan Select ETF as of Sept. 30. The largest 10 positions made up 49% of the portfolio:
| Company | Ticker | % of portfolio |
| NextEra Energy Inc. |
NEE, |
5.74% |
| Dollar General Corp. |
DG, |
5.51% |
| Danaher Corp. |
DHR, |
4.93% |
| Microsoft Corp. |
MSFT, |
4.91% |
| Amazon.com Inc. |
AMZN, |
4.90% |
| Sherwin-Williams Co. |
SHW, |
4.80% |
| Wheaton Precious Metals Corp. |
WPM, |
4.76% |
| Intercontinental Exchange Inc. |
ICE, |
4.52% |
| McCormick & Co. |
MKC, |
4.48% |
| Clorox Co. |
CLX, |
4.39% |
| Aon PLC Class A |
AON, |
4.33% |
| Jack Henry & Associates Inc. |
JKHY, |
4.08% |
| Motorola Solutions Inc. |
MSI, |
4.08% |
| Vertex Pharmaceuticals Inc. |
VRTX, |
4.01% |
| Union Pacific Corp. |
UNP, |
3.99% |
| Alphabet Inc. Class A |
GOOGL, |
3.03% |
| Johnson & Johnson |
JNJ, |
2.98% |
| Nvidia Corp. |
NVDA, |
2.92% |
| Cogent Communications Holdings Inc. |
CCOI, |
2.81% |
| Kosmos Energy Ltd. |
KOS, |
2.68% |
| VeriSign Inc. |
VRSN, |
2.15% |
| Chemed Corp. |
CHE, |
2.06% |
| Berkshire Hathaway Inc. Class B |
BRK.B, |
2.00% |
| Saia Inc. |
SAIA, |
1.97% |
| Monolithic Power Systems Inc. |
MPWR, |
1.96% |
| Entegris Inc. |
ENTG, |
1.93% |
| Luminar Technologies Inc. Class A |
LAZR, |
0.96% |
| Source: Natixis Funds | ||
You can click on the tickers for more about each company. Click here for a detailed guide to the wealth of information available free on the MarketWatch.com quote page.
The Natixis Vaughan Select Fund was established on June 29, 2012. Here’s a 10-year chart showing the total return of the fund’s Class A shares against that of the S&P 500, with dividends reinvested. Sales charges are excluded from the chart and the performance numbers. In the current environment for mutual-fund distribution, sales charges are often waived for purchases of new shares through investment advisers.
Here’s a comparison of returns for 2022 and average annual returns for various periods of the fund’s Class A shares to that of the S&P 500 and its Morningstar fund category through Oct. 18:
| Total return – 2022 through Oct. 18 | Average return – 3 Years | Average return – 5 Years | Average return – 10 years | |
| Vaughan Nelson Select Find – Class A | -20.2% | 11.8% | 10.8% | 13.0% |
| S&P 500 | -21.0% | 9.4% | 9.7% | 12.0% |
| Morningstar Large Blend category | -20.3% | 8.1% | 8.2% | 10.7% |
| Sources: Morningstar, FactSet | ||||
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The official definition of a bear market is a 20% or greater decline from an index’s previous high. Accordingly, the three major U.S. stock-market benchmarks — the Nasdaq
COMP,
the S&P 500
SPX,
and the Dow Jones Industrial Average
DJIA,
— are currently all in a bear market.
Based on my work with stock market strategist Mark D. Cook, a typical bear market goes through nine stages. Right now we are in Stage 4. Keep in mind that a bear market does not always follow these stages in the exact order.
1. Failed rallies: Failed rallies represent the first clue that a bear market is here. Failed rallies often appear before the market “officially” becomes a bear market. If the rally doesn’t have legs and cannot go higher for the next few days or weeks, it confirms that the bear’s claws have sunk in. Along the way, many failed rallies will fool bulls into thinking the worst is over. Watch the rallies for bear-market clues. The rally so far this week is an example. Now in its second day, a failure of this rally would confirm that stocks are not yet out of a bear market.
2. Low-volume rallies: Another bear market clue is that stocks move higher on low volume. This is a clue the major financial institutions aren’t buying, although algos and hedge funds might be. It’s easy for the algos to push prices higher in a low-volume environment, one of the reasons for monster rallies that go nowhere the following day (i.e. a “one-day wonder”).
3. Terrible-looking charts: The easiest way to identify a bear market is by looking at a stock chart. It goes without saying that the charts look dreadful, both the daily and the weekly. While rallies help relieve some of the pressure, they typically don’t last long.
4. Strong selloffs: It’s been a couple of years since markets have experienced extremely strong selloffs, but that record was broken the week of September 26 when the S&P 500 hit a new low for 2022. These strong selloffs are typical of a bear market, followed by rallies that don’t last (a roller-coaster that so far has played out during October).
5. Mutual-fund redemptions: During this stage, after looking at their quarterly and monthly statements, horrified investors throw in the towel and sell their mutual funds (also, some investors refuse to look at those reports). As a result, mutual fund companies are forced to sell (which negatively affects the stock market). Typically, when the indexes fall more than 20%, mutual fund redemptions increase.
6. Complacency turns to panic: As more investor money leaves the market, many investors panic. The most bullish investors are holding on for dear life but are buying fewer stocks. The most nervous investors sell to avoid risking precious gains.
7. All news is bad news: As the bear market pushes stock prices lower, it seems as if most economic data and financial news is negative. Many people become skeptical of the bullish predictions from market professionals, who earlier had promised the market would keep going up. In the depths of the worst bear markets, some bullish professionals are jeered or ignored. Even die-hard bulls are increasingly nervous as the market heads lower and lower (with occasional rallies along the way).
8. Bulls throw in the towel: As trading volume increases on down days, and some investors experience 30% or higher losses, they give up hope and sell. The market turns into a free-for-all as even the Fed appears to have lost control. Many in the media admit that a bear market has arrived.
9. Capitulation: After weeks and months of selloffs (and occasional rallies), many investors are panicked. Investors realize that it may take years before their portfolios will return to breakeven, and some stocks never will. In the final stage of a bear market, trading volume is more than three times higher than normal. Even some of true believers liquidate positions, as many portfolios are down by 40% or 50% and more. Almost every financial asset has fallen, with the exception of fixed income such as CDs and T-bills. Traders or investors who trade on margin feel the most pain.
Read: ‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley
This bear market is fairly young, but already there have been so many failed rallies that many investors are too afraid to buy. Some investors with cash are looking for bargains, but it takes nerves of steel to buy when everyone is selling.
One of the keys to success in the market is to buy what people don’t want. Here are several ideas of what to do (and it is not too late to act):
The length and volatility of every bear market is different. No one can predict how this one will turn out, but based on previous bear markets, there’s still a long way to go before it’s over.
Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks.” His latest book, “How to Profit in the Stock Market” (McGraw Hill, 2022), explores bull -and bear market investing strategies.
More: Could there be a stock market rally? Probably. Would it be the end of the bear market? Probably not.
Also read: Whatever you’re feeling now about stocks is normal bear-market grief — and the worst is yet to come
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Stock-market investors have been adjusting to the jump in interest rates amid high inflation, but they have yet to cope with profit headwinds faced by the S&P 500, according to Morgan Stanley Wealth Management.
“While a rate peak may solidify estimates for the equity risk premium and valuation multiples, equity investors still face the bear market’s second act — the earnings outlook,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday.
“They have been slow to recognize that pricing power and operating margins, which hit all-time highs in the past two years, are unsustainable,” she said. “Even without a recession, the mean reversion of profits in 2023 translates to a 10%-to-15% decline from current estimates.”
Unprecedented monetary and fiscal stimulus during the throes of the pandemic had led to the largest U.S. companies booking record operating margins that were 150 to 200 basis points above norms seen in the past decade, according to Shalett.
See: Stock market’s wild gyrations put earnings in focus as inflation crushes Fed ‘pivot’ hopes
She said that company profits may now be imperiled by slowing growth, with “demand skewing toward services” after pulling forward toward goods earlier in the pandemic, and a likely reversal in “extremely strong” pricing power as the Fed fights surging inflation with interest-rate hikes.
“Such risks are not discounted in 2023 consensus yet, constituting a material risk to stocks for the remainder of the year,” Shalett said.
While many sectors have discounted the potential drop in 2023 profits from current estimates that could stir headwinds even with no recession, “the megacap secular growth stocks that dominate market-cap indexes have not,” she warned. “And those indexes are where risk gets repriced in the bear market’s final stages.”
Morgan Stanley’s chief U.S. equity strategist Mike Wilson estimates as much as 11% downside from consensus estimates, with his base-case, earnings-per-share forecast for the S&P 500 for 2023 being $212, according to Shalett’s note.
U.S. stocks were bouncing Monday, with major stock benchmarks trading sharply higher in the afternoon, after sinking Friday amid inflation concerns as earnings season got under way. The S&P 500
SPX,
was up 2.7% in afternoon trading, while the Dow Jones Industrial Average
DJIA,
gained 1.9% and the technology-heavy Nasdaq Composite surged 3.5%, FactSet data show, last check.
In the bond market, Treasury rates were trading slightly lower Monday afternoon, after the 2-year yield hit a 15-year high and the 10-year yield notched a 14-year high on Friday, according to Dow Jones Market Data. Two-year yields ended last week at 4.507%, the highest level since August 8, 2007 based on 3 p.m. Eastern time levels, while the 10-year rate climbed to 4.005% for its highest rate since Oct. 15, 2008.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
was down about 1 basis point Monday afternoon at around 4%, while two-year yields
TMUBMUSD02Y,
fell about five basis points to around 4.45%, FactSet data show, at last check.
Meanwhile, as investors capitulated to higher inflation, “peak policy rates moved up aggressively in the fed funds futures market, with the terminal rate now at nearly 5%, an aggressive stance that smacks of ‘peak hawkishness,’” according to the Morgan Stanley note.
“Critically, although the market is still pricing 1.5 cuts in 2023, the January 2024 fed-funds rate is estimated at 4.5%, a comfortable 100 basis points above our forecast” for core inflation measured by the consumer-price index, Shalett wrote.
“Consider locking in solid short-term yields in bonds and shoring up positions in high growth, dividend-paying stocks,” she said. “Short-duration Treasuries look attractive, especially because the yield is more than 2.5 times that of the dividend yield on the S&P 500.”
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Tesla shares could decline dramatically — and that could mean disaster for a number of stocks that have already seen deep share-price cuts, according to equity research firm New Constructs.
The research firm, which uses machine learning and natural language processing to parse corporate filings and model economic earnings, called the stocks in danger “zombie stocks,” and defined them as companies with poor business models that are burning cash at an alarming rate and are at risk of seeing their stock decline to $0 per share.
The research firm estimates there could be some 300 zombie companies across the marketplace.
“The Federal Reserve’s aggressive rate hikes so far in 2022 have ended the era of free money and exposed a worrisome dynamic throughout capital markets: zombie stocks,” wrote New Constructs CEO David Trainer, in a note.
See Now: Tesla earnings are coming, but do record deliveries mask a demand problem?
New Constructs does not define Tesla Inc.
TSLA,
as a “zombie stock,” citing CEO Elon Musk’s ability to raise capital, but does see the electric car manufacturer as a bellwether for the sector. “It shares many of the common characteristics of a zombie stock, such as an outrageous valuation and high cash burn,” wrote Trainer. “We believe Tesla’s unrelenting share price rise over the past three years – where investors completely ignored company fundamentals – inspired the birth of many of today’s zombie stocks.”
Tesla reports its third-quarter results after the closing bell on Oct. 19.
The company’s stock was trading around $220 on Monday, an increase of over 1,000% compared to three years ago. But Trainer feels that Tesla is at risk of falling more than 80% to $25 a share.
Tesla’s Optimus bot: ‘High school science project’ or robotics game changer?
Tesla’s stock has fallen 37.6% in 2022, outpacing the S&P 500 Index’s
SPX,
decline of 22.7%.
“Its valuation remains nosebleed high because the cash flow expectations baked into the stock price are unreasonably optimistic,” Trainer wrote. “Our message to investors is to take profits in Tesla and avoid zombie stocks at all costs.”
New Constructs recently added cloud-based communication company RingCentral Inc.
RNG,
to its list of “zombie” stocks. Other companies on the list are Freshpet Inc.
FRPT,
Peloton Interactive Inc.
PTON,
Carvana Co.
CVNA,
Snap Inc.
SNAP,
Beyond Meat Inc.
BYND,
Rivian Automotive Inc.
RIVN,
DoorDash Inc.
DASH,
Shake Shack Inc.
SHAK,
Chewy Inc.
CHWY,
Uber Technologies Inc.
UBER,
Robinhood Markets Inc.
HOOD,
Tilray Brands Inc.
TLRY,
Affirm Holdings Inc.
AFRM,
SunRun Inc.
RUN,
Blue Apron Holdings Inc.
APRN,
and meme stocks AMC Entertainment Holdings Inc.
AMC,
and GameStop Corp.
GME,
See Now: RingCentral added to ‘zombie’ stocks list by equity research firm New Constructs
“Investors are now fed up with these kinds of companies, especially amid this year’s stock market volatility,” wrote New Constructs’ Trainer. “If investors start to give up on Tesla and take profits on the stock, which is up over 1,000% over the past three years, that spells terrible news for all of the other zombie stocks that don’t have the cash-raising luxury that Tesla has.”
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U.S. stocks opened sharply higher on Monday, with the Dow Jones Industrial Average advancing nearly 600 points, as stocks rebounded following Friday’s punishing selloff. The S&P 500
SPX,
climbed 80 points, or 2.3%, to 3,663. The Dow
DJIA,
gained 568 points, or 1.9%, to 30,203. The Nasdaq Composite
COMP,
advanced 276 points, or 2.7%, to 10,598. Analysts attributed the risk-friendly mood in U.S. markets to the latest news out of the U.K., where the newly installed Chancellor of the Exchequer Jeremy Hunt abandoned the majority of the £45 billion ($50.9 billion) in previously announced unfunded tax cuts, sparking a sharp rally in U.K. government bonds, known as gilts.
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