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  • U.S. stocks end higher after job report, and Dow scores longest weekly winning streak since February 2019

    U.S. stocks end higher after job report, and Dow scores longest weekly winning streak since February 2019

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    U.S. stocks closed higher Friday, with the Dow Jones Industrial Average scoring its longest weekly winning streak since February 2019, as investors digested the latest job report.

    How stock indexes traded

    • The Dow Jones Industrial Average
      DJIA
      rose 130.49 points, or 0.4%, to close at 36,247.87, its highest closing value since Jan. 12, 2022.

    • The S&P 500
      SPX
      gained 18.78 points, or 0.4%, to finish at 4,604.37, marking its highest close since March 29, 2022.

    • The Nasdaq Composite
      COMP
      climbed 63.98 points, or 0.4%, to end at 14,403. 97, scoring its highest closing value since April 4, 2022.

    For the week, the Dow eked out a gain of less than 0.1%, the S&P 500 edged up 0.2% and the Nasdaq advanced 0.7%. All three major indexes rose for a sixth straight week, according to Dow Jones Market Data.

    What drove markets

    U.S. stocks ended higher Friday as investors parsed a stronger-than-expected job report.

    The U.S. Bureau of Labor Statistics said Friday that the economy added 199,000 jobs in November, while the unemployment rate fell to 3.7% from 3.9%. Economists polled by the Wall Street Journal had forecast that 190,000 jobs would be added in the month.

    “It’s nice to see that a soft landing still can take place,” Yung-Yu Ma, chief investment officer at BMO Wealth Management, said by phone Friday. But the market had been getting “too optimistic” about potential interest-rate cuts by the Federal Reserve in the early part of next year, he added.

    The job report is “perhaps a wash” for markets as “average hourly earnings growth came in a little on the high side,” Ma said. That could contribute to inflationary pressures and push a Fed pivot on rate cuts further out in 2024 than markets were expecting. 

    “The Fed can probably be patient for a while,” he said. Fed Chair Jerome Powell may “strike a bit more of a hawkish tone” after the central bank’s monetary-policy meeting next week, potentially pushing back against some of the enthusiasm for earlier rate cuts, Ma said.

    Average hourly earnings rose 0.4% in November, up 4% year over year, the job report shows.

    “Even though the headline 199,000 new jobs created is just slightly above consensus estimates for 190,000 new positions, the lower unemployment rate of 3.7%, coupled with higher-than-expected average hourly earnings, caused a jump higher in Treasury yields,” Quincy Krosby, chief global strategist at LPL Financial, said in emailed comments.

    The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    climbed 11.5 basis points Friday to 4.244%, according to Dow Jones Market Data. That’s below its high this year of about 5% in October.

    Meanwhile, the stock market’s so-called fear gauge remained low, with the CBOE Volatility Index
    VIX
    declining to 12.35 on Friday, FactSet data show.

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

    In other economic data released Friday, the University of Michigan’s gauge of consumer sentiment rose to a preliminary reading of 69.4 in December, its first increase in five months. Inflation expectations also moderated, the university’s survey of consumer sentiment showed.

    Such a big swing for a single reading of the survey is unusual, said Claudia Sahm, a former Federal Reserve economist who now runs a consulting business. “These data usually don’t move like that,” she said during a phone interview with MarketWatch.

    Next week’s economic calendar will include a reading on U. S. inflation from the consumer-price index as well as the outcome of the Fed’s two-day policy meeting, scheduled to conclude Dec. 13.

    Meanwhile, the S&P 500 notched a sixth straight week of gains, its longest such winning streak since the stretch ending Nov. 15, 2019, according to Dow Jones Market Data. The Dow Jones Industrial Average logged its longest stretch of weekly gains since February 2019.

    Companies in focus

    Steve Goldstein contributed.

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  • Want companies to lower their prices? Stop buying stuff from them.

    Want companies to lower their prices? Stop buying stuff from them.

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    The thing that will make companies lower prices is if consumers stop complaining about paying more for the things they need and want, and actually start refusing to buy them.

    As the U.S. corporate earnings-reporting season progresses, with earnings from major retailers Walmart Inc.
    WMT,
    +0.59%    ,
    Target Corp.
    TGT,
    +0.10%
    and Home Depot Inc.
    HD,
    +0.52%
    on tap next week, investors can get a ground-floor view of how consumer demand may have been hurt, or not, by higher prices, and what the companies plan to do, or not do, about it.

    This dynamic of how consumers adjust their spending habits when prices change is referred to by economists as the price elasticity of demand.

    “ For companies to cut prices, ‘you have to have the consumer go on strike, and they’re not there yet.’”


    — Jamie Cox, Harris Financial Group

    Those who trust companies will choose to ratchet down prices on their own, or at least not raise them because the rise in input costs has been slowing, haven’t been listening to what the many companies have told analysts on their post-earnings-report conference calls.

    Read: U.S. inflation eases again, PCE shows. Prices rise at slowest pace in almost two years.

    Kraft Heinz Co.
    KHC,
    +0.47%
    acknowledged after its second-quarter report that its relatively higher prices have hurt demand, but not by enough for the food and condiments company to consider cutting prices.

    Colgate-Palmolive Co.
    CL,
    +0.81%
    said it will continue to raise prices, even as inflation slows and selling volume declines, as the consumer-products company continues to be laser focused on boosting margins and profits.

    And while PepsiCo Inc.
    PEP,
    +0.16%
    was worried that elasticities would increase, given how its lower-income customers were being particularly pressured by inflation, the beverage and snack giant reported strong results as it witnessed “better elasticities” in most of the markets in which it operated.

    “Obviously, there is still carryover pricing, and I don’t think we’ll do anything different than our normal cycles on pricing in the balance of the year,” PepsiCo Chief Financial Officer Hugh Johnston told analysts, according to an AlphaSense transcript.

    Basically, as MarketWatch has reported, so-called greedflation is alive and well.

    Jamie Cox, managing partner for Harris Financial Group, said as long as the job market stays strong, as it is now, corporate greed will continue to pay off.

    “If something is more expensive, and you have a job, you’ll complain about it, but you won’t substitute it for something cheaper,” Cox said. For companies to cut prices, “you have to have the consumer go on strike, and they’re not there yet,” Cox added.

    “ ‘At some point, people are going to say, “All right — enough.” ’ ”


    — Paul Nolte, Murphy & Sylvest Wealth Management

    The reason elasticity is so important in the current environment is that, as long as consumers continue to pay the higher prices companies are charging, inflation will remain stubbornly high, making it, in turn, more likely that the Federal Reserve will continue to raise interest rates or, at the very least, not lower them.

    But the longer interest rates stay high enough to crimp economic growth, the more likely the stock market will reverse lower as recession fears rise.

    “At some point, people are going to say, ‘All right — enough,’ ” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “But we just haven’t seen that yet.”

    What is elasticity?

    Economists use the term “price elasticity of demand” to refer to the way in which consumers adjust their spending habits when prices change.

    “Elasticity tries to measure how much more producers will want to produce if prices rise, and how much more consumers will want to buy if prices fall,” explained Bill Adams, chief economist at Comerica.

    Elasticity often depends on the type of product a company sells.

    For example, consumer-discretionary-goods companies that sell products and services that people want will often experience greater price elasticity than consumer-staples companies that sell things that people need, such as groceries and prescription drugs.

    But even for needs, consumers often still have a choice, as less expensive generic, or private-label, alternatives may be available.

    Andre Schulten, chief financial officer of consumer-staples maker Procter & Gamble Co.
    PG,
    +0.58%    ,
    which recently beat earnings expectations as it continued to raise prices, telling analysts that, while there was “some trading into private label,” the overall market share of private-label products was unchanged for the year.

    As Harris Financial’s Cox said, consumers may be complaining about higher prices, but they aren’t yet desperate enough to stop buying.

    The Federal Reserve’s latest Beige Book economic survey stated that business contacts in some districts had observed a “reluctance” to raise prices as consumers appeared to have grown more sensitive to prices, but other districts reported “solid demand” allowed companies to maintain prices and profitability.

    That’s likely why companies and analysts have become less concerned about price elasticity. Based on a FactSet analysis, mentions of the word “elasticity” in press releases and conference calls of S&P 500 companies
    SPX
    increased as inflation and interest rates started surging in early 2022 through the end of the year.

    With inflation trends softening this year, the Fed took a brief pause in raising rates in June, helping fuel further stock-market gains, before raising rates again in July.

    Mentions of the word elasticity in earnings press releases and conference-call transcripts of S&P 500 companies.


    FactSet

    As the chart shows, “elasticity” popped up in more than 55% of earnings releases and conference calls in mid-2022, but with the second-quarter 2023 earnings-reporting season more than half over, mentions had dropped to about 20%.

    Perhaps that will pick up, as retailers, especially those catering to lower-income customers — recall the PepsiCo comment — assess the demand impact of continued price increases.

    Meanwhile, the branded-foods company Conagra Brands Inc.
    CAG,
    +0.71%    ,
    whose wide-ranging food brands including Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim, were starting to see the emergence of a different dynamic.

    Chief Executive Sean Connolly said consumers were shifting behavior in some categories as prices remained high. Rather than trade down to lower-priced alternatives, he noticed some consumers buying fewer items overall, “more of a hunkering down than a trading down.”

    That’s exactly the kind of consumer behavior that is needed, if companies are to stop feeding into the greedflation phenomenon and to start pulling back on prices.

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  • Greedflation is not letting up. Here’s what companies are saying about it.

    Greedflation is not letting up. Here’s what companies are saying about it.

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    The second-quarter earnings season so far is showing that one trend that featured in the first quarter has not gone away.

    “Greedflation,” or the practice of companies raising prices to protect their profit margins, is alive and well, based on the number of companies that have so far acknowledged raising prices yet again, even as inflation readings have come down and as some acknowledge that their input costs are falling.

    At the same time, companies continue to emphasize on earnings calls that their customers are showing signs they are weary of higher prices and are shopping more frequently at more stores, while spending less per trip.

    See: Consumers are shopping in more stores than ever before to save money

    “Across industries, we’ve seen the same story over and over the last two years,” said Liz Zelnick, director of economic security and corporate power at Accountable.US, a liberal-leaning consumer-advocacy group.

    “CEOs claim outside forces made them gouge consumers, then turn around and give themselves raises and boast of record profits and billions in new investor handouts,” she said, referring to the billions of stock buybacks and dividend payouts the same companies have made.

    See: U.S. inflation slows again, CPI shows, as Fed weighs another rate hike

    Also read: U.S. wholesale inflation slows to a crawl, PPI shows

    Procter & Gamble Co.
    PG,
    -1.10%    ,
    for example, said it raised prices by up to 9% in its latest quarter, after raising them up to 10% the previous quarter and up to 10% in the same quarter in 2022.

    On a call with analysts, Chief Executive Jon Moeller signaled more price increases to come, which he attributed to the company’s innovation pipeline, which is creating must-have products.

    “If you look back historically, pricing has been a positive contributor to our top-line growth for something like 48 out of the 51 last quarters and again as we strengthen our innovation program even further, that will provide opportunities to continue to benefit from modest pricing,” said Moeller, according to a FactSet transcript.

    See also: Colgate to keep raising prices as inflation slows to boost margins and profit

    The company blew past earnings estimates with adjusted per-share earnings of $1.37, ahead of the $1.32 FactSet consensus, and sales of $20.6 billion, versus the $20 billion FactSet consensus.

    Gross margin increased 380 basis points from a year ago, driven by 340 basis points of pricing benefit and 290 basis points of productivity savings.

    Coca-Cola Co.
    KO,
    -1.51%
    also swept past estimates and raised guidance after the drinks and snacks giant increased prices by 10%. The company’s adjusted operating margin rose to 31.6% from 30.6% a year ago.

    Conagra Brands Inc.
    CAG,
    -0.62%
    raised prices by up to 17%, which Chief Executive Sean Connolly described as “inflation-justified.” The parent of brands such as Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim also reported that its customers are buying less food to stretch their budgets.

    For more, see: Consumers are now ‘hunkering down’ rather than ‘trading down’ on groceries, Conagra says

    Oreo cookie maker Mondelez International Inc.
    MDLZ,
    -1.82%
    raised prices in North America by 10.4 percentage points in the second quarter and raised prices for all developed markets by 12.4 percentage points. That’s after raising North America prices by 15 percentage points and prices in developed markets by 13.4 percentage points in the first quarter.

    The company’s second-quarter gross margins expanded by 3.1 percentage points to 39.4%. Revenues rose 17%, while volumes were flat.

    At Campbell Soup Co.
    CPB,
    -1.05%    ,
    sales for its fiscal third quarter were up 5%, led by “favorable net price realization,” as the company disclosed as the very first bullet point in its release. Campbell raised prices of meals and beverages by 9% and if snacks by 15%, after raising them by 15% and 13%, respectively, in the second quarter.

    However, volumes were down in the third quarter as shoppers proved sensitive to higher prices.

    Kraft Heinz Co.
    KHC,
    -0.82%
    on Tuesday said it too has lost business because it raised prices more than its competitors, but it’s not planning to cut prices to try to get those customers back anytime soon.

    “[W]hile we did lose share in the quarter, as price gaps have stayed wider for longer than we would have liked, we are managing the business for the long term and still generated mid-single-digit top-line growth within the range of what we expected,” Chief Executive Miguel Patricio said.

    The company, parent to brands including Kraft Mac and Cheese, Heinz Ketchup, Jell-O and Lunchables, indicated on the post-earnings conference call with analysts that rather than increasing discounting, or just cutting prices, it will remain focused on protecting margins, which has been allowing it to accelerate investment in the business, particularly in marketing, research and development and technology.

    Besides, as Chief Financial Officer Andre Maciel said, the gaps between Kraft’s prices and those of competitors are not getting worse. “If anything, they are slightly getting better,” Maciel said, according to an AlphaSense transcript.

    Considering the market-share losses and with inflation coming down, “do you think you took too much price, given you said you took price ahead of competitors, and they have not followed?” UBS analyst Cody Ross asked on the conference call.

    CEO Miguel Patricio’s answer was simple: “No.”

    “I mean, we had very high inflation. And we are leaders in the vast majority of categories where we play. And it’s our role as leader to try to compensate … this inflation with price increases,” Patricio said. “So I would do everything again. I mean we can always go back on price if we think we have to or when we have to. But we had to lead price increases.”

    All of that leaves families to foot the bill for higher food prices, said Accountable.US’s Zelnick.

    The Consumer Staples Select Sector SPDR exchange-traded fund
    XLP
    has gained 1.2% in the year to date, while the SPDR S&P Retail ETF
    XRT
    has gained 10.3%. The S&P 500
    XRT
    has gained 17%.

    Tomi Kilgore contributed.

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  • Greedflation is not letting up. Here’s what companies are saying about it.

    Greedflation is not letting up. Here’s what companies are saying about it.

    [ad_1]

    The second-quarter earnings season so far is showing that one trend that featured in the first quarter has not gone away.

    “Greedflation,” or the practice of companies raising prices to protect their profit margins, is alive and well, based on the number of companies that have so far acknowledged raising prices yet again, even as inflation readings have come down and as some acknowledge that their input costs are falling.

    At the same time, companies continue to emphasize on earnings calls that their customers are showing signs they are weary of higher prices and are shopping more frequently at more stores, while spending less per trip.

    See: Consumers are shopping in more stores than ever before to save money

    “Across industries, we’ve seen the same story over and over the last two years,” said Liz Zelnick, director of economic security and corporate power at Accountable.US, a liberal-leaning consumer-advocacy group.

    “CEOs claim outside forces made them gouge consumers, then turn around and give themselves raises and boast of record profits and billions in new investor handouts,” she said, referring to the billions of stock buybacks and dividend payouts the same companies have made.

    See: U.S. inflation slows again, CPI shows, as Fed weighs another rate hike

    Also read: U.S. wholesale inflation slows to a crawl, PPI shows

    Procter & Gamble Co.
    PG,
    +0.18%    ,
    for example, said it raised prices by up to 9% in its latest quarter, after raising them up to 10% the previous quarter and up to 10% in the same quarter in 2022.

    On a call with analysts, Chief Executive Jon Moeller signaled more price increases to come, which he attributed to the company’s innovation pipeline, which is creating must-have products.

    “If you look back historically, pricing has been a positive contributor to our top-line growth for something like 48 out of the 51 last quarters and again as we strengthen our innovation program even further, that will provide opportunities to continue to benefit from modest pricing,” said Moeller, according to a FactSet transcript.

    See also: Colgate to keep raising prices as inflation slows to boost margins and profit

    The company blew past earnings estimates with adjusted per-share earnings of $1.37, ahead of the $1.32 FactSet consensus, and sales of $20.6 billion, versus the $20 billion FactSet consensus.

    Gross margin increased 380 basis points from a year ago, driven by 340 basis points of pricing benefit and 290 basis points of productivity savings.

    Coca-Cola Co.
    KO,
    -0.49%
    also swept past estimates and raised guidance after the drinks and snacks giant increased prices by 10%. The company’s adjusted operating margin rose to 31.6% from 30.6% a year ago.

    Conagra Brands Inc.
    CAG,
    -0.75%
    raised prices by up to 17%, which Chief Executive Sean Connolly described as “inflation-justified.” The parent of brands such as Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim also reported that its customers are buying less food to stretch their budgets.

    For more, see: Consumers are now ‘hunkering down’ rather than ‘trading down’ on groceries, Conagra says

    Oreo cookie maker Mondelez International Inc.
    MDLZ,
    +0.09%
    raised prices in North America by 10.4 percentage points in the second quarter and raised prices for all developed markets by 12.4 percentage points. That’s after raising North America prices by 15 percentage points and prices in developed markets by 13.4 percentage points in the first quarter.

    The company’s second-quarter gross margins expanded by 3.1 percentage points to 39.4%. Revenues rose 17%, while volumes were flat.

    At Campbell Soup Co.
    CPB,
    -0.95%    ,
    sales for its fiscal third quarter were up 5%, led by “favorable net price realization,” as the company disclosed as the very first bullet point in its release. Campbell raised prices of meals and beverages by 9% and if snacks by 15%, after raising them by 15% and 13%, respectively, in the second quarter.

    However, volumes were down in the third quarter as shoppers proved sensitive to higher prices.

    Kraft Heinz Co.
    KHC,
    -1.75%
    on Tuesday said it too has lost business because it raised prices more than its competitors, but it’s not planning to cut prices to try to get those customers back anytime soon.

    “[W]hile we did lose share in the quarter, as price gaps have stayed wider for longer than we would have liked, we are managing the business for the long term and still generated mid-single-digit top-line growth within the range of what we expected,” Chief Executive Miguel Patricio said.

    The company, parent to brands including Kraft Mac and Cheese, Heinz Ketchup, Jell-O and Lunchables, indicated on the post-earnings conference call with analysts that rather than increasing discounting, or just cutting prices, it will remain focused on protecting margins, which has been allowing it to accelerate investment in the business, particularly in marketing, research and development and technology.

    Besides, as Chief Financial Officer Andre Maciel said, the gaps between Kraft’s prices and those of competitors are not getting worse. “If anything, they are slightly getting better,” Maciel said, according to an AlphaSense transcript.

    Considering the market-share losses and with inflation coming down, “do you think you took too much price, given you said you took price ahead of competitors, and they have not followed?” UBS analyst Cody Ross asked on the conference call.

    CEO Miguel Patricio’s answer was simple: “No.”

    “I mean, we had very high inflation. And we are leaders in the vast majority of categories where we play. And it’s our role as leader to try to compensate … this inflation with price increases,” Patricio said. “So I would do everything again. I mean we can always go back on price if we think we have to or when we have to. But we had to lead price increases.”

    All of that leaves families to foot the bill for higher food prices, said Accountable.US’s Zelnick.

    The Consumer Staples Select Sector SPDR exchange-traded fund
    XLP
    has gained 1.2% in the year to date, while the SPDR S&P Retail ETF
    XRT
    has gained 10.3%. The S&P 500
    XRT
    has gained 17%.

    Tomi Kilgore contributed.

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  • Manufacturing stalled in the first half. But now the stage is set for a recovery, says JPMorgan.

    Manufacturing stalled in the first half. But now the stage is set for a recovery, says JPMorgan.

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    The Institute for Supply Management’s manufacturing index is due for release Tuesday, which outside of inflationary periods (i.e., now), tends to be one of the more important economic indicators for financial markets, given its record as a bellwether.

    ISM manufacturing data during the current rate-hike cycle (in red) has lagged other periods.

    Even compared to other rate-hike cycles, the ISM manufacturing series has been one of the worst in history, points out Jason Daw, head of North America rates strategy at RBC Dominion Securities. Daw makes the case that the U.S. economy overall is not very strong for this period of the cycle, and the manufacturing data, not just ISM but also industrial production, has been particularly feeble.

    But the call of the day comes from JPMorgan’s economic team. They note that while global manufacturing stalled in the first half, the non-manufacturing components rose at a 3.2% annualized rate, allowing the global economy to grow at an above trend 2.7% rate.

    The team led by Bruce Kasman say that the typical channels through which weak manufacturing would bring down the broader economy haven’t materialized. “A major channel by which weakness in goods sectors broadens out is through depressing corporate income and pricing power. While our start-of-year outlook anticipated elevated wage gains to pressure corporate profits, the surprising strength in [first-half] global GDP was accompanied by upside surprises to inflation,” they say. In turn, there have been solid gains in both labor income and profits, and while margins have come off their peaks, they are well above pre-pandemic levels.

    Business hiring, they add, is the ultimate signal of confidence, and employment growth has continued even though expectations have soured.

    Now, say the JPMorgan team, the stage is set for a goods sector recovery. Labor income, when adjusted for inflation, is rising, while finished goods inflation is falling sharply.

    Also, business capital spending continues to expand, particularly in emerging economies outside of China. And importantly, inventories are swinging from a drag to a lift. In the first half, the step down in the pace of stock building depressed global industrial production by 3.4 percentage points.

    “Even if the pace of stockbuilding was only to level off, the impulse to global industry would be material. Add to that a potential desire to align the pace to firming demand growth and the boost could generate a jump in factory output in the coming months,” they say.

    Finally, they note, the tech spending decline after the 2020 to 2021 surge looks to be ending, and global motor vehicle production is picking up as supply-chain bottlenecks ease.

    The markets

    After an okay finish for the S&P 500
    SPX,
    -0.29%
    to a strong July, U.S. stock futures
    ES00,
    -0.36%

    NQ00,
    -0.42%
    were a bit lower as the seasonally weak month of August commenced. Gold futures
    GC00,
    -1.28%
    were trading below $2,000 an ounce. The dollar
    DXY,
    +0.42%
    rose.

    For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

    The buzz

    The ISM report is due out at 10 a.m. Eastern, when the job openings and construction spending reports also come out. Monthly auto sales also will be released throughout the day.

    Pfizer
    PFE,
    -0.03%    ,
    Caterpillar
    CAT,
    +4.05%    ,
    Uber Technologies
    UBER,
    -3.96%
    and after the close, Starbucks
    SBUX,
    -0.35%
    and Electronic Arts
    EA,
    -0.61%
    highlight the day’s earnings reports. Pfizer lowered its sales guidance while Caterpillar beat Wall Street earnings estimates and Uber reported a surprise profit.

    JetBlue Airlines stock
    JBLU,
    -8.56%
    slumped as the airline says it no longer expects to report a profit in the third quarter, owing to what it called a challenging environment in the northeast, as well as a preference by consumers for long-haul international flights.

    CVS Health
    CVS,
    +0.48%
    is going to cut 5,000 corporate jobs, according to The Wall Street Journal.

    Best of the web

    BlackRock
    BLK,
    -0.56%
    and MSCI
    MSCI,
    -0.42%
    are targets of a Congressional probe into facilitating U.S. investment in China.

    The first new U.S. nuclear reactor in nearly seven years starts operations.

    Modern-day Oppenheimers see the future of nuclear energy — and it’s mobile.

    Top tickers

    Here were the most active stock-market tickers as of 6 a.m. Eastern.

    Ticker

    		 Security name
    TSLA,
    -1.13%         		Tesla
    TUP,
    +14.28%         		Tupperware Brands
    NIO,
    -4.97%         		Nio
    AMC,
    -0.27%         		AMC Entertainment
    PLTR,
    -2.60%         		Palantir Technologies
    GME,
    -1.80%         		GameStop
    NVDA,
    -0.74%         		Nvidia
    AAPL,
    -0.15%         		Apple
    NKLA,
    +14.79%         		Nikola
    AMSC,
    +54.02%         		American Superconductor

    The chart

    The inflation-adjusted equity premium is looking pretty bleak. That’s calculated by taking the expected return to the S&P 500 and subtracting 10-year TIPS yields. “While admittedly this graphic is skewed by the few megacaps trading at huge multiples, it’s sobering nonetheless,” says Michael Ashton, better known as the Inflation Guy.

    Random reads

    Granted, Philadelphia’s a big sports town, but there were actual tailgates to get the Eagles’ throwback Kelly green jerseys that went on sale.

    A Chinese zoo has denied that a bear is human after video of the creature standing on two feet.

    Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

    Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.

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  • Used Car Prices Drop By a Record. Carvana Stock Is Up, a Lot.

    Used Car Prices Drop By a Record. Carvana Stock Is Up, a Lot.

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    Used Car Prices Drop By a Record. Carvana Stock Is Up, a Lot.

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  • ‘Sell’ signals are flashing across the stock market now. But bulls still have one chance.

    ‘Sell’ signals are flashing across the stock market now. But bulls still have one chance.

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    The stock market, as measured by the S&P 500 Index SPX, has struggled to maintain the rally that began in mid-March, and now we are getting new sell signals from some of our internal indicators.

    SPX was turned back by resistance near 4200 for the third time since last August. That is an extremely strong resistance area now. Moreover, there is further resistance at 4300. On the downside for SPX, there is technically support at 3970, where the small gaps exist on the SPX chart. A close below 3950 would be extremely bearish and…

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  • J&J, C3.ai, Albemarle, Walmart, and More Stock Market Movers

    J&J, C3.ai, Albemarle, Walmart, and More Stock Market Movers

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    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/stock-market-movers-88cae2de

    • Order Reprints
    • Print Article

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  • Here’s why UBS’s deal to buy Credit Suisse matters to U.S. investors

    Here’s why UBS’s deal to buy Credit Suisse matters to U.S. investors

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    Thousands of miles away from U.S. shores last Wednesday, a headline began working its way across Europe, then Wall Street, sparking fresh panic as it dawned on investors that they may be facing yet another banking crisis.

    Shares of Credit Suisse
    CS,
    -6.94%

    CSGN,
    -8.01%
    would eventually sink 25% last week to a fresh record low, unable to find footing days after the head of top shareholder Saudi National Bank said they won’t invest any more in the bank. By Sunday, the struggling Swiss bank had a new owner, leaving investors to wonder if at least one chapter in a current roller coaster of global banking stress can be closed.

    Swiss authorities steered rival UBS AG
    UBS,
    -5.50%
    to an all-stock deal worth 3 billion francs ($3.25 billion), or 0.76 francs per share, a not-so-slight discount to the 1.86 franc close on Friday of Credit Suisse. So important was the agreement, it was announced by Switzerland’s President Alain Berset, with both banks and the chairman of the Swiss National Bank on either side of him.

    “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the SNB said in a statement.

    The Swiss National Bank said either Swiss bank can borrow up to 100 billion francs in a liquidity assistance loan, and Credit Suisse will get a liquidity assistance loan of up to 100 billion francs, backed by a federal default guarantee. The U.S. Federal Reserve had worked with its Swiss counterpart on the deal as well.

    “We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient,” said a statement Sunday by Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell.

    European Central Bank President Christine Lagarde also praised Swiss authorities for “restoring orderly market conditions and ensuring financial stability,” while reiterating the “resilience” of the euro-area banking sector. She said the ECB stands ready to provide liquidity if needed.

    Her comment comes days after the the ECB pulled the trigger Thursday on a 50-basis-point rate hike, as it warned “inflation is projected to remain too high for too long.”

    The deal for Credit Suisse comes in the wake of stress on the U.S. banking sector, triggered by the collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank, all within the space of a week.

    “Virtually everyone at this high-level Swiss press conference — government officials, regulator, central bank governor, and executives of the two banks — blamed the US banking sector turmoil for being the catalyst for the financial turmoil in #Switzerland,” tweeted Mohamed A. El-Erian, chief economic adviser at Allianz, of the press conference Sunday with Swiss authorities to announce the deal.

    And for U.S. investors who have had quite enough anxiety lately, a logical question would be to ask if the deal that brings together the two Swiss banking giants will now remove one layer of stress from global markets, and hence Wall Street.

    For that reason, many will be watching how Asian and U.S. equity futures trade later on Sunday, as well as Europe’s opening reaction on Monday.

    The Credit Suisse news may only go so far to assuage investors, with some raising an eyebrow over Powell and Yellen’s Sunday statement about the Swiss deal. “Seriously, if everyone truly believed the ‘The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient’ … Would they have to tell us? Are these words enough?” said Jim Bianco, president of Bianco Research, on Twitter. “Or do investors want to see Warren Buffett writing checks to regional banks in the next two hours (before Asia opens)?”

    Fox News and other media outlets reported over the weekend that the Berkshire Hathaway
    BRK.A,
    -2.76%

    BRK.B,
    -2.81%
    chairman and CEO had been talking to President Joe Biden’s administration in recent days over possible investments in the battered regional bank sector, and offering his advice.

    The billionaire investor was responsible for a capital injection to Bank of America
    BAC,
    -3.97%
    in 2011 as its shares tumbled due to subprime mortgages, as well as $5 billion to Goldman Sachs
    GS,
    -3.67%
    amid the 2008 financial crisis.

    Some had said ahead of the deal last week that global-market stability depended on the Swiss first getting their house in order.

    “I don’t think there are any direct consequences for U.S. investors, but it’s extremely negative for sentiment if a major Swiss bank fails, hot on the heels of SVB/SBNY,” Simon Ree, the founder of Tao of Trading options academy school and author of the book by the same name, told MarketWatch last week.

    “The market will be (temporarily) wondering who’s next. It could start to have the optics of a global banking crisis, rather than an idiosyncratic failure of a niche U.S. regional bank,” said Ree.

    Credit Suisse’s troubles came amid a revamp and five straight money-losing quarters, following a painful legacy that included billions worth of exposure to the collapsed Archegos family office and $10 billion worth of funds tied to Greensil Capital it had to freeze.

    Read: In its delayed annual report, Credit Suisse admitted to financial control weaknesses

    “The SNB and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial center,” said Otavio Marenzi, CEO of Opimas, a management consulting firm focused on global capital markets, in a note to clients last week.

    The bank’s plummeting stock price and soaring bond yields was “mimicking Silicon Valley Bank’s recent collapse in a frightening way. In terms of the outflow of deposits, Credit Suisse’s position looks even worse,” said Marenzi.

    Over there?

    As far as some are concerned, the market may have more stress ahead of it.

    “The SVB failure highlights the potential for other skeletons to be hidden in closets and the market will spend the next few weeks/months hunting them out. Even just the extreme volatility we’ve seen on bond markets the last five days renders any attempt to ascribe a value to other asset classes redundant,” said Ree.

    Plus: Here’s what’s really protecting your bank deposits

    His view is shared by many analysts, who in part point to increasing uncertainty around how the Federal Reserve will react going forward as it tries to balance market and economic risks. Some now see full percentage rate cuts by year-end, amid banking stress.

    Samantha LaDuc, the founder of LaDucTrading.com who specializes in timing major market inflections, said she stands by her advice (that she shared with MarketWatch in February) that investors are being “paid to wait,” by staying in cash.

    Read: Looking for a place for your cash? Grab these 5% CDs while you still can.

    “I have been literally recommending and tweeting to clients that we are PAID TO WAIT in T-bills at 5% until [the] bond market can figure out if we have recession or not. All that happened last week pulled forward recession risk,” she told MarketWatch.

    Prior to the SVB crisis, she had been recommending clients short reflation trades, such as banks
    XLF,
    -3.22%

    KRE,
    -5.99%    ,
    energy
    XLE,
    -1.57%
    and metals and mining
    XME,
    -0.78%

    COPX,
    +0.63%

    SLX,
    -1.96%    ,
    and has been saying she sees “unattractive risk-reward for either stocks or bonds.”

    Opimas’ Marenzi said the threat to Wall Street from Credit Suisse was simple:

    “You mean what do American investors who do not own any non-American stocks and do not own a passport and could not find Switzerland on a map and who think that anyone who speaks any language other than English is a bit weird have to worry about? Not a lot, other than the contagion spreading back into the US banking system and causing a meltdown,” he told MarketWatch.

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  • AMD Stock Should Benefit From Next-Generation Computer Chips

    AMD Stock Should Benefit From Next-Generation Computer Chips

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    These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed.

    Advanced Micro Devices AMD-Nasdaq

    Buy (four stars out of five) • Price $64.52 on Dec. 23

    by CFRA

    Our Buy recommendation reflects our expectation for significant share gains on the central-processing-unit data-center side from the ramp-up of AMD’s next-generation EPYC processor, greater momentum for AMD’s graphics processing units, and our expectation for balance sheet improvement.

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  • 20 dividend stocks that may be safest if the Federal Reserve causes a recession

    20 dividend stocks that may be safest if the Federal Reserve causes a recession

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    Investors cheered when a report last week showed the economy expanded in the third quarter after back-to-back contractions.

    But it’s too early to get excited, because the Federal Reserve hasn’t given any sign yet that it is about to stop raising interest rates at the fastest pace in decades.

    Below is a list of dividend stocks that have had low price volatility over the past 12 months, culled from three large exchange traded funds that screen for high yields and quality in different ways.

    In a year when the S&P 500
    SPX,
    -0.40%
    is down 18%, the three ETFs have widely outperformed, with the best of the group falling only 1%.

    Read: GDP looked great for the U.S. economy, but it really wasn’t

    That said, last week was a very good one for U.S. stocks, with the S&P 500 returning 4% and the Dow Jones Industrial Average
    DJIA,
    -0.32%
    having its best October ever.

    This week, investors’ eyes turn back to the Federal Reserve. Following a two-day policy meeting, the Federal Open Market Committee is expected to make its fourth consecutive increase of 0.75% to the federal funds rate on Wednesday.

    The inverted yield curve, with yields on two-year U.S. Treasury notes
    TMUBMUSD02Y,
    4.540%
    exceeding yields on 10-year notes
    TMUBMUSD10Y,
    4.064%    ,
    indicates investors in the bond market expect a recession. Meanwhile, this has been a difficult earnings season for many companies and analysts have reacted by lowering their earnings estimates.

    The weighted rolling consensus 12-month earning estimate for the S&P 500, based on estimates of analysts polled by FactSet, has declined 2% over the past month to $230.60. In a healthy economy, investors expect this number to rise every quarter, at least slightly.

    Low-volatility stocks are working in 2022

    Take a look at this chart, showing year-to-date total returns for the three ETFs against the S&P 500 through October:


    FactSet

    The three dividend-stock ETFs take different approaches:

    • The $40.6 billion Schwab U.S. Dividend Equity ETF
      SCHD,
      +0.15%
      tracks the Dow Jones U.S. Dividend 100 Indexed quarterly. This approach incorporates 10-year screens for cash flow, debt, return on equity and dividend growth for quality and safety. It excludes real estate investment trusts (REITs). The ETF’s 30-day SEC yield was 3.79% as of Sept. 30.

    • The iShares Select Dividend ETF
      DVY,
      +0.45%
      has $21.7 billion in assets. It tracks the Dow Jones U.S. Select Dividend Index, which is weighted by dividend yield and “skews toward smaller firms paying consistent dividends,” according to FactSet. It holds about 100 stocks, includes REITs and looks back five years for dividend growth and payout ratios. The ETF’s 30-day yield was 4.07% as of Sept. 30.

    • The SPDR Portfolio S&P 500 High Dividend ETF
      SPYD,
      +0.60%
      has $7.8 billion in assets and holds 80 stocks, taking an equal-weighted approach to investing in the top-yielding stocks among the S&P 500. It’s 30-day yield was 4.07% as of Sept. 30.

    All three ETFs have fared well this year relative to the S&P 500. The funds’ beta — a measure of price volatility against that of the S&P 500 (in this case) — have ranged this year from 0.75 to 0.76, according to FactSet. A beta of 1 would indicate volatility matching that of the index, while a beta above 1 would indicate higher volatility.

    Now look at this five-year total return chart showing the three ETFs against the S&P 500 over the past five years:


    FactSet

    The Schwab U.S. Dividend Equity ETF ranks highest for five-year total return with dividends reinvested — it is the only one of the three to beat the index for this period.

    Screening for the least volatile dividend stocks

    Together, the three ETFs hold 194 stocks. Here are the 20 with the lowest 12-month beta. The list is sorted by beta, ascending, and dividend yields range from 2.45% to 8.13%:

    Company

    		 Ticker

    		 12-month beta

    		 Dividend yield

    		 2022 total return
    Newmont Corp.

    		 NEM,
    -0.78%         		0.17

    		 5.20%

    		 -30%
    Verizon Communications Inc.

    		 VZ,
    -0.07%         		0.22

    		 6.98%

    		 -24%
    General Mills Inc.

    		 GIS,
    -1.47%         		0.27

    		 2.65%

    		 25%
    Kellogg Co.

    		 K,
    -0.93%         		0.27

    		 3.07%

    		 22%
    Merck & Co. Inc.

    		 MRK,
    -1.73%         		0.29

    		 2.73%

    		 35%
    Kraft Heinz Co.

    		 KHC,
    -0.56%         		0.35

    		 4.16%

    		 11%
    City Holding Co.

    		 CHCO,
    -1.45%         		0.38

    		 2.58%

    		 27%
    CVB Financial Corp.

    		 CVBF,
    -1.24%         		0.38

    		 2.79%

    		 37%
    First Horizon Corp.

    		 FHN,
    -0.18%         		0.39

    		 2.45%

    		 53%
    Avista Corp.

    		 AVA,
    -7.82%         		0.41

    		 4.29%

    		 0%
    NorthWestern Corp.

    		 NWE,
    -0.21%         		0.42

    		 4.77%

    		 -4%
    Altria Group Inc

    		 MO,
    -0.18%         		0.43

    		 8.13%

    		 4%
    Northwest Bancshares Inc.

    		 NWBI,
    +0.10%         		0.45

    		 5.31%

    		 11%
    AT&T Inc.

    		 T,
    +0.63%         		0.47

    		 6.09%

    		 5%
    Flowers Foods Inc.

    		 FLO,
    -0.44%         		0.48

    		 3.07%

    		 7%
    Mercury General Corp.

    		 MCY,
    +0.07%         		0.48

    		 4.38%

    		 -43%
    Conagra Brands Inc.

    		 CAG,
    -0.82%         		0.48

    		 3.60%

    		 10%
    Amgen Inc.

    		 AMGN,
    +0.41%         		0.49

    		 2.87%

    		 23%
    Safety Insurance Group Inc.

    		 SAFT,
    -1.70%         		0.49

    		 4.14%

    		 5%
    Tyson Foods Inc. Class A

    		 TSN,
    -0.40%         		0.50

    		 2.69%

    		 -20%
    Source: FactSet

    Any list of stocks will have its dogs, but 16 of these 20 have outperformed the S&P 500 so far in 2022, and 14 have had positive total returns.

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

    Don’t miss: Municipal bond yields are attractive now — here’s how to figure out if they are right for you

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  • Ford stock is now a ‘sell’ at UBS as an oversupply problem looms

    Ford stock is now a ‘sell’ at UBS as an oversupply problem looms

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    Shares of Ford Motor Co. were hit hard Monday by UBS analyst Patrick Hummel’s recommendation that investors sell, as the auto industry is facing a worrisome U-turn from undersupply to oversupply.

    Hummel also cut his ratings on several other global auto makers, including General Motors Co.
    GM,
    -5.59%    ,
    saying that as a recession concerns grow, “demand destruction is no longer a vague risk.”

    In addition to all of the data suggesting the economy is slowing, Hummel said growing U.S. dealer inventories, weak used-car pricing, used-car dealer profit warnings and signs indicating deteriorating orders and shorter delivery times make him more cautious on the overall auto industry.

    Don’t miss: CarMax stock suffered biggest selloff since the year 2000, as inflation, low consumer confidence lead to big profit miss.

    “We think it will only take 3-6 months for the auto industry to end up in oversupply, which will put an abrupt end to a 3-year phase of unprecedented OEM [original equipment manufacturer] pricing power and margins,” Hummel wrote in a note to clients.

    As part of his negative industry outlook, he cut his rating on Ford
    F,
    -7.38%
    to sell from neutral and his stock price target to $10 from $13, with the new target implying about 11% downside from current levels.

    Ford’s stock sank 7.6% in morning trading. It was trading up just 0.6% month to date, after plunging 26.5% in September to suffer its worst monthly performance since it plummeted 30.6% during pandemic-stricken March 2020.

    Hummel noted that Ford has already warned about having more vehicles in inventory than expected, and above payments to suppliers running about $1 billion higher than projected, so he sees little margin left for negative surprises in terms of fourth-quarter deliveries and supply costs.

    Hummel cut his 2023 adjusted earnings-per-share estimate by 61% to 52 cents a share, to reflect a $6.5 billion drop in price and sales mix. The compares with the current 2023 FactSet EPS consensus of $1.87.

    “This sounds very negative, but Ford gains $19 billion in price alone since the beginning of 2020,” Hummel wrote.

    Also read: Ford again raises price of F-150 Lightning electric pickup.

    Read more: Ford September sales fall as drop in trucks offsets near tripling in EVs.

    Meanwhile, GM’s stock dove 6.9% in morning trading toward a three-month low, and shares have shed 2.5% so far this month after tumbling 16% last month.

    Hummel downgraded GM to neutral from buy, and dropped his price target by 32%, to $38 from $56.

    The rating remains above Ford’s, because unlike its rival, Hummel noted that GM has had “no hiccups” in its third-quarter production schedule and therefore a “solid” quarterly report is expected. However, the downgrade reflects the fact that GM is “not immune” to a downturn in the industry.

    Separately, Hummel also cut his stock-price target on Tesla Inc.
    TSLA,
    -0.16%
    to $350 from $367, saying that following a third-quarter volume report that was below expectations, it will be “more challenging” for the electric-vehicle maker to meet its 2022 delivery growth target.

    However, Hummel reiterated his buy rating on Tesla, as he believes the EV maker is best positioned to use pricing as the tool to fill its factories.

    “Overall, the recession outlook should result in moderately lower margins for Tesla than previously expected, but we’re highly confident that by keeping the top line [revenue] momentum, Tesla will even widen the gap vs. competitors in terms of profitability,” Hummel wrote.

    Ford’s stock has fallen 3% over the past three months, while GM shares have lost 3.1% and Tesla’s stock has dropped 11.8%. In comparison, the S&P 500 index
    SPX,
    -1.08%
    has declined 7.5% the past three months.

    Among other auto makers, he also downgraded both Renault SA
    RNO,
    +2.41%

    RNLSY,
    +1.17%
    and Volkswagen AG
    VOW,
    -3.29%
    to neutral from buy. He also downgraded auto parts makers Continental AG
    CON,
    +0.10%
    and Faurecia SE
    EO,
    -3.77%

    FURCF,
    -3.67%
    to neutral from buy.

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