Hedge fund manager Dan Niles said he expects stock markets to fall by the middle of this year as the Federal Reserve opts to keep interest rates higher for longer. Niles, founder and senior portfolio manager of the Satori Fund, told CNBC’s “Street Signs Asia” Thursday that there was a “disconnect” between market expectations and the U.S. central bank’s messaging. His comments echo Fed Chair Jerome Powell, who said he doesn’t expect to cut rates this year after the central bank raised interest rates by 25 basis points Wednesday. However, interest rate swap data shows that a significant proportion of the market expects a cut in the base rate by the middle of this year. “I think that’s where the disconnect is,” said Niles. “Services, excluding housing, has still got strong inflation because the jobs market is just so strong, and that’s over 55% of the core inflation numbers that the Fed looks at.” “I think by the time you get to mid-year, and it becomes pretty apparent that the Fed is not going to be cutting, that’s when the unfortunate realization is going to be that the Fed is not going to help you out like people want,” he added. .SPX 1Y line Niles said his hedge fund, which is tech-focused, had positive gains in 2022 despite a 19% decline in the S & P 500 and a 33% decline in the Nasdaq . The current situation echoes events seen in the 1970s , he added, when premature rate cut predictions led to a surge in inflation and eventual hikes during the 1980s to bring it back under control. As a result, some stock markets lost a third of their value. However, despite his bearish outlook, the hedge fund manager said there could be several tailwinds in the near term for the U.S., such as the Fed pausing after two more rate hikes, inflation slowing, and China’s reopening. Earlier this year, Niles named his top defensive stocks to prepare for a potential steep market decline. He has previously said he expects the S & P 500 to fall to 3,000, more than 25% below its current level. — CNBC’s Weizhen Tan contributed to this report.
DoubleLine Capital CEO Jeffrey Gundlach said he sees one additional rate hike from the Federal Reserve before the central bank ends its tightening cycle.
“I think one more,” Gundlach said Wednesday on CNBC’s “Closing Bell: Overtime.” “I think it’s tough to make the statement ‘ongoing increases’ with an ‘s’ at the end of the word ‘increase’ and do zero unless you had very substantial change in economic conditions.”
The Fed on Wednesday raised its benchmark interest rate by a quarter percentage point, taking its target range to 4.5%-4.75%, the highest since October 2007. The Fed’s statement included language noting that the central bank still sees the need for “ongoing increases in the target range.”
The so-called bond king said Fed Chairman Jerome Powell had a “clarifying” statement at the press conference Wednesday, saying the real yields are positive across the curve. Gundlach said he was referring to the Treasury Inflation-Protected Securities (TIPS), whose yields have stopped their ascent.
“He’s looking at the TIPS market, which had a huge increase in yields last year. That was a major headwind for risk assets in the stock market,” Gundlach said. “They’ve stopped going up and I have a feeling that real yields are going to not go up in the first part of this year. So that keeps a little bit of runway, I think.”
Stocks staged a big comeback in January, led by beaten-down technology names. The S&P 500 rallied 6.2% in January, notching its best start of the year since 2019. The tech-heavy Nasdaq Composite jumped 10.7% last month for its best monthly performance since July.
In Powell’s press conference, the Fed chief said the central bank could conduct a few more rate hikes to bring inflation down to its target.
“We’ve raised rates four and a half percentage points, and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive,” Powell said. “Why do we think that’s probably necessary? We think because inflation is still running very hot.”
Asked if Gundlach sees the Fed cutting rates this year, he said it’s a coin flip, depending on the incoming inflation data.
“I kind of think that they’ll cut rates in the second half of the year, but I’m not really committed to that idea firmly at all,” Gundlach said.
The widely followed investor also said he believes the odds for a recession this year have decreased, but they are still above 50%.
This nascent bull market started with the peak in interest rates and the dollar back in the fall and then broadened to include bank and semiconductor stocks in 2023. Is it fragile? Is it alchemy? Is it real? We’ll know after we see the quarterly earnings this week from the likes of Club holdings Apple (AAPL), Meta Platforms (META) Alphabet (GOOGL) and Amazon (AMZN), as well as what the Federal Reserve decides at its two-day meeting ending Wednesday and what the monthly nonfarm payroll numbers show Friday. I’m not as concerned as I would normally be though because the critics right now feel like poor picadors to me who would never catch a bull, let alone a matador who would put an end to things. Here’s why: Much if not most of the investing public and the money managers entrusted with their assets stopped believing in this market a long time ago when the Fed let things get out of control for a year because it feared a resurgent Covid. Public health was none of its business but it became its business and it did the best it could do. The revulsion that managers and investors feel started with the free money that then-President Donald Trump gave out, which somehow, got invested in a lot junk. That started a brutal pace of illegitimacy. It was followed up with the wrath of tech and the trillionaire sell-off of FANG and Friends, one that ultimately led to the end of FANG. That’s right we created FANG a decade ago this week on “Mad Money,” and it was a really good call — until it wasn’t. Facebook, now Meta, peaked ages ago and seems almost unimportant. Amazon got so bloated during the pandemic that it must be rightsized or its earnings won’t entitle it to be a growth stock. Netflix (NFLX) was the best of the lot, but your money turned into a pillar of salt if you looked at it at any time since November 2021, the month of the tech-heavy Nasdaq ‘s record high. You could say that about all of the FANG and friends names, including Google, now Alphabet. Apple held up a little longer and didn’t peak until early January 2022 along with the broader market. Oh, and why not include Tesla (TLSA) in the bunch; it deserved its trillionaire-cursed fate. Microsoft (MSFT) and Tesla reported and they appear to be non-events, which is rather incredible when you consider that Microsoft’s forecast came down quite a bit because of the Azure cloud nonetheless, the putative gem of its web services business, and Tesla actually lowered the price of its vehicles, something never thought possible. When Amy Hood, CFO of Club holding Microsoft, dropped the hammer during the post-earnings conference call it looked over. When Elon Musk succumbed to competition, it looked dead. Yet, take a look: Both had excellent weeks. It didn’t matter. It could be the same for Alphabet, Amazon, Apple and Meta this week. That’s important. However, far more important is the lassitude with which we accepted these numbers. There was, indeed, an instant tsunami of selling after Hood dropped Microsoft’s bomb. Tesla’s stock had been going down for months. Other than the media did anyone care? The world is so worn out of fear for these, and the ennui for FANG and friends has transcended fear and gloom. We just don’t care anymore. The Fed? It could surprise us with a 50-basis-points interest rate hike this week. That would be poorly received initially but even that could be swallowed IF accompanied by a simple “done for now” statement. It’s worth noting that the market has over 98% odds on a 25-basis-point increase, according to the CME’s FedWatch tool . There’s even a slim contingent that sees a chance of no action. The nonfarm payroll report? We need to see decent wage-price stabilization — and given the layoffs we have seen — if we don’t get one, we will simply say it’s a matter of time. I know that these words sound like a derisking of the market. But that would be so wrong it’s painful. A decade after FANG what matters is everything else: the ascendancy of American businesses as a whole and all of those broadening bull markets. For example, Boeing (BA) rallied despite the FAA outage, and web stocks rallied despite Azure’s softness. Housing stocks held in because the demand for housing is demographically based and mortgage rates have stabilized, thanks to the inverted yield curve in the bond market, where short-duration rates are higher than longer-dated ones. The prices of new homes have been lowered, but that’s key to the hopefully receding inflation outlook. The key to the strength of this past week’s market was, of all things, Dow stock American Express (AXP). Much to the puzzlement of people who run big swaths of money, Amex’s strength came from millennial users. They are spending on travel and leisure and, most importantly, dinners out. But who can blame them. They are still remembering when they could do nothing during Covid. Plus, they love the points and the service. The Amexes, not the sideshow fintechs created by insane venture capitalists, are the winners. The stability of a market that’s based, in part, on the assumption of a JPMorgan (JPM) or an American Express or even a Boeing rallying on earnings, seems tidal to me. They stand for the broadening of it all, and the fact that it came after a huge overbought condition. That matters. When you study the S & P Oscillator, as I have, you get these confirmative moves when you experience further elevation as the Oscillator returns to the mean. That’s what’s happening as we consider the market to be far bigger than any group of a half-dozen stocks. No one company is important: The asset class prevails. It didn’t even matter that the incompetence of the men who run the machine surfaced again. The market is too strong for their stupidity — and the lack of actual names who were, well, stupid is a welcome sign. In short, we are experiencing the market’s liberation from FANG and friends. Even a miss by Apple can be explained away by the results of the pernicious, Orwellian-style release of people into a country, China, that had told you that Covid was a death sentence and the U.S. vaccines were worthless. You conquer that cynical belief system of the Communist Party with purchases of sneakers from Nike (NKE) and perfumes from Club holding Estee Lauder (EL), a la the lunar new year. You then have a pretty forgiving stance for Apple’s numbers. Undoubtedly, we have to get some bankruptcies soon, preferably by ne’er-do-well retailers and venture capital-backed fintechs and enterprise software firms and those who put money up for them. We need to rein in spending more so that the Fed can begin its period of peace having conquered those who kept paying up for the same thing. We are almost to the point, though not yet, where you can afford to job-hop. Thanks to Chipotle Mexican Grill (CMG) for announcing you need 15,000 people just when we thought the Fed was finishing its work. I guess that’s what burrito season brings us. Can we at least wait for the Super Bowl to be played? Yes, I am painting — without the help of ChatGPT, or its Nvidia (NVDA)-based backbone — a return to the era of no single company having real impact on the entire market, and no one move by the Fed doing so, either. The stalemate in Washington over the debt ceiling has led to the seemingly annual talk about a disastrous default that has always, to this point, been averted. The Fed may go with a completely against consensus 50 and say we aren’t done, stay tuned. We might even have misses among all the majors, but I am portraying a bull that just doesn’t care. It’s a bull that’s based on, not a lack of alternatives, which had been the case for three years, but a plethora of index fund money that follows the surges of whatever moves the needle collectively. You can boil all of this down to the suddenly hackneyed word, resiliency, as in the market is resilient in the face of its broad nature. We wait for the shortfall pronouncements from Apple, Amazon and Alphabet and move on NOT FROM THE STOCK MARKET but to OTHER STOCKS more representative of a resurgent America buoyed by its natural resources, its post-Covid strength, and its central bank that preserves purchasing power . We have the Russians, the Chinese and the Europeans to thank for that sanguine stance. The anticipation of what’s left of the FANG reporting season is simply prurient at this point and not dispositive. The drama is media created but ignored by 401(K) contributions and earmarked pension benefits that are actually being fulfilled. Sound too Panglossian? How about a hard-won battle with the narrowness of the bear that we have suffered from, not even seeming to acknowledge its beginning when the Fed went for preservation not profligacy back in the fall of 2021. The lack of credit to Fed Chairman Jerome Powell and company is astounding to me. But once a doofus always a doofus, from his lack of massive Treasury sales to his crazy cadence of rigor in 2022. Yes, I am shredding the cynicism and heralding the new bull market, one that’s not ignorant of what ails things, but is benignly rotational. The obsession with FANG a decade after its birth is over and that means more money for the rest of the 500 companies in the S & P 500 benchmark index. That’s something the media fails to acknowledge and that will be on display writ large next week. My take? Ignore the sirens of a Circe in Bear uniform. That now unheralded cohort and its despoiled fellow travelers didn’t even make the playoffs, let alone the two conference championships. This is a week we will get through and any decline will be regarded as a clarion call to get in — repulsed only by cynical market prognosticators who insist on being the sound and the fury signifying nothing as the bulls trample on and leave their underinvested legions to starve the once over-served steers. (Jim Cramer’s Charitable Trust is long AAPL, META, GOOGL, AMZN, MSFT, EL, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Jim Cramer at NYSE with bull. June 30, 2022.
Virginia Sherwood | CNBC
This nascent bull market started with the peak in interest rates and the dollar back in the fall and then broadened to include bank and semiconductor stocks in 2023. Is it fragile? Is it alchemy? Is it real? We’ll know after we see the quarterly earnings this week from the likes of Club holdings Apple (AAPL), Meta Platforms (META) Alphabet (GOOGL) and Amazon (AMZN), as well as what the Federal Reserve decides at its two-day meeting ending Wednesday and what the monthly nonfarm payroll numbers show Friday.
2022 was a bad year for many investors, with most stocks — especially tech — plummeting to levels not seen since 2008. The tech-heavy Nasdaq Composite Index dropped more than 33% in 2022, while the S & P 500 fell nearly 20%. But there could be some opportunities in the chaos, with a number of companies trading at steeper discounts on a price-to-earnings basis than they have in recent history. A price-earnings ratio is the current share price of a stock divided by its earnings per share. Forward P/E incorporates a company’s forward-looking, estimated earnings per share from Wall Street analysts. CNBC Pro screened for analyst favorites using these criteria: Stocks trading at a lower forward price-to-earnings ratio relative to their average five-year forward P/E multiple, “Buy” ratings from at least 60% of analysts covering them, Upside to average price target of 50% or more. The following names appeared on the screen. Cybersecurity firms CrowdStrike and Palo Alto Networks are two names that showed up. Both are trading at significant discounts to their average five-year forward P/E multiples, with CrowdStrike at an 88% discount — the highest on the list — and Palo Alto at a 20% discount. Palo Alto’s CEO said earlier that it was seeing tailwinds from customers looking to slash costs in a worsening economy. CrowdStrike said in December that new earnings growth had slowed , but some investors were still optimistic on the stock. Josh Brown and Cathie Wood snapped up more of it , with Brown saying he views CrowdStrike as a long-term prospect. More than 70% of analysts covering these two stocks give them a buy rating. They also see big upside potential — 70% for CrowdStrike and 55% for Palo Alto. Wall Street has been particularly bullish on the cybersecurity sector recently, despite the volatile market. Canada-based payments tech firm Nuvei also made the list, trading at a discount of nearly 70% to its average five-year forward P/E multiple. The firm recently made a $1.3 billion acquisition that’s set to boost its operations in the United States. It’s had a good start to the year, with its stock surging nearly 24% in January so far. Hong Kong-based real estate firm ESR Group stood out for its 100% buy rating. The company is trading at a respectable discount of 42%. Other firms such as cloud service companies Datadog and Zscaler also showed up on the screen. — CNBC’s Maggie Fitzgerald contributed to this report.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Wednesday’s key moments. Holding off on buying Be wary of Salesforce downgrade Watch for potential Alphabet pop 1. Holding off on buying Stocks rose Wednesday to continue a positive start to the year, spurred by economic data suggesting the Federal Reserve is making headway in its fight against inflation. A higher close on the Nasdaq Composite , which suffered the most in 2022, would be four straight days of gains. The market is in overbought territory, according to our trusted S & P 500 Short Range Oscillator . This means a pause on buying for us. We took advantag e of the market’s recent gains earlier this week with Estee Lauder (EL) — and then again with Microsoft (MSFT) and Nvidia (NVDA). We booked profits on all three. 2. Be wary of Salesforce downgrade Bernstein on Wednesday downgraded Salesforce (CRM) to underperform from market perform (sell from hold), citing slower growth and concern about the company’s margins. Analysts argued that deceleration in Salesforce’s growth has been masked by its acquisitions and that the company’s cost-cutting measures – which include layoffs – will further impact efficiency and growth. But we disagree with their thesis since soon-to-be sole CEO Marc Benioff reportedly told employees about half of Salesforce account executives brought in more than 95% of deals, with the lack of productivity stemming largely from newer hires. 3. Watch for potential Alphabet pop While tech has gained this week on the back of upbeat economic data, there is one stock in particular we expect to rise even further. Jim Cramer said that his sources tell him Alphabet (GOOGL) is gearing up to implement a hiring freeze, and then cut its headcount. Jim says if Alphabet does make those moves, the stock could pop. The company said last year that it only plans to slow hiring in 2023. (Jim Cramer’s Charitable Trust is long EL, MSFT, NVDA, CRM, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Y2K is back in a big way in the fashion world, but history isn’t just repeating itself on the runway. The stock market appears to be nostalgic for the early 2000s, as it is once again turning its back on tech.
There were few places for investors to hide in this year’s bloodbath, but those exposed to the tech-heavy
Nasdaq Composite
index undoubtedly had it the worst. Through the close Friday, the last trading day of the year, the Nasdaq had plummeted 33.1% in 2022, falling 8.7% in the past month alone.
Seriously, this is not where I thought we would be: The 3,800 level on the S & P 500 at the end of December 2022. Remember, way back at the end of last year, global economies were mostly reopened following almost two years of pandemic dislocation, and earnings appeared to be on a mending trajectory. Thet 4,766 year-end point in 2021 is roughly 25% higher than where we stand today. The Nasdaq Composite is even worse – staggering to the finish line when it entered 2022 at 15,645, more than 50% higher than current levels. Those numbers are amazing – actually, more like breathtaking. Portions of the market were overvalued, including the high-flying supercharged software names that sold for 20 times sales with no earnings in sight. However, much of the public equity market felt reasonably priced, considering that the Federal Reserve felt confident that inflation was transitory and that we could avoid a recession. Early in 2022, a few outliers predicted that Russia would invade Ukraine, but almost all Wall Street strategists predicted another up year. Whoops. So, what comes next? If you listen to pundits, almost all are in dour agreement about a poor 2023 market . Even using target levels for the optimists in the crowd, such as Deutsche Bank at 4,500, that 16% advance is still 6% below where the S & P was on Jan. 4 of this year. The good news for anyone secretly bullish, hiding somewhere in an underground bunker, is that the experts are usually wrong. A few notable down years We decided to comb through some data on the year following down markets. The table below shows all the years since 1960 when the S & P 500 fell at least 10%. There are 10 instances excluding 2022. In three of the 10 cases illustrated, the market fell hard after a similar experience in the prior year, averaging a horrendous decline of 16.5%. Two of those years, 2001 and 2002, were the aftermath of the bursting of the dot-com bubble and then Sept. 11. The other down year, 1974, came on the heels of the 1973 oil embargo and the onslaught of inflation in the +8% range for close to a decade. Many analysts have drawn comparisons to this period of history, and that remains a worry. The huge excess of demand, propelled by low interest rates, pandemic stimulus funding and a decrease in Covid-affected supply, are the key inflation factors this time around. The spark that began the 1973 inflation was the spike in oil prices and the government’s funding response. Not surprisingly, the oil embargo was the incentive for the U.S. to become fully self-sufficient and the No. 1 oil producer in the world. In six of the 10 years following a 10% decline, the average increase in the S & P 500 was 17.5%. While it’s somewhat comforting that there are twice the number of strong markets after tough years than weak ones, there isn’t not enough data to be very convincing. Next, we reviewed 20 years of data for what happened in the subsequent year, to the 20 worst-performing stocks in the S & P 500 when the index was flat or down. Of course, because the market has been so robust since 2002, there are very few years to study. The table suggests that following a flat to down year, the worst stocks in the index usually have strong absolute and relative years. If we use all years, there is no clear trend of out or underperformance of the worst stocks from the prior year. Back to familiar enemies So, where does that leave us? We return to the lurking enemies: continued interest rate hikes and persistently high inflation through 2023. Many factors leading the Fed to its hawkishness – housing, rent and used car prices – have moderated. The S & P 500 index is down 20% for the year, the equal-weighted S & P 500 is off by about 13%, multiples have compressed, and sentiment is highly negative – that’s bullish. On the other hand, there is a problem with the irrepressible labor market: Wages are sticky, and we are still managing through the combustive aspects of Covid. Many companies hired every applicant in sight for fear of losing out on valuable people. The style and format of work have changed dramatically since pre-pandemic, making the traditional measurements of overall productivity less clearly relevant. Wages and the labor market are what most concern Fed Chair Jerome Powell and, honestly, worry me. This leaves a murky picture. The overall market, at 16.5 times current 2023 consensus, is around the average of the last 30 years. Valuation of many stocks are at multi-year lows, but investors are currently unforgiving and risk averse. More firms, stressed by high interest rates, pressured margins and weakening demand, will lay off employees, and their share prices will suffer. Our advice: Stay with reasonable valuations, visible cash flow returns and diversification in the portfolio. Holding a mix of “defensive” winners that have not become priced to perfection and higher risk names, including some of the worst of 2022 that have been pummeled into value territory, is a strategy we endorse. Leaning too far in any direction on the risk or sector spectrum can turn ugly. There will be a point in 2023 when the market likely turns upward, before earnings bottom, before the Fed announces a U-turn, and before you know it, the bulls will come out of their bunkers in force. Karen Firestone is chairperson, CEO and co-founder of Aureus Asset Management, an investment firm dedicated to providing contemporary asset management to families, individuals and institutions.
A Santa Claus rally may be coming to town as the year wraps up — or at least that was the hope this week. After what’s been a gruesome year for stocks — the worst since 2008 — investors hoped for a little holiday miracle, or a rally into the end of 2022 to kick off 2023 on a positive note. Wall Street got the opposite. Stocks struggled this week as recession fears resurfaced, putting a damper on last hopes for a market uptick. The S & P 500 and Nasdaq Composite were last down 0.4% and 2.1% for the week, respectively, and both are on pace for a third straight week of losses. The Dow Jones Industrial Average traded 0.8% higher for the week. Despite the bleak outlook, some stocks are on track to post gains for the week. CNBC Pro used FactSet data to screen for the stocks with the greatest week-to-date percentage changes as of Friday’s open. These are some of the names that made the cut. Nike ruled as the best performer this week, with shares rising almost 10% after the sports apparel company topped analysts’ expectations for the fiscal second-quarter . The company also showed progress as it works through its inventory glut exacerbated by supply chain disruptions. Given this, Nike chief financial officer Matt Friend said on an earnings call that the company expects to grow its revenues for the full fiscal year. Shares have tumbled about 30% this year, with analysts split over its near-term growth. About 46% of analysts rate the stocks as a buy, with the consensus price target implying upside of more than 7% from Thursday’s close. Another top performer this week was Moderna after it got an upgrade from Jefferies to a buy from hold . Analysts called Moderna’s promising experimental cancer vaccine a potential catalyst for the stock as the drug maker from its Covid tailwinds. Shares rallied almost 7% this week as of Friday’s open. Shares of Moderna are down more than 21% this year, with about 37% of analysts saying the stock is a buy. The average price target implies a roughly 9% upside for the stock from Thursday’s close. Charter Communications saw the third-largest rally this week. Shares gained 6.8% as of Friday’s open. The company got an upgrade to equal weight from underweight at Wells Fargo, with a modest price target cut to $340 from $370 a share. The stock’s down about 49% this year, but the consensus price target suggests shares stand to gain more than 41% from Thursday’s close. Energy stocks APA Corp and Halliburton also made the list, with shares rising 4% and 6.4%, respectively, this week, as of Friday’s open. Shares of General Electric surged 5.6%.
This photo illustration taken on December 18, 2022 in Los Angeles shows a phone displaying Elon Musk’s Twitter page where he is conducting a survey about his future as the head of the company.
Chris Delmas | AFP | Getty Images
Twitter’s new owner and CEO, Elon Musk, posted an informal poll of the social media platform’s users Sunday asking if he should step down as head of the company.
At 6:20 a.m. ET on Monday, the poll ended with a majority of respondents (57.5%) calling for the billionaire to leave his post. More than 17 million users had voted by the time the poll closed.
related investing news
Musk claimed he would abide by the results of the poll. It is unclear whether or not he will actually do so. Shares of Tesla — another one of Musk’s companies — rose more than 4% in U.S. premarket trading Monday.
In court in November, Musk said, “I expect to reduce my time at Twitter and find somebody else to run Twitter over time.” However, on Sunday, he wrote in a tweet that there is no possible successor for him at the social media company.
“The question is not finding a CEO, the question is finding a CEO who can keep Twitter alive,” he wrote.
In response to another user speculating that Musk has already chosen a successor, the billionaire said: “No one wants the job who can actually keep Twitter alive. There is no successor.”
Twitter polls are straw polls, meaning they are informal and not comparable to professional public opinion research. Malicious bots or inauthentic accounts may also be able to register a response to a Twitter poll.
Musk’s Sunday poll followed online backlash after the “Chief Twit” (as he has called himself) made sudden changes to policies impacting users of Twitter in the last week.
For example, the company introduced a new social media platform promotion policy on Sunday, which prohibited users from sharing links to some of their other social media accounts. Longtime Musk friends and proponents, including Y Combinator founder Paul Graham, expressed their dismay at the policy causing Musk to later apologize and roll it back.
Days earlier, Twitter made changes to its policy on “doxxing,” which the company now defines as “sharing someone’s private information online without their permission.” The new policy prohibits users from sharing other people’s live location information, home addresses, contact information or physical location information but has left many confused over what information crosses Twitter’s line.
Musk’s policy changes were used as a justification to suspend the Twitter accounts of a number of U.S.-based journalists, commentators and others who were critical of the CEO or his companies in the past. Some of the accounts were fully or partially restored a few days later, but not all.
The suspensions marked the latest chapter of Musk’s rocky takeover of Twitter. He led the acquisition of the company for around $44 billion in October, and his leadership has resulted in massive staff cuts, a spike in racist hate speech, advertisers fleeing or slashing their spending on the platform, as well as the reinstatement of previously banned accounts.
The billionaire’s management of Twitter is bleeding into, and raising concerns about, his other ventures.
For example, Musk has sold billions of dollars worth of Tesla shares this year to finance the Twitter takeover. He has also pulled in talent from both Tesla and SpaceX, including executives, engineers and attorneys, to assist him at Twitter.
A CEO spending time and money on Twitter isn’t Tesla’s only challenge — the company is currently offering discounts on vehicles in China, an indication of weaker demand for its cars there, according toTesla bear Toni Sacconaghi of Bernstein onCNBC’s “Squawk on the Street” last week.
Earlier this month, NASA Administrator Bill Nelson asked SpaceX President and COO Gwynne Shotwell whether Musk’s “distraction” at Twitter might affect SpaceX’s work with the space agency, NBC News reported. Nelson said she reassured him it would not.
But Musk’s behavior at Twitter is having a negative impact on his car company’s public image and stock price. Shares in Tesla had dropped about 60% year to date as of Friday’s close. It comes amid a broad decline in growth stocks which has seen the tech-heavy Nasdaq Composite fall more than 30% year to date.
In a note late Sunday, Dan Ives, managing director of equities at Wedbush Securities, wrote that the second-biggest request on his Christmas “wish list” was for Musk to find a successor to run the social media company.
“With the Twitter chaos front and center and resulting in a major headache and overhang for the Tesla story, we believe Musk needs to name a permanent CEO of Twitter (and not Musk himself) to end the pain,” Ives said.
Tesla’s largest retail shareholder, Leo Koguan, wrote in a tweet on Dec. 14, that “Elon abandoned Tesla and Tesla has no working CEO.” He called on the company’s board of directors to take action. “Tesla needs and deserves to have [a] working full time CEO,” he wrote, criticizing the board for apparent inaction.
A survey in Germany’s Der Spiegel last week found that 63% of respondents feel that Musk’s public performance as CEO of Twitter has had a mostly negative or clearly negative impact on their view of Tesla.
And only 9% of respondents to that survey said they find Tesla very or mostly likable as a brand — the company ranked far behind VW, BMW, Opel and others in Germany. That’s despite the fact that Tesla is investing heavily in the German market. It opened a major vehicle assembly plant in Grünheide, outside of Berlin, in March o this year.
Correction: This article has been updated to reflect that at 3.30 a.m. ET the majority of poll respondents had voted for Musk to leave his post.
Those concerns were front and center this past week, following the Federal Open Market Committee’s December meeting. The Fed didn’t do anything to surprise the market as it raised the federal-funds rate by a half-point, just as everyone expected, and suggested a terminal rate of just over 5%, a level investors had slowly come around to. But the dot plot reflected the Fed’s belief that rates would have to go high and stay high, while Chairman Jerome Powell continued to strike a hawkish tone.
Things tend to slow down for the holidays. The stock market isn’t there yet.
With Christmas just a couple of weeks away, it’s easy to look ahead to candy canes, caroling, and presents under the tree, but there’s still work to be done. The coming week certainly won’t be boring, with highly anticipated inflation data and a Federal Reserve decision on back-to-back days. The two events will do much to determine the direction of the market for the coming weeks—a deeper slide or a resumption of the Santa Claus rally.
Federal Reserve Chairman Jerome Powell laid the groundwork on Wednesday for the central bank to slow its pace of monetary policy tightening as soon as December, all but solidifying the prospects that the Fed will raise interest rates half of a percentage point next month.
Tech stocks have endured a brutal year so far, but asset manager Patrick Armstrong believes investor interest in Big Tech could reignite next year. Armstrong, who is chief investment officer at wealth manager Plurimi Wealth, has put his money where his mouth is: his firm owns shares in Google parent Alphabet and Apple . “I do think Alphabet and Apple are [going to retain] their dominant market shares. I do think they have pricing power, but they are consumer-focused stocks and consumers are going to be in a little bit more of a difficult environment next year,” Armstrong told CNBC Pro Talks last week. Despite this, he said he expects these sorts of companies to generate returns of around 10% next year, “which will be attractive versus probably an index that is not going to do too much.” The stock market has been plagued by broad risk-off sentiment this year, as investors rotated out of growth stocks amid soaring inflation, interest rate hikes and other headwinds that have left investors clamoring for safer bets. Tech stocks have borne the brunt of this carnage, with the tech-heavy Nasdaq Composite down around 30% this year. And Big Tech has not been spared either; shares in Alphabet are down 32% this year, while Apple has lost about 18% of its market cap in the same period. Tech stocks have pared some losses since hitting their lows, but investor confidence in the sector remains shaky amid several bouts of bear market rallies that fizzled out quickly. But Armstrong, whose Plurimi AI Global Equity Strategy fund beat the MSCI World index to rise 8.2% in October, has a more optimistic take. ‘Everyone wants to own’ Big Tech “Going into year-end, I think Big Tech as a whole is going to see investors allocating to it. I do think there will be a tailwind from flows that everyone wants to own the big-cap tech companies going into next year. So, I wouldn’t want to bet against any of them in the next month,” he said. Within the space, he expects Apple’s share price to trend higher in the next 12 months, driven by earnings growth. “I think high single-digit, low double-digit returns for Apple, I’ll be comfortable with that. They are not going to slow down their share buybacks, which will help the [earnings per share] numbers as well,” Armstrong added. He is not the only one who’s bullish on Apple. Some 74% of analysts covering the stock rate it a buy and give the stock average potential upside of 18.6%, according to FactSet data. Alphabet is even more highly rated by analysts. Over 90% of analysts covering the stock have a buy rating on it, and they give the stock average potential upside of 28.9%.
Pedestrians walk past the NASDAQ MarketSite in New York’s Times Square.
Eric Thayer | Reuters
It seems like an eternity ago, but it’s just been a year.
At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic. Rivian’s blockbuster IPO was the latest in a record year for new issues. Hiring was booming and tech employees were frolicking in the high value of their stock options.
Twelve months later, the landscape is markedly different.
Not one of the 15 most valuable U.S. tech companies has generated positive returns in 2021. Microsoft has shed roughly $700 billion in market cap. Meta’s market cap has contracted by over 70% from its highs, wiping out over $600 billion in value this year.
In total, investors have lost roughly $7.4 trillion, based on the 12-month drop in the Nasdaq.
Interest rate hikes have choked off access to easy capital, and soaring inflation has made all those companies promising future profit a lot less valuable today. Cloud stocks have cratered alongside crypto.
There’s plenty of pain to go around. Companies across the industry are cutting costs, freezing new hires, and laying off staff. Employees who joined those hyped pre-IPO companies and took much of their compensation in the form of stock options are now deep underwater and can only hope for a future rebound.
IPOs this year slowed to a trickle after banner years in 2020 and 2021, when companies pushed through the pandemic and took advantage of an emerging world of remote work and play and an economy flush with government-backed funds. Private market darlings that raised billions in public offerings, swelling the coffers of investment banks and venture firms, saw their valuations marked down. And then down some more.
Rivian has fallen more than 80% from its peak after reaching a stratospheric market cap of over $150 billion. The Renaissance IPO ETF, a basket of newly listed U.S. companies, is down 57% over the past year.
Tech executives by the handful have come forward to admit that they were wrong.
The Covid-19 bump didn’t, in fact, change forever how we work, play, shop and learn. Hiring and investing as if we’d forever be convening happy hours on video, working out in our living room and avoiding airplanes, malls and indoor dining was — as it turns out — a bad bet.
Add it up and, for the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years. The last time it happened the tech-heavy Nasdaq was at the tail end of an extended stretch of underperformance that began with the bursting of the dot-com bubble. Between 2000 and 2006, the Nasdaq only beat the S&P 500 once.
Is technology headed for the same reality check today? It would be foolish to count out Silicon Valley or the many attempted replicas that have popped up across the globe in recent years. But are there reasons to question the magnitude of the industry’s misfire?
It was supposed to be the year of Meta. Prior to changing its name in late 2021, Facebook had consistently delivered investors sterling returns, beating estimates and growing profitably with historic speed.
The company had already successfully pivoted once, establishing a dominant presence on mobile platforms and refocusing the user experience away from the desktop. Even against the backdrop of a reopening world and damaging whistleblower allegations about user privacy, the stock gained over 20% last year.
But Zuckerberg doesn’t see the future the way his investors do. His commitment to spend billions of dollars a year on the metaverse has perplexed Wall Street, which just wants the company to get its footing back with online ads.
The big and immediate problem is Apple, which updated its privacy policy in iOS in a way that makes it harder for Facebook and others to target users with ads.
With its stock down by two-thirds and the company on the verge of a third straight quarter of declining revenue, Meta said earlier this month it’s laying off 13% of its workforce, or 11,000 employees, its first large-scale reduction ever.
“I got this wrong, and I take responsibility for that,” Zuckerberg said.
Mammoth spending on staff is nothing new for Silicon Valley, and Zuckerberg was in good company on that front.
Software engineers had long been able to count on outsized compensation packages from major players, led by Google. In the war for talent and the free flow of capital, tech pay reached new heights.
Recruiters at Amazon could throw more than $700,000 at a qualified engineer or project manager. At gaming company Roblox, a top-level engineer could make $1.2 million, according to Levels.fyi. Productivity software firm Asana, which held its stock market debut in 2020, has never turned a profit but offered engineers starting salaries of up to $198,000, according to H1-B visa data.
Fast forward to the last quarter of 2022, and those halcyon days are a distant memory.
Layoffs at Cisco, Meta, Amazon and Twitter have totaled nearly 29,000 workers, according to data collected by the website Layoffs.fyi. Across the tech industry, the cuts add up to over 130,000 workers. HPannounced this week it’s eliminating 4,000 to 6,000 jobs over the next three years.
For many investors, it was just a matter of time.
“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” Brad Gerstner, a tech investor at Altimeter Capital, wrote last month.
Gerstner’s letter was specifically targeted at Zuckerberg, urging him to slash spending, but he was perfectly willing to apply the criticism more broadly.
“I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion,” Gerstner wrote.
Activist investor TCI Fund Management echoed that sentiment in a letter to Google CEO Sundar Pichai, whose company just recorded its slowest growth rate for any quarter since 2013, other than one period during the pandemic.
“Our conversations with former executives suggest that the business could be operated more effectively with significantly fewer employees,” the letter read. As CNBC reported this week, Google employees are growing worried that layoffs could be coming.
Those special purpose acquisition companies, or blank-check entities, created so they could go find tech startups to buy and turn public were a phenomenon of 2020 and 2021. Investment banks were eager to underwrite them, and investors jumped in with new pools of capital.
SPACs allowed companies that didn’t quite have the profile to satisfy traditional IPO investors to backdoor their way onto the public market. In the U.S. last year, 619 SPACs went public, compared with 496 traditional IPOs.
This year, that market has been a bloodbath.
The CNBC Post SPAC Index, which tracks the performance of SPAC stocks after debut, is down over 70% since inception and by about two-thirds in the past year. Many SPACs never found a target and gave the money back to investors. Chamath Palihapitiya, once dubbed theSPAC king, shut down two deals last month after failing to find suitable merger targets and returned $1.6 billion to investors.
Then there’s the startup world, which for over a half-decade was known for minting unicorns.
Last year, investors plowed $325 billion into venture-backed companies, according to EY’s venture capital team, peaking in the fourth quarter of 2021. The easy money is long gone. Now companies are much more defensive than offensive in their financings, raising capital because they need it and often not on favorable terms.
“You just don’t know what it’s going to be like going forward,” EY venture capital leader Jeff Grabow told CNBC. “VCs are rationalizing their portfolio and supporting those that still clear the hurdle.”
The word profit gets thrown around a lot more these days than in recent years. That’s because companies can’t count on venture investors to subsidize their growth and public markets are no longer paying up for high-growth, high-burn names. The forward revenue multiple for top cloud companies is now just over 10, down from a peak of 40, 50 or even higher for some companies at the height in 2021.
The trickle down has made it impossible for many companies to go public without a massive markdown to their private valuation. A slowing IPO market informs how earlier-stage investors behave, said David Golden, managing partner at Revolution Ventures in San Francisco.
“When the IPO market becomes more constricted, that circumscribes one’s ability to find liquidity through the public market,” said Golden, who previously ran telecom, media and tech banking at JPMorgan. “Most early-stage investors aren’t counting on an IPO exit. The odds against it are so high, particularly compared against an M&A exit.”
There have been just 173 IPOs in the U.S. this year, compared with 961 at the same point in 2021. In the VC world, there haven’t been any deals of note.
“We’re reverting to the mean,” Golden said.
An average year might see 100 to 200 U.S. IPOs, according to FactSet research. Data compiled by Jay Ritter, an IPO expert and finance professor at the University of Florida, shows there were 123 tech IPOs last year, compared with an average of 38 a year between 2010 and 2020.
Buy now, pay never
There’s no better example of the intersection between venture capital and consumer spending than the industry known as buy now, pay later.
Companies such as Affirm, Afterpay (acquired by Block, formerly Square) and Sweden’s Klarna took advantage of low interest rates and pandemic-fueled discretionary incomes to put high-end purchases, such as Peloton exercise bikes, within reach of nearly every consumer.
Affirm went public in January 2021 and peaked at over $168 some 10 months later. Affirm grew rapidly in the early days of the Covid-19 pandemic, as brands and retailers raced to make it easier for consumers to buy online.
By November of last year, buy now, pay later was everywhere, from Amazon to Urban Outfitters‘ Anthropologie. Customers had excess savings in the trillions. Default rates remained low — Affirm was recording a net charge-off rate of around 5%.
Affirm has fallen 92% from its high. Charge-offs peaked over the summer at nearly 12%. Inflation paired with higher interest rates muted formerly buoyant consumers. Klarna, which is privately held, saw its valuation slashed by 85% in a July financing round, from $45.6 billion to $6.7 billion.
The world’s richest person — even after an almost 50% slide in the value of Tesla — is now the owner of Twitter following an on-again, off-again, on-again drama that lasted six months and was about to land in court.
Musk swiftly fired half of Twitter’s workforce and then welcomed former President Donald Trump back onto the platform after running an informal poll. Many advertisers have fled.
And corporate governance is back on the docket after this month’s sudden collapse of cryptocurrency exchange FTX, which managed to grow to a $32 billion valuation with no board of directors or finance chief. Top-shelf firms such as Sequoia, BlackRock and Tiger Global saw their investments wiped out overnight.
“We are in the business of taking risk,” Sequoia wrote in a letter to limited partners, informing them that the firm was marking its FTX investment of over $210 million down to zero. “Some investments will surprise to the upside, and some will surprise to the downside.”
Even with the crypto meltdown, mounting layoffs and the overall market turmoil, it’s not all doom and gloom a year after the market peak.
Golden points to optimism out of Washington, D.C., where President Joe Biden’s Inflation Reduction Act and the Chips and Science Act will lead to investments in key areas in tech in the coming year.
Funds from those bills start flowing in January. Intel, Micron and Taiwan Semiconductor Manufacturing Company have already announced expansions in the U.S. Additionally, Golden anticipates growth in health care, clean water and energy, and broadband in 2023.
“All of us are a little optimistic about that,” Golden said, “despite the macro headwinds.”
Wall Street’s main indexes gained on Tuesday, shaking off an unconfirmed report of Russian missiles crossing into Poland that sparked volatility, as investors seized on softer-than-expected inflation data that raised hopes of a pullback in rate hikes by the US Federal Reserve.
Equities were boosted by Tuesday’s inflation report that showed producer prices rising 8% in the 12 months through October against an estimated 8.3% rise.
The gains built on a rally that was kicked off late last week by a cooler-than-expected report on consumer prices.
“The market has been driven by the inflation number that came out a little bit lower than expected and confirmed last week’s number to some degree that we may have rounded the corner on inflation,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
The market was “a little bit more volatile this afternoon as news stories came out about the Russian missile landing in Poland,” Tuz said.
The Dow Jones Industrial Average rose 56.22 points, or 0.17%, to 33,592.92, the S&P 500 gained 34.48 points, or 0.87%, to 3,991.73 and the Nasdaq Composite added 162.19 points, or 1.45%, to 11,358.41.
Two people were killed in an explosion in Przewodow, a village in eastern Poland near the border with Ukraine, firefighters said as NATO allies investigated reports that the blast resulted from Russian missiles.
The Associated Press earlier cited a senior US intelligence official as saying the blast was due to Russian missiles crossing into Poland. But the Pentagon said it could not confirm that account.
Stocks pulled back around mid-day after the report, with the Dow turning negative before they steadied.
“The decline was triggered by reports of a Russian missile landing in Poland,” said Steve Sosnick, chief strategist at Interactive Brokers. “This could develop into something far worse, but right now markets are nervous, not panicked.”
Shares of Walmart Inc jumped 6.5% after the top US retailer lifted its annual sales and profit forecasts, benefiting from steady demand for groceries despite higher prices.
Shares of other retailers, including Target Corp and Costco, also rose following Walmart’s report. Target, which is due to report on Wednesday, rose 3.9%, while Costco gained 3.3%.
Home Depot shares rose 1.6% after the home improvement chain’s results showed it tapped higher prices to override a drop in customer transactions for the third quarter.
Advancing issues outnumbered declining ones on the NYSE by a 3.25-to-1 ratio; on Nasdaq, a 2.01-to-1 ratio favored advancers.
The S&P 500 posted 5 new 52-week highs and no new lows; the Nasdaq Composite recorded 85 new highs and 76 new lows.
About 13.1 billion shares changed hands in US exchanges, compared with the 12.2 billion daily average over the last 20 sessions.
Wall Street’s main indexes ended lower on Monday, with real estate and discretionary sectors leading broad declines, as investors digested comments from US Federal Reserve officials about plans for interest rate hikes and looked for next catalysts after last week’s big stock market rally.
Losses accelerated toward the end of the up-and-down session, with the focus turning to Tuesday’s producer price index report and markets highly sensitive to inflation data.
Earlier on Monday, Fed Vice Chair Lael Brainard signaled that the central bank would will likely soon slow its interest rates hikes. Her comments somewhat buoyed sentiment for equities that had been dampened after Federal Reserve Gov. Christopher Waller on Sunday said the Fed may consider slowing the pace of increases at its next meeting but that should not be seen as a “softening” in its commitment to lower inflation.
A massive equity rally late last week was set off by a softer-than-expected inflation report that boosted investor hopes the Fed could dial back on its monetary tightening that has punished markets this year.
“There is still a sensitivity to Fed speak… One was a little hawkish, one was a little dovish,” said Eric Kuby, chief investment officer at North Star Investment Management Corp.
The Dow Jones Industrial Average fell 211.16 points, or 0.63%, to 33,536.7, the S&P 500 lost 35.68 points, or 0.89%, to 3,957.25 and the Nasdaq Composite dropped 127.11 points, or 1.12%, to 11,196.22.
The S&P 500 last week posted its biggest weekly percentage gain since late June, while the tech-heavy Nasdaq notched its best week since March.
More Fed officials are due to speak later this week along with a slew of data, including on retail sales and housing, and earnings reports from major retailers.
“It just makes sense the market wants to pause and really both try to make sense of the trajectory (of Fed policy) and what the next drivers are going to be,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Among S&P 500 sectors, real estate fell 2.7%, consumer discretionary dropped 1.7% and financials declined 1.5%.
In company news, Amazon shares fell 2.3% as The New York Times on Monday reported the company was planning to lay off about 10,000 people in corporate and technology jobs starting as soon as this week.
Shares of Biogen Inc and Eli Lilly gained 3.3% and 1.3%, respectively, after the failure of Swiss rival Roche’s Alzheimer’s disease drug candidate.
Declining issues outnumbered advancing ones on the NYSE by a 2.23-to-1 ratio; on Nasdaq, a 1.61-to-1 ratio favored decliners.
The S&P 500 posted 15 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 72 new highs and 74 new lows.
About 11.5 billion shares changed hands in US exchanges, compared with the 12.1 billion daily average over the last 20 sessions.
The stock market’s rally after October’s inflation report will be tested in the week ahead, as investors watch some major retailers’ earnings and a flurry of Federal Reserve speakers. But the main event is the market itself and whether it can turn a supercharged move higher into a more lasting rally that lifts stocks into the end of the year. The major averages were higher again Friday after a cooler-than-expected consumer price index Thursday triggered the best day for stocks in two years. CPI for October was up 7.7% over a year ago, lower than the 7.9% pace expected. Stocks finished the week with strong gains Friday afternoon. The tech sector was up 10% for the week. The Nasdaq Composite powered ahead of other indexes, and was up more than 8% for the week. This week, bond yields also came off their highs and were sharply lower, paving the way for gains in tech and growth shares. “The CPI was better than expected, elections came out with minor gridlock, earnings haven’t been a disaster,” said Art Hogan, chief market strategist at B. Riley Financial. “It just shows there’s probably support for equities, and the calendar is favorable. The midterm election cycle has a perfect track record of being better six months down the road.” Market pros will continue to watch for any spillover from the selloff in cryptocurrencies, following the dramatic implosion of crypto exchange FTX. FTX filed bankruptcy Friday. “There’s a correlation between the crypto correction and risk assets…The FTX wipeout is not the last we hear of it,” said Hogan. “There’s probably linkages to other players, but it’s hard to know.” What to watch Earnings are expected from Walmart and Home Depot Tuesday, Other retailers, like Target and Macy’s also report that week. Those store chains should provide a look at how consumers are dealing with higher interest rates and inflation. Another glimpse at consumer behavior will come when the Census Bureau releases October retail sales report, expected Wednesday. According to Dow Jones, it is expected to show a 1.2% jump in retail sales, up from a flat result the month before. Real estate data will also be released, with housing starts Thursday and existing home sales Friday. Both are expected to be weaker as rising mortgage rates take a toll on the sector. The Empire State manufacturing survey is released Tuesday, and the Philadelphia Fed manufacturing survey is released Thursday. “I’m going to be watching retail sales for sure, and we get our first November industrial numbers with the New York and Philly Fed,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “To me, those are the most relevant things and then technically to see if there’s any follow-through on bonds and whether the Treasury move has more to it.” On the geopolitical front, any progress from a meeting in Indonesia Monday between President Joe Biden and China President Xi Jinping could be positive for market sentiment. “I understand the angst with China, but it’s in nobody’s interest to be be going head-to-head with the second biggest economy. if anything could just cool tempers, that would be a good thing,” Boockvar said. Reprieve from rising rates Investors will also be watching closely to see if the reprieve from rising rates in the Treasury market continues in the coming week. The closely watched benchmark 10-year yield ended Thursday at 3.81%, after falling more than 30 basis points after the CPI report. [A basis point equals 0.01 of a percentage point]. The cash bond market was closed Friday for Veterans’ Day. “Was that a relief rally and that was it? People are going to feel much more comfortable with the 10-year yield below 4% than above 4%,” said Boockvar. The 10-year is key since it influences mortgage rates and many consumer and business loans. The drop in the 10-year yield, which moves opposite price, also helped drive a sharp rally in tech and growth names. Those high-priced stocks, which are priced on future earnings, benefit most from low rates and cheap money. The test for yields could come in the first days of the coming week. The action in stocks will be important, as market pros watch to see if the rally has legs or is derailed by the parade of Fed speakers. They include Fed Vice Chair Lael Brainard, New York Fed President John Williams and Minneapolis Fed President Neel Kashkari to name a few. “Everybody on the Fed is hawkish. There’s just a degree of hawkishness — moderate and uber,” said Hogan. “I think the market has started to pay increasing attention to the growing chorus of moderate hawks.” Hogan said that group includes Bullard, Brainard and San Francisco Fed President Mary Daly. “I think that group grows next week,” he said. Hogan said Fed officials could push the message that the central bank is slowing its hiking pace but will continue to hold rates high. The Fed announced it could hike by 50 basis points as soon as the December meeting, following four 75 basis point hikes. The message would be “let’s slow the pace, and see if there’s any effect,” said Hogan. “It’s a well-known fact that monetary policy has long and variable lags.” Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, said the market could be getting ahead itself in its bullishness over the inflation report. “CPI beat by two ticks. What if it misses by two ticks next month?” he said. Christopher said the Fed will ultimately stop raising rates but will not cut them, and stocks will face even more challenges this year. “I think the market is probably going to reevaluate itself after its euphoria… You still have to get through another inflation report and another Fed meeting,” he said. “Inflation is still pretty sticky at services level,” he said. “…We think illiquidity is what comes next.” Technically speaking There’s an active debate in the market as to whether the surge Thursday was the start of a year-end rally, since the market has mostly been positive in the fourth quarter of midterm election years. Many strategists are calling the move higher a bear market rally, and some expect it will fizzle in December while others say it could continue into the new year. “Thursday’s surge surpassed even what options markets were expecting for volatility post CPI. Equities, Treasuries and currencies all showed some of the largest movement seen in years. [The S & P 500’s] move above late October highs puts a major decline on the back burner for the time being,” writes Mark Newton, Fundstrat head of technical strategy. The S & P 500 gained 5.5% Thursday, its best day since April 2020. “The real question of whether ‘the low’ is in all has to do with whether Technology has truly bottomed along with Treasuries. I’m inclined to say no on both counts,” Newton wrote in a note. Newton said he expects stocks could continue to trend higher for now, and 4,100 on the S & P 500 is a strong resistance level. “If reached into early December, one would consider that an area where [the S & P 500] should stall out and backtrack into 2023,” he noted. For short-term investors, he advises them to stay bullish unless 3,859 is broken and then watch for 3,700 below that. Newton points out that peaks in August, September and October were reached mid-month, while June and July saw mid-month troughs. He said that suggests there could be a short-term top leading to weakness on Nov. 22 and 23. “My take is that selloffs into that time should be buyable, and it will only be necessary to truly turn bearish again if 3,700 is broken which might not occur until next year,” he added. Week ahead calendar Monday Earnings: Tyson Foods, BuzzFeed, ThredUp , Oatly, Aecom 11:30 a.m. Fed Vice Chair Lael Brainard 6:30 p.m. New York Fed President John Williams Tuesday Earnings: Walmart, Home Depot , Vodafone, Krispy Kreme, Tencent Music, Valvoline, Energizer, Aramark, Advance Auto Parts 8:30 a.m. PPI 8:30 a.m. Empire State manufacturing 9:00 a.m. Philadelphia Fed President Patrick Harker 9:00 a.m. Fed Governor Lisa Cook 10:00 a.m. Fed Vice Chair for Supervision Michael Barr at Senate Banking Wednesday Earnings: Target, Cisco , Lowe’s, Tencent Holdings, Shoe Carnival , TX, Grab Holdings, NVIDIA , Copa Holdings, Bath and Body Works, Sonos 8:30 a.m. Retail sales 8:30 a.m. Import prices 8:30 a.m. Business leaders survey 9:15 a.m. Industrial production 9:50 a.m. New York Fed’s Williams 10:00 a.m. Fed Governor Barr at House Committee on Financial Services 10:00 a.m. Business inventories 10:00 a.m. NAHB survey 2:35 p.m. Fed Governor Christopher Waller 4:00 p.m. TIC data Thursday Earnings: Applied Materials , Alibaba, Macy’s, Siemens, Burbery, BJ’s Wholesale, Kohl’s, NetEase, Pershing Square, Weibo, Gap, Palo Alto Networks, Ross Stores, Post Holdings 7:30 a.m. Atlanta Fed President Raphael Bostic 8:00 a.m. St. Louis Fed President James Bullard 8:30 a.m. Initial claims 8:30 a.m. Housing starts 8:30 a.m. Philadelphia Fed manufacturing 9:15 a.m. Fed Governor Michelle Bowman 9:40 a.m. Cleveland Fed President Loretta Mester 10:40 a.m. Fed Governor Philip Jefferson and Minneapolis Fed President Neel Kashkari 1:45 p.m. Minneapolis Fed’s Kashkari 6:15 p.m. Chicago Fed President Charles Evans, Fed Chair Jerome Powell, San Francisco Fed President Mary Daly, and New York Fed’s Williams at event celebrating Evans. No policy comments are expected. Friday Earnings: JD.com, Foot Locker, Buckle 8:40 a.m. Boston Fed President Susan Collins 10:00 a.m. Existing home sales 10:00 a.m. Leading index 10:00 a.m. Quarterly services survey
