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IRS to Make Largest Increase Ever to 401(k) Contribution Limit
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Tag: securities
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IRS sets new 401(k) limits — investors can save a lot more money in 2023
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People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.
For 401(k)s, that’s an almost 10% increase from 2022’s contribution limit of $20,500. For IRAs, it’s a more than 8% rise from 2022’s limit of $6,000.
As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked to approximately 7%.
When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.
“Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” Rita Assaf, vice president of retirement products at Fidelity Investments, said after the IRS released the 2023 contribution limits.
Seven in 10 people are “very concerned” how inflating costs will impact their readiness for retirement according to a Fidelity study, Assaf noted. “Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.
Older workers can save even more
The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.
Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.
Income phase-outs increase when it comes to possible deductions, credits and contributions
Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through a workplace retirement plan and yearly income. Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.
For 2023, a single taxpayer covered by a workplace retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during 2022.
For a married couple filing jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” the IRS said.
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.
There are also changes coming for the Roth IRA, which people fund with after-tax money and then can tap tax-free later.
Read also: Here’s when you should choose a Roth IRA over a traditional account
The Roth IRA contribution limits also climb to $6,500. Retirement savers putting money in their 401(k) can’t also put pre-tax money in a traditional IRA, but they can contribute to a Roth account.
Still, the eligibility to contribute to Roth IRA accounts is pegged to income, subject to phase-out ranges.
In 2023, the income phase-out range on Roth IRA contributions climbs to between $138,000 – $153,000 for individuals and people filing as head of household. (That’s up from a range between $129,000 and $144,000, the IRS noted.)
With a married couple filing jointly, next year’s phase-out range goes to $218,00 – $228,000. That’s a step up from this year’s $204,000 – $214,000 range.
The income limit surrounding the saver’s credit, which is geared toward low- and moderate-income households, is also getting a lift. The credit lets taxpayers claim 10%, 20% or one-half of contributions to eligible retirement plans, including a 401(k) or an IRA. The credit’s income limits are climbing, the IRS said.
The 2023 income limit will be $73,000 for married couples filing jointly, $54,750 for heads of household and $36,500 for individuals and married individuals filing separately, according to the IRS.
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U.S. stocks finish lower as Treasury yields climb to highest level in more than 14 years.
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U.S. stocks finished lower on Thursday for the second day in a row as yields on the 10-year and 2-year Treasury notes advanced to their highest levels in more than 14 years, causing early earnings-inspired gains in equities to evaporate. The S&P 500
SPX,
-0.80%
finished off 29.38 points, or 0.8%, at 3,665.78. The Dow Jones Industrial Average
DJIA,
-0.30%
dropped 90.22 points, or 0.3%, to close at 30,333.59. The Nasdaq Composite
COMP,
-0.61%
shed 65.66 points, or 0.6%, to close at 10,614.84. The yield on the 2-year Treasury note rose to 4.608%, its highest level since Aug. 8, 2007, based on 3 p.m. figures from Dow Jones Market Data. The yield on the 10-year Treasury advanced 9.8 basis points to 4.225%, the highest since June 17, 2008.[ad_2]
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U.S. stocks finish lower for first time in three sessions as dollar, bond yields rise
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U.S. stocks finished lower on Wednesday, with the major indexes logging their first loss in three days, as Treasury yields and the dollar continued to climb, outweighing more strong earnings reports from American firms. The S&P 500
SPX,
-0.67%
finished down 24.82 points, or 0.7%, at 3,695.16. The Dow Jones Industrial Average
DJIA,
-0.33%
closed off 99.99 points, or 0.3%, at 30,423.81. The Nasdaq Composite
COMP,
-0.85%
shed 91.89 points, or 0.9%, at 10,680.51. The ICE U.S. Dollar Index, a gauge of the dollar’s strength against a basket of rivals, was up 0.7% at 112.96. Treasury yields continued to advance past 4% across the curve.[ad_2]
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These 27 stocks can give you a more diversified portfolio than the S&P 500 — and that’s a key advantage right now
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You probably already know that because of market-capitalization weighting, a broad index such as the S&P 500
SPX,
-0.67%
can be concentrated in a handful of stocks. Index funds are popular for good reasons — they tend to have low expenses and it is difficult for active managers to outperform them over the long term.For example, look at the SPDR S&P 500 ETF Trust
SPY,
-0.71% ,
which tracks the S&P 500 by holding all of its stocks by the same weighting as the index. Five stocks — Apple Inc.
AAPL,
+0.08% ,
Microsoft Corp.
MSFT,
-0.85% ,
Amazon.com Inc.
AMZN,
-1.11% ,
Alphabet Inc.
GOOG,
-1.08% GOOGL,
-1.13%
and Tesla Inc.
TSLA,
+0.84% ,
make up 21.5% of the portfolio.But there are other considerations when it comes to diversification — namely, factors. During an interview, Scott Weber of Vaughan Nelson Investment Management in Houston explained how groups of stock and commodities can move together, adding to a lack of diversification in a typical portfolio or index fund.
Weber co-manages the $293 million Natixis Vaughan Nelson Select Fund
VNSAX,
-0.96% ,
which carries a five-star rating (the highest) from investment-researcher Morningstar, and has outperformed its benchmark, the S&P 500.Vaughan Nelson is a Houston-based affiliate of Natixis Investment Managers, with about $13 billion in assets under management, including $5 billion managed under the same strategy as the fund, including the Natixis Vaughan Nelson Select ETF
VNSE,
-0.87% .
The ETF was established in Sept, 2020, so does not yet have a Morningstar rating.Factoring-in the factors
Weber explained how he and colleagues incorporate 35 factors into their portfolio selection process. For example, a fund might hold shares of real-estate investment trusts (REITs), financial companies and energy producers. These companies are in different sectors, as defined by Standard & Poor’s. Yet their performance may be correlated.
Weber pointed out that REITs, for example, were broken out of the financial sector to become their own sector in 2016. “Did that make REIT’s more sensitive to interest rates? The answer is no,” he said. “The S&P sector buckets are somewhat better than arbitrary, but they are not perfect.”
Of course 2022 is something of an exception, with so many assets dropping in price at the same time. But over the long term, factor analysis can identify correlations and lead money managers to limit their investments in companies, sectors or industries whose prices tend to move together. This style has helped the Natixis Vaughan Nelson Select Fund outperform against its benchmark, Weber said.
Getting back to the five largest components of the S&P 500, they are all tech-oriented, even though only two, Apple and Microsoft, are in the information technology sector, while Alphabet is in the communications sector and Tesla is in the consumer discretionary sector. “Regardless of the sectors,” they tend to move together, Weber said.
Exposure to commodity prices, timing of revenue streams through economic cycles (which also incorporates currency exposure), inflation and many other items are additional factors that Weber and his colleagues incorporate into their broad allocation strategy and individual stock selections.
For example, you might ordinarily expect inflation, real estate and gold to move together, Weber said. But as we are seeing this year, with high inflation and rising interest rates, there is downward pressure on real-estate prices, while gold prices
GC00,
-0.01%
have declined 10% this year.Digging further, the factors also encompass sensitivity of investments to U.S. and other countries’ government bonds of various maturities, credit spreads between corporate and government bonds in developed countries, exchange rates, and measures of liquidity, price volatility and momentum.
Stock selection
The largest holding of the Select fund is NextEra Energy Inc.
NEE,
-1.89% ,
which owns FPL, Florida’s largest electric utility. FPL is phasing-out coal plants and replacing power-generating capacity with natural gas as well as wind and solar facilities.Weber said: “There’s not a company on the planet that is better at getting alternate (meaning solar and wind) generation deployed. But because they own FPL, some of my investors say it is one of the largest carbon emitters on the planet.”
He added that “as a consequence of their skill in operating, they re generating amazing returns for investors.” NextEra’s share shave returned 446% over the past 10 years. One practice that has helped to elevate the company’s return on equity, and presumably its stock price, has been “dropping assets down” into NextEra Energy Partners LP
NEP,
-2.61% ,
which NEE manages, Weber said. He added that the assets put into the partnership tend to be “great at cash-flow generation, but not on achieving growth.”When asked for more examples of stocks in the fund that may provide excellent long-term returns, Weber mentioned Monolithic Power Systems Inc.
MPWR,
-0.24% ,
as a way to take advantage of the broad decline in semiconductor stocks this year. (The iShares Semiconductor ETF
SOXX,
+0.64%
has declined 21% this year, while industry stalwarts Nvidia Corp.
NVDA,
+0.70%
and Advanced Micro Devices Inc.
AMD,
-1.19%
are down 59% and 60%, respectively.)He said Monolithic Power has been consistently making investments that improve its return on invested capital (ROIC). A company’s ROIC is its profit divided by the sum of the carrying value of stock it has issued over the years and its current debt. It doesn’t reflect the stock price and is considered a good measure of a management team’s success at making investment decisions and managing projects. Monolithic Power’s ROICC for 2021 was 21.8%, according to FactSet, rising from 13.2% five years earlier.
“We want to see a business generating a return on capital in excess of its cost of capital. In addition, they need to invest their capital at incrementally improving returns,” Weber said.
Another example Weber gave of a stock held by the fund is Dollar General Corp.
DG,
+0.33% ,
which he called a much better operator than rival Dollar Tree Inc.
DLTR,
+0.14% ,
which owns Family Dollar. He cited DG’s roll-out of frozen-food and fresh food offerings, as well as its growth runway: “They still have 8,000 or 9,000 stores to build-out” in the U.S., he said.Fund holdings
In order to provide a full current list of stocks held under Weber’s strategy, here are the 27 stocks held by the the Natixis Vaughan Select ETF as of Sept. 30. The largest 10 positions made up 49% of the portfolio:
Company Ticker % of portfolio NextEra Energy Inc. NEE,
-1.89% 5.74% Dollar General Corp. DG,
+0.33% 5.51% Danaher Corp. DHR,
-2.89% 4.93% Microsoft Corp. MSFT,
-0.85% 4.91% Amazon.com Inc. AMZN,
-1.11% 4.90% Sherwin-Williams Co. SHW,
-2.53% 4.80% Wheaton Precious Metals Corp. WPM,
-2.28% 4.76% Intercontinental Exchange Inc. ICE,
-1.16% 4.52% McCormick & Co. MKC,
+0.11% 4.48% Clorox Co. CLX,
+1.27% 4.39% Aon PLC Class A AON,
+0.21% 4.33% Jack Henry & Associates Inc. JKHY,
-0.97% 4.08% Motorola Solutions Inc. MSI,
-0.64% 4.08% Vertex Pharmaceuticals Inc. VRTX,
-2.72% 4.01% Union Pacific Corp. UNP,
-0.78% 3.99% Alphabet Inc. Class A GOOGL,
-1.13% 3.03% Johnson & Johnson JNJ,
-0.80% 2.98% Nvidia Corp. NVDA,
+0.70% 2.92% Cogent Communications Holdings Inc. CCOI,
-2.10% 2.81% Kosmos Energy Ltd. KOS,
+5.62% 2.68% VeriSign Inc. VRSN,
-0.43% 2.15% Chemed Corp. CHE,
-0.73% 2.06% Berkshire Hathaway Inc. Class B BRK.B,
-1.18% 2.00% Saia Inc. SAIA,
-4.36% 1.97% Monolithic Power Systems Inc. MPWR,
-0.24% 1.96% Entegris Inc. ENTG,
-0.17% 1.93% Luminar Technologies Inc. Class A LAZR,
-6.90% 0.96% Source: Natixis Funds You can click on the tickers for more about each company. Click here for a detailed guide to the wealth of information available free on the MarketWatch.com quote page.
Fund performance
The Natixis Vaughan Select Fund was established on June 29, 2012. Here’s a 10-year chart showing the total return of the fund’s Class A shares against that of the S&P 500, with dividends reinvested. Sales charges are excluded from the chart and the performance numbers. In the current environment for mutual-fund distribution, sales charges are often waived for purchases of new shares through investment advisers.
FactSet
Here’s a comparison of returns for 2022 and average annual returns for various periods of the fund’s Class A shares to that of the S&P 500 and its Morningstar fund category through Oct. 18:
Total return – 2022 through Oct. 18 Average return – 3 Years Average return – 5 Years Average return – 10 years Vaughan Nelson Select Find – Class A -20.2% 11.8% 10.8% 13.0% S&P 500 -21.0% 9.4% 9.7% 12.0% Morningstar Large Blend category -20.3% 8.1% 8.2% 10.7% Sources: Morningstar, FactSet [ad_2]
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Stocks are rallying now, but the 9 painful stages of this bear market are not even halfway done
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The official definition of a bear market is a 20% or greater decline from an index’s previous high. Accordingly, the three major U.S. stock-market benchmarks — the Nasdaq
COMP,
+0.90% ,
the S&P 500
SPX,
+1.14%
and the Dow Jones Industrial Average
DJIA,
+1.12%
— are currently all in a bear market.Based on my work with stock market strategist Mark D. Cook, a typical bear market goes through nine stages. Right now we are in Stage 4. Keep in mind that a bear market does not always follow these stages in the exact order.
1. Failed rallies: Failed rallies represent the first clue that a bear market is here. Failed rallies often appear before the market “officially” becomes a bear market. If the rally doesn’t have legs and cannot go higher for the next few days or weeks, it confirms that the bear’s claws have sunk in. Along the way, many failed rallies will fool bulls into thinking the worst is over. Watch the rallies for bear-market clues. The rally so far this week is an example. Now in its second day, a failure of this rally would confirm that stocks are not yet out of a bear market.
2. Low-volume rallies: Another bear market clue is that stocks move higher on low volume. This is a clue the major financial institutions aren’t buying, although algos and hedge funds might be. It’s easy for the algos to push prices higher in a low-volume environment, one of the reasons for monster rallies that go nowhere the following day (i.e. a “one-day wonder”).
3. Terrible-looking charts: The easiest way to identify a bear market is by looking at a stock chart. It goes without saying that the charts look dreadful, both the daily and the weekly. While rallies help relieve some of the pressure, they typically don’t last long.
4. Strong selloffs: It’s been a couple of years since markets have experienced extremely strong selloffs, but that record was broken the week of September 26 when the S&P 500 hit a new low for 2022. These strong selloffs are typical of a bear market, followed by rallies that don’t last (a roller-coaster that so far has played out during October).
5. Mutual-fund redemptions: During this stage, after looking at their quarterly and monthly statements, horrified investors throw in the towel and sell their mutual funds (also, some investors refuse to look at those reports). As a result, mutual fund companies are forced to sell (which negatively affects the stock market). Typically, when the indexes fall more than 20%, mutual fund redemptions increase.
6. Complacency turns to panic: As more investor money leaves the market, many investors panic. The most bullish investors are holding on for dear life but are buying fewer stocks. The most nervous investors sell to avoid risking precious gains.
7. All news is bad news: As the bear market pushes stock prices lower, it seems as if most economic data and financial news is negative. Many people become skeptical of the bullish predictions from market professionals, who earlier had promised the market would keep going up. In the depths of the worst bear markets, some bullish professionals are jeered or ignored. Even die-hard bulls are increasingly nervous as the market heads lower and lower (with occasional rallies along the way).
8. Bulls throw in the towel: As trading volume increases on down days, and some investors experience 30% or higher losses, they give up hope and sell. The market turns into a free-for-all as even the Fed appears to have lost control. Many in the media admit that a bear market has arrived.
9. Capitulation: After weeks and months of selloffs (and occasional rallies), many investors are panicked. Investors realize that it may take years before their portfolios will return to breakeven, and some stocks never will. In the final stage of a bear market, trading volume is more than three times higher than normal. Even some of true believers liquidate positions, as many portfolios are down by 40% or 50% and more. Almost every financial asset has fallen, with the exception of fixed income such as CDs and T-bills. Traders or investors who trade on margin feel the most pain.
Read: ‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley
Take action
This bear market is fairly young, but already there have been so many failed rallies that many investors are too afraid to buy. Some investors with cash are looking for bargains, but it takes nerves of steel to buy when everyone is selling.
One of the keys to success in the market is to buy what people don’t want. Here are several ideas of what to do (and it is not too late to act):
- During bear markets, a key to survival is diversification. If you are patient and are willing to hold positions for years, dollar-cost average into index funds on the way down.
- In the early stages of a bear market, consider moving to the sidelines with CDs or Treasury bills.
- Consider building a strong cash position, although inflation will cut into some of those gains. Nevertheless, losing to inflation is better than losing 30% in the stock market. The goal is not to lose money; in a bear market, cash is king.
The length and volatility of every bear market is different. No one can predict how this one will turn out, but based on previous bear markets, there’s still a long way to go before it’s over.
Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks.” His latest book, “How to Profit in the Stock Market” (McGraw Hill, 2022), explores bull -and bear market investing strategies.
More: Could there be a stock market rally? Probably. Would it be the end of the bear market? Probably not.
Also read: Whatever you’re feeling now about stocks is normal bear-market grief — and the worst is yet to come
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‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley
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Stock-market investors have been adjusting to the jump in interest rates amid high inflation, but they have yet to cope with profit headwinds faced by the S&P 500, according to Morgan Stanley Wealth Management.
“While a rate peak may solidify estimates for the equity risk premium and valuation multiples, equity investors still face the bear market’s second act — the earnings outlook,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday.
“They have been slow to recognize that pricing power and operating margins, which hit all-time highs in the past two years, are unsustainable,” she said. “Even without a recession, the mean reversion of profits in 2023 translates to a 10%-to-15% decline from current estimates.”
MORGAN STANLEY WEALTH MANAGEMENT NOTE DATED OCT. 17 2022
Unprecedented monetary and fiscal stimulus during the throes of the pandemic had led to the largest U.S. companies booking record operating margins that were 150 to 200 basis points above norms seen in the past decade, according to Shalett.
See: Stock market’s wild gyrations put earnings in focus as inflation crushes Fed ‘pivot’ hopes
She said that company profits may now be imperiled by slowing growth, with “demand skewing toward services” after pulling forward toward goods earlier in the pandemic, and a likely reversal in “extremely strong” pricing power as the Fed fights surging inflation with interest-rate hikes.
“Such risks are not discounted in 2023 consensus yet, constituting a material risk to stocks for the remainder of the year,” Shalett said.
While many sectors have discounted the potential drop in 2023 profits from current estimates that could stir headwinds even with no recession, “the megacap secular growth stocks that dominate market-cap indexes have not,” she warned. “And those indexes are where risk gets repriced in the bear market’s final stages.”
Morgan Stanley’s chief U.S. equity strategist Mike Wilson estimates as much as 11% downside from consensus estimates, with his base-case, earnings-per-share forecast for the S&P 500 for 2023 being $212, according to Shalett’s note.
U.S. stocks were bouncing Monday, with major stock benchmarks trading sharply higher in the afternoon, after sinking Friday amid inflation concerns as earnings season got under way. The S&P 500
SPX,
+2.65%
was up 2.7% in afternoon trading, while the Dow Jones Industrial Average
DJIA,
+1.86%
gained 1.9% and the technology-heavy Nasdaq Composite surged 3.5%, FactSet data show, last check.In the bond market, Treasury rates were trading slightly lower Monday afternoon, after the 2-year yield hit a 15-year high and the 10-year yield notched a 14-year high on Friday, according to Dow Jones Market Data. Two-year yields ended last week at 4.507%, the highest level since August 8, 2007 based on 3 p.m. Eastern time levels, while the 10-year rate climbed to 4.005% for its highest rate since Oct. 15, 2008.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.992%
was down about 1 basis point Monday afternoon at around 4%, while two-year yields
TMUBMUSD02Y,
4.439%
fell about five basis points to around 4.45%, FactSet data show, at last check.Meanwhile, as investors capitulated to higher inflation, “peak policy rates moved up aggressively in the fed funds futures market, with the terminal rate now at nearly 5%, an aggressive stance that smacks of ‘peak hawkishness,’” according to the Morgan Stanley note.
“Critically, although the market is still pricing 1.5 cuts in 2023, the January 2024 fed-funds rate is estimated at 4.5%, a comfortable 100 basis points above our forecast” for core inflation measured by the consumer-price index, Shalett wrote.
“Consider locking in solid short-term yields in bonds and shoring up positions in high growth, dividend-paying stocks,” she said. “Short-duration Treasuries look attractive, especially because the yield is more than 2.5 times that of the dividend yield on the S&P 500.”
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A Tesla stock plunge could destroy ‘zombie stocks’ such as GameStop and Peloton, warns equity research firm New Constructs
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Tesla shares could decline dramatically — and that could mean disaster for a number of stocks that have already seen deep share-price cuts, according to equity research firm New Constructs.
The research firm, which uses machine learning and natural language processing to parse corporate filings and model economic earnings, called the stocks in danger “zombie stocks,” and defined them as companies with poor business models that are burning cash at an alarming rate and are at risk of seeing their stock decline to $0 per share.
The research firm estimates there could be some 300 zombie companies across the marketplace.
“The Federal Reserve’s aggressive rate hikes so far in 2022 have ended the era of free money and exposed a worrisome dynamic throughout capital markets: zombie stocks,” wrote New Constructs CEO David Trainer, in a note.
See Now: Tesla earnings are coming, but do record deliveries mask a demand problem?
New Constructs does not define Tesla Inc.
TSLA,
+7.01%
as a “zombie stock,” citing CEO Elon Musk’s ability to raise capital, but does see the electric car manufacturer as a bellwether for the sector. “It shares many of the common characteristics of a zombie stock, such as an outrageous valuation and high cash burn,” wrote Trainer. “We believe Tesla’s unrelenting share price rise over the past three years – where investors completely ignored company fundamentals – inspired the birth of many of today’s zombie stocks.”Tesla reports its third-quarter results after the closing bell on Oct. 19.
The company’s stock was trading around $220 on Monday, an increase of over 1,000% compared to three years ago. But Trainer feels that Tesla is at risk of falling more than 80% to $25 a share.
Tesla’s Optimus bot: ‘High school science project’ or robotics game changer?
Tesla’s stock has fallen 37.6% in 2022, outpacing the S&P 500 Index’s
SPX,
+2.65%
decline of 22.7%.“Its valuation remains nosebleed high because the cash flow expectations baked into the stock price are unreasonably optimistic,” Trainer wrote. “Our message to investors is to take profits in Tesla and avoid zombie stocks at all costs.”
New Constructs recently added cloud-based communication company RingCentral Inc.
RNG,
+6.49%
to its list of “zombie” stocks. Other companies on the list are Freshpet Inc.
FRPT,
-2.03% ,
Peloton Interactive Inc.
PTON,
+7.04% ,
Carvana Co.
CVNA,
+6.30% ,
Snap Inc.
SNAP,
+6.01% ,
Beyond Meat Inc.
BYND,
+0.64% ,
Rivian Automotive Inc.
RIVN,
+6.93% ,
DoorDash Inc.
DASH,
+6.15% ,
Shake Shack Inc.
SHAK,
+4.01% ,
Chewy Inc.
CHWY,
+10.76% ,
Uber Technologies Inc.
UBER,
+4.98% ,
Robinhood Markets Inc.
HOOD,
+3.24% ,
Tilray Brands Inc.
TLRY,
+7.32% ,
Affirm Holdings Inc.
AFRM,
+6.72% ,
SunRun Inc.
RUN,
+1.70% ,
Blue Apron Holdings Inc.
APRN,
+3.26% ,
and meme stocks AMC Entertainment Holdings Inc.
AMC,
+6.00%
and GameStop Corp.
GME,
+5.40% .See Now: RingCentral added to ‘zombie’ stocks list by equity research firm New Constructs
“Investors are now fed up with these kinds of companies, especially amid this year’s stock market volatility,” wrote New Constructs’ Trainer. “If investors start to give up on Tesla and take profits on the stock, which is up over 1,000% over the past three years, that spells terrible news for all of the other zombie stocks that don’t have the cash-raising luxury that Tesla has.”
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Dow climbs nearly 600 points as stocks open sharply higher after Friday’s punishing selloff
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U.S. stocks opened sharply higher on Monday, with the Dow Jones Industrial Average advancing nearly 600 points, as stocks rebounded following Friday’s punishing selloff. The S&P 500
SPX,
+2.73%
climbed 80 points, or 2.3%, to 3,663. The Dow
DJIA,
+1.93%
gained 568 points, or 1.9%, to 30,203. The Nasdaq Composite
COMP,
+3.27%
advanced 276 points, or 2.7%, to 10,598. Analysts attributed the risk-friendly mood in U.S. markets to the latest news out of the U.K., where the newly installed Chancellor of the Exchequer Jeremy Hunt abandoned the majority of the £45 billion ($50.9 billion) in previously announced unfunded tax cuts, sparking a sharp rally in U.K. government bonds, known as gilts.[ad_2]
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I want to retire next year, but I have $25,000 in credit card debt and a major monthly mortgage payment — I also live with my three kids and ex
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I’ll be 57 next month and am divorced with three kids living with me. One is 28, she’s working, another is 21 and a senior in college (with a full scholarship) and the youngest is 15 (a sophomore in high school with a full scholarship).
I plan to retire at the end of next year with $25,000 in credit card debt and 15 more years to pay my mortgage. The credit cards have 0% interest. I have a good medical benefit when I retire and it will cover my two sons under 26 years old. My monthly expenses are $2,000, including life insurance, utilities, and a car payment.
My mortgage is around $4,000 monthly impounded. The interest rate is 2% until January 2022, then 3% until January 2023 and the remaining loan is 4.5%. Is it worth it to refinance to a lower rate? I also plan to just pay the principal and pay interest in December and April. I have two credit cards: one that totals $20,000, where the 0% promo ends in April 2021, and another with $4,500 where the 0% interest promo ends this December.
I work for the state and have a pension and 401(k) and 457 investments that total $110,000. I also have one month’s worth of expenses in an emergency fund. I can only apply for a loan to the retirement accounts while employed.
I would like to ask if retiring will be a good idea. If so, is it appropriate to take a loan with my investment to pay off the credit card debt before retiring? Based on our benefit, I don’t have to repay the debt (to the 401(k)) after my retirement unless I win the lottery or something. There won’t be a penalty. My annual gross income is $96,000.
I’m a cohabitant with my ex on the house but get no contribution from him at all. I am working with my lawyer to see if I have the right to kick him out of the house.
Please help.
Thank you.
CDT
Dear CDT,
You have a lot to juggle, so the fact that you’re reaching out to someone for some financial guidance should be deemed an accomplishment all its own!
The truth is, you may want to hold off on retiring if you can. Having $110,000 in retirement accounts is great, and you don’t want to have to start dwindling that down while also trying to manage a way to effectively pay down credit card debt and a mortgage. Should an emergency arise, taking a big chunk out of that nest egg could end up hurting you significantly in the long run.
“I think she needs to take a hard look at her income and expenses,” said Tammy Wener, a financial adviser and co-founder of RW Financial Planning. “When it comes to retirement, so many things are out of your control, like inflation and investment return. The one thing you do have control over is expenses.” Furthermore, your pension may be enough to maintain your lifestyle — though advisers wondered what exactly you would be getting from that pension every month — but you would still be better off with a larger nest egg to fall back on.
Say you retire next year after all, but you still have credit card debt and hefty bills to pay. Any retirement income you have with and outside of your current funds may not be sufficient for your current living expenses, and if in a few years you realize this, you could end up back in the workforce — though it may be hard to get the same or a similar job you already have.
Let’s look at your 401(k) and 457 plans for a moment. You said you could take a loan and based on your benefit you don’t need to pay it back, but you should be extremely cautious about this. With 401(k) loans, employees may be required to repay that loan if they’re separated from their employers, so this is a stipulation you should absolutely verify. If there was any misunderstanding as to how a loan is treated, that remaining loan would be treated as taxable income when you left your job, Wener said.
Financial advisers usually caution investors not to take loans and withdrawals from retirement accounts if they can avoid it, and in your case, this may be especially true as you plan to retire in the next year. When you take a loan, you may be paying yourself and your account back, but your balance is reduced by the amount of the loan, which means you could lose out on investment returns. In the midst of this pandemic, many of the Americans who took a loan or withdrawal regret it now, a recent survey found. “I would not recommend ‘swapping debt’ by taking a loan from her investments,” said Hank Fox, a financial planner. “Instead, she should pay whatever amount is due each month to avoid the finance charges and continue to pay-down the balances.”
Don’t miss: 5 ways to find free financial advice
Also, consider what would happen if you continued to work: you’d still be able to contribute to a retirement account, boost your savings and, if applicable, reap the rewards with an employer match. You’d also narrow the amount of time you have between retirement and when you can claim Social Security benefits, Fox said.
Outside of the retirement accounts, you should try to build a “sizable” emergency fund, Wener said. Financial advisers typically suggest three to six months’ worth of living expenses, though you might want to strive for closer to six to offset any undesirable scenarios.
I’m not sure what the motivation was to retire next year, but if you can delay it, this may be the best solution. “The first thing I would recommend is that she reconsider retiring next year,” Fox said. “Since she will be 57 in November and assuming she is in good health, she should expect to be in retirement for 30 years or more.”
If postponing retirement is not an option, and it isn’t always, he suggests reducing or eliminating your mortgage, since it’s your largest expense by far. You could refinance, Wener said. Interest rates are very low these days, and while you may end up paying a little more every month for the next two years compared with that 2% rate you currently have, you’d end up paying the same and then less from February 2022 and on.
As for your credit cards, having a 0% interest rate is such a huge help in paying off debts faster, so you should try to extend that benefit, either by calling and asking about your options with your current credit card company or looking at alternative 0% interest cards.
A financial adviser — specifically, a Certified Financial Planner — could really help you crunch the numbers and find meaningful ways to make the most of the money you have now and will be getting in retirement, said Vince Clanton, principal and investment adviser representative at Chancellor Wealth Management.
An adviser can gather information on your current earnings and expenses, retirement savings, potential Social Security benefits and pension and create a financial plan to help you navigate retirement. “Voluntary retirement, and particularly early retirement, are very big decisions,” Clanton said. “It’s extremely important to know and understand all of the variables.”
Letters are edited for clarity.
Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
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Weekend reads: The Federal Reserve gets a lot of flak for inflation, but it has actually hit its target recently
[ad_1]
The U.S. stock market benchmark rebounded from a steep loss on the day when the government published hot inflation numbers.
The S&P 500 Index ended Thursday with a 2.6% gain after investors took a closer look and saw a significant improvement from July through September, as Rex Nutting explained.
The whipsaw action wasn’t limited to stocks, and was described by Rick Rieder, the chief investment officer for global fixed income at BlackRock, as “one of the craziest days” of his career.
The bond market’s warning
Some investors who focus on stocks might not realize that the bond market is much larger, and that its movements can cause government and central-bank policies to shift. Larry McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense,” which described the 2008 failure of Lehman Brothers, explained just how bad the action was in the U.K. bond market over the past few weeks, when 30-year government bonds issued in December traded as low as 24 cents on the dollar. He also predicted what will happen if the Federal Reserve continues on its current course of interest-rate increases.
Related outlooks for interest rates:
- Fed’s benchmark interest rate may peak above 5% after Sept inflation data, some economists think
- This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot
Bullish signs for long-term stock investors
Getty Images
Michael Brush argues the Federal Reserve is moving too quickly to raise interest rates and cool the U.S. economy. He expects a rapid decline in inflation and a new bull market for stocks. In a column, he shares five sentiment indicators that suggest it is time to buy stocks — especially this group of companies.
Don’t forget to look over your portfolio
Beth Pinsker explains how to make sure your investments are best diversified to fit your needs during time of uncertainty in all financial markets.
Time for a refreshing COLA if you are on Social Security
Getty Images
The Social Security Administration has announced that its cost-of-living adjustment (COLA) for 2023 will be 8.7%, the largest increase in four decades. There is more to the story, including tax implications and changes to Medicare, as Jessica Hall and Alessandra Malito explain.
Related: Can I stop and restart Social Security benefits?
Pay attention to Medicare open enrollment
Getty Images/iStockphoto
Medicare’s annual open enrollment season runs from Oct. 15 to Dec. 7. The majority of Medicare recipients don’t review their plans each year, which can cost them a lot of money. Here’s how to approach Medicare’s 2023 enrollment period.
You won’t like this ‘new normal’ for the housing market
West Coast housing markets are already seeing price declines as mortgage loan rates hit 7%.
Stefani Reynolds/Agence France-Presse/Getty Images
Freddie Mac said interest rates on 30-year mortgage loans averaged 6.92% on Oct. 13, up from 3.05% a year earlier. Mortgage Daily said rates had hit 7.10% — the highest in 20 years — and economists are warning these levels could be a “new normal.”
A homeowner locked-in with a low interest rate on their mortgage loan will be reluctant to sell. And some would-be buyers may now be priced out of the market because of much higher loan payments. Here’s what economists expect for home prices in 2023.
More housing coverage from Aarthi Swaminathan: ‘No housing market is immune to home-price declines’: Home values are already falling in these pandemic boomtowns.
Tips for maximizing financial aid for college
Getty Images/iStockphoto
When you fill out the Free Application for Federal Student Aid, or FAFSA, to help pay for your child’s college education, there may be a problem — old news. The form reflects your financial situation up to two years ago, and things may have worsened recently. Here’s how to make sure schools have the most recent information to help you get as much financial aid as possible.
This is why Florida’s insurance market is such a mess
Florida insurers are not only suffering from storm-damage payouts.
Joe Raedle/Getty Images
Hurricanes are nothing new to Floridians, but insurers in the state are losing money even though premiums have doubled over the past five years. Shahid S. Hamid, the director of the Laboratory for Insurance at Florida International University, explains why the Florida insurance market is so distorted.
Here’s a travel option you may never have heard of — home swapping
Villefranche-sur-mer on the French Riviera.
istock
Home swapping can give you an opportunity to live as a local in a faraway place while spending much less than you would as a tourist. Here’s how it works.
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JPMorgan profit falls but beats estimates while Wells Fargo misses
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JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest in come in the coming quarter.
In a busy day for bank earnings, Wells Fargo & Co.
WFC,
+4.62%
fell short of earnings target but its stock rose in premarket trades as it beat revenue estimates.Morgan Stanley
MS,
+3.55%
shares fell after it missed Wall Street’s targets for earnings and revenue.Citigroup Inc.
C,
+5.17%
shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.
As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
JPM,
+5.56%
turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.
“In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”
Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.
Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.
Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time
JPMorgan Chase’s stock rose 2.4% ahead of Friday’s open after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.
Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.
Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T
The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.
Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% to $16.9 billion on higher interest rates.
JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.
Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.
Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.
“Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.
Shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
DJIA,
+2.83%
and a 23.0% loss by the S&P 500
SPX,
+2.60% .Wells Fargo misses profit target but share rise
Wells Fargo & Co. shares advanced 2% in Friday’s premarket after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.
The megabank fell short of the earnings-per-share target of $1.09 a share.
Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.
Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”
However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “
The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.
Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.
Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.
Shares of Wells Fargo have declined 12% in the year to date.
Morgan Stanley shares fall on results
Morgan Stanley fell 2.6% in premarket trades after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.
Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.
Third-quarter revenue dropped to $12.99 billion from $14.75 billion.
Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.
“Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”
Morgan Stanley shares have lost 19.2% in 2022.
Citi beats targets but shares lose ground
Citigroup shares fell 1.3% in premarket trades Friday after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.
Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.
Excluding divestiture-related impacts, earnings were $1.50 a share.
Total revenue increased to $18.5 billion from $17.4 billion.
Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.
Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.
Shares of Citigroup have dropped 28.9% in 2022.
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U.S. stocks surrender early gains to close lower after Fed minutes hint at more aggressive hikes
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U.S. stocks finished lower on Wednesday after the release of minutes from the Federal Reserve’s September policy meeting, wherein policy makers noted that inflation remained “unacceptably high.” The S&P 500
SPX,
-0.33%
closed 11.81 points, or 0.3%, lower at 3,577.03. The Dow Jones Industrial Average
DJIA,
-0.10%
finished off 28.34 points, or 0.1%, at 29,210.85. The Nasdaq Composite
COMP,
-0.09%
closed 9.09 points, or 0.1%, lower at 10,417.10. All three major indexes finished lower for a sixth straight day.[ad_2]
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Josh Brown on the next five years in markets: ‘You actually can earn yield.’
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As MarketWatch turns 25, we wanted to know what top investing minds think we will be covering for the next five years. So we turned to the Reformed Broker and things got a little crazy.
For years, Josh Brown has been one of MarketWatch’s favorite market commentators and personalities. We knew him before he was a big shot CNBC regular and CEO of Ritholtz Wealth Management. He blogged a lot on his web site, The Reformed Broker, that he started in 2008, and found a devoted audience that wanted to hear his blunt and straightforward views on Wall Street, books he was reading, even his music preferences.
By early 2020, MarketWatch was writing about Brown’s “budding media empire,” which included 1 million twitter followers, blogs that generated 1.7 million page views monthly, and a YouTube channel with more than 20,000 subscribers.
As MarketWatch turns 25, we asked Brown what he thought we would be covering in the next five years. Here are his lightly edited comments:
What do you think you’ll be reading in MarketWatch in the next five years?
Brown: I think on MarketWatch in the next five years I will be reading a lot about inflation and then eventually disinflation and then maybe deflation. Hopefully not. But I do think probably a lot of what will be driving trends in the market will have to do with interest rates and macroeconomic concerns. It’s always been that way, but it seems even more extreme now.
What opportunities do you see today that you think might be more clear in the next five years?
Brown: It’s pretty obvious that large corporations and governments will mostly address the labor shortage by putting in software and robots. So I think anything that has to do with automation is a pretty safe bet over the next 5 to 10 years. That’s probably how we’re going to in part solve inflation. We’re going to drive the cost of doing business down via automation. It’s not part of the future. It’s the present. It’s already happening.
What do you fear that you’ll be reading about in MarketWatch in the next five years?
Brown: I really hope that no one’s reading about any personal scandals of mine in the next five years at MarketWatch. In fact, I think about it every day.
What opportunities do you see today in the financial markets that might be more clear in five years?
The 40% of a classical 60/40 portfolio now has a bigger role other than just stabilization. Like you actually can earn yield. It’s not yet a positive real yield because inflation is so high, but it’s nice for it not to be zero. So one really great idea is to go back to basics. And when you’re constructing a portfolio, don’t just think about return on investment, but think about return of investment. Being able to buy high quality muni bonds and treasuries right now, at the current rates, I think it will look like a gift sometime in the near future.
Last question. What do you fear that you’ll be reading about financial markets and investors in the next five years?
Brown: I’m not a fearful person. We will go through good times. This is the worst year since 1970 for an investor with any kind of portfolio. You have a full-scale collapse in fixed income right at the moment when you needed it because stocks have been collapsing and the high of the year was January 1st. Like, this is as bad as it gets. So we’ll make it. We’ll do this again in 2023. There will be a whole other list of things that could go wrong. But overall, I don’t invest as though I’ll be the last investor. Someone will come later. They’ll take risk, too. It’s just an ebb and flow of uncertainty. Right now. It feels like there’s a lot of uncertainty with good reason. Those aren’t the times to be most nervous. The times to be most nervous is when everyone is completely certain of what they’re doing. So we’re not there now. And that’s the good news.
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U.S. stocks edge up despite higher-than-expected inflation data
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U.S. stock indexes edged higher on Wednesday, while hotter-than-expected producer price inflation data deepened concerns that the Federal Reserve may continue its aggressive interest rate hikes.
How are stock-index futures trading
-
The Dow Jones Industrial Average
DJIA,
+0.50%
was up 120 points, or 0.4% to around 29,355 -
The S&P 500
SPX,
+0.35%
gained 5.3 points, or 0.2% to about 3,594 -
The Nasdaq Composite
COMP,
-6.31%
traded 5.1 points, or 0.1% higher to 10,430
On Tuesday, the Dow Jones Industrial Average rose 36 points, or 0.12%, to 29239, the S&P 500 declined 24 points, or 0.65%, to 3589, and the Nasdaq Composite dropped 116 points, or 1.1%, to 10426. The S&P 500 closed down 1,177 points, or 24.7% for the year to date.
What’s driving markets
The 12-month rate of producer price inflation slowed to to 8.5% from 8.7% while the annual core rate, excluding food and energy, was unchanged at 5.6%, but the monthly rate rose 0.4% in September, above forecast, and the monthly core PPI was also up 0.4% in September.
Such data has worsened fears that to curb inflation, the Fed will continue its aggressive rate hikes, which may steer the U.S. economy into a recession.
“We believe the odds of a recession in 2023 are now better than 50%,” Greg Bassuk, chief executive at AXS Investments, wrote in a Wednesday note. “Last week’s market turbulence saw volatility at levels we have not seen since July, and we believe investors should brace for ongoing market volatility and uncertainty throughout Q4, in concert with another likely Fed interest rate hike to the tune of 0.75% in November,” according to Bassuk.
The 10-year Treasury yield BX:TMUBMUSD10Y, which started the year around 1.65% was trading at 3.931% on Wednesday, off 1.3 basis points, after the producer price inflation data.
Traders are also awaiting U.S. September consumer prices data on Thursday due at 8:30 am Eastern Time.
“Inflation has proven to be difficult to forecast and given the negative ‘shock’ from the August CPI, it would be difficult for any investor to have conviction going into this report,” according to Tom Lee, head of research at Fundstrat.
“For us, analyzing the month over month numbers is much more important than looking at the headline,” Zachary Hill, head of portfolio management at Horizon Investments, said in an interview.
“The way we’ve been thinking about it, the last three months annualized [inflation] gives you a kind of a decent idea of where the shorter term trends are around inflation,” Hill said. “We think that’s what the Fed is going to be looking at to see progress towards their 2% goal. And unfortunately, based on various measures, we’re nowhere near that today.”
Adding to the market anxiety, and keeping any Wednesday rally in check, is the continuing volatility in U.K. government bonds after the Bank of England reiterated it would stop supporting the market after Friday.
Investors have become increasingly concerned of late that severe stresses in the financial system may emerge as central banks switch from the era of zero or negative interest rates to sharply higher borrowing costs as they try to tackle inflation at multi-decade highs.
“[G]lobal financial conditions have tightened as central banks continue to raise interest rates. Our latest Global Financial Stability Report shows that financial stability risks have increased since our last report, with the balance of risks tilted to the downside,” said the International Monetary Fund in a report released on Tuesday.
“The mood of global investors was gloomy enough and hardly needed yesterday’s reminder from the IMF that the risks to financial stability have increased,” Ian Williams, strategist at Peel Hunt, noted. “Its report highlighted specifically (if obviously) the threats from persistent inflation, China’s slowdown and the war in Ukraine. The highlighted ‘disorderly repricing of risk’ is arguably already underway.”
The Fed may offer its view on the topic as a number of officials are due to give comments on Wednesday. Minneapolis Fed President Neel Kashkari said the Fed is “dead serious” about getting inflation down. Fed vice chair Michael Barr will speak at 1:45 p.m. The minutes of the Fed’s previous monetary policy setting meeting will be released at 2 p.m. ET and Fed governor Michelle Bowman will deliver comments at 6.30 pm.
Companies in focus
-
Shares of Philips
PHIA,
-12.27% PHG,
-11.33%
plunged 12% after the Dutch tech company issued its second profit warning this year, forewarning that supply chain problems will impact sales and third-quarter profits. -
Intel Corp.
INTC,
+1.50%
may fire thousands of workers by the end of the month, around the same time the chip manufacturer reports quarterly results amid a tough year for semiconductor makers, Bloomberg reported late Tuesday. The company’s shares rose 1% Wednesday. - Shares of PepsiCo Inc. climbed 4.6% Wednesday, after the beverage and snack giant reported third-quarter profit and revenue that rose above expectations and raised its full-year outlook, as higher prices helped offset some volume weakness.
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The Dow Jones Industrial Average
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What stock-market investors will be watching in Thursday’s inflation report
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Hotter-than-expected consumer-price index readings have triggered some of the stock market’s biggest one-day selloffs in 2022, serving to focus investor attention ahead of the latest measure of retail inflation on Thursday.
The September CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show an 8.1% rise from a year earlier, slowing from an 8.3% year-over-year rise seen in August, according to a survey of economists by Dow Jones.
The S&P 500
SPX,
+0.23%
is down 24.7% year to date through Tuesday, according to Dow Jones Market Data. Most of the single days that are responsible for the decline occurred on or around CPI reports or Fed-related events, said Nicholas Colas, co-founder of DataTrek Research, in a note on Monday. Two of the S&P 500’s nine largest down days this year have come on days when CPI data was released, he noted.Without those nine down days, the S&P 500 would have been up 8.6% year-to-date through the end of last week, Colas wrote.
For example, the S&P 500 recorded its biggest daily percentage fall since June 2020 last month on CPI reporting day, when the large-cap index shed 177.7 points, or 4.3%. On June 13, the S&P slid 3.9% and ended in a bear market after the May inflation report came in hotter than expected, with CPI hitting a 40-year high. Three days later, the index dropped 3.3% following what was then the Federal Reserve’s largest rate hike since 1994.
“Every time we see large selloffs it means investor confidence has collided with macro uncertainty,” warned Colas. “History shows that valuations suffer when this happens repeatedly. As we see further equity market volatility, keep your expectations for valuations modest. They will bottom when macro news is greeted with a rally that sticks, not one that fades away a few days later.”
See: It’s time to pivot from the idea of a Federal Reserve rate-hike pivot, Goldman Sachs strategists say
Bloomberg reported that JPMorgan’s analysts led by Andrew Tyler expect the stock market to tumble by 5% on Thursday if the inflation gauge comes in above August’s 8.3%. If the result is in line with the consensus, the S&P 500 would fall about 2%. On the flip side, the team forecast any softening inflation below 7.9% will spark an equity rally where the index may jump at least 2%.
However, Aoifinn Devitt, chief investment officer at Moneta, said the market would take the top-line number and react to it.
“I would expect to see a similar reaction to what we saw from Friday’s jobs report, which was a positive number that translates into a negative stock-market reaction,” Devitt told MarketWatch via phone. “Stock prices have adjusted. Earnings have adjusted, so there’s already been this kind of managing of expectations (which) leads me to take up some of this and try to be on the upside for some of these stocks, just because so much of the bad news is already there.”
The September inflation report is expected to show the headline CPI continued moderating as gasoline and commodity prices fell to the February level. But future expectations may have changed after OPEC+ announced last week its decision to cut production by 2 million barrels a day, which may have “lagging effect (on inflation data)“, according to Devitt.
Meanwhile, shelter costs and medical care services, which have been at the core of inflationary pressures and are sticky, are expected to increase by 0.7% on a monthly basis. The core CPI is expected to be running at a year-over-year pace of 6.5%, up from 6.3% in August.
“The bulls are desperate for signs that inflation is set to roll back to the Fed’s target — they may be mistaken, and while headline inflation is expected to fall thanks to a decline in energy, the Fed’s focus has shifted towards core CPI,” said Chris Weston, head of research of Pepperstone, in a Tuesday note.
“This is why core CPI will unlikely roll over anytime soon and why the Fed has made it clear they will hike further and leave the fed fund rate in restrictive territory for an extended period,” he wrote.
U.S. stocks finished mostly lower on Tuesday with the Nasdaq Composite dropping 1.1%, while the S&P 500 shed 0.6% and the Dow Jones Industrial Average
DJIA,
+0.38%
edged up 0.1%. Stock-index futures pointed to a higher start Wednesday.[ad_2]
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Asian stocks moving lower in wake of latest volatile session on Wall Street
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TOKYO (AP) — Asian shares were mostly lower on Wednesday following another volatile day on Wall Street, as traders braced for updates on inflation and corporate earnings.
Benchmarks fell in Tokyo
NIY00,
+0.09% ,
Shanghai
SHCOMP,
-1.12%
and Hong Kong
HSI00,
-2.90%
but rose in Sydney.South Korea’s Kospi
180721,
+0.34%
lost 0.1% to 2,189.86 after the Bank of Korea raised its key rate by 0.5 percentage point, amid the backdrop of Fed rate hikes in the U.S. and growing inflation risks from the weak won and rebounding global oil prices.In currency trading the Japanese yen declined to a 24-year low against the U.S. dollar
JPYUSD,
-0.24
at 146 yen-levels, raising expectations of another intervention by Tokyo to prop up the yen. By midday the dollar
USDJPY,
+0.24%
was at 146.17 yen, up from 145.80 late Tuesday. The euro
EURUSD,
+0.12%
cost 96.96 cents, inching down from 97.07 yen.The weaker yen raises costs for both consumers and businesses who rely on imports of food, fuel and other needs, but the bigger purchasing power for foreign currencies is expected to boost tourism. Japan reopened fully to individual tourist travel this week after being closed for more than two years because of the pandemic.
Japan’s benchmark Nikkei 225 lost 0.2% to 26,348.73 in morning trading. Australia’s S&P/ASX 200
ASX10000,
-1.54%
gained nearly 0.2% to 6,656.00. Hong Kong’s Hang Seng slipped 2% to 16,491.39, while the Shanghai Composite shed 1.2% to 2,943.24.On Tuesday, the S&P 500
SPX,
-0.65%
fell 0.7%, marking its fifth straight loss, closing at 3,588.84. The Nasdaq
COMP,
-1.10%
dropped 1.1% to 10,426.19. The Dow Jones Industrial Average
DJIA,
+0.12%
added 0.1% to 29,239.19, while the Russell 2000 index
RUT,
+0.06%
rose 1 point, or about 0.1%, to 1,692.92.Recession fears have been weighing heavily on markets as stubbornly hot inflation burns businesses and consumers. Economic growth has been slowing as consumers temper spending and the Federal Reserve and other central banks raise interest rates.
The International Monetary Fund on Tuesday cut its forecast for global economic growth in 2023 to 2.7%, down from the 2.9% it had estimated in July. The cut comes as Europe faces a particularly high risk of a recession with energy costs soaring amid Russia’s invasion of Ukraine.
Wall Street is closely watching the Federal Reserve as it continues to aggressively raise its benchmark interest rate to make borrowing more expensive and slow economic growth. The goal is to cool inflation, but the strategy carries the risk of slowing the economy too much and pushing it into a recession.
“The market desperately wants a reason for the Fed to be able to stop tightening and the data recently hasn’t given them that opening with respect to inflation,” said Willie Delwiche, investment strategist at All Star Charts.
Computer-chip manufacturers continued slipping in the wake of the U.S. government’s decision to tighten export controls on semiconductors and chip manufacturing equipment to China. Qualcomm
QCOM,
-3.99%
fell 4%.Uber
UBER,
-10.42%
fell 10.4% and Lyft
LYFT,
-12.02%
slumped 12% following a proposal by the U.S. government that could give contract workers at ride-hailing and other gig economy companies full status as employees.The Fed will release minutes from its last meeting on Wednesday, possibly giving Wall Street more insight into its views on inflation and next steps.
Investors still expect the Fed to raise its overnight rate by three-quarters of a percentage point next month, the fourth such increase. That’s triple the usual amount, and would bring the rate up to a range of 3.75% to 4%. It started the year at virtually zero.
Rex Nutting: Leading indicators show inflation is slowing, but Fed policy makers are too busy looking in rearview mirror to notice
The government will also release its report on wholesale prices Wednesday, providing an update on how inflation is hitting businesses. The closely watched report on consumer prices will be released on Thursday, and a report on retail sales is due Friday.
“Everyone is still hoping that every inflation report will be the one that shows that pressure is alleviating,” Delwiche said.
Wall Street is also gearing up for the start of the latest corporate earnings reporting season, which could provide a clearer picture of inflation’s impact.
Among the companies reporting quarterly results this week: PepsiCo
PEP,
+0.48% ,
Delta Air Lines
DAL,
-1.97%
and Domino’s Pizza
DPZ,
-1.99% .
Banks including Citigroup
C,
-2.76%
and JPMorgan Chase
JPM,
-2.89%
will also report results.In energy trading, benchmark U.S. crude
CL00,
-0.75%
lost 82 cents to $88.53 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude-oil prices fell 2% Tuesday. Brent crude
BRN00,
-0.56% ,
the international pricing standard, fell 62 cents to $93.67 a barrel.[ad_2]
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WSJ News Exclusive | Peloton Co-Founder John Foley Faced Repeated Margin Calls From Goldman Sachs as Stock Slumped
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John Foley, the co-founder and former chief executive of Peloton Interactive faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.
As Peloton’s shares slumped over the past year, Goldman Sachs Group asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.
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S&P 500, Nasdaq log lowest close in more than 2 years as stocks fall for 5th day
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U.S. stocks finished mostly lower on Wednesday with the S&P 500 logging its lowest end-of-date level since September, while the Nasdaq Composite logged its lowest such level since July. Only the Dow Jones Industrial Average managed to evade a loss for the day; the other two indexes recorded their fifth straight session in the red. The S&P 500
SPX,
-0.65%
finished down 23.55 points, or 0.7%, to 3,588.84. The Nasdaq
COMP,
-1.10%
fell 115.91 points, or 1.1%, to close at 10,426.19. The Dow
DJIA,
+0.12%
advanced 36.31 points, or 0.1%, to finish at 29,239.19[ad_2]
