Pedestrians cross an intersection in the Shibuya district of Tokyo, Japan, on Tuesday, April 25, 2023. Photographer: Kentaro Takahashi/Bloomberg via Getty Images
The country’s core inflation rate — which strips out prices of fresh food — came in at 2.5%. A Reuters poll of economists expected the May core inflation reading to come in at 2.6%, compared with April’s 2.2%.
The so-called “core-core” inflation, which strips out prices of fresh food and energy, came in at 2.1%. This is lower than April’s reading of 2.4%. The metric is considered by the Bank of Japan when formulating the country’s monetary policy.
Japan’s headline rate rose to 2.8%, higher than April’s figure of 2.5%.
Japan’s Nikkei 225 rose 0.03%, while the broad-based Topix gained 0.21%.
Softbank — the third heaviest weighted stock on the index — saw shares drop 2.87% after Softbank Group CEO Masayoshi Son said the company needed “immense capital” to develop AI robotics.
The yen weakened for a seventh straight day, declining to 158.95 against the U.S. dollar.
Japan’s chief currency diplomat, Masato Kanda, said the government was ready to make a move against the volatile currency market that has hurt the economy, Reuters reported.
India’s benchmark Nifty 50 index gained 0.1% to hit a new record high.
HSBC flash Composite Purchasing Managers’ Index for India rose to 60.9 in June from 60.5 in May. The data complied by S&P Global showed that growth was stronger at goods producers compared to service providers.
South Korea’s Kospi fell 0.94%, while the small-cap Kosdaq lost 0.54%.
Separately, the country announced that the finance ministers of South Korea and Japan will meet on June 25 to discuss bilateral and multilateral cooperation, as well as their views on the global economy. The meeting will be held two months after both parties agreed to manage excessive currency volatilities during their meeting in Washington.
Mainland China’s CSI 300 dipped 0.60%, while Hong Kong’s Hang Seng index declined 1.71%.
Overnight in the U.S., the S&P 500 closed 0.25 % lower after hitting a new high. The Nasdaq Composite dipped 0.79%, while the Dow Jones Industrial Average climbed 0.77%. Nvidia slipped 3.5% after rising earlier in the trading day.
—CNBC’s Samantha Subin and Brian Evans contributed to this report.
The threat from a looming wave of maturing commercial real estate loans has been well telegraphed to investors, but it’s possible the metrics they are using to protect themselves from risk are flawed. Many investors have been avoiding bank stocks with high concentrations of commercial real estate (CRE) exposure. However, that metric may miss banks that have riskier loans on their books despite having lower concentrations of CRE. For that reason, investors may want to take a more granular look at the types of loans a bank holds. In doing so, they may find some larger banks are on shakier ground than their CRE concentration suggests. Wall of maturity About 30% of outstanding CRE debt is due to mature between 2024 and 2026, according to data provider Trepp. When this debt matures and the property owners look to refinance, borrowers will face much higher debt payments due to rising interest rates, and economics could become untenable, especially given that the value of many office properties has declined. Owners may decide it’s easier to just to hand back the keys and walk away. The heightened concern about default risk is clearly weighing on bank stocks, which are already fighting the headwinds of higher interest rates. Indeed, the gap between both the KBW Bank Index (up about 4% year to date) and the SPDR S & P Regional Banking ETF (KRE) (down 12% year to date) versus the S & P 500 Index (up nearly 14%) is even wider now than it was during the regional bank crisis in the spring of 2023, UBS analyst Erika Najarian wrote in a research note Thursday. For the moment, the troubled loans are contained. According to CoStar , about 1.23% of all outstanding CRE loans are considered at risk, but the trend may be heading in the wrong direction. At the end of the first quarter, the Federal Deposit Insurance Corp. said the amount of real estate loans past due or in nonaccrual status was $35 billion, up 9% from the fourth quarter of 2023 and 59% higher than the same period a year ago, marking the highest level in 11 years. Investors have been punishing regional bank stocks, especially when the bank’s commercial real estate exposure tops more than 300% of its total equity . That is a benchmark the Federal Reserve has deemed excessive. Stephens analyst Matt Breese said that many of the Northeast and Mid-Atlantic banks he covers that have CRE concentrations above 300% are trading below total book value. But CRE concentrations shouldn’t be the only consideration for investors. Past due loans Stephens analysts have noted that the FDIC’s first-quarter banking profiles revealed that banks with more than $250 billion in assets are the ones seeing an acceleration of past due loans, despite having some of the lowest CRE concentrations. The rate of troubled loans in this group was 4.48% in the first quarter. The analysts said that was far above the 1.47% rate at regional banks and 0.69% at community banks. The trend likely reflects that some of the bigger banks have exposure to large, high-profile office properties in major metropolitan areas. These properties have been particularly hard hit by downtown areas that were battered by the pandemic and companies that are looking to downsize their real estate needs in an age of hybrid work. The Kansas City Fed also called this out in a report , saying that the risk of default from office properties rose with the size of the property. It estimated that if a property was larger than 500,000 square feet, it had a 22% risk of default, while a building that was smaller than 150,000 square feet might have a default risk of less than 5%. In other words, community banks might be less risky than the CRE exposure figure would suggest. According to Breese, there isn’t one single metric that can be easily isolated, but investors could consider the average loan size at a bank as well what asset classes are exposed to interest rates and some of the other negative forces at play. “I think you start to isolate a much smaller piece of that pie,” he said, in an interview. Within Breese’s coverage area, his top stock picks are NBT Bancorp ., Webster Financial and Valley National Bancorp . While the latter two have some exposure to New York City real estate, both banks benefit from strong management teams, he said. (New York real estate markets are navigating both falling office values as well as the dynamics of rent-regulated multifamily properties.) Still, even these stocks are likely to have a tough go as long as interest rates stay high and fears about CRE persist. Connecticut-based Webster has fallen more than 22% year to date, while New Jersey’s Valley National has tumbled 40%. NBT, down about 16% year to date, has fared slightly better. NBTB YTD mountain NBT Bancorp shares year to date. Breese sees NBT as both a defensive and offensive play as it has strong funding and a low CRE concentration of 203%. It also has a compelling opportunity ahead as an upstate New York bank located in an area that is seeing a lot of investment in semiconductor manufacturing from companies such as Micron Technology . UBS’ Najarian said the bank scanned stocks that were both sensitive to interest rates and had the most CRE exposure and Providence, R.I.-based Citizens Financial Group had the “most compelling stand-alone ‘story.’” She cited factors such as private banking traction and a reduced drag from swaps as two catalysts. For larger banks, the sentiment could be improving, according to Piper Sandler analyst R. Scott Siefers. In early June, he explained that the larger banks have fewer outstanding “wildcards” and improving fundamentals such as the chance for a turnaround in net interest income and a bounce in investment banking business even with higher interest rates. Siefers also likes Citizens Financial as well as Cleveland’s KeyCorp. He has an overweight rating on both stocks. Citizens is up less than 3% year to date, while KeyCorp. shares are down nearly 7% over the same period. “Financial-only investor interest has increased, though generalists still seem mostly disengaged,” Siefers wrote.
Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals. Since the start of 2023, a CNBC analysis found that Wells Fargo made at least 17 senior-level hires in its corporate and investment banking (CIB) division. Leaning on the expertise of its rivals, many of the newly employed executives previously worked at the likes of JPMorgan Chase and other big banks. Expanding investment banking “improves our outlook” on Wells Fargo stock, according to Jeff Marks, director of portfolio analysis for the CNBC Investing Club. “Adding more fee-related revenues to the overall picture makes the bank’s profits less hostage to the bond market yield curve and could improve the overall return profile of the bank.” He added, “Wells Fargo could fetch a higher multiple in the market as a result.” It’s no wonder CEO Charlie Scharf wants a bigger slice of businesses like investment banking, which garner huge revenue from fees. Services like underwriting for initial public offerings (IPO) and facilitating mergers and acquisitions (M & A) allow banks to take home a percentage of these deals and advisory fees. Fees are a more durable and less volatile revenue stream than what Wells Fargo has historically focused on. This is important because, as Scharf said in the bank’s 2023 annual report , the CIB division has positioned Wells Fargo to “increase our fee-based revenues” and “increase our returns overall.” At the top of the recent hire list, however, is Doug Braunstein, a JPMorgan veteran who was brought in as vice chairman in February to help steer Wells Fargo’s corporate finance and advisory businesses. During nearly 20 years at JPMorgan, Braunstein held many roles including chief financial officer, head of investment banking in the Americas, and head of global mergers and acquisitions. Fernando Rivas was named earlier this month co-CEO of corporate and investment banking at Wells Fargo. Formerly head of North American Investment Banking at JPMorgan, Rivas will lead CIB together with Jonathan Weiss, who had been the sole CEO of the division since February 2020. Weiss, also a JPMorgan alum, has been at Wells Fargo since 2005. Rivas had been at JPMorgan for three decades. In addition to those high-profile hires, CNBC found that Wells Fargo also poached top talent from other financial behemoths such as Barclays , Deutsche Bank , Piper Sandler, and now-defunct Credit Suisse — all within the past year. A Wells Fargo spokesperson declined to comment on the total number of CIB-related hires across all levels in the division. However, Wells Fargo’s Scharf said in the press release announcing Rivas’ hire, “We have added over 50 senior bankers and traders since 2020 and have seen the positive impact with increased revenue and market share.” Break from tradition Management has long relied on interest-based revenue streams like net interest income (NII) from its retail and business customers. NII is the difference between what a firm makes on loans versus what it pays for customer deposits. Wells Fargo and other banks have benefited in recent years as the Federal Reserve began hiking interest rates in March 2022. That’s because the cost of borrowing goes up much more than what customers earn on deposits. However, as rates have stayed higher for longer, customers began to withdraw some of their deposits for higher-yielding offerings like money market funds. Wells Fargo said NII decreased 8% during the first quarter, citing interest rate dynamics. Full-year guidance for NII is also expected to decline in the 7% to 9% range. That’s the double-edged sword of rates, which are now expected to be cut by the Fed later this year, and why Wells Fargo was glad to see its CIB-related investments pay off in the first quarter. The division saw a 1.6% increase in revenue to $4.98 billion. During the April 12 post-earnings conference call, Scharf said the bank is “beginning to see early signs of share and fee growth which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue.” From 2019 to the end of 2023, Wells Fargo’s overall investment banking share moved up two ranks in the U.S. market to No. 6, management said in an annual report , citing Dealogic figures. More recent data indicates that Wells Fargo’s investment banking revenue share globally has jumped to No. 7 from No. 12 year-over-year, as of Tuesday. In the investing banking subset of M & A, Wells Fargo has been garnering more fees. The bank has been tapped for a series of high-profile deals as well, including Kroger ‘s attempted nearly $25 billion acquisition of Albertson’s in October 2022. The transaction is in limbo after the Federal Trade Commission filed a lawsuit to block the merger in February . In IPOs, Wells Fargo was among the lead book-running managers of recent IPOs: cruise line Viking and data management firm Rubrik . Wells Fargo shares, which began their upward trajectory back in November, gained more than 50% in the past 12 months — and about half that gain in 2024 alone. That’s roughly double the S & P 500 ‘s performance on both measures. The stock saw its highest close last week of $62.55 since mid-January 2018. Shares have pulled back a bit since then but remain only about 7.5% away from its all-time high close of $65.93 at the end of January 2018. In recognition of that strength, the Club trimmed its Wells Fargo position in late April and booked a healthy profit on the trade. While still bullish, we wanted to reduce the stock’s overall weighting in a show of portfolio discipline. It was near the 5% threshold that we don’t like exceeding in order to run a diversified portfolio. The Club has a 2 rating on the stock and a $62 price target . WFC mountain 2018-01-26 Wells Fargo since record high close on Jan. 26, 2018 Moving forward Wells Fargo’s CIB expansion bodes well once the firm’s Fed-imposed $1.95 trillion asset cap is gone. Although the timing is uncertain, Wells Fargo secured a key win with regulators in February after the Office of the Comptroller of the Currency terminated a penalty tied to the bank’s 2016 fake accounts scandal. That so-called consent order was believed to be a major factor in the Fed’s decision to cap Wells Fargo’s asset levels in 2017. Those regulatory burdens for past misdeeds at the bank predated Scharf’s tenure who has been clearing them since becoming CEO in 2019. Piper Sandler analyst Scott Siefers has said that Wells Fargo will be able to compete more effectively against other large Wall Street firms once the growth cap is removed. “Wells Fargo on a relative basis is very undersized in businesses such as investment banking,” Siefers told CNBC in March . “So, one part of the investment banking business is being able to commit capital. In other words, put some risk on your balance sheet. But thanks to the asset cap, Wells has not been able to build out its investment bank to the same degree, as have some of its other peers.” (Jim Cramer’s Charitable Trust is long WFC. 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.
A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020.
Jeenah Moon | Reuters
Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals.
Real estate stocks have become oversold and that has presented an opportunity for investors, according to BMO. In fact, since the group has been a part of the S & P 500 , there have only been a handful of other times where the stocks have performed worse relative to the index on a year-over-year basis, chief investment strategist Brian Belski wrote in a note Tuesday. Real estate is the only S & P 500 sector that is in the red this year, off 6%. “According to our work, this type of abnormal underperformance has typically proved to be an inflection point historically,” Belski said. “[We] believe the sector is poised for a turnaround in the coming months and are recommending that investors use its current weakness as a dip buying opportunity,” he added. .SPLRCR YTD mountain S & P 500 Real Estate Sector year to date BMO identified four other periods of this abnormal underperformance. In the year following such troughs, real estate investment trusts outperformed the S & P 500 by about 17%, on average. Belski thinks the stocks have also been unfairly punished in response to interest rate trends. While historically their relative performance has fared somewhat better during periods of falling interest rates, they have also managed to outperform in a higher rate environment, he said. Fundamentals also appear supportive, according to Belski. “Free cash flow yields for REITs continue to go up, with debt going down,” he said in an interview on ” Squawk on the Street ” on Thursday. “Payouts are going up as well.” Here are some of the REITs BMO rates as outperform. They also pay dividends, so investors can earn some income while they wait for a rebound. Investors can snag a 6.4% dividend yield with Boston Properties . The company develops, owns and manages workspaces across the country, including in New York and San Francisco. Office REITs suffered from the Covid-19 pandemic work-from-home trend and a slow return to the office. However, that is now shifting, Belski pointed out. “Everyone is working. We are coming back to work again,” he told CNBC. “The death of commercial real estate is way, way precluded. I think people predicted that way too early.” Shares are down nearly 13% year to date and have about 27% upside to BMO’s price target. Meanwhile, data center REIT Equinix just saw its stock rally more than 11% on Thursday, fueled by an earnings beat. “The rapidly evolving AI landscape continues to serve as a catalyst for economic expansion, creating immense potential for Equinix as our customers recognize the importance of digital initiatives in driving long-term revenue growth and operational efficiency,” Equinix president and CEO Charles Meyers said in a statement. Shares have lost about 6% so far this year and have about 25% upside to BMO’s price target. It has a 2.3% dividend yield. Ventas is also down about 4% year to date. The company’s portfolio includes senior housing communities, which stand to benefit from the aging population . The last of the baby boomers will turn 65 in 2030 , according to the U.S. Census Bureau. The stock, which yields 3.8%, has roughly 7% upside to BMO’s price target. Lastly, Host Hotels & Resorts , which owns luxury and upper-upscale hotels, has a 4.4% dividend yield and is down nearly 6% so far this year. It also has about 25% upside to BMO’s price target. Earlier this month, the company reported adjusted funds from operations for the first quarter that topped estimates. It also posted a revenue beat and upped its full-year funds-from-operations and revenue guidance.
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We’re no longer recording the audio, so we can get this new written feature to members as quickly as possible.) Market check: Stocks surged Wednesday afternoon after the Federal Reserve held interest rates steady at the end of its latest two-day meeting. According to their post-meeting statement, central bankers noted a “lack of further progress” in bringing inflation down to their 2% target. Fed chief Jerome Powell reiterated that concern at his news conference. Powell said that rate cuts would be considered when the Fed feels inflation is on its way to target. “We feel our policy stance is in a good place” and appropriately restrictive, he added. Early in 2024, expectations in the market were for as many as six cuts. Now, there are questions about whether there will be any cuts this year. April, which has historically been one of the stronger months of the year for the market, was rough. Monthly declines in the Dow , the S & P 500 and the Nasdaq broke five-month winning streaks for the three major stock benchmarks. While April overall was terrible, there were some big winners in the Club’s portfolio, including Alphabet up nearly 8%. Before last week’s strong quarter, CNBC learned that Alphabet’s Google had laid off hundreds of employees from so-called core teams. The reorg includes moving some roles to India and Mexico. Crude sinks: U.S. oil prices sank roughly 3% to under $80 per barrel Wednesday. That’s about a seven-week low on West Texas Intermediate crude . The reasons: stockpiles surged on lackluster demand as the U.S. and its international partners continue to push for a ceasefire between the Israelis and Hamas in Gaza. WTI has fallen 9% from its intraday high for the year of $87.67 per barrel. Our lone oil-and-gas stock, Coterra Energy , was down 2% on Wednesday. It’s set to report quarterly results after the close Thursday. Cruise IPO: Viking Holdings shares rose 10% in its debut as a public company Wednesday. The cruise line company Tuesday evening priced roughly 64 million shares at $24 each — toward the higher of the expected range. Viking is the latest in a recent revival of the long-dormant initial public offerings market. The IPO comeback of late has boosted the investment banking arms of Wall Street banks. Morgan Stanley is one of the lead underwriters of the Viking offering. Last month, the Club name delivered a much-needed rebound quarter . Investment banking revenue at Morgan Stanley rose 16% year over year, driven by IPO business. These deals must succeed to entice more private companies to become public, which is crucial to Morgan Stanley. Biggest winners: DuPont was the Club’s biggest winner Wednesday, jumping more than 7% after the chemicals company beat on quarterly earnings and raised guidance. DuPont’s semiconductor business rose 10%, and we see plenty of runway for growth next year thanks to artificial intelligence. GE Healthcare was next, rising nearly 2% after Tuesday’s 14% earnings-driven decline , which we thought was an overreaction. Amazon was our third-best stock, gaining more than 1.5% Wednesday following the e-commerce and cloud giant’s great quarter and what we think was conservative guidance. “There’s no incentive in giving some pie in the sky number,” Jim said during the Morning Meeting . Biggest losers: Starbucks was our biggest loser Wednesday following the terrible quarter and outlook that was out the evening before. Jim blasted the Starbucks CEO in a morning CNBC interview, saying he was “stunned” by Laxman Narasimhan’s lack of awareness of how bad things are at the coffee giant. Estee Lauder was next, dropping 14% after light guidance and worries about China overshadowed quarterly beats. Nvidia was our third-weakest stock Wednesday, dropping more than 5%. The AI chip giant enjoyed a 15% bump last week on all the spending plans from Big Tech. While inching higher Monday, Nvidia also was down 1.5% Tuesday. Club earnings : In a busy week with quarterly reports from 12 portfolio stocks, Thursday brings morning earnings from Linde , Stanley Black & Decker and Bausch Health . After the bell Thursday, Apple is out with its quarter following a bump earlier this week tied to an upgrade from the often-skeptical Bernstein analyst Toni Sacconaghi. Apple has had a rough year, but Sacconaghi sees the pullback as an “attractive entry point.” Jim said the call is ill-advised, and we must wait for the release to see where Apple might go from here. As mentioned earlier, Coterra is also out with earnings Thursday evening, but the post-release conference call won’t be until Friday morning. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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.
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We’re no longer recording the audio, so we can get this new written feature to members as quickly as possible.)
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates. The S & P 500 and Dow Jones Industrial Average dropped more than 3%, respectively, from the close on the March 27 meeting day through Tuesday’s session. The tech-heavy Nasdaq Composite experienced a more-than-4% loss during the period. The losses would have been steeper if not for the strong start to this week. On Monday, the S & P 500 and Nasdaq snapped six-day losing streaks and followed that up with additional gains Tuesday. The sell-off had dragged the market into oversold territory, according to the S & P 500 Short Range Oscillator. That prompted the Club put its arsenal of cash to work , selectively purchasing shares of high-quality companies at attractive levels. After Tuesday’s gains, the market is no longer oversold, according to the S & P Oscillator. Here are our five top-performing stocks since the March Monthly Meeting. They span four sectors, ranging from financials to tech. WFC YTD mountain Wells Fargo (WFC) year-to-date performance Wells Fargo led the way, with shares jumping 5.8% over the period. The stock received a nice boost following the bank’s first-quarter earnings release — albeit on a delayed reaction. Wells Fargo beat on the top-and-bottom lines and disclosed a sizeable increase in stock buybacks during the period compared with the fourth quarter. “Talk about a vote of confidence,” Jim Cramer said after the results, referring to the boost in buybacks. The Club also was upbeat on management’s remarks about fee-based incomes growing as a percentage of Wells Fargo’s total revenue. Jim argued that fees reduce volatility and provide a great form of annuity for the bank. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance Alphabet stock rose 4.9% since the March Monthly Meeting, placing the Google parent in second place on the gainers list. Investor sentiment improved leading up to a string of generative artificial intelligence-related announcements during the company’s cloud-computing summit , Google Cloud Next. Most notably, Alphabet on April 9 announced a new Arm -based server chip and several generative AI service offerings. The event gave the Club more assurance of the company’s ability to compete in the heated AI arms race among Big Tech players. Shares hit an all-time high of $159.41 apiece on April 11, the final day of Google Cloud Next. The stock gave back some of those gains in the sessions that followed, but it is still less than 1% below its record peak. It closed Tuesday at $158.86 per share. PANW YTD mountain Palo Alto Networks (PANW) year-to-date performance Palo Alto Networks occupies the No. 3 spot, with shares advancing 4% since the March 27 close. The gains are welcome for the stock, which continues to trade well below where it did before a brutal post-earnings sell-off in late February. Although we don’t see one individual catalyst for the recent upswing, the Club holding continues to benefit from signs of increased demand for its cybersecurity offerings as the threat environment remains elevated. On March 30, for example, AT & T said that the telecommunications company was looking into a leak that resulted in millions of customers’ data getting published on the dark web. “Buy some Palo Alto on this,” Jim said after the high-profile cybersecurity incident. “We like that [stock.]” During the Club’s March Monthly Meeting, Jim told members that he’s tempted to add to our position if the stock falls under $280 per share — and we did just that April 8, picking up 25 shares around $268 each . EL YTD mountain Estee Lauder (EL) year-to-date performance Estee Lauder stock added 2.7% since the March Monthly Meeting, occupying the fourth spot on our list. Shares of the embattled cosmetics retailer have benefited from a slew of bullish Wall Street calls. On March 28, Bank of America upgraded the stock to a buy rating from hold, arguing Estee Lauder’s earnings have bottomed. The firm also raised its price target to $170 per share from $160. A few days later, Citigroup boosted the stock’s rating to buy from hold, adding that the company’s top line also is nearing an inflection point. On Thursday, we issued an upgrade of our own and added to our position that day , with the stock having essentially given up most of its post-earnings gains earlier in 2024. Estee Lauder remains a high-risk and volatile situation, but we’re hopeful that CEO Fabrizio Freda has finally righted the ship. Freda said during Estee Lauder’s most-recent earnings report that the company would return to profitability in the second half of the fiscal 2024 year. DHR YTD mountain Danaher (DHR) year-to-date performance Danaher rounds out the Club’s top performer’s list at No. 5 — and its 7.3% surge after earnings Tuesday is the reason for its inclusion. Overall, Danaher rose 1.7% since the March gathering The life sciences and diagnostics company posted earnings beats across its three main businesses. The results indicated the turnaround in the biotech industry has arrived, which should continue to support orders for Danaher’s offerings. “I have waited and waited and waited for this company to have the inflection, and this is the inflection,” Jim said Tuesday. (Jim Cramer’s Charitable Trust is long GOOGL, WFC, PANW, EL, DHR. 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.
Traders work on the floor of the New York Stock Exchange (NYSE) on April 10, 2024 in New York City. As new inflation data released today showed a continued rise, stocks fell across the board with the Dow falling over 400 points.
Spencer Platt | Getty Images
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates.
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. U.S. stocks edged lower Wednesday following a three-session losing streak for the S & P 500 . Investor concerns that the Federal Reserve will leave interest rates higher for longer and escalating tensions in the Middle East have increased volatility. Jim Cramer said Wednesday to focus on earnings rather than speculating on the central bank’s next policy move. He stressed that company financials give investors better indications of a stock’s future performance. The S & P 500 Short Range Oscillator is signaling a solidly oversold stock market. When that happens, the Club looks to buy shares of high-quality names at a discount. We put cash to work Wednesday, adding to our position in Abbott Laboratories amid a post-earnings sell-off. This week, the Club also purchased shares of electronics retailer Best Buy on Monday and Tuesday. We added shares of beer maker Constellation Brands and oil and natural gas producer Coterra Energy on Tuesday. Both of our financial names released solid earnings. Morgan Stanley shot up 1.5% on Wednesday. The stock added to prior session gains on largely better-than-expected quarterly results , featuring a big rebound in investment banking, Wells Fargo shares have pretty been flat since its upbeat earnings release last Friday. Still, we like that the bank’s fee-based revenues were strong, and that management seems to be pushing into these kinds of offerings. “This will be the ultimate fee-based bank,” Jim said. (Jim Cramer’s Charitable Trust is long WFC, MS, ABT, BBY, CTRA, STZ. 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.
Inflationary pressures may have induced the recent market selloff, but Fundstrat’s Tom Lee believes that equities could still end the year higher. The firm’s head of research believes that investors may be putting too much weight into the recent economic data releases showing inflation above economists’ expectations. “The narrative got muddled because that CPI report was a disappointment. But it was driven by what we’d call stubborn components,” he said on CNBC’s ” Closing Bell ” on Friday afternoon. “Inflation is normalizing, it’s just not evident in the total picture.” Lee believes that even if the Federal Reserve only ends up cutting rates once this year, that could still be conducive for stocks. In fact, Lee believes that the S & P 500 could end the year at 5,700 or “maybe even higher,” he said. It still “makes sense to own what’s working,” he said, so Lee remains bullish on megacap names that could continue to be bought on the strength of the outlook for artificial intelligence and the Ozempic weight loss drug. But he also likes small-cap names ahead of interest rate cuts and finds industrial stocks attractive as the ISM manufacturing report turns higher.
What a difference a year makes. Club holding Wells Fargo will post quarterly results on Friday, followed by our other financial holding, Morgan Stanley, on Tuesday. The industry’s first-quarter results will come against a more pleasant backdrop than last year, when the March 2023 collapse of Silicon Valley Bank sent shockwaves throughout the sector. The major banks are also beyond last quarter’s messy numbers as they paid for the FDIC’s regional bank rescue efforts. Meanwhile, the Federal Reserve’s stance on interest rate hikes has also changed from a year ago when central bankers were increasing rates to the current talk about how many rate cuts to expect in 2024. The impact of higher-for-longer interest rates is in focus again this earnings season. Some analysts believe it’s a positive for a key financial gauge for Wells Fargo. We’re also optimistic but want to temper expectations because several factors play into the firm’s performance. Expectations for Fed rate cuts have continued to come down since the start of 2024 when the market ambitiously priced in six reductions. With some recent data signaling an uptick in inflation, including Wednesday’s consumer price index for March, market odds are now in the two-cut neighborhood for this year, with the first projected one to arrive in September. Jim Cramer has been saying repeatedly that the resilient economy could re-ignite inflation and that the Fed should not cut rates anytime soon, if at all, this year. A higher rate environment could lead Wells Fargo to boost full-year net interest income (NII) guidance, which we saw as conservative when it was delivered alongside fourth-quarter 2023 results . At the time, its NII outlook, which assumed five Fed rate cuts this year, hit the stock. WFC YTD mountain Wells Fargo (WFC) year-to-date performance NII is the revenue generated from loans, securities, and other interest-earning assets minus the interest expenses paid on its liabilities like customer deposits. Higher rates can be seen as a positive for Wells Fargo’s NII because the firm relies heavily on its consumer banking and lending segment. It accounted for roughly 44% of overall revenue in 2023. In theory, higher borrowing costs mean Wells Fargo can generate more money from those interest-earning assets, but it’s not that simple. Rates are one of many factors that play into a firm’s interest income, including potentially sluggish loan growth, which was a factor in the fourth quarter. It’s hard to say with the fluid inflation and rate expectations whether Wells Fargo might change its NII outlook when it reports on Friday. During a UBS financial services conference in February, Wells Fargo CFO Mike Santomassimo said the bank is “still very comfortable” with its NII guidance. “When you look at rates in isolation, higher rates, [for a] modestly asset-sensitive business [like Wells] is a positive,” Santomassimo said at the Feb. 26 event. However, he added it’s only “one factor that you sort of have to look at across the whole balance sheet.” Wells Fargo’s expense guidance will also be in focus after the bank barely hit estimates last quarter. Expense control is crucial for Wells Fargo to continue improving its efficiency ratio , a profitability measurement in the banking industry. In the fourth quarter, management indicated that the firm met its multiyear goal to cut expenses by $10 billion. We don’t predict any thesis-changing events in Friday’s release and remain bullish long-term on the bank stock. During Wednesday’s Morning Meeting , Jim said, “I like Wells. Let Wells sell off $3 [per share], and then you buy it.” The stock was above $56 apiece when Jim made his statement, and it traded modestly lower on Thursday. Wells Fargo also has a key long-term growth prospect in the potential removal of its $1.9 trillion Fed-imposed asset cap. This is a big part of our investment thesis and why we have continued to own the stock, though we trimmed some earlier this year when its outperformance resulted in it becoming our largest position. Once the bank gets its growth cap lifted, which we expect next year, Wells Fargo will be able to grow its balance sheet again. Wells Fargo has also been making noise about getting into the investment banking business in a bigger way. In February, Wells Fargo cleared a big regulatory hurdle tied to past misdeeds, which gave us more optimism around CEO Charlie Scharf and the rest of management’s strides to get the growth cap lifted. “Charlie’s got a great handle on things,” Jim said earlier this week. “He’s also a great risk manager.” Shares of Wells Fargo have gained more than 15% year to date — due in part to February’s regulatory victory — but in recent weeks, the financial name has cooled off. Over the past month, the stock was down slightly while the S & P 500 was up more than 1 percent. Morgan Stanley has generally been hurt by higher interest rates over the past two years because they have injected uncertainty into the economic landscape, limiting dealmaking activity for its investment banking division to partake in. Investment banking came back “strongly” in the first quarter of 2024, JPMorgan analysts said in a note to clients this month. Industrywide fees rose 21% quarter over quarter and 10% on an annual basis, the firm said, reaching their highest levels since the first quarter of 2022 — coinciding with the start of the Fed’s rate-hiking campaign . Although these JPMorgan analysts don’t cover Morgan Stanley directly, the improved dealmaking backdrop is encouraging for our financial holding’s once-lucrative investment banking business. After booming during the early parts of the Covid pandemic, the segment has lagged for over a year amid muted mergers & acquisitions (M & A) activity and a weaker initial public offering (IPO) market. In a note to clients last week, Jefferies analysts similarly said investment banking activity has “begun to rebound,” adding that an increase in M & A announcements “bodes well” for Morgan Stanley’s advisory revenues during the second half of 2024. Morgan Stanley served as a financial advisor to Discover in Capital One’s $35 billion acquisition of the credit-card issuer, which was one of the biggest deals announced in the first quarter of the year. MS YTD mountain Morgan Stanley (MS) year-to-date performance The Club agrees with the Wall Street firms, considering the many signs we’ve seen that indicate the dealmaking environment is improving. In addition to increased acquisitions, there’s been a slew of big-name IPOs already in 2024. Morgan Stanley’s investment banking services were tapped for big public debuts from the likes of Wilson tennis racket maker Amer Sports and chip firm Astera Labs , both of which are in the top five IPOs so far this year based on money raised, according to Jefferies. Perhaps most notably, Morgan Stanley was a lead underwriter for Reddit’s multibillion-dollar IPO in March. The stock debuted at around $34 per share and is trading around $45 per share Thursday. Reddit’s successful debut on the New York Stock Exchange can be viewed as a positive for both investors’ current appetite and the future dealmaking environment. And our hope is private companies that want to go public will choose Morgan Stanley as a facilitator for their future offerings. Morgan Stanley earns a fee based on the size of the IPO and for selling the stock to investors. Elsewhere, margins in Morgan Stanley’s wealth management division will be under scrutiny after leaving plenty to be desired in the fourth quarter. One factor that weighed on profitability in the segment, which houses online brokerage E-Trade, was that clients were moving their deposits into higher-yield accounts in a process sometimes called “cash sorting.” However, deposit trends generally seem to have stabilized, according to Jefferies analysts. And a more supportive market should help Morgan Stanley’s margins, analysts suggested. We want to see the firm get back on track toward its previously issued goal of 30% operating margins for the segment down the line. Under recently departed CEO James Gorman, Morgan Stanley embarked on an aggressive push into asset and wealth management, in a bid to become less reliant on the boom-and-bust nature of its traditional investment banking operations. The firm bought E-Trade in 2020 as part of that transformation, but the brokerage has become “sleepy,” Jim said, during the Club’s most recent Monthly Meeting, alongside a plea for management to improve the bank’s overall performance. “New CEO Ted Pick has to come out swinging on this next conference call about how he’s going to grow revenues in a faster, less-complacent pace,” Jim said. “He’s got a better IPO market to crow about, but this company has been a big disappointment versus some others in the industry.” Shares of Morgan Stanley tumbled 5% on Thursday after The Wall Street Journal reported that multiple federal regulators are probing the bank for its wealth management practices. To be sure, the report cited people familiar with the matter and has not been confirmed yet. With the information the Club has now, though, we think the stock decline was a market overreaction. Still, Thursday’s losses add on to an overall lackluster 2024 performance for the stock. Morgan Stanley shares have now lost nearly 7% year to date, compared with a roughly 8% gain for the S & P 500 financials sector. (Jim Cramer’s Charitable Trust is long WFC, MS. 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.
A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020.
A bitcoin top could signal trouble for stocks – and a shift in market leadership, according to Stifel. According to Barry Bannister, Stifel’s chief equity strategist, there’s evidence the cryptocurrency may be peaking, which could lead to a pullback in investor sentiment, weaker Big Tech stocks, and a rotation into value, he said in a note Wednesday. “Bitcoin & Nasdaq 100 reflect the speculative fever fostered by cheap money after dovish Fed pivots, such as occurred 4Q 2023,” Bannister said. “We show that if Bitcoin reflects euphoria after a dovish Fed, it is notable that Bitcoin (and the fever) may be peaking.” BTC.CM= YTD mountain Bitcoin, YTD “Investor mania around bitcoin coincides with extreme equity bullishness, which typically means equity indices are overbought and vulnerable to pullbacks,” he added. Bitcoin hit a new all-time high on March 14 after running up 71% since the start of the year, and has been trading in a roughly 7% range since then as investors take profits and digest the recent gains. Shortly after, on March 28, the S & P 500 reached a new intraday all-time high . .SPX YTD mountain S & P 500, YTD If was indeed its peak, that could mean a weaker Nasdaq 100 for six months, Bannister said. Other implications he highlighted include weakness in Big Tech Nasdaq stocks and a pullback in investors sentiment with a year-over-year change in S & P 500 performance. Additionally the S & P 500, which is cap weighted, could struggle against the equal-weight S & P 500 for about six months. “When the equal-weighted S & P 500 out-performs the S & P 500, then value tends to out-perform growth,” he said. —CNBC’s Michael Bloom contributed reporting.
Wall Street could be in for another solid quarter as stocks have embarked on a strong start to the year. The S & P 500 posted its best first-quarter performance going back to 2019, up 10%, as stocks rode a wave of enthusiasm around the prospect of rate cuts coming later this year, as well as the potential of artificial intelligence to bolster corporate profits. Nvidia , the poster child for the AI rally, is up more than 80% in the first quarter. The VanEck Semiconductor ETF (SMH) has leapt nearly 30% in the period. Meanwhile, the Dow Jones Industrial Average is a stone’s throw away from reaching 40,000 for the first time ever. Those gains have many investors deliberating whether the rally can continue in the second quarter, or if stocks are due for some sort of consolidation — even a correction — over that period. Many stocks are triggering overbought signals. Some macroeconomic observers worry the strain on consumers from higher-for-longer interest rates will soon be felt in the economy. Historically speaking, at least, it appears as though the party can continue a while longer. In 10 out of 11 prior instances when the S & P 500 registered a first-quarter gain of 10% or more, the broad market index was higher for the remainder of the year, according to Ryan Detrick, chief market strategist at Carson Group. Specifically, in the second quarter, the S & P 500 was higher 9 out of 11 times, averaging a 2.7% gain. “We’ve been in the very rare camp a year ago saying there’d be no recession, this is probably a bull market,” Detrick told CNBC’s ” Squawk Box ” on Wednesday. “We’ve been in that camp ever since.” Significantly, two occurrences of those 10% first-quarter gains Detrick reviewed took place during election years, with the S & P 500 ending higher on the year. In 1976, the S & P 500 went on to register a 1.5% increase in the second quarter, and a 4.6% jump for the rest of the year. In 2012, the broad market index registered a 3.3% loss in the second quarter, but managed to notch a 1.3% advance for the remainder of the year. Other market strategists reached similar conclusions from the historical data. CFRA Research’s Sam Stovall noted the 15 strongest first-quarter returns since World War II have returned 12.5%, on average, while the subsequent second quarters averaged a 3.7% increase. “I think that gives investors something to feel optimistic about,” said Stovall, chief investment strategist of CFRA. ‘Cool the engines’ To be sure, many investors do see some digestion of gains after the recent rally. In fact, given that S & P 500 is already higher on the year by just over 10%, many anticipate that the remainder of the year could get more volatile. This week, Piper Sandler said the S & P 500 is due for a 5% to 10% correction in the coming weeks, and notably dumped Nvidia from its model portfolio, citing extended valuations. The Wall Street firm maintained its year-end S & P 500 target of 5,050, representing a 3.8% slide from Wednesday’s close. “As investors show complacency within the current uptrend and exhibit a Fear-Of-Missing-Out (FOMO), we believe now is the time to be more vigilant and ‘Cool The Engines,’” Craig Johnson, chief market technician at Piper Sandler, wrote Wednesday. One bearish strategist expects stocks could plunge in the second or early third quarter as the macroeconomic picture worsens. Brian Nick, senior investment strategist at the Macro Institute, said he’s looking for signs of rising pressure on the consumer. Recently cooling housing prices, for example, may be an early sign the market could take a turn for the worse, as home sellers are forced to slash prices to attract buyers, he said. He expects stocks would deteriorate as a result. “If stocks start to discount a recession, you would typically see a decline in the area of 20%, at least, from these valuations today,” Nick said. “And given the significance of the rising rates that we’ve seen, and the fact they think that’s really only started to impact the economy, we are probably looking for something even a bit worse than the typical recession.” “So, something in that 30% to 35% range would not be at all unexpected, again, based on where valuations are, and based on what we think is the likely severity of the coming slowdown,” Nick added. A ‘too conservative’ target But others expect any slide in the second quarter will be a more of a healthy pullback in what is still expected to be an upwardly trending market. Many on Wall Street remain bullish on the overall direction of the market. Oppenheimer’s John Stoltzfus, for example, raised his forecast to 5,500 from 5,200, making his target the highest on CNBC’s market strategist survey. The 5,500 level represents a roughly 15% pop for 2024. The S & P 500 was last around 5,250. Ayako Yoshioka, senior portfolio consultant at Wealth Enhancement Group, said she anticipates the second quarter will likely be weaker compared to the first, but she maintained the overall trend remains to the upside for equities so long as the Fed lowers rates three times this year. “It’s hard to say that we’re going to be up another 10%,” Yoshioka said. “I think that would be a little expensive, a lot more expensive, than it is today. And so, I think that might be a tougher ask.” CFRA’s Stovall similarly remains bullish on equities. The chief investment strategist has a 5,200 year-end target on the S & P 500, but said that target is subject to review now that the broader index has risen past that level. “I mean, right now, my full year estimate was for about a 9% increase,” Stovall said. “But history says, ‘no, I’m actually being too conservative,’ and that the gain is probably going to be something closer to 15-plus percent.” Next week will also bring the release of the March jobs report. Economists polled by FactSet anticipate that the U.S. economy added 180,000 jobs last month, a drop from the 275,000 jobs recorded in the prior month. The unemployment rate, meanwhile, is expected to have dipped slightly, to 3.8% from 3.9%. Week ahead calendar All times ET. Monday April 1 9:45 a.m. Markit PMI Manufacturing final (March) 10 a.m. Construction Spending (February) 10 a.m. ISM Manufacturing (March) Tuesday April 2 10 a.m. Durable Orders final (February) 10 a.m. Factory Orders (February) 10 a.m. JOLTS Job Openings (February) Wednesday April 3 8:15 a.m. ADP Employment Survey (March) 9:45 a.m. PMI Composite final (March) 9:45 a.m. Markit PMI Services final (March) 10 a.m. ISM Services PMI (March) Thursday April 4 8:30 a.m. Continuing Jobless Claims (03/23) 8:30 a.m. Initial Claims (03/30) 8:30 a.m. Trade Balance (February) Earnings: Lamb Weston Holdings , Conagra Brands Friday April 5 8:30 a.m. March Jobs Report 3 p.m. Consumer Credit (February)
Reddit’s public debut is not only a watershed moment for the social media company, but it also could deliver broad benefits for the Wall Street firm leading the multibillion-dollar deal: Club holding Morgan Stanley. On Thursday, Reddit will start trading on the New York Stock Exchange with a targeted valuation of around $6.5 billion . If the initial public offering is received positively by investors, this could boost Morgan Stanley’s investment banking business and over time its wealth management segment, too. The listing comes at a crucial time for the bank after it posted lackluster quarterly results earlier this year and shares underperform peers and the broader market. Morgan Stanley stock has dropped 2% year-to-date, compared with the KBW Bank Index ‘s more than 5% gains since the start of 2024. The portfolio’s other financial stock, Wells Fargo , is up 15% over the period. The S & P 500 has advanced 9.5%. Morgan Stanley’s weak 2024 stock performance was spurred by a post-earnings sell-off back in January. Investors were seemingly underwhelmed by the cautious macro commentary from newly installed CEO Ted Pick, who replaced James Gorman at the start of the year. Pick’s comments that operating margins for the bank’s wealth management division were likely going to consolidate in the mid-20% range over the near term also didn’t help the stock, even though he maintained confidence in achieving its 30% target down the road. The Club also was disappointed in the earnings release, but we’re hopeful leadership was lowering shareholder expectations to exceed them down the line. In any case, the Club trimmed some Morgan Stanley shares earlier this month after a curious single-session surge helped erase losses tied to its fourth-quarter results. MS .SPX YTD mountain Morgan Stanley’s 2024 stock performance compared with the S & P 500. Jim Cramer described Morgan Stanley’s recent performance — both in share price and quarterly earnings — as “horrendous,” citing “desultory management” over the past six months, a period that partially included Gorman’s efforts to pass the baton to Pick. This is exactly why Reddit’s IPO could be a nice reprieve for the Wall Street giant. “As shareholders of Morgan Stanley, we need this to work or a lot of whatever faith is left in the bank will dissipate.” Jim wrote in a recent column, adding that the IPO’s “success relies on how tightly Morgan Stanley conducts the deal.” Morgan Stanley is a lead underwriter for the IPO, meaning its bankers act as middlemen to help Reddit go from a private to a public company. Underwriters typically help structure the offering, including the number of shares to be issued and the initial price range for the stock. Goldman Sachs , JPMorgan and Bank of America are also lead underwriters for the process; it’s common for multiple banks to be involved. More dealmaking Morgan Stanley can benefit from Reddit’s stock debut in two main ways. First, its investment banking business earns a fee based on the amount of the offering and for selling shares to investors during the IPO. Although Reddit’s IPO is fairly large, it will not by itself move the needle for the Wall Street giant long term. Instead, Reddit’s debut should be viewed as a way to gauge investors’ appetite and the future of the broader dealmaking environment. After a boom during the Covid pandemic, IPO activity slowed dramatically after the Federal Reserve began hiking interest rates in March 2022. The higher borrowing costs brought on by those rate hikes and an uncertain economic environment have weighed on Morgan Stanley’s once-lucrative investment banking business. If shares of Reddit are well-received by the market, other private companies who have been waiting for the IPO market to rebound in earnest may look to go public — and possibly choose Morgan Stanley as a facilitator for their offerings. Even though its multiyear push into wealth management means it is less dependent on investment banking than it was a decade ago, this IPO could have far-reaching implications that boost a crucial lagging part of Morgan Stanley’s business. Reddit’s IPO also isn’t the only one Morgan Stanley is underwriting. Chipmaker Astera Labs , which on Wednesday jumped 72.5% in its debut on the Nasdaq, tapped Morgan Stanley’s investment banking services for its offering. A virtuous circle Morgan Stanley’s wealth management division may also benefit from more IPO activity. Once Morgan Stanley’s bankers conduct a public offering for a client, this can create a virtuous cycle that ultimately boosts net new assets for the wealth management business. Jed Finn, Morgan Stanley’s head of wealth management, explained how at recent a Bank of America conference. “Going from private to public starts a very important catalyst within the system,” Finn said at the event. “Our investment bankers execute the IPO. The client becomes a public equity admin client in our workplace business. Our [financial advisors] cover the individuals and the employees and the founders and the early investors.” He continued: “We add financial wellness programs to support the company as they broaden out their employee base. [Morgan Stanley Investment Management] manages the corporate cash. So, it creates a flywheel in our system that drives” net new assets. Morgan Stanley needs them. In a CNBC interview in January, CEO Pick reiterated the firm’s long-term goal of reaching $10 trillion in assets across wealth and asset management. But Morgan Stanley is still a ways off from hitting this goal, which was first laid out by Pick’s predecessor. The bank brought in $47 billion worth of net new assets in the fourth quarter, according to an earnings release . For the full year, Morgan Stanley brought in an additional $282 billion in assets, up 7% on an annual to bring its client assets to $6.6 trillion. Correction: This article has been updated to correct the spelling of Jed Finn’s name. (Jim Cramer’s Charitable Trust is long MS, WFC. 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.
A trader on the floor of the NYSE with a Reddit T-shirt works after the opening bell as Reddit begins trading on the New York Stock Exchange (NYSE) in New York on March 21, 2024.
Timothy A. Clary | AFP | Getty Images
Reddit’s public debut is not only a watershed moment for the social media company, but it also could deliver broad benefits for the Wall Street firm leading the multibillion-dollar deal: Club holding Morgan Stanley.
A trader works, as a screen displays a news conference by Federal Reserve Board Chair Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange on Dec. 13, 2023.
Brendan Mcdermid | Reuters
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Stocks close lower Wall Street ended lower on Friday as investors await the Federal Reserve’s policy meeting this week for insights on rate cuts. The S&P 500 posted its second straight weekly drop, down 0.65%. The Nasdaq Composite retreated 0.96% and the 30-stock Dow lost 0.49%. In Asia, the Bank of Japan will decide at the end of it’s two-day policy meeting starting Monday if the country is ready to scrap the world’s last negative interest rate policy.
White House on TikTok The White House has called on a more divided Senate to ‘move swiftly’ on the TikTok bill that requires Chinese tech company ByteDance to sell the video app or face a ban in the U.S. Last week, the House of Representatives passed the legislation with strong bipartisan support and President Joe Biden has indicated he would sign it if approved by Congress.
Bullish on global trade The CEO of Hapag-Lloyd, one of world’s top ocean shippers, says he’s more bullish on trade for this year. He told CNBC inventories are depleted in many cases and the ocean carrier has seen a recovery after the Chinese New Year. Shares of the company recently plunged after it posted a sharp fall in net profit in 2023 and cut its dividend.
Laid-off tech workers face gloom Tech workers recently laid off are struggling with a “sense of impending doom” as jobs cuts are at the highest since the dot-com crash.CNBC spoke to number of people about how they’re navigating the challenging market. Jobs are getting tougher to find with many in the sector having to settle for pay cuts.
[PRO] U.S. election risk on China stocks Goldman Sachs has revised its barometer for the level of risk from U.S.-China tensions in Chinese stocks. It now stands at 53 out of 100, signaling a “somewhat benign” outlook for relations between the two countries. “The build-up to and the election will be consequential to asset markets globally, US-China relations, and the returns of Chinese equities,” the analysts said.
It will be a pivotal week for Wall Street as markets attention will turn to the Fed.
Signals from Fed Chair Jerome Powell and the other officials on future rate cuts will be in sharp focus as policymakers give updates on rates, economic growth, inflation and unemployment at their two-day meeting which wraps up on Wednesday.
Last week’s one-two punch of bad news on consumer and producer prices, sparked investor anxiety that inflation may have plateaued as price pressures remain sticky.
“Hotter-than-expected inflation data to start the year argue for a hawkish-leaning message from the Fed at the March FOMC meeting. That said, in a very close call, we do not yet expect this to manifest in the Fed signaling less easing this year,” said Deutsche Bank in a note.
“Our baseline remains that the first-rate cut will come in June and the Fed will deliver 100bps of reductions this year. However, risks are clearly skewed to more hawkish outcomes. The timing and pace of rate cuts could well be irregular this cycle and will likely be highly data dependent.”
Investors will also want to know whether the Fed will continue to pencil in three rate cuts for this year. Some economists argue there’s a good chance it could be pared back to only two.
JPMorgan Chase CEO Jamie Dimon recently said the central bank should move slowly on rate cuts given inflation pressures.
“You can always cut it quickly and dramatically. Their credibility is a little bit at stake here,” he said. “I would even wait past June and let it all sort it out.”
Wells Fargo ‘s run of form continued Wednesday, with shares hitting another 52-week high. Wall Street analysts see more upside ahead for what’s been the best-performing major U.S. bank stock in 2024. In fact, the stock’s session highs above $58 per share Wednesday were multiyear highs and only just over 13% away from all-time highs set back in January 2018. Shares of Wells Fargo have surged nearly 18% year-to-date, compared to the S & P 500 ‘s 8.5% advance over the same stretch. Peers like JPMorgan and Goldman Sachs have gained more than 12% and 2%, respectively, since the start of 2024. Conversely, Morgan Stanley — the portfolio’s other financial name —has tumbled 4% year-to-date. Elevated borrowing costs, signals of more lenient bank regulation, and management’s strides to cut costs are all seen as upward drivers for Wells Fargo. In recent interviews with CNBC, top sector analysts, RBC Capital Market’s Gerard Cassidy and Piper Sandler’s Scott Siefers, broke down three key tailwinds for the stock this year. 1. Higher for longer Both analysts said a higher-for-longer interest rate environment creates a favorable setup for a money center bank like Wells Fargo. For context, the Federal Reserve once again left rates unchanged in a range of 5.25% to 5.5% at its January meeting. Central bankers have raised borrowing costs 11 times since March 2022 in an intensive effort to cool stubborn inflation. The last hike was back in July — and by the start of 2024, market expectations for Fed cuts were up to six. But a resilient economy and a recent uptick in inflation have brought that number way down, with the CME FedWatch Tool putting better than 50% odds on June as the first cut. Jim Cramer has been saying for weeks now that the Fed does not need to risk reigniting inflation with cut rates when the economy has been so strong. History has shown that bank funding costs tend to stabilize about six months after the Fed finishes tightening, RBC’s Cassidy said. “Cash coming off your loan and securities portfolios, that cash is reinvested at higher yields than the securities that are maturing or the loans that are paying off.” This should result in better net interest income (NII) figures for 2024, he added. “We think [this tailwind] is going to surprise people that Wells and others could see better net interest margins, and net interest revenue growth in 2024, assuming the Fed doesn’t cut rates as aggressively as some people thought back in January,” Cassidy said. A favorable rate setup could help Wells Fargo beat management’s “very, very conservative” NII guide for 2024, Piper’s Siefers also said. That NII outlook , which had assumed five Fed rate cuts this year, sent the stock tumbling more than 3% on fourth-quarter earnings day back on Jan. 12. WFC YTD mountain Wells Fargo (WFC) year-to-date performance At the time, the Club wrote that “if the Fed ends up cutting rates less aggressively than what the curve suggests, it could mean upside to Wells Fargo’s NII forecast.” Our earnings commentary also argued that the bank’s efforts to improve its efficiency ratio — by rightsizing its business and cutting costs in different ways — would likely offset this weaker guidance. “There’s a sense among investors that Wells has really started out with punitive guidance, that is very achievable,” Siefers added. “In a perfect world, if rates hovered higher for longer then Wells might be able to beat that guidance over the course of the year.” As the expectations for Fed cuts this year have been coming down, Wells Fargo stock has been climbing. 2. Efficiency push Wells Fargo management has done a great job of cutting back costs, Siefers said, agreeing with the Club’s take on expected improvement in the bank’s efficiency ratio. With Charlie Scharf as CEO since 2019, the bank has closed branches, conducted a series of layoffs, and significantly shrunk its U.S. mortgage business to adapt to an uncertain macro environment. “What does that mean,” Siefers asked and answered, “it means there’s a multiyear cost opportunity there despite some of these investments they’ve had to make in areas such as compliance.” Scharf has been working hard and investing in the cleanup of Wells Fargo’s misdeeds that predated his tenure. During nearly five years at the helm, the CEO has cleared six regulator consent orders, including one last month that’s believed to be one of the reasons the Fed imposed an asset cap of $1.95 trillion on the bank back in 2018. The Club believes that lifting the cap is a “when, not if” scenario, but it’s looking like it may not happen until next year. 3. Capital returns Both analysts highlighted the potential for more stock buybacks and better dividends as another tailwind. The bank is well capitalized, as we were reminded from the Fed’s annual stress test , and should be able to return more of these funds to shareholders, the analysts said. Fed Chairman Jerome Powell said last week that a sweeping proposal to change industry regulations, known as ” Basel III Endgame ,” will be significantly revised. Cassidy said Wells Fargo, along with the other major leaders, may be able to utilize more capital than anticipated after signals that capital requirements for large banks may not be as stringent as previously thought. “It looks like the Basel III Endgame regulatory requirements are going to be watered down considerably,” Cassidy said. “This is very positive for the biggest banks because they have plenty of capital to handle the original proposal requirements.” He predicted, “There’s going to be more stock repurchases.” To be sure, no official announcements have been made regarding any final Basel regulatory rules or any updated capital return plans from Wells Fargo. (Jim Cramer’s Charitable Trust is long WFC, MS. 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.
Wells Fargo‘s run of form continued Wednesday, with shares hitting another 52-week high. Wall Street analysts see more upside ahead for what’s been the best-performing major U.S. bank stock in 2024.
A man shops for fruit at a grocery store on February 01, 2023 in New York City.
Leonardo Munoz | Corbis News | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Stocks rally Wall Street closed higher on Tuesday with the S&P 500 hitting a fresh record, up 1.1%. The blue-chip Dow gained over 200 points, while the Nasdaq added 1.5% as U.S. inflation data came in mildly higher than expected in February.
Record shareholder payouts Shareholder payouts hit a record $1.7 trillion last year, according to a new report by British asset manager Janus Henderson. Nearly half of the world’s total dividend growth came from the banking sector, which delivered record payouts as rising borrowing costs lifted lenders’ margins, the report found.
Boeing crisis hurt airlines CEOs from several airlines say Boeing’s delivery delays have forced the carriers to change their growth plans. Boeing’s crisis has deepened since a door plug blew out midflight from an Alaska Airlines Max 9 in January. Southwest Airlines, Alaska Airlines and United, are some of the top buyers of Boeing’s aircraft that have been impacted by its problems.
Citadel on rate cuts Inflation tailwinds remain and the Fed shouldn’t cut rates too quickly, says Citadel founder and CEO Ken Griffin. “If I’m them, I don’t want to cut too quickly,” he noted, adding that it will be “more devastating” if they have to change direction after initially cutting rates. “I think they are going to be a bit slower than what people were expecting two months ago in cutting rates.”
[PRO] Buy or sell Nivida? Nvidia’s stock has surged over 200% in 2023 alone, powered by the global AI frenzy. Is it time to take profit or should investors stay the course? Experts who currently hold the chip giant’s stock share their insights.
Still, core inflation — which excludes food and energy — was stronger than expected, up 0.4% last month, which reflects lingering stickiness in price pressures.
Investors don’t expect that latest data to move the needle on the Fed cutting rates in June. That could be why markets have had a more muted reaction to the news.
“We have the numbers we have and this wasn’t great news for the Fed but markets don’t see it as a big threat to rate cuts later in the year,” Kathy Jones, chief fixed income strategist at Charles Schwab, said on X.
Yet, the hot print poses a problem for the Fed and muddies the water for its deliberations on the coming rate cuts.
“The long-term disinflation trajectory probably has not changed, but the path to the Federal Reserve’s 2% target will be choppy,” noted LPL Financial chief economist Jeffrey Roach. “Expect to see markets struggle with what this means for Fed policy.”
There is a lot riding for Wall Street when the central bank meets next week. Investors’ main focus will be on whether the Fed will continue to pencil in three rates for this year or will officials decide to change course.
It’s been a year this week since the collapse of Silicon Valley Bank sent shockwaves through the banking sector. While the crisis most directly affected the regionals, major U.S. financial institutions for most of 2023 also found their stocks under assault. Big banks, like Club holding Wells Fargo , were largely able to turn the corner. The question is still out on the smaller lenders. On March 10, 2023, SVB abruptly shuttered and regulators seized the firm’s deposits — marking the largest U.S. banking failure since the 2008 financial crisis. The go-to bank of tech venture capitalists went from a well-capitalized institution seeking to raise some funds to closing its doors over a frantic 48-hour period . Bank stocks plummeted on contagion concerns, with shares of regional lenders getting hit the hardest. Recently, New York Community Bancorp’s financial troubles reminded the market of the risks still out there for regional banks. NYCB shares suffered a slew of bad news since the start of 2024 when management disclosed a surprise fourth-quarter loss. A leadership shakeup and Moody’s slashing the bank’s credit rating to junk status didn’t help. In a glimmer of hope, NYCB announced last week an over $1 billion capital injection from investors, led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, and shares recovered a bit. The stock, however, dropped nearly 5% on Monday and remained 68% lower year to date. Unlike 2023’s SVB-induced volatility, the troubles at NYCB have not tanked the entire banking industry. The KBW Bank Index was still up 3.5% year-to-date, with many names outperforming, including Wells Fargo. WFC YTD mountain Wells Fargo (WFC) year-to-date performance While seeing a nice climb in the final months of 2023, shares of Wells Fargo have gained 15% since the start of 2024 — making the stock a top performer among major U.S. banks. Over the same stretch, the S & P 500 rose nearly 7.3%. Wells Fargo shares got a big boost after a key win with regulators in mid-February. Days later, the Club trimmed its Wells Fargo position to lock in some profits and to right-size its weighting in the portfolio, which had swelled to nearly 5%. The stock has since hit a 52-week high last Thursday. It’s only fractionally below that level on Monday. The recent leg higher started when Wells Fargo shares shot up more than 7% on Feb. 15 after the Office of the Comptroller of the Currency (OCC) lifted a big penalty related to its 2016 sales practice misconduct. Investors cheered because the regulatory news signaled that Wells Fargo could be one step closer to the Federal Reserve lifting the bank’s $1.95 trillion asset cap , which has been in place for over six years. The February OCC action was believed to be a big reason why the Fed’s balance sheet restrictions were first enforced. “That’s why I think investors really gravitated or rallied around this one getting lifted. Because even though they’ve already had a number of them lifted — and still have many more to go — this was kind of at the heart of the matter for them,” Scott Siefers, Piper Sandler senior banks analyst, told CNBC on Friday. “I think, at least psychologically, it led investors to believe ‘Okay, we’re finally getting closer to the finish line.’” Since Charlie Scharf took over as Wells Fargo CEO in 2019, the bank has cleared six of these consent orders. In a recent Club analysis , we found that these regulatory updates were overall positive for the stock over the past five years. However, a lifting of the Fed’s asset cap is the big one. It would allow Wells Fargo to finally grow its assets again and help rake in more profits. The bank would be able to write more loans, take in more customer deposits, and explore other lines of business. That’s why all strategic attempts to appease regulators are welcome news for shareholders. To be sure, though, the Club largely sees any lifting of the Fed’s asset cap as more of a 2025 story. MS YTD mountain Morgan Stanley (MS) year-to-date performance Conversely, the Club’s other bank stock, Morgan Stanley , has been lagging in 2024 — down 7% year to date. While making made a mysterious 4% push higher on March 4, the Club made a small sale the next day because no specific catalyst could be identified. Such a big move in the absence of any news tends to be unsustainable. The stock has dropped since then. Morgan Stanley’s underperformance was first spurred by a post-earnings slump in January when the firm disappointed shareholders with weak wealth management guidance. Management said at the time the bank was far from hitting management’s previously-held goal of 30% operating margins for the division. “When you get this kind of cautious commentary from a new CEO, my gut says [Ted Pick] is simply trying to lower expectations” to play the under promise, over deliver game, Jim Cramer said following the earnings release. “Plus, Morgan Stanley’s paying you to wait with that 4% yield, and they’re right in there buying with you thanks to their aggressive buyback.” The Club also still sees green shoots for the Wall Street behemoth’s long-dormant investment banking business. While IB was once a very profitable segment of Morgan Stanley, an uncertain macro environment and recession concerns have weighed on the overall deal-making environment — both in companies going public and in mergers and acquisitions activity. This month is a big one on the IPO front for Morgan Stanley, which is among the lead underwriters of the upcoming Reddit offering. It’s not only a high-profile deal with a lot of exposure for Morgan Stanley’s IB division, but the social media company is targeting a big valuation close to $6.5 billion. If the Morgan Stanley places the IPO correctly, Jim said there could be upside for the bank stock. In a Monday filing, Reddit said it aims to price shares in a range of $31 to $34 each in hopes of raising about $750 million. (Jim Cramer’s Charitable Trust is long WFC, MS. 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.
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
It’s been a year this week since the collapse of Silicon Valley Bank sent shockwaves through the banking sector. While the crisis most directly affected the regionals, major U.S. financial institutions for most of 2023 also found their stocks under assault. Big banks, like Club holding Wells Fargo, were largely able to turn the corner. The question is still out on the smaller lenders.
Shortly after the opening bell, we will be selling 75 shares of Morgan Stanley at roughly $89.86. Following the trade, Jim Cramer’s Charitable Trust will own 1,400 shares of MS, reducing its weighting in the portfolio to 3.78% from 3.98%. We took a stab on Monday’s Homestretch trying to figure out why Morgan Stanley was one of the top performers in the S & P 500 , jumping 4.12% to kick off the week. However, after not seeing any specific catalyst after the closing bell and overnight, we are feeling unsatisfied about the lack of news. Therefore, we see this pocket of strength as an opportunity to peel back some stock and make room in the position to buy in case the stock pulls back again. The stock is about flat from our oldest lot of shares dating back to July 2021. In addition, at Monday’s closing price of $90.04 per share, the stock has fully recovered all its losses tied to its fourth-quarter earnings report . On this rebound, we are moving our rating back to a 2. Lastly, we are gearing up for our annual contribution to charity. As a reminder, every year we donate all dividends received and realized capital gains. The preliminary figure of this year’s contribution is $157,500, which would bring our total donation since the inception of Jim’s Charitable Trust to approximately $4.3 million. We’re hoping to make this contribution before the end of the week. With our current cash position of $461,529, representing 13.83% of the portfolio, we have plenty of cash on hand to fund this year’s distribution. However, we still would like to maintain a cash position of roughly 10% after the money goes out the door so we are ready to buy if the market sells off. This sale will get our post-distribution cash position closer to 10% from about 9.5% pre-trade. (Jim Cramer’s Charitable Trust is long MS. 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.
US President Joe Biden speaks to employees at the CS Wind America Inc on November 29, 2023 in Pueblo, Colorado.
Helen H. Richardson | The Denver Post | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Mixed bag on Wall Street U.S. stocks ended mixed Tuesday as investors prepared for key inflation data due out later this week. The S&P 500 and the Nasdaq Composite closed with small gains, up 0.17% and 0.37%, respectively. The 30-stock Dow fell for a second straight day, off by 0.25%. Bitcoin also extended gains rising above $57,000.
Apple kills EV plans Apple has cancelled its plan to build electric cars, according to Bloomberg. This signals an end to the company’s secretive effort to compete in the EV space against rival Tesla. Reports of Apple’s ambition first surfaced in 2014 after it recruited automotive engineers and other talent from auto companies.
Will South Korean measures work? South Korea’s Japan-style measures to boost corporate governance may not work to lift its undervalued stock markets and tackle the so-called “Korea discount.” In its latest attempt, the Financial Services Commission revealed a “Corporate Value-up Program,” aimed at supporting shareholder returns through incentives including tax benefits.
Honor’s foray into flip phones Chinese technology firm Honor will launch a foldable flip phone this year, the company’s CEO George Zhao told CNBC. It will be the firm’s first entry into the vertical-folding style of smartphone as the company looks to push into the premium end of the market in a challenge to tech giants like Samsung and Apple.
[Pro] Alibaba’s compelling appeal Despite the recent slump in Alibaba’s shares, the Chinese e-commerce giant remains on the radar of fund managers. “Alibaba is our third biggest stock [position] now. Why? The valuation is absolutely compelling,” said Andrew Lapping, Ranmore’s chief investment officer.
Americans’ attitudes about the economy have soured.
Consumer confidence fell to 106.7 in February, said the Conference Board, down from a revised 110.9 in January. This comes after a three-month streak of improving mood.
The index measuring short-term expectations for income, business and the job market fell to 79.8 from 81.5 in January. A reading under 80 often signals an upcoming recession.
While Americans were less worried about food and gas prices, there were rising concerns over jobs and the upcoming presidential elections.
“The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy,” said Dana Peterson, chief economist at The Conference Board.
“While overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months. But they are more concerned about the labor market situation and the US political environment.”
The drop in consumer confidence was broad based, affecting most income groups, as well as among people under 35 years old and those aged 55 and over, according to Peterson.
The survey findings reveal that despite data showing a strong labor market and a surprisingly resilient economy, public perception on the economy proves to be a challenge ahead of high-stakes elections this year.
This signals troubling signs for President Joe Biden, who has been trying to tout his administration’s economic accomplishments ahead of a likely rematch against Republican nominee Donald Trump in November.
As consumers watch their wallets, companies have felt pressure from investors to do the same. Executives have sought to show shareholders that they’re adjusting to consumer demand as it returns to typical patterns or even softens, as well as aggressively countering higher expenses.
Airlines, automakers, media companies and package giant UPS are all digesting new labor contracts that gave raises to tens of thousands of workers and drove costs higher.
Companies in years past could get away with passing on higher costs to customers who were willing to splurge on everything from new appliances to beach vacations. But businesses’ pricing power has waned, so executives are looking for other ways to manage the budget â or squeeze out more profits, said Gregory Daco, chief economist for EY.
“You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders,” Daco said. “The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”
There are some exceptions to the recent cost-cutting wave: Walmart, for example, said last month that it would build or convert more than 150 stores over the next five years, along with a more than $9 billion investment to modernize many of its current stores.
And some companies, such as banks, already made deep cuts. Five of the largest banks, including Wells Fargo and Goldman Sachs, together eliminated more than 20,000 jobs in 2023. Now, they’re awaiting interest rate cuts by the Federal Reserve that would free up cash for pent-up mergers and acquisitions.
But cost reductions unveiled in even just the first few weeks of the year amount to tens of thousands of jobs and billions of dollars. In January, U.S. companies announced 82,307 job cuts, more than double the number in December, while still down 20% from a year ago, according to Challenger, Gray and Christmas.
And the tightening of months prior is already showing up in financial reports.
So far this earnings season, results have indicated that companies have focused on driving profits higher without the tailwind of big price increases and sales growth.
As of mid-February, more than three-quarters of the S&P 500 had reported fourth-quarter results, with far more earnings beats than revenue beats. The quarter’s earnings, measured by a composite of S&P 500 companies, are on pace to rise nearly 10%. Revenues, however, are up a more modest 3.4%.
And the layoffs haven’t been contained to tech. UPS said it was axing 12,000 jobs, saving the company $1 billion, CEO Carol Tome said late last month, citing softer demand. Many of the largest retail, media and entertainment companies have also announced workforce reductions, in addition to other cuts.
Warner Bros. Discovery has slashed content spending and headcount as part of $4 billion in total cost savings from the merger of Discovery and WarnerMedia. Disney initially promised $5.5 billion in cost reductions in 2023, fueled by 7,000 layoffs. The company has since increased its savings promise to $7.5 billion, and executives suggested in its Feb. 7 quarterly earnings report that it may exceed that target.
JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring about $2.5 billion in capital expenditures on new Airbus planes to the end of the decade, culling unprofitable routes and redeploying aircraft in addition to the worker buyouts.
Some cuts are even making their way to the front of the cabin. United Airlines, which also posted a profit in 2023, at the start of this year said it would serve first-class meals only on flights more than 900 miles, up from 800 miles previously. “On flights that are 301 to 900 miles, United First customers can expect an offering from the premium snack basket,” according to an internal post.
Several of the country’s largest automakers, such as General Motors and Ford Motor, have lowered spending by billions of dollars through reduced or delayed investments on all-electric vehicles. The U.S.-based companies as well as others, such as Netherlands-based Stellantis, have recently reduced headcount and payroll through voluntary buyouts or layoffs.
Even Chipotle, which reported more foot traffic and sales at its restaurants in the most recently reported quarter, is chasing higher productivity by testing an avocado-scooping robot called the Autocado that shortens the time it takes to make guacamole. It’s also testing another robot that can put together burrito bowls and salads. The robots, if expanded to other stores, could help cut costs by minimizing food waste or reducing the number of workers needed for those tasks.
Industry experts have chalked up some recent cuts to companies catching their breath â and taking a hard look at how they operate â after an unusual four-year stretch caused by the pandemic and its fallout.
EY’s Daco said the past few years have been marked by a mismatch in supply and demand when it comes to goods, services and even workers.
Customers went on shopping sprees, fueled by government stimulus and less experience-related spending. Airlines saw demand disappear and then skyrocket. Companies furloughed workers in the early pandemic and then struggled to fill jobs.
He said he expects companies this year to “search for an equilibrium.”
“You’re seeing a rebalancing happening in the labor markets, in the capital markets,” he said. “And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth.”
The auto industry, for example, faced a supply issue during much of the Covid pandemic but is now facing a potential demand problem. Inventories of new vehicles are rising â surpassing 2.5 million units and 71 days’ supply toward the end of 2023, up 57% year over year, according to Cox Automotive â forcing automakers to extend more discounts in an effort to move cars and trucks off dealer lots.
Automakers have also been contending with slower-than-expected adoption of EVs.
David Silverman, a retail analyst at Fitch Ratings, said companies are “feeling a bit heavy as sales growth moderates and maybe even declines.”
Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most recent fiscal quarter. Macy’s, which reports earnings later this month, has said it expects same-store sales to drop, and there’s early evidence that may come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, more than economists expected, according to the latest federal data.
Most major retailers, including Walmart, Target and Home Depot, will report earnings in the coming weeks.
Credit ratings agency Fitch said it doesn’t expect the U.S. economy to tip into recession, but it does anticipate a continued pullback in discretionary spending.
“Part of companies’ decision to lower their expense structure is in line with their views that 2024 may not be a fantastic year from a top-line-growth standpoint,” Silverman said.
Plus, he added, companies have had to find cash to fund investments in newer technology such as infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.
Companies may have another reason to cut costs now, too. As they see other companies shrinking the size of their workforces or budgets, there’s safety in numbers.
Or as Silverman noted, “layoffs beget layoffs.”
“As companies have started to announce them it becomes normalized,” he said. “There’s less of a stigma.”
Even with rolling layoffs, the labor market remains strong, which may help explain why Wall Street has by and large rewarded those companies that have found areas to save and returned profits to shareholders.
Shares of Meta, for example, almost tripled in price in 2023 in that “year of efficiency,” making the stock the second-best gainer in the S&P 500, behind only Nvidia. After laying off more than 20,000 workers in 2023, Meta on Feb. 2 announced its first-ever dividend and said it expanded its share buyback authorization by $50 billion.
UPS, fresh from job cuts, said it would raise its quarterly dividend by a penny.
Overall, dividends paid by companies in the S&P 500 rose 5.05% last year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he estimated they will likely increase nearly 5.3% this year.
â CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this story.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
With the S & P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot. We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.) To determine valuation, we reviewed two metrics â price-to-earnings (P/E) ratios and P/E-to-growth (PEG) ratios â and compared each to their historical five-year averages. P/Es and PEG ratios A stock’s P/E shows how much shareholders are paying in share price for earnings. We use forward P/Es in our analysis. A stock with a lower P/E is considered to be cheaper on a valuation basis. Sometimes, however, a low P/E could be a red flag â signaling earnings estimates are too high and need to come down, which usually leads to a drop in share price, or something is fundamentally wrong with the company, such as slowing growth. The PEG ratio, another valuation tool, starts with the price-to-earnings ratio and divides the P/E by estimated earnings growth. This metric helps investors determine whether they’re paying too much today for a company’s estimated growth in the future. A good PEG ratio is 1 or lower. There is a major consideration when analyzing five-year valuation average comparisons: interest rates. As inflation has cooled, there has been a debate recently over when central bankers should cut rates. If rates come down this year, as expected, then higher multiples could be supported. The 10 undervalued companies from our screen all have strong businesses. Some of these stocks, like the overall market, are trading at or near record-high prices. But price is what you pay and value is what you get. Stocks can have high prices based on historical trading patterns and still be considered cheap based on valuation. As a yardstick, the S & P 500 has a price-to-earnings multiple of 20.5 times the next 12 months’ earnings estimates. That’s above its five-year average of 18.9. The stocks we’re highlighting here are all trading below their five-year average. In other words, the overall market is more expensive compared to historical norms and these stocks are less expensive. All data is from FactSet as of Monday. 1. Alphabet Price-to-earnings ratio (P/E): 21.1 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Alphabet ‘s forward P/E of 21.5 times is 10% cheaper than peers and below its five-year average of 23.4. The PEG of 1.3 is below the historical average of 1.5 â meaning you’re paying less for estimated growth, too. Alphabet shares have the cheapest valuation of all our Significant Six mega-cap tech stocks, which include Amazon, Apple , Microsoft , Meta Platforms and Nvidia. Alphabet’s attractive valuation comes despite multiple avenues for growth within Google Cloud and generative artificial intelligence through Gemini, the successor to Bard. Ongoing cost discipline should also benefit margin expansion. While advertising revenue came in softer than anticipated in Alphabet’s most recent quarter , we believe the tech firm’s use of gen AI in Google search can help improve results. GOOGL 5Y mountain Alphabet 5 years The stock would need to gain about 4% to reach last month’s all-time high. We have our wait-for-a-pullback 2 rating on shares because it’s not our style to chase moves higher even if the valuation is attractive. 2. Amazon Price-to-earnings ratio (P/E): 40.9 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.3 Amazon ‘s forward P/E of 40.9 times is relatively flat compared to peers and well below its five-year average of 62.7. The PEG of 1.2 is half its historical average. The bargain here is on growth versus what was paid for Amazon’s growth in the past. That’s significant. Amazon shows promise in delivering consistent revenue and earnings growth in the years to come. Profitability in retail is incrementally growing as management focuses on speeding up delivery times supported by the regionalization of its fulfillment network. Cost efficiencies also show the strength of its operating margin growth opportunity across segments. Amazon continues to exhibit strong advertising revenue growth, and the company’s Amazon Web Services cloud unit is back and presents a major multiyear growth opportunity. AMZN 5Y mountain Amazon 5 years Shares of Amazon hit a 52-week high Monday but would still have to increase 9% to hit their July 2021 all-time closing high. For the same reasons as Alphabet, we have a 2 rating on Amazon shares. 3. Constellation Brands Price-to-earnings ratio (P/E): 18.1 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.8 Constellation Brands ‘ forward P/E of 18.1 times roughly the same as peers and below its five-year average of 20.2. The PEG of 1.8 is well below its historical norm of 2.7. So again, cheaper all around. The maker of Corona, Modelo, and Pacifico delivered a largely positive third quarter last month, with its core Beer business delivering solid results during an off-season period. The company’s struggling Wine & Spirits segment continued to disappoint. Jim Cramer has said over and over that Constellation should concentrate on Beer and offload Wine & Spirits. Management reaffirmed its consolidated comparable earnings guidance while raising its full-year outlook for operating and free cash flow. Shares of Constellation would need to add 10% to match their record closing high of nearly $273 each back in July. We think the stock can get back to those levels. And with an attractive valuation to boost, we have the stock at our buy-equivalent 1 rating. 4. Disney Price-to-earnings ratio (P/E): 22.3 P/E vs. peers: 20% cheaper P/E-to-growth ratio (PEG): 1.2 Disney stock is undervalued even with shares rallying roughly 12% after the company reported an upbeat fiscal 2024 first quarter. The company’s P/E ratio of 21.5 times is about 20% cheaper than peers and below its historical average of 29.6. The PEG of 1.2 compared to its historical 2.6 also flashes bargain, too. Nelson Peltz sees “undervalued” as a problem here. That’s why the activist investor is fighting for Disney board seats. Jim has said he wants Disney’s board to have more “skin in the game,” meaning more share ownership among its members. Peltz would bring that and past success in creating more shareholder value. Disney doesn’t want Peltz on the board, saying outside distractions are not what the company needs. CEO Bob Iger was able to show strength in parks as well as some progress in the entertainment giant’s financials. Management delivered improved profitability, cut streaming losses, and issued guidance of earnings-per-share growing at least 20% for fiscal year 2024 compared to the prior year. However, advertising trends in Disney’s linear networks have been weak as customers migrate to streaming services and a series of the company’s recent films have been duds at the box office. Disney would have to nearly double to get back to its March 2021 all-time closing high of almost $202 per share. We know the turnaround at Disney is going to take a while. But with an inexpensive valuation and an emerging path to growth ahead, we have a 1 rating on the stock. 5. Honeywell Price-to-earnings ratio (P/E): 19.4 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 2.3 We like how Honeywell ‘s stock is valued post-earnings . The forward P/E of 19.4 times is 10% cheaper than peers and below its five-year average of 21.5. The PEG of 2.3 versus its average of 2.8. Shares pulled back about 3% after the company reported lower-than-expected organic sales. But what Wall Street didn’t credit was the company had better margins, cash flow and solid backlog. We bought shares on weakness on earnings day Feb. 1 because we still believe in the long-term for the industrial giant’s strong execution. While sales were disappointing. Honeywell’s historically strong Aerospace segment continued to deliver. However, the company is still dealing with softness in its Safety and Productivity Solutions as well as Building Technologies segments. HON 5Y mountain Honeywell 5 years Honeywell shares still need to gain nearly 20% to get back to its record close of just over $234 each back in August 2021. We have a 1 rating on the stock, appreciating its valuation and long-term prospects. 6. Nvidia Price-to-earnings ratio (P/E): 33.5 P/E vs. peers: 10% most expensive P/E-to-growth ratio (PEG): 0.8 After Nvidia ‘s stellar triple in 2023, shares still screen cheap even after its 40% year-to-date gain. In terms of valuation, Nvidia is attractive boasting a forward P/E of 33.5 times. That’s about 10% higher than peers but you could argue that it deserves it due to its utter domination of the market for semiconductors that can artificial intelligence. Not to mention, Nvidia’s P/E is still lower than its historical average of 39.6. Add in the PEG, at a reading of 0.8 versus the 2.2 five-year average, and that’s a dirt cheap cost for expected sky-high growth. NVDA 5Y mountain Nvidia 5 years As every day seems to bring a new high lately, we have a 2 rating on the stock in recognition that we don’t want to chase this runaway train higher. But we still believe Nvidia should be part of any long-term portfolio. We explain in a recent commentary how investors with no Nvidia position (or no positions in the rest of our Significant Six), might think about getting in. 7. Salesforce Price-to-earnings ratio (P/E): 30.3 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.4 Salesforce ‘s forward P/E of 30.3 times â 10% cheaper than peers and below its historical average of 46 âand a PEG of 1.4 versus its five-year average of 2.5 show how undervalued the stock is. Back in November , the consumer relationship management software company reported a solid fiscal 2024 third quarter. (The most recent quarter comes at the end of February.) Management at the time boasted solid deal activity even after the tech giant hiked prices on some of its products. The company’s guidance was also upbeat as it expects to grow revenue at a solid pace, accompanied by margin gains. CRM 5Y mountain Salesforce 5 years The stock has been on a tear and would need to add only 7.6% to reach its nearly $310 all-time closing high in November 2021. Shares hit a 52-week high last week. Acknowledging the run, we have a 2 rating on the stock. 8. Starbucks Price-to-earnings ratio (P/E): 22.5 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Starbucks ‘ forward P/E ratio of 22.5 times is 10% cheaper than peers and below its 5-year average of 28.3. The PEG at 1.3 is below its historical average of 2. Both indicators reflect an undervalued stock. But similar to Disney, those low readings might also signal caution. We know from its fiscal 2024 first quarter results, out last month , that the company is facing headwinds such as a slowdown in business due to Middle East protests and sluggish economic activity in China. These are factors that could impact growth. SBUX 5Y mountain Starbucks 5 years However, even when we take this into account, the stock has fallen way too much. Starbucks would have to gain more than 30% to eclipse its July 2021 record close of $126 per share. If we consider growth may be a little slower due to the Israel-Hamas war protests and China rebounding slower than expected, we’re still seeing a good value in Starbucks shares. We have a 1 rating, accordingly. 9. Wells Fargo Price-to-earnings ratio (P/E): 9.9 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 0.7 Wells Fargo ‘s forward P/E of 9.9 is 10% cheaper than peers and lower than the 11.2 five-year average. The PEG under 1 â in this case 0.7 â is low, especially when you compare it to a historical average of 1.1. Are these low numbers a sign of trouble? We don’t think so. While Wells Fargo stock came under pressure following conservative guidance, the bank’s fourth-quarter earnings report was solid. It beat on both net interest income and noninterest income. We have come to expect CEO Charlie Scharf to set measured expectations, which can be beaten. We like how management is managing and reducing expenses on a year-over-year basis, which balances the softer outlook. Wells Fargo also expects to buy back more shares in 2024 compared to last year, which adds to shareholder value. While hitting a 52-week high at the end of January, Wells Fargo stock would need to gain roughly 35% to get back to its January 2018 record close of nearly $66. But a cheap valuation coupled with an industry getting further and further away from last year’s regional lender crisis after the collapse of Silicon Valley Bank in March 2023 leads us to our 1 rating 10. Wynn Resorts EV-to-EBITDA (enterprice value/earnings before interest, taxes, and amortization): 9.1 We’re mixing it up a bit with Wynn Resorts â focusing on the company’s adjusted EBITDA because this is the financial metric of choice on Wall Street when it comes to the best-in-class hotel and casino operator. With adjusted EBITDA being the key metric, the multiple we’re focused on is enterprise value to forward EBITDA. Before Covid, Wynn generally traded in a range of about 9 times to 13 times â with two very brief periods in late 2015 and late 2018 where the multiple was closer to 8 times EV/EBITDA. However, with shares now trading at roughly 9.1 times EV/EBITDA on a forward basis, we find them highly attractive given what we just heard from management. WYNN 5Y mountain Wynn Resorts 5 years Investors received a positive update on Wynn ‘s financials when it reported beats on its top and bottom lines in its fourth quarter . Macao is coming back, while Las Vegas is strong and Boston Harbor is resilient. It seems even cheaper when considering that China isn’t fully back online yet, but the company is already operating at structurally higher profit margins compared to historical norms. We added to our Wynn position with a small buy last Thursday after its stronger-than-expected quarter because we think the stock has more room to run. (Jim Cramer’s Charitable Trust is long GOOGL, AMZN, STZ, DIS, HON, NVDA, SBUX, CRM, WFC, WYNN. 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. 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With the S&P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot.
We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.)
