Markets Archives - Page 24 of 76

The Massive Impact Millennials and Gen Zs Now Have on the Market

Posted on February 27, 2023February 27, 2023 by phoffman@channelchek.com

Image Credit: Jonas Foyn Therkelsen (Flickr)

Old School Versus New School are your Investments Inline with the Changing Investor Makeup?

Investing tastes and strategies vary by generation. And as technologies advance and provide self-directed investors with new methodologies, all investors should pay attention to shifts in the marketplace. According to a report by APEX Fintech Solutions, millennials, and Gen Z are gaining wealth at a rate of 25%, while all generations increased at only 16%. There are major implications for market moves as trillions are controlled by those that may have different risk tolerance, different holding periods, or a broadly different knowledge base about many companies and their products.

What Was Measured

The data compiled in the APEX report analyzed more than 1.3 million Gen Z accounts, in addition to

over 4.0 million millennial accounts, 2.0 million held by Gen X, and over half a million baby boomers. The numbers are calculated as of December 31, 2022. It also compared managed accounts to self-directed investments.

The four generations were defined in this way:

Z: Born 1997-2012 (25 and younger) – Generation Z

M: Born 1981-1996 (26-41 years old) – Millenials

X: Born 1965-1980 (42-57 years old) – Generation X

B: Born 1946-1964 (58-76 years old) – Baby Boomers

Notable Investment Trends and Differences

Sifting through the stats (Q1 2020 – Q2 2022) and comparing self-directed investors with professionally managed accounts, self-directed, as a whole, did comparatively little selling at the lows of the stock market during the pandemic-inspired sell-off (early 2020). Instead, the peak in selling (the low for the hold rate) for self-directed accounts came at the height of meme stock and market run-up in Q1 2021. Over the period, including when selling was at its peak, managed accounts consistently were more active, changing and adding to positions at a much higher rate. Self-directed portfolios were more likely to enter a position, hold it and at times add to current positions.

Late 2022 Comparisons

During the last quarter of 2022, the most popular stocks held by all generations remained the same while the companies positioned in the remainder of the account holdings were in flux and altered quite a bit. The top stocks held were Tesla (TSLA), Apple Inc. (AAPL), Amazon.com, Inc. (AMZN) and Microsoft Corp (MSFT); these were core holdings that were barely traded by any generational grouping.

Below these holdings, each generation had different sets of significant shifts, with real estate investment trusts growing for all four generational groups. Industrials and Energy Sectors were also favored across generations, while holdings in service-related industries were reduced. The two strongest performing sectors in Q4, across the generational rankings, were industrials and energy.

Across all generational holdings, industrials were led by General Electric (GE), Lockheed Martin Corp (LMT), Raytheon Technologies Corp (RTX), Boeing Co (BA), and Delta Air Lines, Inc. (DAL), while energy stocks were led by namely Chevron Corporation (CVX) and Exxon Mobil Corp (XOM), and followed closely by BP plc (BP), Energy Transfer LP Unit (ET), and Enterprise Products Partners LP (EPD).

The tickers that dropped the most on the APEX top 100 list included Rivian (RIVN), which dipped an average of 27.8 spots across all generations, followed by AMC, which slipped 11.8 spots lower. For Gen Z, millennials and Gen X they also reduced holdings in TTD , DKNG and RBLX which dropped between 18 to 27 positions lower in the top 100 holdings.

Greatest Rank Changes by Generation

Tesla (TSLA) which had been in the number one position for Gen X and Gen Z, dropped to number two last quarter as Apple (AAPL) regained popularity. TSLA spent nine consecutive quarters in the top spot, all for Gen Z, TSLA had a four-quarter streak. At number two, TSLA is still a popular stock, especially with Millennials and Gen Z, they chose to hold at the highest rates, even as the price plummeted.

For self-directed investors of all ages, the TSLA hold rate is significantly higher (93%) than for investors who use managed brokerage services (84%).

Throughout the fourth quarter of 2022, retail investors displayed a risk-managed approach to trading and strategic investing as they measured recession risks and a changed monetary policy. Millennials were the most active traders in the fourth quarter, the numbers indicate they were engaged and paid attention as market conditions evolved.

Take Away

There are two big takeaways from the study, the first is that retail investors are gaining power and have become savvier and in tune with smart investing.

The second takeaway is related to the first. Since the start of 2020, combined assets for all generations have risen 16% to $52.4 trillion. Two age groupings, millennials and Gen Z, are gaining wealth at a much higher 25% pace. The massive shift in market power is unfolding and has major implications for how, when, and why investments are transacted.

Paul Hoffman

Managing Editor, Channelchek

Source

https://go.apexfintechsolutions.com/hubfs/ANIO/Apex_Q4-2022_ANIO-Report.pdf

The Week Ahead – No Inflation Report, But Jobs Could Disrupt

Posted on February 27, 2023February 27, 2023 by phoffman@channelchek.com

Will the Markets Regain Traction this Week?

The markets are mostly up on the year, with stocks around 5.5% higher, bonds and the $ U.S. dollar near 1%, and bitcoin near 46.5% above the December 31^st level. Last week there was concern that the positive start most asset classes had at the beginning of the year is going to give a sizeable portion back, perhaps all and then some. This concern was heightened by a measure that shows that inflation’s decline may be tacking higher. There are no inflation reports scheduled in the upcoming week to worry about, and few Fed President addresses to be concerned with.

Monday 2/27

8:30 AM ET, Durable Goods Orders are expected to have dropped off by 4% in January. They had surged in December primarily because of aircraft orders. When transportation is removed to reveal the core Durable Goods reading, it is expected to be flat with no change from the prior month’s volume of orders.
10:00 AM ET, The National Association of Realtors is expected to report that Pending Home Sales rose 1% in January from the prior month. This level increase would be at a slower pace than the 2.5% increase in the prior period.
10:30 AM ET, The Dallas Fed Manufacturing Survey is expected to have declined for the ninth consecutive month. The consensus among economists is down 9.0 versus down 8.4.

Tuesday 2/28

8:30 AM ET, International Trade in Goods is expected to widen as economists expect exports to have fallen off. The expectation of a $91 billion trade deficit for the U.S. in January is $1.3 billion wider than December’s measurements.
9:45 PM ET, The Institute for Supply Management uses a survey to create a composite of business conditions in the Chicago area. The leading indicator is expected to come in at 45 for February, which would be an uptick from January’s 44.3.
10:00 AM ET, Consumer Confidence has been falling; the report released on Tuesday is expected to show a rise of 1.3 points to 108.4.
1:00 PM ET, Money Supply (M1 and M2) are measures of liquidity, it includes household savings, savings and checking deposits, and money market mutual funds. Over the past few years, money supply measures weren’t getting much attention. As households are dealing with rising prices, it may be interesting for investors to see if amounts immediately available to households are declining at a pace that may begin to hamper spending and economic growth.

Wednesday 3/01

10:00 PM ET, The ISM Manufacturing Index surveys business nationally to get the pulse on expected business levels. The forward-looking indicator is expected to have improved to 47.9 versus 47.4 the prior month.

Thursday 3/02

8:30 AM ET, Jobless Claims have been a nail-biter number recently, often well off of expectations. For the week ending February 25th, claims are supposed to show an increase in claims to 200,000.

Friday 3/03

10:00 AM ET, ISM Services Index had a strong January at 55.2, it is expected to trail off some and have a February reading of 54.5.
12:00 PM, Atlanta Federal Reserve President Raphael Bostic has been rattling markets with his ongoing and perhaps heightened hawkish rhetoric. FOMC member Bostic is not a voting member, but his words have the power to move markets.
4:15 PM, Thomas Barkin is the Richmond Federal Reserve President. He is scheduled to speak after the market closes. If the Fed is looking to adjust expectations before its late March meeting, FOMC member Barkin may be one that carries that message.

What Else

Earnings reports will continue with some of the most watched being Occidental Petroleum (OXY), and Zoom (Z.M.) on Monday. Retailer Target (TGT) reports on Tuesday, Salesforce (CRM), and NIO (NIO) on Wednesday , and Anheiser Busch (BUD) on Thursday.

The U.S. Supreme Court will begin hearing two cases on student loan debt forgiveness beginning on Tuesday. Expect some non-market-moving discourse on this subject during the week.

Paul Hoffman

Managing Editor, Channelchek

The PCE Inflation Index and Sector Outperformers

Posted on February 24, 2023February 24, 2023 by phoffman@channelchek.com

What Sectors Outperformed the Market after the PCE Inflation Shock?

When an investor inquires, “What stocks do well with high inflation?” they are often asking, “What sectors do well with rising interest rates?,” because inflation expectations often drive rate moves. The text book response usually given are: consumer staples, banks and financials, and commodities. The PCE indexes are considered the Fed’s preferred indicator of inflation trends. The PCE surprised markets on the high side when released on February 24^th. What can investors now expect from higher-than-forecast inflation?

Rather than look at old information on what outperforms the overall market when inflation expectations rise, I thought it would be informative and more useful to see what is outperforming under current 2023 conditions and climate. The chart below and the remainder of this simple study is a snapshot three hours after the news settled in among investors (11:30am ET, February 24^th).

Personal Income and Outlays

Source: U.S. Bureau of Economic Analysis

Sectors Outperforming Overall Market

There were five S&P sectors that outperformed the S&P 500 a few hours after the inflation number showed an almost across-the-board acceleration in price increases. At this point, the S&P 500 had already fallen 1.31%.

Beating the S&P larger index, but the worst of the five outperformers was Health Care (XLV). The Health sector is considered to be a necessity that consumers find a means to pay for regardless of cost. Within the sector there are companies providing goods and services that are more embraced by investors than others. Within the XLV, many stocks were green after the report.

Outperforming the Health Care sector were stocks making up the Industrial Sector (XLI). This includes large industrial manufacturers like John Deere, General Electric, and Caterpillar. Many of these companies have contracts well out into the future that assures business. What is not ordinarily assured is the cost of manufacturing which can go up with inflation. A number of the top holdings in XLI barely budged on the morning – GE was up .08%, Honeywell was down .18%, and UPS was down just .20%.

Almost even with the Industrial Sector was Consumer Staples (XLP). As with Health Care and to a lesser degree Industrials this sector is where money moves to during inflationary periods. Consumers may be postpone a new car purchase, but they’ll keep their buying habits unchanged for products produced by Colgate, Coca-Cola, Proctor and Gamble, or cigarette manufacturers.

Performing second best after the inflation numbers was the Utility sector (XLU). Again this follows the mindset that consumers can only cutback on water, electricity, and natural gas so much. It is more likely that cutbacks would come in other areas like entertainment, or technology. Technology was the worst performing sector.

The top performer, although still modestly negative, was the Financial sector. This includes insurance, banks and credit card companies, as well as investment firms. Banks, particularly those with a higher percentage of traditional banking business, benefit from a steepening yield curve. Banks use cash as their product line. They borrow short from customers, and lend longer term. As the yield curve steepens, their net income can be expected to rise. This may explain why two of the top three holdings were positive after the report, JP Morgan (JPM), and Wells Fargo (WFC). Brokerage firms also may benefit as accounts uninvested balances can be a source of revenue as financial firms earn interest on them. Rising rates means every balance they can earn on creates additional income.

Larger Index Observations

As indicated earlier, technology was the worst-performing sector. This causes the tech heavy Nasdaq to far underperform the other major indexes. The best performing a few hour after the open was the Dow Industrials, which is comprised of just 30 industrial stocks, many paying consistent dividends. The second best performer, beating both the Dow and S&P 500 was the Russell 2000 Small-Cap index. Small-cap stocks tend to be less affected when borrowing costs change, and tend to have more of their end customers located domestically. The U.S.-based customers is an advantage to smaller stocks when rising rates cause rising dollar values. A rising dollar makes goods or services from the U.S. more expensive overseas.

Take Away

The textbook reply to questions related to rising rates, inflation, and sector rotation in stocks held up after the surprise PCE index increase. Banks, and necessities like heat and consumer goods outperformed. Also small-cap stocks did not disappoint, they also held up better than the overall large cap universe.

One difficulty small and even microcap investors face is that information is less available on many of these companies. And there are a lot of them, including in the sectors that outperform with inflation. One easy way to find which smaller companies are rising to the top is Channelchek’s Market Movers tab. This can be viewed throughout the trading day by clicking here for the link.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bea.gov/news/2023/personal-income-and-outlays-january-2023

https://money.usnews.com/investing/news/articles/2023-02-24/u-s-inflation-accelerates-in-january-consumer-spending-surges

The Pace of Tightening is Too Slow, Says FOMC Member

Posted on February 22, 2023February 22, 2023 by phoffman@channelchek.com

Upcoming PCE Data May Revise St. Louis Fed President’s Increasingly Hawkish Stance

Federal Reserve Chair Jerome Powell testified before Congress in June of last year and said there is a risk the Fed could go too far raising rates. He didn’t believe overdoing it was a “top risk” to the economy. The greater risk, he thought, was that wage and price pressures could possibly keep inflation at a boiling point. He reiterated this position a few months later, saying it is easier to restart the economy if the FOMC is too heavy on the brake pedal rather than too unaggressive and left needing to do even more later. Today, FOMC members seem to agree, at least the St. Louis Fed President does, but he’s not alone. The non-voting member of the Committee says he wants to step up the pace of tightening.

A full percentage point of tightening is needed, and sooner is better, according to James Bullard, who is the President of the St. Louis Federal Reserve. The hawkish comments were made on CNBC February 22^nd, but they echo those he made the previous week during his slide presentation titled: Disinflation: Progress and Prospects, deliveredto businesses in Jackson Tennessee. The comments come as inflation is still well above the Fed’s target and not receding toward the 2% goal at a pace that is in line with achieving the target.

Image Source: “Disinflation: Progress and Prospects” (J. Bullard, February 16, 2023)

During the CNBC interview, Bullard said the “risk now is inflation doesn’t come down and reaccelerates.” He used the 1970’s entrenched inflation experience as an example. Explaining that when rising prices become the norm over a long period of time, they become the mindset, the expectation, and then self-fulfilling. Bullard expressed that this is undesirable.

While speaking about where he expects the peak in Fed Funds should be this tightening cycle, he explained he supports a rate near 5.375%. Currently, the Fed targets 4.50% to 4.75%.

Another Fed president has also been vocal recently. Cleveland Fed President Loretta Mester, like Bullard, is a non-voting member this year. Last week she said she saw a “compelling economic case” for a 50 basis-point interest-rate hike at the Fed’s Jan 31- Feb 1 meeting. This conversation is expected to be reflected in the FOMC minutes being released this week. The markets may start reacting to comments of members that supported a more aggressive posture than the 25 basis points the Fed decided upon.

The next FOMC meeting is to be held March 21-22. Over the next month, there will be only one more look at the PCE index and several more employment reports. Overall the markets have recently begun to behave more in line with the data and Fed rhetoric. Bonds have begun trading off, although yields still price in much lower inflation, and the stock market, which traded up in January, appears to understand that if the economy wasn’t hot, there would be no reason for the Fed to throw cold water on it.

Expectations for a rate hike at the next meeting can change over the next month. Currently, according to the CME Fedwatch gauge, a 25 bp hike is where speculators have congregated. However, a 50 basis-point hike has gained popularity. The odds have moved up to 24% from 12.2% a week ago, according to the gauge.

Take Away

On the trading desk we label market moving news stories and interviews from influential policymakers, “tape bombs.” This is because as they come across news tapes (like Bloomberg), they could do damage to your positions.

The evenings before each trading week (usually Sunday), Channelchek emails to subscribers known events scheduled during the upcoming week that could become “tape bombs” to your holdings. Subscribe to Channelchek here to be sure you receive these potential risks before the action starts that week.

Paul Hoffman

Managing Editor, Channelchek

Lithium Stocks are Depressed, Might They Be a Buy?

Posted on February 21, 2023February 21, 2023 by phoffman@channelchek.com

Image: Silver Peak Lithium Mine, Nevada – Ken Lund (Flickr)

The Lithium Dip May Be Worth Exploring

Lithium (Li) was once synonymous with treating depression. Today the mineral is more often discussed as part of the subject of sustainable energy storage, specifically batteries. So it’s ironic that the recent stock price movement of a number of companies tied to lithium may have depressed some investors, as February has seen a sudden depression in values. The primary reason for the decline in lithium stocks may actually be a net plus for miners and others tied to production. This thinking is outlined below.

Many companies involved in Li exploration and/or production were up on the year along with the overall market. Late last week and carrying over to today, many of these stocks have fallen dramatically. The reason for the sudden decline coincided with the largest EV battery manufacturer, Contemporary Amperex Technology’s (CATL) announcement that it will cut the price it charges for Li-ion batteries.

As seen in the chart below, Shares of the larger lithium miners Albemarle ALB (ALB), SQM (SQM), Livent (LTHM), Piedmont Lithium (PLL), and Lithium Americas (LAC) are down between 7% and 14% with much of that drop coming in the past few trading days. Smaller lithium mining operations like LithiumBank Resources Corp. (LBNKF), and Century Lithium Corp. (CYDVF) fared much better, outperforming the more established larger companies.

Did Traders Get this Wrong?

CATL seems to have aimed to maintain or grow its market share as a battery manufacturer. Any price war they may have started is likely to have a direct impact on competitors. Even car manufacturers that are involved in battery sales may shed some profitability, but is it necessarily a negative for companies involved in mining or refining?

CATL plans on pricing its batteries on a lithium-price-linked calculation. With this, 50% of each battery will benchmark to lithium carbonate, which would largely embed the price of lithium in its Li-ion product. The rest of the batteries will key off of the spot market for lithium carbonate.

Spot prices for lithium carbonate are up about ninefold over the past few years as the growth in EV demand and other battery-operated products has stressed the global lithium supply chain. So while CATL has decided to discount batteries, the production costs are unlikely to fall. The move may instead place greater demand on lithium carbonate. If production doesn’t keep up with, what should spark greater demand for Li-ion batteries, miners may benefit. If correct, this could suggest the declines in mining stock prices related to CATL’s new pricing policy, may be considered as an entry point for investors that had been looking for a price dip.

As for battery makers, this may have more permanently drained value. CATL is about 68% of the mainland Chinese EV battery manufacturing industry. Other battery producers may have to similarly adjust their pricing models to compete. This group includes Panasonic, LG Energy, Samsung, and SK Innovations that also tumbled this month.

Take Away

Mining analysts discuss supply and demand, or deficit and surplus, when adjusting forecasts. If demand grows as a result of the large battery manufacturer CATL discounting prices, and this discounting causes others to follow, the result could be a larger lithium deficit that could raise the price of the mineral per USD/metric-ton. Time will tell.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.uptodate.com/contents/unipolar-depression-in-adults-treatment-with-lithium/print#:~:text=In%20addition%2C%20lithium%20is%20used,mid%2D1800s%20%5B2%5D.

https://www.barrons.com/articles/lithium-stocks-tesla-ev-battery-shares-40aa53d0?mod=hp_columnists

https://www.barrons.com/articles/tesla-stock-price-graphite-battery-magnis-bc0dad59?mod=hp_LATEST

The Week Ahead – PCE Inflation Measures and FOMC Minutes

Posted on February 20, 2023February 20, 2023 by phoffman@channelchek.com

Will the Regional Fed President Speeches Change the Market’s Thinking This Week?

The markets will have to wait until late week to view the Fed’s preferred inflation indicator, the PCE price index, and PCE core index. Leading up to that report we will be treated to FOMC minutes on Wednesday, which could change the market’s view of what the Fed was thinking at the time of the last meeting, and a number of regional Fed President’s speeches which could give insight into any change to hawkish versus dovish bias. There has been a lot of new data since the FOMC meeting that ended three weeks ago.

Monday 2/20

US markets are closed for President’s Day.

Tuesday 2/21

9:45 AM ET, the Purchasing Managers Composite flash report (PMI) has been receding for the past three months. This contraction is expected to reverse itself minimally with expectations at 47.3 with services at 47.2. The flash PMI is an early estimate of current private sector output using information from surveys of nearly 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and based upon around 85% of the full survey sample.

10:00 AM ET, Existing Home Sales have been shrinking but are expected to have held steady in January, at a 4.10 million annualized rate versus December’s 4.02 million.

Wednesday 2/22

2:00 PM ET, FOMC Minutes from the meeting held January 31 and February 1 where the Fed Funds level was lifted by 25 bp will be released. The Fed’s minutes could be a market mover as investors and analysts parse each word looking for clues to policy changes.

5:00 PM ET, John Williams the President of the New York Fed will be speaking.

Thursday 2/23

8:30 AM ET, Gross Domestoc Product (GDP) second estimate of fourth-quarter is 2.9% growth according to the consensus of economists surveyed by Econoday. Personal consumption expenditures (PCE), which was 2.1% in the first estimate, is expected to come in at 2.0% in the second estimate.
10:50 AM ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to speak.
4:30 PM ET, The Federal Reserve Balance sheet data are released each Thursday. This information is becoming more of a focus as headway on quantitative tightening is revealed in these numbers.

Friday 2/24

8:30 AM ET, Personal Income and Outlays expected to rise 1.0% in January with consumption expenditures expected to increase 1.2%. The previous experience was a December rise of 0.2% for income and a December fall of 0.2% in for consumption. Inflation readings for January are expected at monthly gains of 0.4% overall and also 0.4% for the core (versus respective increases of 0.1 and 0.3%) for annual rates of 4.9 and 4.3% (versus December’s 5.0 and 4.4%).
10:00 AM ET, New Home Sales, which have been falling, are expected to hold steady in January, at a 617,000 annualized rate in versus 616,000 in December.
10:00 AM ET, Consumer Sentiment is expected to end February at 66.4, 1.5 points above January and unchanged from February’s mid-month flash.
10:45 AM ET, Loretta Mester the President of the Cleveland Federal Reserve Bank is schedulked to speak.

What Else

The four day trading week in the US will feature earnings reports from major retailers Walmart and Home Depot. Other companies reporting with enough of a following to adjust investor thinking are Nvidia, Coinbase, Alibaba, and Moderna.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.econoday.com/

The Most Recent Michael Burry Holdings Have Been Reported

Posted on February 14, 2023February 15, 2023 by phoffman@channelchek.com

Scion’s Michael Burry Owns Online Retailers, Tech Firms, a Mortgage Servicer, and a Detention Provider

GEO Group (GEO), the publicly held prison company organized as a REIT, again tops Michael Burry’s public market holdings as of the end of last year. This is one of nine holdings; a few are on-again, off-again favorites of the revered hedge fund manager. If there is one theme in his positions, it is that of select online retail merchants. While the overall size of the positions as of quarter-end is known, these positions may not represent all investments, just those that are public and reportable to the SEC on form 13F. Burry famous for his portrayal in the movie “The Big Short” was not short any publicly traded securities as 2022 drew to a close.

Below are the nine holdings, in size order, copied directy from the 13F-HR filing. GEO, Alibaba, and JD.com are familiar to followers of Dr. Burry’s holdings as this is not the first time they have appeared in his portfolio.

Geo Group (GEO) runs private detention systems. As shown below, at the end of the second quarter of 2022, it represented 100% of Scion Asset Management’s public market positions. The current holding is roughly half the dollar amount of what it was three months prior.

Black Knight (BKI) is making its first appearance in the Scion portfolio. The mid-cap company provides mortgage and loan servicing products.

Coherent Corporation (COHR) has not been in the hedge fund manager’s portfolio prior to the last quarter. The small-cap technology company is involved in communications networks for aerospace, automotive, life sciences, and various other electronics and systems.

Alibaba (BABA) is often described as the “Chinese Amazon.com”. The only other time Scion held this well-known online retailer was during the second quarter of 2019.

JD.com (JD) is China’s largest online retailer and largest internet company by revenue. Burry owned shares once before during the first quarter of 2019.

Wolverine Worldwide (WWW) makes active footwear and apparel. Brands include Sperry, Saucony, and Hush Puppies. The small-cap company has not been in the Scion portfolio previously.

MGM Resorts (MGM) is a mid-cap company that owns and manages hotels and casinos worldwide. This is the first time Michael Burry has owned this name.

Qurante (QRTEA), formerly Liberty Interactive Corporation, is yet another direct marketer through the internet and video. The small-cap company is headquartered in Colorado.

Skywest Inc. (SKYW) is Burry’s smallest holding but still represents 4.4%. The airline has scheduled flights, including international, and also leases equipment for non-commercial flights. This is the first time the small-cap company has made an appearance in the Scion portfolio.

Take Away

Four times each year the SEC requires asset managers above a certain size to make a public filling of its portfolio.

Scion Asset Management is not exempt, but may, in addition to transacting in public securities, be creating positions in assets that are not required to be reported here. The reputation of Michael Burry has at times caused a lot of interest around less followed stocks.

Paul Hoffman

Managing Editor, Channelchek

The Record Levels of Cash Held by Investors May Not Indicate a Bear Market

Posted on February 14, 2023February 14, 2023 by phoffman@channelchek.com

Image Credit: Pictures of Money (Flickr)

Investors Receiving a 5% Yield are Losing to Inflation

The CPI inflation report and the Fed’s relentless increases in Fed funds levels have pushed the six-month US Treasury Bill (T-Bill) above 5%. This is the first time since 2007 that this low-risk investment has topped 5%. Last year on this date, the six-month T-Bill was 0.76%. While the stock market is concerned that higher borrowing costs will have the Fed’s intended effect of slowing demand, rates are reaching a point where another concern creeps in. The concern is will traditional stock investors lay back and be satisfied getting paid interest.

More likely, the high cash position represents “dry powder” waiting for an opportunity.

Short Term Rates

Money Market fund assets were $4.81 trillion for the week ended Wednesday, February 8, according to the Investment Company Institute. Just shy of the record MF balances reported in January. Higher than average cash levels have often been thought of as a bullish sign as it represents potential to drive stock prices up when flows toward equities increase.

This may be part of the situation as we come off a dismal 2022 for equities, but there is likely something else incentivizing the retreat to safety. The higher interest rates are in the short end of the curve, investors are getting paid to retreat. High-yielding cash equivalents with six-month T-Bills now at 5% (10-year Treasuries are only 3.75%) may be more than a parking place. It may represent an alternative investment with a much more assured return.

Ten Year Quarterly Returns S&P 500

Is 5% an Acceptable Return?

With inflation at 6.4%, the answer is no. But it is definitely preferable to seven of the periods on the 10-year chart above. And with January’s consumer price index (CPI) report revealing signs of sticky to reaccelerating inflation, the Federal Reserve is more likely to be hiking rates for longer than expected.

For investors looking to invest for longer periods, the stock market handily beats inflation. In other words, for the various time frames below, S&P 500 investors did not see their assets erode due to inflation.

Beating inflation is foundational to investing. Far exceeding it is the goal of many. Investors are not doing this choosing cash, in fact they are choosing to lose buying power rather than risk that the market doesn’t perform as it has historically.

S&P 500 Return for Periods 5-Years to 30-Years

Take Away

Data released on Tuesday February 14 showed the inflation rate (CPI) slowed to 6.4% in January. The cost of goods and services rose 0.5% during the month. The half percentage is the largest one month erosion of purchasing power in three months.

Investors content with 4%-5% returns should consider that they are losing ground to persistent inflation.

Investors with a five-year time horizon or longer should weigh the risks of earning yields below the inflation rate to the ups and downs of stocks. In fact, as more do, the 4-5 trillion in cash can make or quite a bull market.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2022

https://www.bls.gov/news.release/archives/cpi_01162008.pdf

https://www.cnbc.com/2023/01/18/investors-are-holding-near-record-levels-of-cash-and-may-be-poised-to-snap-up-stocks.html

https://www.ici.org/research/stats/mmf

https://www.nerdwallet.com/article/investing/average-stock-market-return#:~:text=The%20average%20stock%20market%20return%20is%20about%2010%25%20per%20year,other%20years%20it%20returns%20less.

The Week Ahead – Inflation (CPI), Jobs, and 13-f Holdings Reports

Posted on February 12, 2023February 12, 2023 by phoffman@channelchek.com

Will the Inflation Numbers on Valentine’s Cause the Market to See Red?

As earnings season fades investors that like to get a glimpse into the portfolios of successful money managers will look for the 13-f filings of some of the most followed investors as they are made available. Tuesday and Wednesday should bring Michael Burry’s and Warren Buffet’s filing. The CPI report on Tuesday is expected to show a continuation of inflation tapering. The Jobs report on Thursdays has been missing consensus, it has the potential to either calm or rattle the markets.

Monday 2/13

With no consequential economic releases, market direction may take its tone from traders positioning ahead of Tuesday’s CPI report.

Tuesday 2/14

8:30 AM ET, January’s headline CPI rate is expected to increase month to month by 0.5% after a .1% decline experienced in December, and year-over-year at 6.2% versus 6.5% the prior 12 months. Ex-food and energy (core rate) is expected to show unchanged at a 5.5% annual rate versus 5.7% the prior 12 months.
In previous years Michael Burry has made a public filing of Scion Asset Managements 13-f holdings on Valentine’s Day. Warren Buffet of Berkshire Hathaway will make available his changed positions. This filing is also likely on Tuesday or perhaps Wednesday.

Wednesday 2/15

9:15 AM ET, Industrial Production, which includes data for Manufacturing and Capacity Utilization has been contracting. January’s consensus estimates are for monthly gains of 0.5% for production and 0.4% for manufacturing and would be a welcome sign for those fearing a recession. The positive direction would be welcome after December’s monthly decline of 0.7% overall and 1.3% for manufacturing. Capacity utilization is expected to remain at a non-inflationary 78.8%.
10:00 AM ET, Business Inventories data for December are expected to rise 0.3% following a 0.4% expansion in November. Intentional inventory growth can be a sign of business optimism surrounding future sales. If unintended inventory accumulation occurs, then production will probably be throttled back as inventories are worked down. This is why Business Inventories a leading economic indicator.

10:00 AM ET, The Housing Market Index fell each month in 2022. The weak streak ended in January, as it rose 4 points to 35. February’s consensus is a further but smaller 1-point improvement to 36. The Housing Index is a monthly composite that tracks home builder assessments of present and future sales along with buyer traffic
10:00 AM ET, Atlanta Fed Business Inflation Expectations survey provides a monthly measure of year-ahead inflation expectations and inflation uncertainty from the perspective of firms. The survey also provides a monthly gauge of firms’ current sales, profit margins, and unit cost changes. The year over year estimate is for 3%.

Thursday 2/16

8:30 AM ET, Jobless Claims, including Initial Claims and Continuing Claims, have been a big focus of the market as unemployment is running at a historically low pace. The consensus is for growth in Jobless levels to 199,000 versus 196,000 the prior week. Overall low claims would seem to be good news for the economy. The problem now is that it is worrisome for a Fed that views current inflationary pressures, including wage pressures unacceptably high.

Friday 2/17

8:30 AM ET, The Index of Leading Indicators has been in steep decline; it is expected to fall further, but less steeply, by 0.3 percent in January versus a fall of 0.8% in December.

What Else

Investors with interest in telecommunications company Comtech (CMTL) and located in South Florida, may be able to attend one of four special presentations by management on Monday or Tuesday. Get information here to see if this is suited for you.

Monday, February 20^th, is a holiday, and the US markets will be closed.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.thearmchairtrader.com/macroeconomic-news-6feb23/

https://us.econoday.com/byweek.asp?cust=us

Stock Buybacks in 2023 are $175 Billion Strong and Part of the Stock Market Surge

Posted on February 6, 2023February 6, 2023 by phoffman@channelchek.com

Image Credit: Anders Kristensen (Pexels)

Company Stock Repurchases Have Reached Record Levels

Stock buybacks often boom when borrowing costs are down. However, interest rates are currently as high as they have been in a while, yet buybacks are still surging. The rampant pace also flies in the face of new corporate taxes on the practice. US companies grabbing their own shares is one part of why the market has started the year very strong. The S&P 500 was up for a third week in a row to end January and kick off February. The pace shows no sign of slowing and may even pick up as earnings season and the related blackout periods are lifted. What’s involved in stock buybacks, and what has been the impact now, so early in 2023.

How is a Stock Buyback Executed?

Last week Meta Platforms (META) followed a few logistics companies, oil businesses, and even aerospace contractors by announcing an increase in management’s authorization to purchase its own shares. There are simple but important rules Meta and the others will have to abide by to conduct these purchases. The rules are to provide orderly markets, they fall under the Securities and Exchange Commission’s “Safe Harbor” for Issuer Repurchase, SEC 10b-18 protections.

The head trader at Noble Capital Markets, David Lean is a veteran equity trader whose desk has been involved in many stock repurchases. He explained the critical areas a broker has to follow. They are, Manner of Purchase, Timing, Price, and Volume.

“The company must purchase shares through a single broker or dealer during a single day,” Mr. Lean said, explaining that one day a company may choose a broker like Noble and provide instructions and criteria, it then is the only broker allowed to trade on behalf of the buyback plans that day. Another day a different single broker or dealer may be selected for the trading day.

As far as timing, the SEC has laid out the following guidelines: A company with an average trading volume less than $1 million per day or a public float value below $150 million is unable to trade within the last 30 minutes of trading. Companies with higher average-trading-volume and public float value can trade up until the last 10 minutes.

David Lean explained the trading price restrictions on behalf of the company, “The company must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.” While a stock repurchase does put upward pressure on share prices, the act of repurchasing shares should not be allowed to bid up the price directly.

The rules on volume also help prevent the repurchase from being overly disruptive. “The company cannot purchase more than 25% of the average daily volume as measured over the previous four weeks,” according to Lean. He was also was quick to point out that there is an exclusion whereby “The company may make one ‘block’ purchase per week and not be subject to the 25% volume limitation, provided the ‘block’ purchase is the only Rule 10b-18 purchase made on that day.”

The SEC provides these “Safe Harbor” rules as a guide for all parties involved to understand the boundaries of acceptance in the eyes of the SEC.

Buybacks 2023

During the first month of 2023, announced corporate buybacks more than tripled to $132 billion from a year ago. Then, February kicked off with META immediately adding another $40 billion to the annual tally. According to data compiled by Birinyi Associates, January broke, by 15%, the previous record for a January set in 2021.

There has been no slowdown. According to Bloomberg, Morgan Stanley’s desk that executes buybacks saw orders increase 5%. This feeds into the market strength that thus far has characterized 2023, along increased buying interest from retail accounts, and quant funds.

This increase in stock buybacks in 2023 coes at the same tome a new tax levy on repurchases comes into play by the Inflation Reduction Act of 2022. According to the IRS the new code imposes a 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations during the taxable year. The 1% levy is not deductible. The new tax indicates that the government doesn’t encourage companies repurchasing their own stock. In fact in the case of Chevron (CVX), they had been criticized by the White House for using their cash in this way rather than to try to increase output.

Take Away

Each company has its own reason to repurchase its own stock. However, in each case it could represent confidence in the future. There are rules put in place by the SEC that help provide orderly trading in the names, but the announcements themselves tend to create upward spikes in the names.

A new tax on the practice that came into effect on January 1 is going to cost the companies buying their shares 1%. This has not prevented the record levels of stock buybacks in January.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.rttnews.com/corpinfo/stockbuybacks.aspx

https://finance.yahoo.com/news/7-big-stock-buybacks-meta-065244274.html

https://www.sec.gov/divisions/marketreg/r10b18faq0504.htm

https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-corporate-stock-repurchase-excise-tax-in-advance-of-forthcoming-regulations#:~:text=The%20new%20code%20section%20added,taxable%20year%2C%20subject%20to%20adjustments.

The Week Ahead – Powell Speaks, Jobless Claims, Consumer Sentiment

Posted on February 6, 2023February 6, 2023 by phoffman@channelchek.com

The Fed Chair’s Comments May be the Most Critical Market Event of the Week

It’s a quiet week for economic data. If the market takes a direction this week, it may have to take its lead from something other than statistics that indicate economic strength or weakness. This could be a Fed governor speaking, or a central bank outside of the US altering its hawkish stance.

Monday 2/6

With no consequential economic releases, market direction may take its tone from earnings reports from a wide swath of industries.

Tuesday 2/7

11:00 AM ET, New York Federal Reserve inflation expectations.
3:00 PM ET, Consumer Credit, or more definitively, the installment credit outstanding by consumers is expected to have increased by $25 billion in December versus November’s $27.9 billion increase. There is such a long delay reporting this number that it seldom has a market impact.
Fed Chair Jerome Powell will be speaking at the Economic Club of Washington.

Wednesday 2/8

10:00 AM ET, Wholesale Inventories revision for December is in line with the first estimate of 1%. Wholesale sales and inventory data can provide investors a chance to look below the surface of the consumer economy. Activity at the wholesale level can then be a precursor of consumer trends.

Thursday 2/9

8:30 AM ET, Jobless Claims, including Initial Claims and Continuing Claims, have been a big focus of the market as unemployment is running at a historically low pace. The consensus is for growth in Jobless levels to 190,000 versus 183,000 the prior week. Overall low claims would seem to be good news for the economy. The problem now is that it is except that it is worrisome for a Fed that views current inflationary pressures, including wage pressures unacceptably high.

Friday 2/10

• 10:00 AM ET, The University of Michigan’s Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Consumer sentiment is not expected to show much improvement, at a consensus 65.0 in the first reading for February versus 64.9 in January.

What Else

The FOMC meeting that ended on February 1 was the last before Chair Powell delivers the semiannual monetary policy testimony in late February or early March (not yet set). Any remarks by Fed officials in the February 6 week should be viewed in that context. Powell and associates will not want to confuse any upcoming message given at the semiannual Monetary Policy Report to Congress. Whatever is said is likely to foreshadow what will be in the report when he speaks before the Senate Banking Committee and the House Financial Services Committee.

Paul Hoffman

Managing Editor, Channelchek

https://www.thearmchairtrader.com/macroeconomic-news-6feb23/

https://us.econoday.com/byweek.asp?cust=us

Retail Investors are Again Impacting Markets and Leaving a Mark

Posted on February 3, 2023February 3, 2023 by phoffman@channelchek.com

The Percentage Volume of Retail Transactions Has Surpassed 2020’s Level

Retail investors were a strong market force in 2021, and after a hiatus through much of 2022, they may be setting the tone in 2023. As a whole, the investors that fall into this category are watching signs that the US Federal Reserve and other central banks may be near the end of their rate hikes. This, coupled with last year’s sell-off, was taken as a sign to selectively jump back into positions. The positions they have been putting on have been moving the needle in the “risk-on” category; this has sent many of last year’s losers up double digits.

Data from JP Morgan demonstrate retail transactions have recently surpassed the market volume peak reached in the Fall of 2020. The more volume as a percentage of trades, the more influence over price movements any investment group has.

JPMorgan Data Shows Retail’s Market Percentage Has Quickly Grown

Retail Investors as % of Investors (JPM)

What Prices Have They Impacted?

During the last week in January, retail market orders as a percent of market value reached 23%, according to JPMorgan. Comparatively, it got to 22% a few times when GameStop (GME) was confounding institutional money while surging in valuation. As with the increase in retail volume during 2020, the renewed interest in committing to trades can have an outsized impact on sector movements and those of favorite stocks.

During the pandemic lockdown period, many self-directed investors chose to follow groups such as r/WallStreetBets on Reddit and forums on other chatrooms and platforms. One strategy that worked was directed at hedge fund short positions. It involved massive buying of stocks that were heavily shorted. The goal was to force the shorts to cover, which would produce buying and a higher stock price. This was effective enough to have caused significant problems with both institutional investors and the brokerage community settling the trades.

As January came to a close Many of the same risk trades, have gotten attention. AMC Theatres (AMC) is up 70% YTD. Cathie Wood’s ARKK fund, which invests in speculative disruptive companies, has risen nearly 46%. Also in the fund category is an ETF that invests in so-called meme stocks (MEME), this is up 41%.

Bitcoin (BTC.X), which had been presumed on its deathbed toward the end of last year, is up over 42% as it continues to track technology.

Will They Again Score?

“Mark my words, it’s going to end in tears,” was a popular line amongst market pundits back in 2020-2021. The Great Unwashed, the Meme Stock Investors, the market participants Jim Kramer called Robin Hoodies don’t have a long track record. But the track record they do have is worth noting.

According to JP Morgan, as of the first week in February, Tesla (TSLA) was the most sold stock by retail investors. Others that have been sold include those categorized as green and infrastructure stocks tied to EVs and 5G broadband.

The most purchased were Amazon (AMZN) and APPLE (AAPL). The hashtag #MOASS, or Mother of All Short Squeezes, has been trending most days on Twitter. The stock tied to the posts is AMC (AMC, APE), as there has been ongoing news surrounding this classic meme stock. One meme stock that has not attracted that much attention is Bed Bath and Beyond (BBBY). The company, which is trading at $3.20 after having been at $22.80 less than a year ago, is on life support, and closing dozens of stores amongst talk of bankruptcy. For those that were able to withstand the retail short-squeeze in BBBY, they may be able to cash in.

Take Away

If the “risk-on” trend among retail investors continues, discretionary institutional money has learned to pay attention. Self-directed investors should also pay attention to new activity, and any rotation from one cooling sector to one that is heating up.

In addition to following the news on Channelchek, investors can watch the Investor Movement Index (IMX) reported on the last weekend of each month by TDAmeritrade. For additional insight, it is always fun to check in on what the message boards are buzzing about and sorting through the serious and the nonsensical on Reddit and Twitter.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://imx.tdameritrade.com/imx/p/imx-pub/

https://realmoney.thestreet.com/jim-cramer/jim-cramer–15483915

https://www.yahoo.com/now/bed-bath-beyond-announces-87-080504711.html

https://www.marketwatch.com/story/theyre-baaaaack-retail-participation-in-the-stock-market-just-surpassed-the-gamestop-days-11675423836?mod=home-page

https://www.bespokepremium.com/category/think-big-blog/

The Silver Price Rise Still Has Significant Momentum

Posted on February 2, 2023February 2, 2023 by phoffman@channelchek.com

Global Dynamics Have Helped Silver’s Impressive Price Increase

In mid-October, silver performance began outpacing gold, and it has stayed more or less on track since. During this 3.5-month period, silver had better than a 25% gain in value. What’s behind its current strength, and can it continue to outperform not only the mineral it is most closely associated with but the overall stock market as well? Much of the price rise is likely in response to perceived growing demand in much the same way as petroleum prices have risen each time China is rumored to be opening up after their pandemic response, but there is more to the story.

Silver would have more of a tailwind than gold in a growing global economy as it’s an industrial metal with growing utility in manufacturing. Gold is used for primarily for jewelry and a diversifying store of wealth. So this enhances its performance as it gets its value from scarcity like gold, is a precious metal that investors speculate in, and is becoming more in demand to build photovoltaic cells, electronics, and medicines. The appeal of silver can be used as an indicator that investors see the global economy growing stronger, with more demand for industrial metals. While much of the focus surrounding a full opening of China has centered on renewed demand for petroleum, the impact should reach much farther.

Other industrial metals have also gained as Chinese pandemic restrictions have eased. China is the worlds largest consumer of metals, copper and iron-ore futures on Comex each climbed by nearly 11% in January.

In addition to its functional utility, the price increase has also come at a time when uncertainty and in some cases turmoil around the globe has caused investors to seek shelter in precious metals.

There is more causing the strength as well. There is substantially more demand now than before the coronavirus shutdowns because in many parts of the world there is a push toward alternative and clean-energy production. This includes more products with more electrical connectors, the ability to produce power from solar, and other technology that is more in demand now than ever.

Over the same three-month-plus period as above, both gold and silver gained while the ICE U.S. Dollar index, a benchmark for the international value of the dollar, lost over 8%. The Fed slowing its interest rate hikes has had a depressive impact on dollar strength. It now simply takes more dollars to buy the same amount of silver.

Take Away

There are a number of factors why silver has been outperforming gold, the stock market, and the US dollar. These include its reputation as a store of value, parts of the world gearing up for what is expected to be an energy renaissance, the opening of the largest metals consuming country, and a weakening dollar.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/articles/silver-gold-prices-economy-51675291146?mod=hp_LEADSUPP_2