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IPO Activity Should Pick Up According to Analysts

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

The Current Environment for IPOs is Best in Over 15 Months

Does the elevated reading of the Consumer Confidence report, along with the extended period of low market volatility, and belief the Federal Reserve is near the end of the tightening cycle, set the climate for more companies going public? Goldman Sachs Research just released readings of its IPO Issuance Barometer. This measures the environment for initial public offerings (IPOs) using many different metrics. There is only one out of more than a dozen factors which does not support the expectation that the IPO climate is improving for companies.

As stock market prices stabilize and corporate executives grow more confident, the economic conditions in the United States are becoming more favorable for IPOs according to Goldman Sachs Research.

The GS IPO Issuance Barometer has risen to 93, a level consistent with steady IPO activity. After hitting a low point of 7 in September 2022, the Issuance Barometer is now at its highest level since March 2022. A reading of 100 represents the historical average number of IPOs realized in a given month.

The measure takes into account several factors including the S&P 500 drawdown (the difference between the index’s current value and its 52-week high), CEO confidence levels, the ISM Manufacturing Index, the six-month change in two-year Treasury note yields, and the S&P 500’s trailing enterprise value/sales ratio.

The most impactful contributor behind the improvement in the IPO Barometer has been the stabilization of stock market prices. Chief U.S. Equity Strategist at GS Research, David Kostin notes in the report that the S&P 500, which represents U.S. stocks, has remained relatively stable due to indications of resilient economic growth and the expected end of interest rate hikes by the Federal Reserve. Kostin also highlights that the drawdown in the S&P 500 has been the most significant factor influencing IPO activity. The largest decline from peak to trough this year was 8%, compared to an average of 13% since 1928. In the second quarter, the maximum drawdown has been only 3%. Additionally, market volatility has decreased, as indicated by the VIX, which measures the implied volatility of the S&P 500, dropping below 15, its lowest level since before the pandemic.

Although the S&P 500 has reached a new 52-week high, it is still 10% below its all-time high in January 2022.

The other components in Goldman’s IPO gauge that have also made large contributions to its current reading include improvements in CEO confidence, despite the fact that the median professional forecaster gives a 65% probability of a recession in the next 12 months. Short-term Treasury yields seem to have reached their peak, suggesting that the Federal Reserve’s tightening cycle is nearing its end. Also positive for companies deciding if now is a good time to go public is that stock valuation multiples remain high compared to historical levels. The only variable in the barometer that has not improved since September 2022 is the ISM Manufacturing Index.

Although the positive macroeconomic conditions have yet to translate into increased IPO activity, follow-on stock offerings, which occur after a company has gone public, have shown greater resilience. This year, there have been eight U.S. IPOs exceeding $25 million in size, excluding special purpose acquisition companies (SPACs) and spin-offs. These deals have raised a total of $2.4 billion in gross proceeds, compared to $3.8 billion for the entirety of 2022.

Forecasts from Goldman Sachs’ economists indicate a 25% chance of a recession in the next 12 months, but they suggest that the environment for IPOs could further improve in the second half of the year. Additionally, analysts at Goldman Sachs Research have recently increased their year-end price target for the S&P 500 to 4500, representing approximately a 2.5% increase from the current level.

If the U.S. economy experiences a “soft landing” characterized by stable equity prices and interest rates, modestly improving CEO confidence, an uptick in the ISM Manufacturing Index, and flat valuation multiples, the IPO Issuance Barometer could reach 119 (compared to 93 as of May 31). This would indicate an even more supportive environment for IPO activity according the research.

What Else?

After having an empty IPO calendar last week, six deals are scheduled this week. Four of them exceed $100 million. According to Renaissance Capital, a provider of IPO ETFs, there have been 46 U.S. deals so far in 2023. This is a 21% increase over the same period last year, and 89 deals have been filed which is a 16% increase.

Also likely to get the attention of management teams sitting on the fence determining if the timing is right, are returns. According to Renaissance, the ETF ticker symbol IPO, which invests in initial offerings, is up 26% so far this year. The S&P 500 is up only 13%.

Paul S. Hoffman

Managing Editor, Channelchek

Sources

https://www.goldmansachs.com/intelligence/pages/the-economic-backdrop-for-ipos-in-the-us-is-improving.html

https://www.marketwatch.com/story/consumer-confidence-jumps-to-17-month-high-as-inflation-slows-americans-more-optimistic-on-economy-b698f34b?mod=home-page

https://www.renaissancecapital.com/

Why US ‘Dollar Doomsayers’ Could be Wrong About its Imminent Demise

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

Dollar Global Usefulness Can Not Easily be Replaced

The prospect of the dollar being knocked from its perch as the primary fiat currency is worrisome to many Americans. Anxiety has been recently increased by news of short-term arrangements in which countries want to exchange more directly with one another in their native currency. China has established quite a few of these agreements over the past year. But is the widespread global use of the dollar in jeopardy?

Daniel Gros is a Professor of Practice and Director of the Institute for European Policymaking at Bocconi University. In the article below, originally published in The Conversation, Professor Gros offers his insight and expectations for the US currency.

Is the end of the dollar’s reign upon us? The prospect is worrisome to Americans.

The position of the US dollar in the global league table of foreign exchange reserves held by other countries is closely watched. Every slight fall in its share is interpreted as confirmation of its imminent demise as the preferred global currency for financial transactions.

The recent drama surrounding negotiations about raising the limit on US federal government debt has only fuelled these predictions by “dollar doomsayers”, who believe repeated crises over the US government’s borrowing limit weakens the country’s perceived stability internationally.

But the real foundation of its dominance is global trade – and it would be very complicated to turn the tide of these many transactions away from the US dollar.

The international role of a global currency in financial markets is ultimately based on its use in non-financial transactions, especially as what’s called an “invoicing currency” in trade. This is the currency in which a company charges its customers.

Modern trade can involve many financial transactions. Today’s supply chains often see goods shipped across several borders, and that’s after they are produced using a combination of intermediate inputs, usually from different countries.

Suppliers may also only get paid after delivery, meaning they have to finance production beforehand. Obtaining this financing in the currency in which they invoice makes trade easier and more cost effective.

In fact, it would be very inconvenient for all participants in a value chain if the invoicing and financing of each element of the chain happened in a different currency. Similarly, if most trade is invoiced and financed in one currency (the US dollar at present), even banks and firms outside the US have an incentive to denominate and settle financial transactions in that currency.

This status quo becomes difficult to change because no individual organisation along the chain has an incentive to switch currencies if others aren’t doing the same.

This is why the US dollar is the most widely used currency in third-country transactions – those that don’t even involve the US. In such situations it’s called a vehicle currency. The euro is used mainly in the vicinity of Europe, whereas the US dollar is widely used in international trade among Asian countries. Researchers call this the dominant currency paradigm.

The convenience of using the US dollar, even outside its home country, is further buttressed by the openness and size of US financial markets. They make up 36% of the world’s total or five times more than the euro area’s markets. Most trade-related financial transactions involve the use of short-term credit, like using a credit card to buy something. As a result, the banking systems of many countries must then be at least partially based on the dollar so they can provide this short-term credit.

And so, these banks need to invest in the US financial markets to refinance themselves in dollars. They can then provide this to their clients as dollar-based short-term loans.

It’s fair to say, then, that the US dollar has not become the premier global currency only because of US efforts to foster its use internationally. It will also continue to dominate as long as private organisations engaged in international trade and finance find it the most convenient currency to use.

What Could Knock the US Dollar Off its Perch?

Some governments such as that of China might try to offer alternatives to the US dollar, but they are unlikely to succeed.

Government-to-government transactions, for example for crude oil between China and Saudi Arabia, could be denominated in yuan. But then the Saudi government would have to find something to do with the Chinese currency it receives. Some could be used to pay for imports from China, but Saudi Arabia imports a lot less from China (about US$30 billion) than it exports (about US$49 billion) to the country.

The US$600 billion Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, could of course use the yuan to invest in China. But this is difficult on a large scale because Chinese currency remains only partially “convertible”. This means that the Chinese authorities still control many transactions in and out of China, so that the PIF might not be able to use its yuan funds as and when it needs them. Even without convertibility restrictions, few private investors, and even fewer western investment funds, would be keen to put a lot of money into China if they are at the mercy of the Communist party.

China is of course the country with the strongest political motives to challenge the hegemony of the US dollar. A natural first step would be for China to diversify its foreign exchange reserves away from the US by investing in other countries. But this is easier said than done.

There are few opportunities to invest hundreds or thousands of billions of dollars outside of the US. Figures from the Bank of International Settlements show that the euro area bond market – a place for investors to finance loans to Euro area companies and governments – is worth less than one third of that of the US.

Also, in any big crisis, other major OECD economies like Europe and Japan are more likely to side with the US than China – making such a decision is even easier when they are using US dollars for trade. It was said that states accounting for one-half of the global population refused to condemn Russia’s invasion of Ukraine, but this half does not account for a large share of global financial markets.

Similarly, it shouldn’t come as a surprise that democracies dominate the world financially. Companies and financial markets require trust and a well-established rule of law. Non-democratic regimes have no basis for establishing the rule of law and every investor is ultimately subject to the whims of the ruler.

When it comes to global trade, currency use is underpinned by a self-reinforcing network of transactions. Because of this, and the size of the US financial market, the dollar’s dominant position remains something for the US to lose rather for others to gain.

Equity Investors Shouldn’t Fear Quadruple Witching if They Understand It

Posted on June 16, 2023June 16, 2023 by phoffman@channelchek.com

June Quad-Witching is the Friday Before a Three-Day Weekend

Double, triple, and quadruple witching hours are often characterized by increased stock market activity as traders manage expiring positions in the last hours of trading. Friday, June 16^th is a quadruple witching which may demonstrate increased activity as it leads into a weekend where markets are closed on Monday.

The term “quadruple witching hour” is used to describe the simultaneous expiration of stock options, stock index futures, and stock index options and single stock futures contracts on the same day. This happens only four times a year on the third Friday just before a quarter end. The same expiration date of all three types of stock derivatives can cause unusual swings as expiring derivative positions can cause increased trading volume and unusual price action in the underlying assets as traders close, roll, or offset expiring derivative positions, particularly in the final hour of trading.

Options Expirations and Futures Contracts

Stock index options, and stock options, are financial instruments that grant the holder the contractual right, but not the obligation, to buy (call option), or sell (put option) a specific quantity of an underlying security or value of an underlying index at a predetermined price (strike price) within a specified period. The final day of the period is known as the option’s expiration date.

Stock index options are options based on the broad market indexes, such as the S&P 500 or the NASDAQ-100. These options give investors exposure to the overall market’s performance rather than individual stocks.

Stock options work similarly, but are based not on index values, but on stock price.

Stock index futures and single stock index futures are contracts that obligate (not optional) traders to buy or sell an index at a specific price or a single stocks at a specific price on a future date.

Expiration Fridays often witness heightened trading activity, as investors attempt to rebalance portfolios and positions. This can cause increased volume and produce significant price fluctuations in the underlying, impacting both individual stocks and the overall market.

Arbitrage Opportunities

Though much of the trading in closing, opening, and offsetting futures and options contracts during witching days is related to the squaring of positions, this increased, and at times, frantic activity can create price inefficiencies, this may provide short-term arbitrage opportunities for those skilled and quick enough.

The arbatrageurs would generate even more volume into the close on quadruple witching days as traders attempt to profit on small price imbalances with large trades that may execute a buy and sell in seconds.

Additional Reasons To Care About Triple Witching

As four types of derivatives, with related underlying indexes and securities expire, traders, especially before a long weekend, will often seek to close out all of their open positions well in advance of the close. This can lead to increased trading volume and intraday swings. Traders with large short positions are particularly exposed to price movements that could be more difficult to manage leading up to expiration. Arbitrageurs try to take advantage of abnormal price action, this actually serves to keep prices more in synch.

The higher trading volumes can be one-sided and potentially result in wider bid-ask spreads and greater slippage. Investors mindful of the potential one-sided liquidity challenges may decide to wait for the smoke to clear the following week, or see if they can benefit by feeding into demand if they can.

Traders who are skilled at interpreting trends, and have great execution, may find quick opportunities to make money during these multiple expiration dates.

Take Away

Quadruple expiration dates, which happen four times a year, can have significant implications for traders and investors. It is best to, at a minimum, know the dates to understand unusual price moves. Understanding the intricacies of option expiration, and multiple witching hours helps investors navigate markets. Advanced traders may even find ways to capitalize on the moves intraday.

June 2023 is unusual in that the quadruple witching hour comes before a three-day weekend; this could push more volatility to earlier periods during the afternoon.

Paul Hoffman

Managing Editor, Channelchek

Unhyped Information to Improve Investment Success

Posted on June 15, 2023June 15, 2023 by phoffman@channelchek.com

Retail Traders Looking in the Right Place, Never Had it So Good

Do you feel like every time you buy a stock, it goes down? You’re not alone, it’s a common complaint. Yet there’s a large universe of industries, companies, and ideas to choose to invest in. And at the same time, a flood of people who make a living telling you where you should invest. So why do so many investors buy after a run-up, perhaps even at the high, then watch their holdings languish?

Part of the problem may be in how the self-directed investor, consumes information. Watching investment news, digesting a fast-talking influencer’s words, or being told which moving average to rely on is, at best a good start to knowing what the masses are seeing, but taking time away from the hype, and absorbing well-presented material, data, and other information will provide a better look at companies in a way that could help prevent the late-in-the-trade buys that retail investors are known for.

Multiple Sources of Investment Information

When it comes to making investment decisions, the probability of success should increase if you take a look from different angles by using a few sources of trusted information. Beginner investors learn quickly that, if success was as easy as just buying your favorite TV stock pickers love of day, viewers of shows like Mad Money on CNBS would all be rich. It clearly doesn’t work that way.

But if you’re not prone to acting on hype, watching stockpickers fall in and out of love, every show is entertaining. If you are prone to hype, as most humans are, you have to be suspicious of anyone who has to come up with a stock or two for each show (or article). Then speak or write about it with a convincing and engaging style. Keep in mind, viewers or readers are their customers, they lose customers if they’re boring, they gain customers by instilling hope. Yet, as a person who managed billions in institutional funds, I can attest to you that most days, it is best to sit on your hands, monitor your current holdings, and keep scouring resources for high-probability stocks to watch.

Celebrity CEOs

Another problem with mainstream media’s financial news is the coverage universe is typically only familiar household names. You can turn on Fox Business, read the Wall Street Journal, or even Yahoo Finance and expect that on any given day there will be information on Apple, Tesla, and Microsoft, and they’ll be highlighting celebrity CEOs of similar companies. As mentioned earlier, there is a large universe of stocks to choose from. If the only stocks that have your attention are the huge names, largely held by funds and transacted by Wall Street’s most powerful, you could be in the same position you’d be in if you came down from the stands at a pro basketball game and played for a couple of quarters. You’re considered lucky if you put any points on the board.

Broadening your watchlist stocks to include companies that you have to search for, because they aren’t hyped, may include making a few additions to your stock market news, information, and analysis regimen.

News Information and Analysis

In addition to the traditional sources for investment ideas, including TV market analysts, stock picking columnists, and any paid-for advertorial seen on even big name financial websites and publications. You may wish to explore lesser-known companies and review emotionless equity investment research. Outside of stock research, you may find an appealing company you never heard of by viewing videos that invite you to “Meet the CEO” and listen to someone who knows the company better than anyone. If you’re in a metropolitan area, you may get on an email list to see what roadshows are within driving distance so you can attend and better understand an opportunity. Investors who aren’t near financial hubs that attract roadshows can still benefit from face-to-face presentations, including questions and answers at an investor conference geared toward their interests.

Investment Research

Receiving up-to-date research from analysts that never forget they have a reputation to maintain used to be difficult for retail investors. It was expensive to subscribe to financial firms’ research, and with good reason. Large investor’s could afford it because they stood to benefit most from the insights, justifying the cost. And the firm doing the research and setting the price was justified because maintaining a staff of analysts is expensive. But it kept a lot of good info from smaller players. This has evolved recently and become more fair.

The availability of quality stock research began to fall off last decade as regulatory bodies began making rules on who can provide valuable research, based on financial licenses, company registrations, and compensation arrangements.

Equity research that was once paid for by subscribers, has now taken a similar path as “free” trading apps. Retail customers, or institutional are not the ones paying for it, in many cases, the company that wants to be evaluated is. This is called company-sponsored research or CSR.

There are a number of firms that now provide this investor service, Channelchek, with the expertise of the equity analysts at Noble Capital Markets, is the largest provider of CSR in North America.

So no hype investment research is available, and more companies are recognizing how it helps interest in their stock if investors have trusted sources evaluating their business.

Video Presentations

While it isn’t hard to find the CEO of Tesla or many other mega-cap companies talking about their plans, the CEO’s of the thousands of less celebrated, often higher potential, companies have to be sought out and there has to be a means to understand their plans, ideas, and expectations. Technology has helped solve some of this. In fact YouTube and similar platforms has opened the floodgates to information on everything from fixing your air conditioner, to how to braid hair. While there are many video presentations best avoided, presentations direct from company management, in a six months or younger video, can provide tremendous insight, and confidence to pull the buy trigger, or even confidence to decide not to.

A large selection of content of this type can be found in Channelchek’s Video Library.

In-Person Roadshows

A roadshow is essentially management of a company, getting out of their office and meeting in different towns with investors. This could be done individually, perhaps at a financial institutions office, or in a reserved area in a public restaurant or other venue. This is particularly interesting as not only do investors get to look the person presenting directly in the eye, they benefit from questions being asked from all the other interested investors – they often have a great question you hadn’t thought of.

While every firm that conducts road shows has its own way of getting the word out, Noble Capital Markets organized roadshows list their calendar of roadshows on Channelchek.

Investment Conferences

While roadshows are great if it’s a company you want to hear from, and if it is convenient, a conference with many interesting companies, and perhaps in a vacation destination, can really help investors in a few short days hear many management presentations, ask questions and listen to other’s questions, and meet and network with investors of all levels. These events tend to be held in vacation destinations, so self-directed investors tend to bring family members, and professionals can spend a productive day of work enjoying a beautiful change of scenery.

I won’t even try to hide that I have a favorite conference.

Each year Noble Capital Markets puts on a popular two or three day investor event called NobleCon. Now in its 19^th year, it attracts companies with interesting stories and business models from various industries, and professional and retail investors from three continents.

Now in its 19^th year, NobleCon19 will be held in Late Fall 2023. The plans are pretty hush, but the opportunities for presenting companies and those looking to enhance their portfolios, I’m told, will be even greater than previous NobleCons. That’s a high hurdle.

Take Away

Understanding that the person on TV saying a stock is a buy, sell, or hold is, in a way, part of a reality TV show that needs to entertain to retain an audience, could improve your investment performance. Much of what is written is the same. Frankly, most days, there is little or nothing worth acting on, but they aren’t going to tell you this – it’s just not in their best career interest.

Alternative sources of ideas and information involve less hype and include, company- sponsored research, management discussions on video, roadshows, and investment conferences.

Most years there are many opportunities, most of these are under the radar companies that, even after they do well, are still under the radar. The ability to find these companies is becoming easier to all investors, but not if they are not looking for it.

Paul Hoffman

Managing Editor, Channelchek

Copper Market Poised for Unprecedented Growth

Posted on June 15, 2023June 15, 2023 by phoffman@channelchek.com

New Projections for Copper Demand High, Price Seen as Still “Muted”

The copper market could see an “unprecedented” inflow in the coming years as investors seek to profit from the metal’s anticipated surge in value, driven by growing demand for electric vehicles (EVs) and renewable energy, according to Citigroup.

In an interview with Bloomberg last week, Max Layton, Citi’s managing director for commodities research, said he believes now is an ideal time for investors to buy, as the price of copper is still muted on global recession concerns. The red metal is currently trading around $8,300 a ton, down approximately 26% from its all-time high of nearly $11,300, set in October 2021.

According to Layton, copper could top out at $15,000 a ton by 2025, a jump that would “make oil’s 2008 bull run look like child’s play.”

Citi also pointed out that copper may dip further in the short-term but could begin to rally in the next six to 12 months as the market fully recognizes the massive imbalance between supply and demand, a gap that’s expected to widen as demand for EVs and renewables expands.

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes of U.S. Global Investors (GROW).

Find more of Frank’s articles here – Originally published June 12, 2023.

Internal Combustion Vehicle Sales Set To Peak This Decade: BloombergNEF

As I’ve mentioned before, electric vehicles (EVs) require up to three times more copper compared to traditional internal combustion engine (ICE) vehicles. This presents a challenge because the number of newly discovered copper deposits is decreasing, and the time it takes to go from discovery to production has been increasing due to rising costs. According to S&P Global, out of the 224 copper deposits found between 1990 and 2019, only 16 have been discovered in the last decade.

Meanwhile, EV sales continue to rise. Last year, these sales reached a total of 10.5 million, and projections by Bloomberg New Energy Finance (NEF) suggest that they could escalate to around 27 million by 2026. Bloomberg predicts that the global fleet of ICE vehicles will peak in as little as two years, after which the market will be dominated primarily by EVs and, to a lesser extent, hybrids. By 2030, EVs might constitute 44% of all passenger vehicle sales, and by 2040, three could account for three quarters of all vehicle sales.

Tesla Stock Supported By String Of Positive News

Tesla, which remains the world’s largest EV manufacturer, has seen its stock increase over 100% year-to-date in 2023, making it the third best performer in the S&P 500, following NVIDIA (+166%) and Meta (120%). In fact, shares of Tesla have now fully recovered (and then some) from October 2022, when CEO Elon Musk purchased Twitter for $44 billion. This raised concerns among investors about Musk’s ability to run the EV manufacturer while taking on a new, time-intensive project, not to mention also juggling SpaceX.

Friday marked the 12th straight day that shares of Tesla have advanced, representing a remarkable winning streak that we haven’t seen since January 2021.

The Austin-based carmaker got a huge boost last week after it announced that its popular Model 3 now qualifies for a $7,500 EV consumer tax credit. This action means that in California, which applies its own $7,500 tax rebate for EV purchases, a brand new Tesla Model S is cheaper than a Toyota Camry.

To qualify for the U.S. tax credit, Tesla had to make changes to how it sourced materials for its batteries in accordance with the Inflation Reduction Act (IRA), signed into law in August 2022. The IRA stipulates that 40% of electric vehicle battery materials and components must be extracted or processed in the U.S. or in a country that has a free trade agreement with the U.S. This manufacturing threshold will increase annually, and by 2027, 80% of the battery must be produced in the U.S. or a partner country to qualify for the full rebate.

Tesla stock also benefited from last Thursday’s announcement that drivers of EVs made by rival General Motors (GM) would be able to use Tesla’s North American supercharger network starting next year. The deal not only gives GM customers access to an additional 12,000 charging stations across the continent, but it also vastly increases Tesla’s market share of the essential charging infrastructure.

Musk’s Copper Quest

Thinking ahead, Musk reportedly met virtually last month with L. Oyun-Erdene, prime minister of Mongolia. The details of their discussion were not fully disclosed, but it’s worth pointing out that Mongolia is a copper-rich country, home to the world’s fourth-largest copper mine, operated jointly by Rio Tinto and the Mongolian government. In May, Rio Tinto announced that production had finally begun at the mine, which sits 1.3 kilometers (0.8 miles) below the Gobi Desert.

With access to this copper, perhaps Tesla is planning to build a metals processing plant in Mongolia? This would make sense, as the company maintains a factory in Shanghai, China.

US Global Investors Disclaimer

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2023): Tesla Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

June’s FOMC Announcement Shows No Immediate Change, But Expects More Hikes

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

The FOMC Left Policy the Same in June, But Became More Hawkish

The Federal Open Market Committee (FOMC) voted to hold its target rate steady on overnight interest rates at 5.00% – 5.25% after the June 2023 meeting. This is considered a pause, not a halt to a hawkish stance as indicated by the post-meeting announcement. The announcement indicated FOMC members, on average, expect Fed Funds to be 50bp higher by year-end. This could come about as two 25bp moves. The lack of policy shift was in overnight bank lending rates and the quantitative tightening cycle previously announced. However, a slightly more hawkish Fed includes statements that are more certain that rates will still be pushed up, and member projections of where funds will be at year-end, which include one member seeing as high as 6.25% for the first time.

The vote was unanimous.

The minutes discuss that indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recently, and the unemployment rate has remained low. However, they are concerned that inflation remains well above its targeted range.

After the meeting, the Fed says it believes the U.S. banking system is sound and resilient. They expect tighter household and business credit conditions are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent,” according to the Fed’s announcement. “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” it continued.

The Fed indicated that it will continue to assess “incoming information for the economic outlook.” The FOMC’s said its assessments will take into account readings on labor market conditions, inflation pressures and inflation expectations, financial and international developments, as well as other data.

The Summary of Economic Projections (SEP), relative to previous meetings, makes clear that Fed members are on average expecting to have to do more to combat inflation tan they had previously forecast.

Fed Chair Powell generally shares more thoughts on the matter during a press conference beginning at 2:30 PM EST after the statement.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.federalreserve.gov/newsevents.htm

Which Stocks are Most Impacted by Changing Interest Rates?

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

Why Interest Rates Impact Large and Small Company Profits Differently

Small-cap stocks are less sensitive to interest rate changes than large-cap stocks. Generally, when interest rates rise, it can create a bigger drag on larger companies for a number of reasons. Meanwhile, companies with small market caps are unaffected or less affected on average. While there are many factors that impact stock prices, interest rates are certainly on the list – depending on company size, rates will impact them differently.

Interest rates have moved quite a bit over the past 18 months, and they aren’t expected to stabilize now. Here are some of the stock market dynamics at play.

Revenues and Costs

Small-cap companies typically have less debt than large-cap companies. This means that they are less sensitive to changes in interest rates, as the cost of borrowing does not affect them as much as big borrowers when rates rise.

The main reason for lower debt levels is they typically have less ability to borrow through the capital markets. Smaller or less established companies in general find the cost of issuing a public market note as being behigher than the benefits. And since rising interest rates, increase the cost of borrowing, small-cap companies are not rolling large amounts of debt at the new interest rate levels. Whereas debt is often a much larger part of big company’s overall strategy and cost of capital.

It also helps that small market-cap companies are often in industries that are less sensitive to the overall economy. If rates are rising, fears of a recession often creep into investor’s mindsets. For example, smaller technology and life sciences companies are, by comparison, less sensitive to economic cycles than cyclical industries such as large manufacturing and big oil. Put another way, many smaller companies are more focused on discovery, innovation and growth, these are not as dependent on economic conditions.

However, small-cap investors should be aware that small-caps are often more volatile than large-caps. So the investor can experience larger swings in price, both up and down. This can make this investment sector more attractive to investors who are looking for growth potential, but it can also make them more risky. If they have lower trade volume, there are fewer buyers and sellers, making it more likely for prices to move up or down.

Larger companies tend to be international in their business dealings, compared to domestic small-cap companies which more commonly transact within their home-base country. For the US, an increase in interest rates relative to other nations, is likely to lead to a stronger $US dollar. A stronger US dollar makes the cost of goods sold overseas more expensive to buyers. This could lower sales expectations as overseas buyers find other suppliers. Small companies operating domestically do not have to worry about foreign exchange rates and how they are impacted by interest rate movements.

It is important to note that interest rate changes can impact all stocks, regardless of their size. The impact of interest rate changes on a particular stock will depend on a number of factors, including the company’s debt load, its industry, and its overall financial health. Overall, small-cap stocks are less sensitive to interest rate changes than large-cap stocks, but investors can expect more volatility.

Market-cap Sector Rotation

Sector rotation is the process of money moving from one stock market sector to another, based on expectations of which sectors will perform better in the future. This could be industry, types of securities (ie: bonds, real estate), or market cap.

As it relates to market cap, an investor might sell large-cap stocks and buy small-cap stocks if they believe that small-cap stocks are undervalued and are poised to outperform large-cap stocks in the future.

It can help you to stay ahead of the market. By monitoring sector performance and making changes to your portfolio accordingly, you can stay ahead of the market and make sure that your money is invested in the sectors that are most likely to perform well.

Take Away

There are many different groupings of stocks (market-cap, industry, international, region, etc.) and factors that can impact the group. One factor that has historically played a part in price discovery of small versus large-cap stocks is interest rate movements. Interest rates impact the cost of doing business and also sales. Investors add this into the myriad of other factors they try to be aware of when selecting stocks.

Paul Hoffman

Managing Editor, Channelchek

Will 2023 Be the Summer of Small-Cap Stocks?

Posted on June 13, 2023June 13, 2023 by phoffman@channelchek.com

The Mid-Year Sector Rotation is Benefitting Small-Cap Investors

“This time is different” is a saying often used in investing, usually just before the investor does something that they will soon regret. I say “regret” because, although the timing of patterns that have repeated themselves time and time again may change, well-entrenched investment rules very rarely change.

Over the past year, what I have perceived as undervalued stocks – coincidentally, all companies with a small market cap – have been prominently placed on my stocks watchlist. While last year was a bad year for most of the market, these underperformed during that down market. So, they became even cheaper. I fully expected the stocks to eventually get investor attention and begin to move upwaard – in fact, I have had reason to believe this for a while of the small-cap sector in general.

While these watchlist stocks, in my mind, became even better values, I never told myself the market may have fundamentally changed, which would mean small caps will no longer be the relied-upon outperformers over time, as they have been historically. I did not think that “this time it might be different.”

Based on the two major small-cap indexes stellar performance so far this June, and a couple of my watchlist stock’s movements, my long wait may have been worthwhile and may soon be replaced by action.

S&P 600 & Russell 2000 Indexes

Small-cap stocks have certainly turned up the heat so far in June. What’s more, is the larger indexes would seem to be losing steam as they have run so far for so long that, unless this time is different, they may be due for a retrenchment.

The renewed enthusiasm for the smaller and perhaps riskier stocks, over large caps, with businesses that tend to be more diversified, have deeper pockets, and more overall resources, is likely based on a number of normal factors. Smaller companies tend to operate leaner, so a higher percentage of revenue can flow to the bottom line in a growing economy. The two-week-old rally comes as many cyclical stocks, and industries that do best in a growing economy are springing to life, especially since the debt ceiling negotiations have been resolved, the banking system is seen as out of trouble, and the Fed has broken records in its tightening pace yet still unemployment is low.

The reduced clouds on the horizon and higher multiples of large-cap stocks seem to have given investors motivation to move to small cap stocks with lower multiples, and with less fear of the economy falling apart any time soon.

Investors are rotating into companies with lower market caps. Looking above at the two small-cap indexes, the S&P 600 (IJS as a proxy) is low in tech stocks that are heavily weighted in the worse-performing indexes. Financials and industrials make up 34% (tech is just 14%) of the S&P 600 Small-caps. The S&P 600 is up 8.87% so far in June compared to the large cap S&P 500 which only gained half as much. The Russell 2000 Small-cap Index is up 8.55% so far in June. This is also the month when investors watch the Russell Reconstitution, which is the rebalancing of the Russell 3000, Russell 1000, and Russell 2000 index based on remeasuring market-caps on the top 3000 stocks. There will be a great deal of attention to the reshuffling come the last Friday of the month.

Take Away

Is it different this time? Are small cap stocks going to play catch up as investors, hungry for value, and growing concerned that larger companies may be overvalued, and an overall increased comfort level that fewer dangers loom on the economic horizon, rotate some assets there? They have whetted their appetite, if the outperformance continues, I suspect they may go back for seconds, then others might join.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.economist.com/media/pdf/this-time-is-different-reinhart-e.pdf

https://www.barrons.com/articles/small-cap-stocks-apple-big-tech-9d3b5669

Why a Recent Housing Survey Returned Such Extreme Results

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

Home Buying Versus Home Selling Conditions

The underlying dynamics of the housing market are not what one might expect. Especially with home prices still near its peak after mortgage rates more than doubled over the past year and a half. One of the unique nuances of today’s housing market is what some are calling the “golden handcuffs” that may apply to anyone who has a home with a mortgage of 3.5% or lower. These owners are slow to sell; this is keeping a supply of homes off the market. The lack of homes for sale is keeping prices up despite the higher cost of borrowing. As witnessed in a monthly survey conducted by Fannie Mae, the attitudes of adults in the U.S., as it relates to buying, or selling, are fairly extreme, with many of the survey responses hit all-time highs and lows in terms of expectations.

Fannie Mae’s National Housing Survey

The National Housing Survey (NHS) is a monthly temperature check of attitudes among the general population related to home-owning, renting, household finances, and confidence in the economy. Each respondent is asked more than 100 questions; this makes the survey far more detailed than other measures of housing attitudes or expectations. Six of the questions are used to derive the Home Purchasing Sentiment Index (HPSI).

The overall economy typically benefits from housing turnover, as new buyers decorate and make a house, or condo, a home.

Below is the noteworthy response data from the six questions Fannie Mae uses for its index.

Home Purchase Sentiment Index (HPSI)

Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased in May by 1.2 points to 65.6. The HPSI is down 2.6 points compared to the same time last year.

Below are the May statistics on some of the most relevant questions.

Good/Bad Time to Buy:

The percentage of respondents who say it is a good time to buy a home decreased from 23% to 19%, while the percentage who say it is a bad time to buy increased from 77% to 80%. As a result, the net share of those who say it is a good time to buy decreased by 7 percentage points month over month.

Good/Bad Time to Sell:

The percentage of respondents who say it is a good time to sell a home increased from 62% to 65%, while the percentage who say it’s a bad time to sell decreased from 38% to 34%. As a result, the net share of those who say it is a good time to sell increased 8 percentage points month over month.

Home Price Expectations:

The percentage of respondents who say home prices will go up in the next 12 months increased from 37% to 39%, while the percentage who say home prices will go down decreased from 32% to 28%. The share who think home prices will stay the same increased from 31% to 33%. As a result, the net share of those who say home prices will go up increased 6 percentage points month over month.

Mortgage Rate Expectations:

The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 22% to 19%, while the percentage who expect mortgage rates to go up increased from 47% to 50%. The share who think mortgage rates will stay the same remained unchanged at 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months decreased five percentage points month over month.

Job Loss Concern:

The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 79% to 77%, while the percentage who say they are concerned increased from 21% to 22%. As a result, the net share of those who say they are not concerned about losing their job decreased three percentage points month over month.

Household Income:

The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 24% to 20%, while the percentage who say their household income is significantly lower increased from 11% to 12%. The percentage who say their household income is about the same increased from 64% to 67%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased five percentage points month over month.

Spring is typically a time when people look to buy homes. With summer less than two weeks away, many who might have purchased a new home opted to wait, or could not find what they were looking for. “As we near the end of the spring homebuying season, the latest HPSI results indicate that affordability hurdles, including high home prices and mortgage rates, remain top of mind for consumers, most of whom continue to tell us that it’s a bad time to buy a home but a good time to sell one,” said Mark Palim, Fannie Mae Vice President and Deputy Chief Economist.

“Consumers also indicated that they don’t expect these affordability constraints to improve in the near future, with significant majorities thinking that both home prices and mortgage rates will either increase or remain the same over the next year. Notably, the same factors impacting affordability may also be affecting the perceived ease of getting a mortgage. This was particularly true among renters: 81% believe it would be difficult to get a mortgage today, matching a survey high,” according to Palim.

Take Away

Consumers don’t expect housing affordability to improve anytime soon. At the same time, and for related reasons, rents have increased. As with most markets, one would expect if the buyers step back, prices might come down in response. An odd dynamic at play now, though, is that many people that are in a home, are staying put because moving might mean saying goodbye to a mortgage rate near 3% and then having to secure one that is nearly five percentage points higher.

Paul Hoffman

Managing Editor, Channelchek

Shell Oil to Announce Scrapping Targets on Oil and Gas Output

Posted on June 9, 2023June 9, 2023 by phoffman@channelchek.com

Oil and Gas Will Remain Central to Shell

Shell has looked at its unimpressive returns on renewable energy and the booming profits in its oil and gas divisions and has decided to pivot from its previous course. In an effort to regain investor confidence, Shell’s (SHEL.L) CEO, Wael Sawan, is expected to make a formal announcement of the revised strategic direction of the oil company on June 14, according to an exclusive report in Reuters.

Shifting Gears

Shell’s CEO Sawan, who previously headed the company’s oil, gas, and renewables divisions, is expected in New York next week to formalize the details of his vision, it will include updates on capital allocation, shareholder payouts and “strategic choices we’re making,” according to Sawan.

What is known before the full announcement is that Shell expects it will keep company oil output steady or slightly higher into 2030. This would represent a change from an ongoing deemphasis on oil and gas production that Shell (and other large oil companies) had previously committed themselves to. Shell has been struggling with poor returns and is looking to regain investor confidence.

On June 14^th, Sawan will reportedly make the announcement at an investor conference that they are scrapping a target to reduce oil output by 1% to 2% per year. The company is already near its goal for production cuts, which it attained through selling oil assets, including its U.S. shale business.

Returns from oil and gas typically range between 10% to %20, while those for solar and wind projects tend to be between 5% to 8%.

About Shell’s New CEO

Sawan rose to the level of CEO in January. As the new head, with solid experience in both oil and gas, and the renewable division, vowed to improve Shell’s stock performance as it lagged other energy companies. He now plans to improve company performance by keeping oil and gas central to the company’s business at least through the end of the decade – Sawan says that efforts to shift to low-carbon businesses cannot come at the expense of profits.

Shell’s former CEO, Ben van Beurden introduced the carbon reduction targets and the energy transition strategy. Sawan’s more cautious approach to the energy transition is a reversal of his predecessor’s direction.

Sustainability and Profits

In recent months the company intentionally stalled several sustainability and renewable projects, including those involving offshore wind, hydrogen and biofuels, it pointed to weak returns. Shell is also exiting its European power retail businesses, which had been thought, only a few years ago, as key to its energy transition.

Oil Company Profitability

As with many of its competitors, Shell reported record profits last year, driven mainly by strong oil and gas prices. However, the company produced 20% fewer barrels-per-day over 2019 production. Output is now expected to be flat to up slightly into 2030. New projects would have to meet internal profitability thresholds, and also depend on the success of exploration.

The shift away from further cuts in oil and gas production at Shell is similar to a move by rival BP (BP.L) made earlier in 2023. At BP, CEO Bernard Looney exited further plans to cut oil and gas output by 40% (by 2030).

A true global company, Shell Oil, headquartered in Hague, Netherlands, is a leading supplier of refined petroleum products and remains one of the world’s largest producers of oil and natural gas.

Investor Focused

According to Reuters, “a key concern for Sawan has been the significantly weaker performance of Shell’s shares since late 2021 compared with its U.S. rivals Exxon Mobil (XOM.N) and Chevron (CVX.N), which both plan to grow fossil fuel output.” Shell’s formal announcement next week is expected to include no change in Shell’s target of becoming a net zero emitter by mid-century as part of the Powering Progress energy transition strategy it announced in 2021, which he has described as “still the right strategy.”

Paul Hoffman

Managing Editor, Channelchek

Sources

Reuters – hell Pivots Back to Oil

Shell Oil – Who We Are

FAU, Home of NobleCon19 Equity Conference, Hits New Highs

Posted on June 9, 2023June 9, 2023 by cpatches

On the heels of the announcement that NobleCon19, Noble Capital Markets 19^th Annual Emerging Growth Equity Conference, will be held at FAU, and the achievement of the Owls basketball team making it to the Final Four, Florida Atlantic University College of Business’ Executive Education program earned a prestigious global endorsement in the 2023 Financial Times rankings for open enrollment professional education programs.

FAU ranked No. 2 in the United States and was the only university in Florida and one of only seven in the U.S. to be honored. The rankings are considered the gold standard for executive education coursework across the globe.

“It’s clear that we are making a difference in the professional advancement of all our students,” said Daniel Gropper, Ph.D., dean of FAU’s College of Business. “I am very proud of our students, faculty and staff for making this possible.”

FAU also ranked No. 1 in the U.S. and No. 4 in the world for female participation and No. 17 globally for overall satisfaction. Financial Times establishes the rankings using student feedback, course design, faculty, teaching methods and facilities.

FAU’s high-quality offerings include the most diversified selection of more than 60 national and international certification and professional development programs, said Vegar Wiik, executive director of FAU Executive Education. He added that a new state-of-the-art building, the Schmidt Family Complex for Academic and Athletic Excellence, is equipped with the latest technology that allows FAU to offer top-notch programs and corporate training. “We are thrilled that this December the facility will transform into NobleCon19, with 100+ public company executive teams and the large audience expected to learn more about them,” Wiik said. “And with the early announcement that the 43^rd President of the United States, George W. Bush will headline, the excitement continues to build.”

In addition to hosting NobleCon19, FAU’s Edu-Vantage Partner Program, which works with businesses, corporations and organizations to provide a high-quality educational strategy for fulfilling their employee education packages, established partnerships with JM Family Enterprises and NextEra Energy, parent company of Florida Power & Light, to offer full-time associates full tuition for both undergraduate and graduate degrees and certifications.

NobleCon19 is scheduled for December 3-5, 2023, at FAU College of Business, Executive Education in Boca Raton, Florida. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies.

To receive NobleCon agenda updates and registration opportunities, join Channelchek.com, Companies with market capitalization of $3 billion or less wishing to learn more about presenting at NobleCon19 can Inquire Here.

About Noble Capital Markets

Noble Capital Markets, Inc. was incorporated in 1984 as a full-service SEC / FINRA registered broker-dealer, dedicated exclusively to serving underfollowed emerging growth companies through investment banking, wealth management, trading & execution, and equity research activities. Over the past 39 years, Noble has raised billions of dollars for companies and published more than 45,000 equity research reports. For more information, visit www.noblecapitalmarkets.com or email contact@noblecapitalmarkets.com.

About Florida Atlantic University Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University serves more than 30,000 undergraduate and graduate students across six campuses located along the southeast Florida coast. In recent years, the University has doubled its research expenditures and outpaced its peers in student achievement rates. Through the coexistence of access and excellence, FAU embodies an innovative model where traditional achievement gaps vanish. FAU is designated a Hispanic-serving institution, ranked as a top public university by U.S. News & World Report and a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. For more information, visit www.fau.edu.

43rd President of the United States, George W. Bush, will headline NobleCon19 at FAU this December. Alumni, this is your Opportunity to Attend.

Posted on June 4, 2023November 28, 2023 by cpatches

And President Bush is only one of the events at your Alma Mater! NobleCon19 will feature 100+ executive team presentations and breakouts, provocative panels and keynotes, world-class networking events, and the exclusive conversation with President George W. Bush, moderated by Noble’s Director of Research. By registering below, we will keep you updated on all the happenings at and around Noble Capital Markets’ 19^th Annual Emerging Growth Equity Conference – NobleCon19… for the first time hosted by Florida Atlantic University.

The objective of NobleCon19 is to build awareness for lesser-known companies that may shape the future of technology, medicine, manufacturing, retail, transportation, distribution, and natural resources. Most of the companies presenting will be public, thereby offering investment opportunities. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies. And that, of course, includes you as an FAU Alumni!

Space is limited and demand is high. Noble is offering a special consideration for FAU Alumni to attend the entire conference and/or an exclusive invitation to attend the President George W. Bush fireside chat at little or no cost. To be considered for this extremely rare opportunity, and to receive NobleCon19 agenda updates, register below. All the companies that will attend NobleCon19 are featured on this site as well as thousands of other small-cap companies. Attendance is prioritized by the date you register. BTW Channelchek is an open-access secure site with no cost to join, and no pitches to purchase anything, ever.

NobleCon19 General Website

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NobleCon19 will Feature an Exclusive Conversation with President George W. Bush, Moderated Live by Noble Capital Markets’ Director of Research

Posted on June 2, 2023November 28, 2023 by cpatches

Noble Capital Markets (“Noble”) announced today that the 43^rd President of the United States and Founder of the George W. Bush Presidential Center will be featured at NobleCon19, Noble’s 19^th Annual Emerging Growth Conference to be held at Florida Atlantic University, College of Business, Executive Education, December 3-5, 2023, in Boca Raton, Florida. Noble’s Director of Research, Michael Kupinski will moderate the hour-long fireside chat with President Bush.

George W. Bush served as 43rd President of the United States of America from 2001 to 2009. As Commander in Chief, President Bush worked to expand freedom, opportunity, and security at home and abroad. His Administration reformed America’s education system, restored robust private-sector economic growth and job creation, protected our environment, and pursued a comprehensive strategy to keep America safe after the terrorist attacks on September 11, 2001.

In this more casual and personable format, President Bush will discuss his time in the Oval Office and the challenges facing our nation today.

In addition to admittance to the President Bush fireside chat, attendees of NobleCon19 will be exposed to 100+ executive teams from all across North America, through formal presentations, Q&A sessions, organized breakouts and selected one-on-one meeting. Topical panel presentations, to-be-announced keynotes and networking events, and “The After” first-day evening event featuring world-class entertainment rounds out the agenda.

The objective of NobleCon19 is to build awareness for emerging growth companies that may shape the future of technology, media, telecom, medicine, manufacturing, retail, transportation and distribution, and natural resources. Most of the companies presenting will be public, thereby offering investment opportunities. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies.

To receive NobleCon agenda updates and registration opportunities, join Channelchek.com, Noble’s online investment community, listing more than 6,000 public emerging growth companies. This is an open-access site with no cost (ever) to join. Companies with market capitalization of $3 billion or less wishing to learn more about presenting at NobleCon19 can Inquire Here.

Please note: Some sessions of this conference are closed to the media with no personal recording, photography, or note-taking permitted.

About Noble Capital Markets

Noble Capital Markets, Inc. was incorporated in 1984 as a full-service SEC / FINRA registered broker-dealer, dedicated exclusively to serving underfollowed emerging growth companies through investment banking, wealth management, trading & execution, and equity research activities. Over the past 39 years, Noble has raised billions of dollars for companies and published more than 45,000 equity research reports. www.noblecapitalmarkets.com contact@noblecapitalmarkets.com

About Florida Atlantic University

Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University serves more than 30,000 undergraduate and graduate students across six campuses located along the southeast Florida coast. In recent years, the University has doubled its research expenditures and outpaced its peers in student achievement rates. Through the coexistence of access and excellence, FAU embodies an innovative model where traditional achievement gaps vanish. FAU is designated a Hispanic-serving institution, ranked as a top public university by U.S. News & World Report and a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. For more information, visit www.fau.edu.

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