Archive for March, 2020

• Another Bad Day
  Eddy Elfenbein, March 11th, 2020 at 8:06 pm

  Another terrible day for stocks. The Dow fell 5.86% today or 1,464 points. The Dow closed more than 20% below its highest closing mark. That’s the unofficial definition of a bear market. The S&P 500 lost 4.89% but it hasn’t reached bear territory just yet.

  

  Fiserv (FISV) said it will postpone its investor conference on March 25. The company also said it expects to have greater synergies from its First Data acquisition.

  Fiserv also stood by its previous guidance for internal revenue growth of 6% to 8% and EPS growth of 23% to 27%.

  CEO Jeffery Yabuki said, “We remain comfortable with our outlook for the full year based on the diversity and resilience of our business along with our current view of the market.”

  Moody’s (MCO) reaffirmed its 2020 guidance range of $9.10 to $9.30, but Moody’s now expects to be toward the lower end of that range.

  “We are revising Moody’s Investors Service’s full year 2020 revenue guidance from mid-single-digit to low-single-digit percent growth reflecting ongoing uncertainty related to the coronavirus,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “We will continue to monitor and proactively manage our response to the situation as we work to meet stakeholder expectations.”

• At Noon, the S&P 500 is Down 4.1%
  Eddy Elfenbein, March 11th, 2020 at 11:59 am

  The stock market has given back much of yesterday’s big rally. Today’s selling seems to be more broad-based and not confined to one or two sectors. The Dow is on the cusp of dipping below 24,000. Oil is back down again.

  There’s been talk of the IRS pushing back the April 15 tax-filing deadline. That should be fairly easy to implement.

  Here’s an interesting story on how Eagle Bancorp (EGBN) slightly altered the language in its annual report:

  Eagle Bancorp Inc., the parent company of Bethesda-based EagleBank, announced it was the subject of multiple government investigations this past July. In each disclosure since then, it has included the same phrasing when discussing the impact of those investigations: “Other than these increased [legal] costs, we do not believe at this time that the resolution of these investigations will be materially adverse to the Company. ”

  In its latest annual report released March 2, however, it removed that phrase, which no longer appears in the filing. Instead, it added new language that does discuss the potential for a materially adverse impact on the company.

  The company is probably just being prudent but it’s interesting to note.

• Morning News: March 11, 2020
  Eddy Elfenbein, March 11th, 2020 at 6:59 am

  Lebanon’s Slow, Painful Slide Into Financial Meltdown

  Oil Falls as Saudi Aramco Aims to Increase Output Capacity

  ECB’s Lagarde Warns of 2008-Style Crisis Unless Europe Acts

  Bank of England Cuts Rates in Emergency Move

  It’s Not 9/11 or a Housing Crash. So What’s the Coronavirus Fiscal Playbook?

  Let’s Talk About Bailouts, Before We Need Them This Time

  Fed Faces Headache, Taps Epidemiologists in Hunt for Policy Clues

  U.S. Farmers Still Dependent on Trade Aid After China Deal

  Dow Futures Are Slumping Because Fiscal Stimulus Can’t Come Soon Enough

  Super-Safe Treasuries Can Also Be Risky, Wall Street Warns

  Coronavirus May Light Fuse on ‘Unexploded Bomb’ of Corporate Debt

  Nick Maggiulli: The Worst Day of Our Investment Lives

  Howard Lindzon: Panic With Friends

  Ben Carlson: The One Guarantee in the Stock Market

  Michael Batnick: Is the Stock Market Predicting a Recession?

  Be sure to follow me on Twitter.

• Morning News: March 10, 2020
  Eddy Elfenbein, March 10th, 2020 at 7:01 am

  Saudi Oil Price Cut Is a Market Shock With Wide Tremors

  U.S. Sanctions Have Idled a Quarter of Iranian Oil Rigs

  Shale’s New Reality: Almost All Wells Drilled Now Lose Money

  Economy Faces ‘Tornado-Like Headwind’ as Financial Markets Spiral

  Stocks Rally After Biggest Rout Since Financial Crisis

  It’s a ‘Swimming Naked’ Moment: The Financial System Has a Real Test

  Infineon, Cypress Shares Jump After Deal Wins CFIUS Clearance

  Blackstone in Talks to Take Developer SOHO China Private in $4 Billion Deal

  Nissan to Pull Out of Venture Fund with Renault in Cost-Cutting Drive

  Joshua Brown: I’m Here, to Remind You

  Ben Carlson: A Random Watch Down Wall Street: The Founder & Some Random Thoughts on a Big Down Day in the Stock Market

  Michael Batnick: Putting Things in Perspective & The Fastest Bear Market Ever

  Jeff Carter: This Isn’t A Typical Market Meltdown

  Roger Nusbaum: The Market Is Crashing And I Don’t Care

  Howard Lindzon: Momentum Monday – A Panic For The Ages

  Be sure to follow me on Twitter.

• CWS Market Review – March 9, 2020
  Eddy Elfenbein, March 9th, 2020 at 9:05 pm

  Today was a very dramatic day on Wall Street, and I wanted to send you a special update to let you know what happened. The stock market had its worst day in more than a decade. Let me explain what happened.

  It all begins in the oil market. For the last few years, Russia, a non-OPEC member, has cooperated with OPEC in keeping oil prices up. The cartel wanted to have more production cuts. Russia said no and walked out of last week’s meeting in Vienna. In their mind, any production cut only serves to help American shale companies.

  

  The thing about a cartel is that everybody has to work together. One weak link ruins the whole thing. That’s what happened.

  The Saudis responded by declaring a price war. They’re trying to punish Russia with much, much lower oil prices. Combined with weaker demand due to the coronavirus, the price for oil plunged. At one point, oil was down over 30% today. That’s the biggest drop since the Gulf War 30 years ago.

  That impacts a large part of the world economy. This morning, trading volume in Europe was three times the average. The U.S. stock market opened much lower. After four minutes of trading, the S&P 500 was down by 7%. That triggered a circuit breaker where the exchange was shut down for 15 minutes.

  The market then reopened, but things were far from calm. The Dow eventually closed down by 2,000 points. For context, that’s more than the whole thing was worth in 1988. The yield on the 10-year Treasury fell below 0.4%. The VIX, or volatility index, reached 62 today. Just to give you an example of how extreme trading was, shares of Haliburton were halted three times today.

  The stock market had its worst day since December 2008. The S&P 500 lost 7.60%. The S&P 500 High Beta Index was down over 12%. The Energy Sector had its worst day ever. Fortunately, we don’t have any energy stocks on our Buy List. For the day, our Buy List fell 6.74%. Bad, but well ahead of the rest of the market.

  

  The entire U.S. yield curve was under 1%. I think the Federal Reserve will move soon. Perhaps it will be a coordinated effort with other central banks like the ECB, BOJ and BOE. We’re not done just yet. You can expect more volatility ahead.

  One more thing: today is the eleventh anniversary of the bear market low in 2009. It was also a Monday. I’ll have more for you in our next regular update.

  – Eddy

• Oil Monday
  Eddy Elfenbein, March 9th, 2020 at 11:07 am

  This is a very dramatic day on Wall Street. Let me explain what’s happening.

  For the last few years, Russia has cooperated with OPEC in keeping oil prices up. The cartel wanted to have more cuts. Russia balked and said no and walked out of last week’s meeting. In their mind, it only serves to help American shale companies.

  The Saudis responded by opening the floodgates of production. Combined with weaker demand due to the coronavirus, the price for oil plunged. At one point, oil was down over 30%.

  The stock market opened much lower. After five minutes of trading, the S&P 500 was down by 7%. That triggered a circuit breaker where the exchange was shut down for 15 minutes. Hopefully, that should cool things off. The market has since reopened and we’re sitting on big losses.

  Some energy stocks are down 20% or 30% today. If I were CEO of an energy stock, I would halt all new drilling, cut my dividend and hold off on new capex. I think we’ll see some layoffs in that sector very soon.

  One more thing: today is the eleventh anniversary of the bear market low in 2009.

• Morning News: March 9, 2020
  Eddy Elfenbein, March 9th, 2020 at 7:01 am

  ‘Punched in the Face’: Oil, Stocks, Bond Yields, and Bitcoin Plunge After Crude Producers Signal A Brutal Price War

  Saudi Aramco Drops 10% After Kingdom Triggers Oil Price Fall

  Stock Futures Were Halted Sunday Night. Here’s When S&P 500 Circuit Breakers Kick In on Monday.

  The Market Is Rocky. Will Target-Date Funds Change Their Strategy?

  Historic Day in Markets Has Traders Rethinking What’s Possible

  Gold Wavers After Topping $1,700 an Ounce Amid Mayhem in Markets

  In Coronavirus Fight, China’s Vulnerable Fall Through the Cracks

  Warren Buffett’s Advice on How Investors Should Respond to a Super-Contagious Disease

  Japan’s Economy Contracts 7% in December Quarter, Risking Recession

  Amazon Launches Business Selling Automated Checkout to Retailers

  The Robber Bank

  Howard Lindzon: Did They Ring The Bell To Buy Stocks Yet?

  Jeff Miller: Weighing the Week Ahead: Why it is Crucial to Use the Right Time Frame

  Michael Batnick: A Few Things I’m Thinking About

  Ben Carlson: Why I’m More Worried About the Bond Market Than the Stock Market

  Be sure to follow me on Twitter.

• Morning News: May 8, 2020
  Eddy Elfenbein, March 8th, 2020 at 7:04 am

  Worst Postwar U.S. Jobs Report Is On Tap

  Why Friday’s U.S. Jobless Figures Won’t Capture the True State of the Coronavirus Economy

  It’s JPMorgan vs. Citi as Wall Street Splits on Market Direction

  The Results Are In for the Sharing Economy. They Are Ugly.

  Where the Small-Business Relief Loans Have Gone

  Mortgage Lenders Tighten Screws on U.S. Credit in Echo of 2008

  Green Hydrogen’s Time Has Come, Say Advocates Eying Post-Pandemic World

  Neiman Marcus, a Symbol of Luxury, Files for Bankruptcy

  Teen Hacker and Crew of ‘Evil Geniuses’ Accused of $24 Million Crypto Theft

  Nick Maggiulli: Which Portfolio is Right for You?

  Ben Carlson: Can Millennials Count on Social Security In Financial Planning?

  Michael Batnick: The Rise and the Fall

  Jeff Carter: If You Are Rich, Or Have A Knowledge Job You Don’t Feel The Pain

  Jeff Miller: Close Reading: Will the Market “Tumble Back to its Coronavirus Lows in March?”

  Joshua Brown: You Don’t Even Know What Risk Is, “Code Red” Revisited & Financial Advice on CNBC

  Be sure to follow me on Twitter.

• February NFP = +273K; Unemployment 3.5%
  Eddy Elfenbein, March 6th, 2020 at 8:37 am

  The February jobs report is out. The U.S. economy created 273,000 net new jobs last month. Expectations were for 175,000.

  The unemployment rate is 3.5% and the broader U-6 rate is 7%.

  The labor force participation is 63.4%. Average hourly earnings rose nine cents last month to $28.52. That’s an increase of 0.3%. In the last year, average hourly earnings are up 3%.

  December’s NFP was revised higher by 37,000 and January’s was raised by 48,000.

  Healthcare gained 57,000, restaurants and bars added 53,000 and government added 45,000. On the downside, retail lost 7,000 jobs.

  Here’s a 20-year look at jobs and the stock market.

  

• CWS Market Review – March 6, 2020
  Eddy Elfenbein, March 6th, 2020 at 7:06 am

  “The stock market is going to fluctuate. Sometimes it will fluc down; other times it will fluc up.” – Louis Rukeyser

  In last week’s issue, I wrote, “I think there’s a good chance the Fed will cut rates before the next meeting.”

  Sure enough, that’s exactly what happened. On Tuesday, the Federal Reserve cut interest rates by 0.5% two weeks before its scheduled meeting. And the market responded…by falling flat on its face. The S&P 500 fell by 2.8%, which came after one of the market’s best days in decades.

  So how come a rate cut didn’t work? Well, as much as we hope, low rates won’t cure any virus. Simply put, the market is on edge right now. It’s hard to state just how volatile the market has become. It hasn’t been like this in years. Check out the daily changes for the S&P 500.

  

  Consider some stats. The S&P 500 has now closed up or down by more than 2.5% for four straight days. It hasn’t done that in more than eight years. At one point, the S&P 500 closed up or down by more than 4% three times in five days. In the eight years prior to that, it happened just twice. (For that last stat, Brian Sullivan gave me a shout-out on CNBC.).

  Trading Nation and @EddyElfenbein got a shout-out from @SullyCNBC on tonight's @CNBCFastMoney. Aw, shucks. pic.twitter.com/QWEW9fDxdX

  — Trading Nation (@TradingNation) March 4, 2020

  In this week’s issue, I’ll break down what’s happening, and more importantly, I’ll tell you how to position yourself. But I’ll warn you, it’s very likely we’re not done just yet. I’ll also update you on this week’s earnings report from Ross Stores. The deep-discounter beat earnings and hiked its dividend, but guidance wasn’t so hot. I’ll have more on that in a bit. But first, let’s look at the Fed’s surprise rate cut.

  The Fed Cuts Rates and the Market Drops

  I’d like to credit my Fed prediction to my wisdom and sagacity. In reality, I simply saw that the Fed had few other choices. They had to cut, and cut fast. The stock market was plunging, bonds were soaring and commodity prices were in free fall.

  I like to follow the “break evens.” That’s basically the market’s estimate for what inflation will be. The 10-year break-even had dropped sharply in just a few days. That was a clear sign from the market that a rate cut was needed. The entire TIPS (Treasury Inflation Protected Securities) yield curve is negative. I wasn’t surprised to see that the Fed’s vote this week was unanimous.

  In its statement, the Fed said, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.” We may see negative rates soon.

  Of course, lower rates won’t do much to stop the spread of coronavirus, but they may help soften the economic dislocations caused by the virus. Cruise stocks, for example, have been creamed. Many airline stocks are near multi-year lows. Natural gas is at a four-year low.

  I think it’s likely that economic growth will take a hit this year, but it’s too early to say how long and by how much. But the slide in the yield of long-term bonds suggests that Wall Street isn’t expecting much in terms of growth this year. At a first guess, I’d say we can expect a flat economy with 0% growth. Look at how steeply the 10-year yield fell.

  

  The fallout from the world of the coronavirus isn’t always so obvious. For example, shares of Clorox (CLX) have done well. Makes sense once you think about it. Campbell Soup (CBP) is also up. (People staying at home?)

  Quick quiz: Guess what country’s stock market just hit a fresh two-year high?

  Give up? The answer may surprise you. It’s China. “The blue-chip CSI 300 Index jumped 2.2% on the day to 4,206.72, its highest point since February 2018.” In China, seven of 31 provincial-level governments have pledged to spend $505 billion on infrastructure projects. That’s a staggering number and it will get even bigger as other cities join in. I’m curious to see if the U.S. will do something similar.

  I also want to point out that our Buy List continues to do well in a relative sense. Outperforming in a down market is a key aspect of long-term success. I don’t yet have Friday’s final numbers, but it looks like our Buy List is set to outperform the S&P 500 for the fifth week in a row. Since our portfolio is focused on high-quality stocks, it tends to fare better in downdrafts. We also beat the market last year in a strong up year. Since February 20, the S&P 500 has shed 10.52%, but our Buy List is down by 8.97%.

  What to Do Now

  There are three things to do now.

  1. Do not panic and sell.
  2. Expect more volatility. We’ll probably retest the low.
  3. Pick up bargains with any free cash.

  I’ll restate the Peter Lynch quote from last week: “The real key to making money in stocks is not to get scared out of them.”

  I can’t predict that we’ve already seen the low. Going by historical patterns, we probably haven’t. The market likes to test and retest prior low points. Last Friday, the S&P 500 got down to 2,855.84. I think we’ll test that soon. If it breaks, then the bears will be back. On Thursday, the S&P 500 closed below its 200-day moving average, which is not an encouraging sign.

  Now to point #3. What bargains? Thanks to the downturn, some of our Buy List stocks look pretty good. Here are three:

  Shares of AFLAC (AFL) are quite attractive here. The stock has gotten seriously beaten. Remember that most of their business comes from Japan. In fact, the company had a coronavirus case in one of its call centers. The shares are now down more than 25% from their 52-week high.

  Don’t forget how well run this company is. Going by yesterday’s close, AFL currently yields 2.7%. That’s a solid dividend, too. Last month, AFLAC raised its dividend for the 37th year in a row. For 2020, the duck stock expects earnings of $4.32 to $4.52 per share. I think there’s a chance that AFL many lower guidance at some point.

  I’m dropping my Buy Below down to $46 per share, but if you can pick up AFL below $42, then you’ve made a good deal.

  

  Globe Life (GL) also looks very good in this range. For 2020, Globe life expects earnings of $7.03 to $7.23 per share. That gives the stock a P/E Ratio of less than 13. I’m lowering my Buy Below to $100 per share, but if you can get GL below $90, that’s a very good entry price.

  I also like Check Point Software (CHKP). The stock recently hit a 52-week low. The last earnings report was pretty good. I’m dropping my Buy Below price on Check Point to $110 per share.

  The selloff has thrown several of our Buy Below prices off. I don’t think it’s worthwhile to do a mass adjustment in one issue, but I’ll gradually readjust several Buy Belows over the next few weeks.

  Ross Stores Beats Earnings and Raises Dividend

  On Tuesday, Ross Stores (ROST) reported fiscal Q4 earnings of $1.28 per share. This was for the months of November, December and January. That’s the key holiday-shopping season for Ross. Previously, Ross had given us a range of $1.20 to $1.25 per share.

  They key stat to watch for any retailer is same-store sales. For Ross, that rose by 4% last quarter. Ross has been expecting same-store sales growth of 1% to 2%. For the year, Ross made $4.60 per share. That’s up from $4.26 in 2018. Annual sales rose 7% to $16.0 billion.

  Barbara Rentler, Chief Executive Officer, commented, “We delivered strong sales and earnings growth for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multi-year comparisons and a fiercely competitive holiday season.”

  Ms. Rentler continued, “Fourth quarter operating margin of 13.3% was slightly better than expected, driven by higher merchandise margin.”

  During Q4, Ross bought back 2.7 million shares for $309 million. For the year, they bought back 12.3 million shares for $1.275 billion. There’s still $1.275 billion left in the current authorization.

  Ross also raised its quarterly dividend by 12%. The quarterly payout will rise from 25.5 cents to 28.5 cents per share. The new dividend is payable on March 31 to stockholders of record as of March 17. Ross has raised its dividend every year since 1994.

  Now for guidance:

  For the 52 weeks ending January 30, 2021, the Company is planning same-store sales to grow 1% to 2% and earnings per share of $4.67 to $4.88. We also plan to open about 100 stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations.

  For the first quarter ending May 2, 2020, comparable-store sales are forecast to be up 1% to 2% with earnings per share projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019.

  That’s not so hot, but I think Ross is playing it safe. Wall Street had been expecting $1.25 per share for Q1 and $5.01 per share for the year. The stock just fell to a six-month low. I still like Ross, but I’m lowering my Buy Below price to $110 per share.

  

  That’s all for now. The jobs report is due out later today. Next week, there’s not much in the way of economic reports. The CPI comes out on Wednesday. I expect it will show more low inflation. Also on Wednesday, we’ll get an update on the Federal budget. The deficit is looking quite large this year. Then on Thursday, we’ll get the weekly jobless-claims report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy