Archive for February, 2023

• CWS Market Review – February 7, 2023
  Eddy Elfenbein, February 7th, 2023 at 7:18 pm

  (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

  Friday’s Jobs Report Signals More Rate Hikes

  The stock market got a nice 1.3% bounce today. This comes after losses on Friday and Monday. Once again, High Beta stocks did the heavy lifting. The S&P 500 High Beta Index was up over 2% today while the S&P 500 Low Volatility Index was up just 0.01%.

  On our Buy List, shares of Fiserv (FISV) soared more than 8.3% thanks to a good earnings report. I’ll have more details on that and on other stocks on our Buy List in Friday’s premium issue.

  Last Friday, the government reported that the U.S. economy created 517,000 net new jobs in January. This was a shock to Wall Street since economists had been expecting an increase of only 187,000 jobs. The unemployment rate fell to 3.4% which is the lowest since May 1969.

  While certain sectors of the economy appear weak, the labor market continues to be remarkably strong. In previous cycles, there’s been talk of “jobless recoveries.” Now we appear to be experiencing “growthless hiring.” Of course, the pace of inflation may explain some of that.

  

  We’ve heard news recently of layoffs in the tech sector, but those job cuts apparently haven’t had a major impact on the overall numbers. Last year, nearly five million new jobs were created. That includes 260,000 new jobs in December. In the January jobs report, the so-called U-6 rate, which is a broader measure of unemployment, increased to 6.6%, but that’s still quite good.

  Americans are also seeing a little better pay. Wages rose by 0.4% last month. Over the past year, wages are up by 4.4%. Unfortunately, inflation continues to eat into wage increases. According to the government, there are still 11 million job openings which is about two for every unemployed person.

  In previous jobs reports, there were hints that the labor market could be slowing down. For example, temporary hiring declined, but all those signs disappeared in the January jobs report.

  Looking at the details of the jobs report, leisure and hospitality jobs increased by 128,000. That was the largest advance for any sector. Business services added 82,000. Government increased by 74,000. Health care added 58,000 jobs. Retail increased by 30,000 and construction added 25,000 jobs.

  Here’s the major impact of Friday’s jobs report: it complicates the job for the Federal Reserve. The Fed has steadily increased interest rates to slow down the economy, and by extension, slow down inflation. While inflation appears to be improving, the labor market isn’t cooperating.

  Prior to the jobs report, futures traders had saying been that there would be one more small rate hike next month. Since the jobs report, traders now see an additional 0.25% increase in May. That would bring the Fed funds target rate to a range of 5.00% to 5.25%.

  According to futures prices from late this afternoon, traders set a 91% chance of a 0.25% rate hike at the Fed’s next meeting on March 22. That sounds right. Traders also see a 72% chance of another 0.25% hike at the Fed’s May meeting. That’s up from 35% one week ago.

  Fed Chairman Jerome Powell spoke today at the Economic Club of Washington. He said that the strong labor rate is a reason why the Fed thinks it faces a tough battle to defeat inflation.

  I don’t think Wall Street is fully on his side. Many economists assume there’s a trade-off between employment and inflation (the Phillips Curve), but what if there’s not? Or maybe that relationship assumes other factors that may not be currently at work? We’re soon going to learn if disinflation can comfortably co-exist with a strong labor market.

  Speaking of the jobs report, Powell said that it was “stronger than anyone I know expected.” Powell added, “It kind of shows you why we think this will be a process that takes a significant period of time.”

  The C in FOMC stands for committee and so far, no one has broken ranks. The last policy statement was unanimous. That may soon change. Powell said, “So we think we’re going to have to do further [rate] increases, and we think we’ll have to hold policy at a restrictive level for some time.” I would not be surprised to see some Fed officials start to dissent from more rate hikes.

  When the Fed updated its economic forecasts in December, not one member of the FOMC saw the Fed cutting rates sometime this year. Futures traders still think that’s a likely outcome later this year. In fact, a significant number of Fed members think short-term rates will rise above 5.25%.

  One important event coming next week could tell us more about future Fed policy. Next Tuesday, the government will release the CPI report for January. A lot of folks quibble with the government’s numbers. I try to focus on the overall trend of inflation, and that’s been in the right direction. The year-over-year inflation rate has declined for the last six months in a row. I think there’s a good chance we’re going to see #7 next week.

  

  Unfortunately, this has not been a good earnings season for Wall Street. According to the latest stats I’ve seen, half the companies in the S&P 500 have reported earnings. Of those, 70% have beaten estimates. That may sound good but it’s below the five-year average of 77%. Earnings are only 0.6% above estimates. The five-year average has been 8.6%.

  For revenues, 61% of companies have beaten revenue estimates. The five-year average has been 69%. Total revenues are coming in 1.1% above estimates. For the entire earnings season, we’re on track for revenue growth of 4.3% and for an earnings decline of 5.3%.

  This comes on top of pre-earnings season in which analysts already pared back their earnings estimates. In other words, companies are barely beating earnings which have already been lowered.

  This may not be over. We’re now seeing analysts cut back on their estimates for Q1, and the quarter isn’t quite halfway over. Historically, the largest downward revisions come during the first month of the quarter. In January, analysts lowered their estimates by 3.3%. The consensus of Wall Street analysts is that the S&P 500 will report earnings of $52.41 per share. That’s down from $54.20 at the start of the year.

  Stock Focus: UFP Technologies

  Before I get to this week’s stock focus, I want to update you on some stocks we talked about recently. Two weeks ago, we looked at United States Lime & Minerals (USLM).

  After the close on Friday, USLM reported very good earnings for Q4. Since no one follows the stock, I made a rough estimate for $1.60 per share. I wasn’t even close. As it turns out, US Lime made $1.90 per share for Q4, and $8 per share for the entire year.

  This means the stock is going for less than 20 times trailing earnings. The shares rose 1.9% yesterday, and that’s on top of gains on Thursday and Friday. In the last five months, USLM is up 45%. It’s hard for me to believe that Wall Street continues to ignore stocks like this.

  Another stock we discussed was Old Dominion Freight Line (ODFL). I highlighted the stock on January 17. I said that it was due to report earnings on February 1, and Wall Street was expecting $2.68 per share. I wrote, “I think Old Dominion can beat that.” Well, I got that one right. The company earned $2.92 per share, and the shares jumped more than 10% on the day of the earnings report. ODFL is up nearly 30% this year.

  Now let’s turn to this week’s stock which is UFP Technologies (UFPT). In a little over 20 years, the stock has increased nearly 150-fold. That’s enough to turn $7,000 into over $1 million.

  

  I’m not going to say that UFPT is completely ignored by Wall Street. A grand total of two Wall Street analysts cover the stock. UFPT is a medical devices company based in Newburyport, Massachusetts.

  In its own words:

  UFP Technologies is an innovative designer and custom manufacturer of components, subassemblies, products, and packaging primarily for the medical market. Utilizing highly specialized foams, films, and plastics, we convert raw materials through laminating, molding, radio frequency welding and fabricating techniques. We are diversified by also providing highly engineered solutions to customers in the aerospace & defense, automotive, consumer, electronics, and industrial markets.

  UFPT’s next earnings report will probably be out in early March.

  The last earnings report was very strong. For Q3, organic sales grew 21.7% and operating income increased 36.6%. Earnings rose 173% to $1.36 per share. The consensus, such as there was one, was for 94 cents per share.

  CEO R. Jeffrey Bailly said, “Overall, it’s a very exciting time at UFP. We are seeing a sharp increase in customer orders, and our proactive investments to increase capacity have come online at just the right time. This, combined with the resolution of several supply chain issues, has enabled us to meet the surging demand.”

  The stock is currently going for 24 times trailing earnings which is high but not excessive, especially if you consider how strong the earnings have been.

  That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

  – Eddy

  P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

• Morning News: February 7, 2023
  Eddy Elfenbein, February 7th, 2023 at 7:10 am

  How Russia Is Surviving the Tightening Grip on Its Oil Revenue

  Farmland Becomes Flashpoint in U.S.-China Relations

  Solar Panels Are the Midwest’s New Cash Crop as Green Energy Booms

  Immigration Rebound Eases Shortage of Workers, Up to a Point

  Washington, D.C., Has More Tech-Job Openings Than Silicon Valley

  Fed’s Kashkari Says Strong Jobs Data Show Need for More Hikes

  For More Certainty in Your Retirement Portfolio, Consider Annuities

  SoftBank Loses Nearly $6 Billion in Quarter as Investments Suffer

  French Bank BNP Paribas Reports Bumper Profit for 2022, Boosts Stock Purchase Plan

  BP Makes Record Profit in 2022, Boosts Oil Spending

  ChatGPT Gets Fresh Competition

  Meta to Revamp Horizon Metaverse App, Plans to Open for Teen Use as Soon as March

  Beyoncé’s Ticket Sales Are Ticketmaster’s Next Test After Taylor Swift

  Lab-Grown Meat Has a Bigger Problem Than the Lab

  Who Decides How Woke Corporations Should Be?

  Bed Bath & Beyond Strikes Investor Deal for Over $1 Billion to Avoid Bankruptcy

  Match Fixing Has Existed for Centuries. Gambling Apps Are Making It Worse

  Crypto Firms Ditch Super Bowl Commercials This Year After FTX Meltdown

  Americanas’ $4 Billion Accounting Scandal Puts More Scrutiny on PwC’s Auditing Record

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• Morning News: February 6, 2023
  Eddy Elfenbein, February 6th, 2023 at 7:07 am

  Chevron Explores Algerian Gas Plans Amid Russian Sanctions

  Newmont Proposes $17 Billion Takeover of Australia’s Newcrest Mining

  Flowers, Fresh Fish and Movies: China Is Spending Again, Cautiously

  With Debt Ceiling in Sight, Treasury Resorts to ‘Extraordinary Measures’

  Opposite What Economists Believe, Rising Wages Signal Easing Inflation

  States Are Flush With Cash, Which Could Soften a Possible Recession

  Many Banks Pay High Rates on Savings. So Why Aren’t You Moving Your Money?

  Steve Eisman on the ‘Paradigm Shift’ Happening in Markets Right Now

  The Man Behind Pimco’s Great Debt Bet Closes In on His Next Big Trade

  Adani Stock Selloff Enters Third Week

  Adani Crisis Sparks Protests and Arrests in India as Sell-Off Losses Top $110 Billion

  The World’s Richest Person Is Trying to Head Off a Succession Battle

  Rothschild Family to Take Bank Private in $4 Billion Deal

  The Blurred Lines Between Goldman C.E.O.’s Day Job and His D.J. Gig

  Carlyle Taps a Former Goldman Executive to Fill Its Leadership Void

  Twitter Set to Charge Businesses $1K a Month for Gold Verification

  Tesla’s Pickup Truck Is Coming Soon. Maybe.

  U.S. Car Makers’ EV Plans Hinge on Made-in-America Batteries

  Nissan, Renault Alliance Shake-Up to Give Each Company More Independence

  The World’s Biggest Planes Are Finding Their Way Back Into the Skies

  Dell to Cut About 6,650 Jobs, Battered by Plunging PC Sales

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• Morning News: February 3, 2023
  Eddy Elfenbein, February 3rd, 2023 at 7:20 am

  Apple Sales Shrink as Pandemic Rally Ends for iPhone Maker, Other Tech Giants

  Why Chinese Companies Are Investing Billions in Mexico

  Why Governments Won’t Let Inflation Go Away

  Turkey Deposit Rates Above 25% Begin Luring Cash from Stocks

  Adani’s $108 Billion Crisis Shakes Investors’ Faith in India

  Nasdaq Rally Gets a Reality Check as Megacaps Miss

  Cathie Wood Claims Victory Lap, Calling ARKK ‘the New Nasdaq’

  BofA Warns Investors Risk Sleepwalking Into Selloff

  Cyberattack Sends Derivatives Trading Back to the 1980s

  Amazon Reports Almost No Profit and Slowing Growth

  Alphabet’s Profit Falls 34% Amid Ads Slowdown

  Apple Sales Shrink as Pandemic Rally Ends for iPhone Maker, Other Tech Giants

  Elon Musk’s Twitter Pushes to Win Back Advertisers During Super Bowl Weekend

  Ford Posts Full-Year Net Loss, Ugly Fourth Quarter as ‘Execution Issues’ Plague Operations

  ‘Assassin’s Creed’ Creators Cling to Family Control at Ubisoft

  Activist Investor Nelson Peltz Steps Up Pressure on Disney Board

  The Bosses Are Back in Charge

  Frontier Airlines Launches All-You-Can-Fly Summer Pass for $399

  Searches for ‘Cancel Netflix Account’ Surge Over Anti-Password Sharing

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• Morning News: February 2, 2023
  Eddy Elfenbein, February 2nd, 2023 at 7:09 am

  Russian Diesel Is Europe’s New Embargo Target

  Bank of England Raises Rates to 4 Percent, Its 10th Straight Increase

  Australia Won’t Put King Charles on Its 5-Dollar Bill

  Fed Slows Its Tightening With Quarter-Point Interest Rate Rise

  Adani Crisis Deepens as Stock Rout Hits $108 Billion, Bonds Sink

  How Extreme Bets Fueled an $11.4 Billion Fortune

  Deutsche Bank Leans on Lending Units as Investment Bank Sputters

  Falling Mortgage Rates Bring Some Home Buyers Back to Market

  Forget Pandemic Puppies. Meet the Inflation Chicken

  The Trillion-Dollar Question: Could a Coin Save the Day?

  Adani, Embattled Indian Company, Scraps $2.5 Billion Share Sale

  Judge Is Said to Let Meta’s Virtual Reality Deal Move Forward

  Meta’s Stock Market Rebound to Surpass $200 Billion in Value

  Shell’s Profit Soared to $42 Billion Last Year

  Drugmakers Raise Prices on Nearly 1,000 Medicines but Show Restraint

  Tesla Slashed its Prices Across the Board. We’re Now Starting to See the Consequences

  The Lego Approach to Building the World’s Biggest Projects

  A Billionaire’s Son Battles a Turbulent WWE Over the Future of Pro Wrestling

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• Morning News: February 1, 2023
  Eddy Elfenbein, February 1st, 2023 at 7:06 am

  U.S. Pursues India as a Supply-Chain Alternative to China

  Eurozone Inflation Slows Sharply as Energy Costs Continue to Ease

  Central Banks Bought the Most Gold Since 1967 Last Year, WGC Says

  Wall Street’s Newfound Optimism Faces a Test as the Fed Meets

  Cooler Pay Gains Add to Debate on When Fed Might Pause Rate Hikes

  Wall Street Is Making the Same Fed Bet That’s Burned It Repeatedly

  ChatGPT Unleashes Stock Trader Stampede for Everything AI

  Oil Giants, After Surge in Profits, Are Wary About Spending

  Whole Foods Asks Suppliers to Lower Prices

  Black Americans Are Much More Likely to Face Tax Audits, Study Finds

  Vaccine Makers Kept $1.4 Billion in Prepayments for Canceled Covid Shots for the World’s Poor

  How the World’s Second-Richest Man Lost $68 Billion in a Week

  Adani Stock Meltdown Hits $92 Billion as Collateral Worries Grow

  Peloton No Longer at ‘Brink of Extinction’ as Losses Narrow

  GM’s Fourth-Quarter Profit Soared as Supply-Chain Problems Eased

  Porsche Blunder Puts $148,000 Sportscar on Sale for Just $18,000

  The Next Retirement Communities Won’t Be Just for Seniors

  The Unlikely New TikTok Influencers: Old-School Watch Dealers

  Snap Is Stuck in the Darkroom

  Warner Bros. Discovery’s DC Superhero Universe to Take On Marvel

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