Archive for June, 2023

• Morning News: June 7, 2023
  Eddy Elfenbein, June 7th, 2023 at 7:04 am

  Russia and Saudi Arabia’s Oil Partnership Shows Strain

  Surprise LIV Golf-PGA Marriage Risks Drawing Antitrust Scrutiny

  PGA Tour Deal With LIV Golf Puts Sponsors on the Spot

  Turkish Lira Plunges to Record Low as State Banks Pull Support

  China’s EV Juggernaut Is a Warning for the West

  U.K. to U.S.: We’re Your Top Military Ally, Now Help Our Economy

  World Economy Set for Weak Recovery, OECD Warns

  World Bank Brightens View of Global Growth This Year, Downgrades 2024

  Wall Street’s Once-Hot Trades of 2023 Are Unraveling in Markets

  Venture Capital Giant Sequoia Spins Off China and India Units

  Cathie Wood Boosts Coinbase Stake as SEC Crypto Crackdown Widens

  Crypto Firms Start Looking Abroad as U.S. Cracks Down

  This Is What the Government Strangling Crypto Looks Like

  Supreme Court Rulings Make White-Collar Fraud Charges in the US Harder

  Dell Family Office to Diversify Portfolio as Big Payday Looms

  They Fled San Francisco. The A.I. Boom Pulled Them Back

  Sam Altman Thinks AI Will Be the Most Tremendous ‘Leap Forward in Quality of Life for People’ We’ve Had

  The High Cost of Bad Credit

  Tesla’s Model 3 cheaper than Toyota’s Camry in California with tax benefits

  ‘Public Nuisance’: New York Sues Hyundai and Kia, Alleging Their Cars Are Easy to Steal

  The Global Brands Coming to a Shopping Mall Near You

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• CWS Market Review – June 6, 2023
  Eddy Elfenbein, June 6th, 2023 at 11:38 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.”)

  The Economy Added 339,000 Jobs in May

  On second thought, maybe the economy isn’t about to go into a recession. At least, not according to the jobs market.

  On Friday, the government said that the U.S. economy created 339,000 net new jobs last month. That was well above Wall Street’s forecast of 190,000. This was the 29th month in a row of job creation. The numbers for March and April were revised higher as well.

  

  As a general rule of thumb, the U.S. economy can’t slide into a recession when it’s creating more than 200,000 new jobs each month. This data seems to contradict many of the warnings that the economy is close to sliding into a recession. I’ll caution against reading too much into one jobs report. As we know, the monthly data gets revised, so the final numbers could say something very different. Still, it’s very good news.

  The unemployment rate increased to 3.7% but that was due to a big decline in self-employment. Nonfarm payrolls and the unemployment rate are based on different surveys, so there are occasional discrepancies. The jobless rate is still near a multi-decade low. The labor force participation rate for prime-working-age adults is tied for a 20-year high.

  Wages, however, are still a weak spot. For May, average hourly earnings increased by 0.3%. That matched Wall Street’s estimate. Over the last year, wages are up by 4.3%. This means that the entire increase in wages has been eaten up by inflation. The U-6 rate, which is a broader measure of unemployment, increased to 6.7%.

  Professional and business services led job creation for the month with a net 64,000 new hires. Government helped boost the numbers with an addition of 56,000 jobs, while health care contributed 52,000.

  Other notable gainers included leisure and hospitality (48,000), construction (25,000), and transportation and warehousing (24,000).

  This data comes at the same time we’ve seen weak and disappointing earnings results from many retailers such Dollar General and Macy’s. This isn’t necessarily a contradiction. It may simply mean that consumers are being more cautious with their spending even though the labor market remains robust.

  The impressive jobs report didn’t have much of an impact on the futures market. Traders still think the Federal Reserve will hold off on any rate hike at its next meeting. According to the latest numbers, traders place the odds of a Fed pause at 78%. That sounds about right. The Fed meets next Tuesday and Wednesday.

  

  The Fed has so far raised interest rates 10 times at its last ten meetings. This would be its first break, but the central bank has been signaling that a change may be coming. The current target range for the Fed funds rate is 5% to 5.25%.

  For the 12 months ending in April, inflation increased by 4.93%. This means that the “real” Fed funds rate, meaning after-inflation rate, is finally positive, albeit slightly. Prior to this, it had been negative since 2019.

  It’s too early to say that inflation has been defeated, but we have made significant progress. The CPI report for May will be out next Tuesday. The Fed will make its interest rate decision public the next day.

  It seems like the recession has been so widely expected for so long that it’s starting to frustrate people that it’s not here yet. Despite the good jobs news, I’m afraid to say that the safe assumption is that the economy will start to slow down later this year. Wall Street’s nervousness can also be seen if we take a closer view of the stock market.

  The Cyclical Downturn

  I want to focus on an important recent development in the stock market, but first I want to explain a good way of analyzing the overall stock market.

  Pardon me while I go into professor mode for a bit. If you follow the markets long enough, you’ll notice how many stocks can be easily categorized by their behavior. For example, stocks can be either growth stocks or value stocks. Not every stock sits on that spectrum, but enough do that it’s a good way of viewing the market.

  Another category is cyclical stocks versus defensive stocks. Again, not every stock easily fits in either of those buckets but enough do that it warrants our attention.

  It’s the cyclical-defensive divide that I want to talk about this week, because cyclical stocks have been lagging the stock market for several weeks. This is very important for investors.

  By cyclical stock, I mean companies whose businesses are closely tied to the economic cycle. This would be areas like housing, automotive, construction, mining and chemicals. Defensive stocks are areas like healthcare, utilities or consumer staples. When the economy gets weak, people will put off vacations or new cars, but they keep buying laundry detergent.

  I like to look at the divide between cyclical stocks and defensive stocks because it’s a good way to gauge what the market is thinking. Also, these cycles tend to play out for a few years.

  Lately, Wall Street has been exceptionally focused on the cyclical-defensive struggle. Each day, it seems that either sector seems to be strongly leading or strongly lagging the market. It’s as if each day’s market is a heated debate on the direction of the economy. While cyclical stocks have been lagging, they got a huge boost on Friday after the jobs report. The same thing happened today but to a lesser extent.

  When we say cyclical stocks, we largely mean four major sectors: Energy, Materials, Finance and Industrials. One of my frustrations is that there’s no general cyclical index that I know of. (Oddly enough, the Russell 2000 Index of small-cap stocks isn’t a bad cyclical index. Smaller stocks tend to skew towards domestic manufacturing stocks.)

  For this issue, we’re going to build our own cyclical index. It’s not perfect, but it’s good enough for our purposes. I’m going to use the four cyclical ETFs and we’ll weight them this way: 5 shares of XLF, 1.25 shares of XLI, 0.8 shares of XLE and 0.5 shares of XLB. That makes our index close to the price of the S&P 500 ETF.

  Here’s our cyclical index (black line) versus the S&P 500 (red line).

  

  Here’s why this is important: Cyclical stocks got badly bruised during the Covid bear market. After that, they slowly outperformed the rest of the market during much of 2021 and 2022. Cyclicals started to lag again at the early part of this year, but things didn’t start turning really bad for cyclicals until March. Since then, they’ve been getting left behind.

  Notice in the chart above how the black isn’t doing much while the red line is climbing higher. That’s the shift away from cyclicals and it’s due to the market’s fear of a recession.

  The relative performance of cyclicals tends to be correlated with the long-term bonds. When cyclicals lag, long-terms tend to fall, and that’s been happening since March.

  Cyclical stocks also tend to outperform the stock market as the market itself is doing well. That gives cyclicals a double-whammy effect during a bull market and a negative double-whammy in a falling market. The Covid Crash three years ago was a nightmare for cyclicals.

  It’s not that defensive stocks are in any way superior to cyclicals. It really about understanding where we are in the market. For now, Wall Street has been taking on a defensive posture.

  As recession fears have grown, the market has adjusted. Once the cycle turns, and it surely will, then we can expect cyclicals to strongly lead the market. I think there’s a good chance that could happen before the end of this year.

  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 more info on our ETF, you can check out the ETF’s website.

• Morning News: June 6, 2023
  Eddy Elfenbein, June 6th, 2023 at 7:03 am

  Saudi Arabia Needs More than Higher Oil Prices to Fund Its Grand Plans

  Giorgia Meloni Seeks to Cement Power by Remaking Corporate Italy

  Australia’s Central Bank Hikes Rates by 25 Basis Points, Defies Expectations

  China’s State Banks Told to Lower Cap on Dollar Deposit Rates

  SEC’s Lawsuit Against Binance Strikes at Heart of Ailing Crypto Sector

  SEC’s Regulatory Net Now Covers $115 Billion of Crypto After Lawsuit Against Binance

  UBS Expects Agreement on Credit Suisse Loss Guarantee by June 7

  Big Banks Could Face 20% Boost to Capital Requirements

  Is the Bear Market Over? It Depends

  Bond Bulls Bet Fed Is Right in Anticipating Low Rates to Return

  Citi Quants Say the AI-Driven Tech Rally Has Legs

  Startup Instabase Notches $2 Billion Valuation, Incorporates New AI

  West Coast Port Labor Issues Persist from Los Angeles to Seattle, with Supply Chain Frustration Mounting

  Interest-Only Loans Helped Commercial Property Boom. Now They’re Coming Due

  What Happens When Cities Run Out of Money

  Apple’s $3,499 Vision Pro Headset Will Test Marketing Might

  Sequoia Splits Into Three Entities, Makes China Standalone Firm

  Microsoft to Pay $20 Million to Settle US Charges for Violating Child Privacy

  Bud Light Sales Keep Slipping. But It Remains America’s Top-Selling Beer

  Companies’ New Cause: Dodging the Culture Wars

  Screen Actors Guild Authorizes Union to Call a Strike if Needed as Tension Rises in Hollywood

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• Morning News: June 5, 2023
  Eddy Elfenbein, June 5th, 2023 at 7:06 am

  Saudi Arabia’s ‘Whatever It Takes’ Strategy Boosts Oil Prices

  Why the U.S. Remains Far From Recession

  Biden Debt-Bill Signing Set to Unleash Tsunami of US Debt Sales

  IMF Chief Says There’s No Significant Slowdown in Lending and the Fed May Need to Do More

  Fed Skip-a-Hike Strategy Is Sensible, Risky and Confusing

  Countdown to Mega Merger – How Credit Suisse Wobbled and UBS Rushed to Rescue

  Morgan Stanley Expects a Shock 16% US Profit Drop to Kill Rally

  Private Credit is Poised for a Multi-Trillion-Dollar Boom, But It Could Get Ugly Soon

  Hedge Funds Drop European Stocks for US and Japan

  A Wall Street Titan Scores One of the Best Real Estate Trades Ever

  A $1.5 Trillion Backstop for Homebuyers Props Up Banks Instead

  Big Banks Could Face 20% Rise in Capital Requirements

  The Slow-Motion Trainwreck Everyone Sees Coming

  Apple Set for Record High Ahead of Mixed-Reality Headset Launch

  Twitter’s U.S. Ad Sales Plunge 59% as Woes Continue

  Elon Musk Is All About the Nonstop Grind. And He Can’t Stop Talking About It.

  West Coast States Rode the Tech Boom. Now They Face High Unemployment, Falling Wages.

  The Big Number: 49%

  Retailers Are Shrinking Logistics Operations in a Changing Consumer Market

  IATA’s Walsh Sees Good Year for Airlines Despite Challenges

  American Airlines’ Radical Plan to Reinvent Business Travel

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• Morning News: June 2, 2023
  Eddy Elfenbein, June 2nd, 2023 at 7:03 am

  Investors Have Soured on China’s Stocks, Renewing Fears About Economy

  The Fed’s Inflation Fight Faces a New Challenge: A Dry Panama Canal

  Debt-Limit Deal Clears Congress, Ending Threat of US Default

  When Markets Melt Down, These Traders Cash In

  ESG Fund Manager Beats 99% of Peers With Giant Bet on Nvidia

  AI Frenzy Is Driving Record Inflows Into Tech, BofA Says

  Hedge Funds at War for Top Traders Dangle $120 Million Payouts

  Oil Prices Rise After U.S. Debt Deal, All Eyes on OPEC Meeting

  Exxon, Chevron Near Deals to Drill in Gas-Rich Algeria

  Why Your Steak Is Getting Pricier

  What’s Behind All This ‘Shrink’?

  Macy’s and Costco Sound a Warning About the Economy

  Apple Is Stepping Into the Metaverse. Will Anyone Care?

  Netflix Shareholders Vote to Reject Executive Pay Packages

  Meta Tells Office Workers to Come In Three Days per Week This Fall

  Will a Dollar General Ruin a Rural Crossroads?

  Volkswagen Reboots Its Groovy 60s-Era VW Bus. This Time It’s Faster, Roomier and Electric

  Americans Cash In on a Pickleball Obsession

  How Adidas Uncanceled Yeezy

  There’s More Bad News for Disgruntled Bud Light Consumers

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• Morning News: June 1, 2023
  Eddy Elfenbein, June 1st, 2023 at 7:05 am

  China’s Young People Can’t Find Jobs. Xi Jinping Says to ‘Eat Bitterness.’

  China Crosses a Flying Milestone but Remains in the Boeing-Airbus Grip

  Exxon Bets on China Chemicals Growth Even as US Relations Sour

  ESG Blowback: Exxon, Chevron Investors Reject Climate Measures

  As U.S. Races Ahead, Europe Frets About Battery Factory Subsidies

  A Onetime Paper Maker Is Now the King of Lithium

  A ‘Dirty’ Job That Few Want: Mining Companies Struggle to Hire for the Energy Transition

  Petrobras Captures Carbon to Ramp Up Gas Production, and Calls It Green

  Cooling Eurozone Inflation Opens Path for ECB Rate Pause

  Swiss Fall Out of Love With Cash

  Bank of Mexico Raises Growth Estimate for 2023

  Debt-Limit Deal Passes the House, Easing US Default Concerns

  Investors Exhale as Debt Limit Deal Clears a Big Hurdle

  Fed Signal for Rate Pause Takes Pressure Off Hot Jobs Report

  Profit Numbers Get Spruced Up as Business Slows

  How the Fed Will Make Bank Transfers Truly Instant

  Wall Street Banks Are Using AI to Rewire the World of Finance

  The $1 Trillion Company That Started at Denny’s

  Inside the Making of Redfall, Xbox’s Latest Misfire

  Macy’s Falls After Cutting Outlook as Demand Trends Worsen

  A 163-Year Illustrated History of America’s Gorpcore Obsession – How Camping Gear Got Cool

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