Archive for February, 2024

• CWS Market Review – February 6, 2024
  Eddy Elfenbein, February 6th, 2024 at 8:13 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.”)

  You Can Forget About That March Rate Cut

  Well, maybe the Fed won’t be raising interest rates next month!

  Over the last few days, we’ve gotten some important news that’s completely shifted our expectations for what the Fed’s plans are. It looks like the Federal Reserve probably will not be cutting interest rates at its March meeting. This new outlook is having a major impact on Wall Street. In two days, the yield on the three-year Treasury rose from 3.96% to 4.27%.

  This change in outlook has impacted the stock market as well. On Friday, the S&P 500 closed at a new all-time high, but it was a very narrow market. By that, I mean that most of the heavy lifting was being done by a few stocks. Facebook, for example, gained more than 20%. Even though the S&P 500 rallied more than 1% on Friday, the average stock in the index was down for the day.

  J.C. Parets noted that on Monday, we saw the fewest stocks on the NYSE above their 200-day moving average since early December, and the fewest above their 50-day moving average since mid-November.

  The stock market finished just shy of a new all-time close today.

  

  This is a confusing and temperamental market. Let’s breakdown what’s going on. We’ll start with last week’s jobs report.

  Wall Street got a big shock on Friday when the January jobs report came in much better than expectations. Wall Street had been expecting a gain of 185,000 net new jobs. That wasn’t even close. Instead, the Labor Department said that the U.S. economy added 353,000 new jobs last month.

  Who would have guessed that an aggressive interest rate policy from the Fed seems to have had little impact on the labor market? Not me.

  Wall Street had been expecting the unemployment rate to rise to 3.8%. Instead, it stayed at 3.7%. If you work out all the decimals, then the current unemployment rate is lower than it was during every single month in the 1970s, 80s, 90s and 00s. All the way through 2018. (To be fair, the methodology hasn’t remained consistent over that time.)

  We’re also seeing a pickup in wages. In January, average hourly earnings grew by 0.6%. That doubled Wall Street’s forecast. Over the last year, wages are up by 4.5%. The problem is that any previous wage growth had largely been eaten up by inflation. That’s not so much the case anymore.

  

  Not only was January a good month for job growth, but the Labor Department also revised higher its numbers for November and December. The original estimate for December was for a jobs gain of 117,000. Now the Labor Department says it was 333,000. The number for November was revised upward by 9,000.

  Here are some more details from the jobs report:

  Job growth was widespread on the month, led by professional and business services with 74,000. Other significant contributors included health care (70,000), retail trade (45,000), government (36,000), social assistance (30,000) and manufacturing (23,000).

  The broader U-6 rate increased to 7.2%. Also, the labor force participation rate stayed the same at 62.5%. If we look at the labor force participation rate for prime-working age folks (25 to 54), that rose to 83.3% which isn’t far from a 20-year high.

  One interesting bit in the jobs report is that hours worked declined even though wage is holding up well. That may suggest that employers are opting to reduce hours instead of cutting jobs. It’s hard to say if this is a trend just yet, but it’s worth watching.

  The jobs report came one day after the strong Q4 GDP report. That report said that the U.S. economy grew at a real annualized rate of 3.3% during the final three months of 2023. That’s quite good. The Atlanta Fed’s GDPNow model just raised its forecast for Q1 GDP growth from 3.0% to 4.2%.

  With the economy growing and creating new jobs, why is the Fed in such a rush to raise interest rates? Well, it turns out that the Fed isn’t in a hurry to raise interest rates.

  Fed Chairman Jerome Powell was interviewed on 60 Minutes. The interview aired on Sunday. In it, Powell said that although he’s pleased with the direction in inflation, he and the FOMC aren’t fully convinced that the battle is over.

  PELLEY: You’ve avoided a recession. Why not cut the rates now?

  POWELL: Well, we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is coming down. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.

  And, you know, we want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.

  PELLEY: What is it you’re looking at?

  POWELL: Basically, we want to see more good data. It’s not that the data aren’t good enough. It’s that there’s really six months of data. We just want to see more good data along those lines. It doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good. And so, we do expect to see that. And that’s why almost every single person on the, on the Federal Open Market Committee believes that it will be appropriate for us to reduce interest rates this year.

  I added the boldface. In short, Powell wants to see more good data, and the FOMC thinks rates need to be cut sometime this year.

  In the trading pits, Wall Street traders think there’s only a 20% chance that the Fed will cut at its next meeting. That’s a big change in a short amount of time. Just one month ago, the odds of a March cut were at 64%.

  The odds of a cut in May were at 95%. Now they’re at 67%.

  We’re still in the thick of Q4 earnings season. Frankly, the results haven’t been that great. The first batch of earnings were weak, but the numbers have gotten a bit better.

  According to the most recent numbers, 46% of the stocks in the S&P 500 have reported results. Of that, 72% have beaten on earnings and 65% have beaten on revenue. That’s actually not that good. (On Wall Street-istan, you’re expected to beat expectations.) The five-year average is a 77% beat rate for earnings and a 68% beat rate for revenue.

  The old Wall Street formula is to lower the expectations bar so low that you can easily step over it. Then declare victory.

  Earnings are tracking growth of 1.6%. The average report is 2.6% above estimates. That’s below the five-year average of 8.5%.

  Follow-Up on the WillScot/McGrath Deal

  Last week, I told you about WillScot Mobile Mini Holdings (WSC) and its offer to buy out McGrath RentCorp (MGRC).

  I bring it up again because the behavior of both stocks has been unusual. Normally, the acquirer’s stock falls, but not this time. Shares of WSC have rallied. Meanwhile, McGrath has rallied well above its cash buyout price.

  

  Here’s how it’s supposed to work. The deal is 60% cash and 40% stock. McGrath shareholders have a choice. For each share of MGRC they own, they can either get $123 in cash or 2.8211 shares of WillScot Mobile Mini, but MGRC closed today at $128.71 per share. That’s well above the cash offer price. Meanwhile, WSC closed today at $50.13 per share. That values MGRC at $141.42 per share which is 10% above the current share price, and 15% above the cash price.

  Normally, the buyout target wants the cash portion of the deal so they’re protected from a sudden plunge in the acquirer’s stock. This time, it seems that the cash side of the deal is an anchor. I won’t be surprised if the details of this deal are refined in the coming weeks. WillScot will report its Q4 earnings on February 20, and McGrath reports the next day.

  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: February 6, 2024
  Eddy Elfenbein, February 6th, 2024 at 7:03 am

  Xi to Discuss China Stocks With Regulators as Rescue Bets Build

  China Is Pumping Money Into Stocks and Markets Are Loving It

  Wall Street Snubs China for India in a Historic Markets Shift

  Yellen Says Stable Financial System Is Key to U.S. Economic Strength

  Banks Sue Regulators Over Anti-Redlining Rule

  JPMorgan to Open More Than 500 New Bank Branches Over Next Three Years

  UBS Restarts Buyback as Ermotti Slogs Through ‘Pivotal’ Year

  NYCB’s Tense Talks With Watchdog Led to Moves That Rocked Market

  Brookfield Wants $15 Billion for Real Estate Bet After Stumbles

  Facebook’s First Dividend Stands to Make a Few Very Rich

  Alibaba’s 80% Loss May Extend on Competition Worries

  Summer Has Long Stressed Electric Grids. Now Winter Does, Too

  BP Joins Oil Majors With Resilient Profit Beat; Lifts Buyback

  F.A.A. Chief Plans to Pledge ‘More Boots on the Ground’ at Plane Factories

  Boeing’s Next Crisis: Aerospace Workers Demanding 40% Pay Raise

  TSMC to Build Second Chip Plant in Japan

  Toyota Cashes In on Booming Hybrid Sales

  KDDI Plans to Acquire Further Stake in Japan Convenience-Store Operator Lawson for $3.3 Billion

  Lilly’s Zepbound Debut Drives Sales, Pushing Shares Even Higher

  Spotify Beats Forecasts for Subscriber Growth; Shares Gain

  Who’s Who in the Battle Over Disney’s Board

  Blackstone’s $80 Trillion Opportunity

  How Loud Billionaires Convert Their Wealth Into Power

  Inside a Private Jet Club Where Everything Went Wrong

  $7 Million for 30 Seconds? It’s Worth It at the Super Bowl

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• Morning News: February 5, 2024
  Eddy Elfenbein, February 5th, 2024 at 7:03 am

  Eastern Europe’s Richest Woman Pivots $43 Billion Empire West

  China Tightens Some Trading Restrictions for Domestic and Offshore Investors

  China Stocks Post More Wild Swings After Beijing Stability Vow

  China Real-Estate Projects Set to Receive Loans Under ‘Whitelist’ Program

  Top U.S. Treasury Officials to Visit Beijing for Economic Talks

  Gold Prices to Hit $2,200 and a ‘Dramatic’ Outperformance Awaits Silver in 2024, Says UBS

  Powell Tells ‘60 Minutes’ Fed Is Wary of Cutting Rates Too Soon

  Why Are Americans Wary While the Economy Is Healthy? Look at Nevada

  How Nevada Is Pushing to Generate Jobs Beyond the Casinos

  Morgan Stanley and Goldman Spoil Private Credit’s Record Deal

  Why NYC Apartment Buildings Are on Sale Now for 50% Off

  What Business Leaders Are Saying About the Red Sea Attacks

  McDonald’s Sales Growth Slows as Mideast War Hurts Results

  Big Oil’s Optimism Faces Reality Check in Tech-Obsessed Market

  Why Is Big Tech Still Cutting Jobs?

  Merck to Buy Elanco’s Aqua Business for $1.3 Billion

  Apple Vision Pro’s First Test: Will People Wear It in Public?

  Google and Yahoo Are Cracking Down on Inbox Spam. Don’t Expect Less Email Marketing

  Samsung’s Leader Acquitted in Stock and Accounting Fraud Case

  Yandex Owner to Sever Ties to Russia With $5.2 Billion Sale

  Wegovy Maker to Boost Production Capacity With Multibillion-Dollar Deal

  Team Cow or Team Soy: The Milk Wars Roiling America

  How Much for Thin Mints? Some Girl Scouts Raise Cookie Prices

  What Happens to Chinatown When the Sports Teams Leave

  World Cup 2026 Final Goes to NYC-Area in Victory Over Dallas and LA

  N.F.L.’s Rapid Embrace of Gambling Creates Mixed Signals

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• Morning News: February 2, 2024
  Eddy Elfenbein, February 2nd, 2024 at 7:02 am

  India’s Quiet Push to Steal More of China’s iPhone Business

  China Criticizes IMF’s Growth Outlook, Calls to Boost Confidence

  Homebuyers in Canada Are So Frenzied They Won’t Wait for Rates to Go Down

  Commercial Real Estate’s Slow-Motion Crisis Explained

  A New Perk for Some Student Loan Borrowers: A 401(k) Match

  US Jobs Report to Show Slower Hiring Pace After Annual Revisions

  Biden Takes Aim at Grocery Chains Over Food Prices

  Missing Chinese Banker Resigns After Investigation

  What’s Really Going On with Bank Stocks

  BofA’s Hartnett Says Stock Markets Are Behaving Like Dot-Com Era

  US Equity Funds Draw Inflows Amid Positive Economic and Inflation Data

  JPMorgan’s Trades Threaten to Take Privacy Out of Private Credit

  US Regional Bank Stocks Brace for Final Trading Session of Painful Week

  Meta, Amazon Surge by $279 Billion After Cuts Boost Profit

  Amazon Enters Chatbot Fray With Shopping Tool

  Exxon, Chevron Surpass Forecasts as Shale Drilling Lifts Output

  Tesla Runs Afoul of Font-Size Rule in 2.2 Million Electric Cars

  China’s New Energy Vehicle Sales Are Softening in Early 2024

  A Year After Bankruptcy Concerns, Carvana is Leaner and Ready for its Wall Street Redemption

  AbbVie Sees Signs of Post-Humira Growth in Positive 2024 Outlook

  Bristol Sees New Drugs Fueling Upbeat 2024 Profit Outlook

  Dual Mission for Macy’s New Chief: Revive Stores and Fend Off Takeover

  Barbie Owner Mattel Draws Activist Seeking Changes at Toy Maker

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• Morning News: February 1, 2024
  Eddy Elfenbein, February 1st, 2024 at 7:13 am

  Beijing Pledges More Fiscal Support as Economy Stumbles

  A $560 Billion Property Warning Hits Banks From NY to Tokyo

  ECB’s Lane Sees Profits and Wages Important for Inflation Path

  BOE Raises Prospect of Rate Cuts in 2024 If Inflation Eases

  NY Community Bancorp Plunges as Real Estate Risks Jolt Market

  Deutsche Bank to Cut 3,500 Jobs and Reward Shareholders

  BNP Paribas Delays Profit Target in Shock to Investors

  A New Global Tax Is About to Raise Billions. The U.S. Is Missing Out.

  Risky Borrowers Storm Loan Market for Once ‘Unthinkable’ Savings

  The Fed Is Taking It Slow. But the Markets Want More

  Powell Navigates ‘Toxic’ Politics of Rate Cuts as Election Nears

  US Firms’ Hiring Announcements Ease to Slowest January on Record

  Employed But Unhappy: What’s in Store for US Workers in 2024

  Generative A.I.’s Biggest Impact Will Be in Banking and Tech, Report Says

  Can This A.I.-Powered Search Engine Replace Google? It Has for Me

  A.I. Fuels a New Era of Product Placement

  U.S. Makes Initial Offers in Medicare Drug Price Negotiations

  In Year Since Ohio Crash, Railroads Barely Move Needle on Safety

  Wind Farms Are Overstating Their Output — And Consumers Are Paying For It

  Shell Hikes Dividend as Gas Trading Business Boosts Bottom Line Amid Turn Away from Renewables

  ‘Your Product Is Killing People’: Tech Leaders Denounced Over Child Safety

  Volvo, An Early Electric Car Adopter, Cuts Off Funding For Its EV Affiliate

  Musk Moves Ahead With Plan to Shift Tesla Domicile to Texas

  The Lawyer—and Drummer—Who Felled Elon Musk’s $55.8 Billion Compensation Package

  Amazon Could Soon Be on Hook for Safety of Third-Party Products It Sells and Ships

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