Archive for August, 2024

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

  German Trade Balance Drops on Shrinking Exports

  China Export Growth Slows But Recovery Seems Intact

  New Zealand’s Jobless-Rate Rise Opens Path to Interest Rate Cuts

  Uganda Cuts Key Interest Rate for First Time in a Year

  What’s Behind All the Stock Market Drama?

  Three Days That Rocked Japan’s Markets

  Japan Morphs Into the Center of Worry for Global Investors

  BoJ’s Message Shows How Markets Keep Bullying Central Banks

  There’s No Way ‘Recession Fears’ Drive the Market Carnage

  Claudia Sahm: My Recession Rule Was Meant to Be Broken

  Steven Mnuchin Says It’s Time to Kill the New Treasury Bond He Created

  Trump’s Plan for US Bitcoin Stockpile Alarms Forfeiture Experts

  Citigroup Whistleblower Denied Share of $400 Million Penalty

  To Avoid a Recession, Consumer Spending Is Key

  Shopify Tops Views and Sees Growth Accelerating

  Adani Is Said to Plan Raising $1.2 Billion for Flagship Firm

  Even Switzerland Is Discussing How to Tax the Super-Rich

  Brookfield Asset Management Profits Rise, Assets Hit $1 Trillion

  The True Cost of Corporate Layoffs

  Apple Workers Approve Contract at First Union Store in U.S.

  Google’s Search Dominance Faces Limited Risks Despite Antitrust Ruling

  Glencore Sticks With Coal, Cites Pendulum Shift on ESG

  Huge Fire Sparked by a Mercedes-Benz EV Adds to Safety Concerns Dogging Industry

  CVS’s Medicare Woes Continue to Fuel More Cuts to Its Outlook

  The Olympics Have a Gap That Netflix Is Trying to Fill

  Disney Results Show Parks Weakness Countering Streaming Profit

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• CWS Market Review – August 6, 2024
  Eddy Elfenbein, August 6th, 2024 at 6:20 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 Stock Market’s Worst Day in Two Years

  Yesterday was the stock market’s worst day in nearly two years. The S&P 500 plunged to a loss of 3%. At the start of trading, things were looking even worse. The Nasdaq opened lower by more than 1,000 points, or 6%. The Volatility Index shot up to a high of 65. That’s one of the highest levels it’s ever been. To be fair, it didn’t stay there long.

  Many large-cap tech stocks got pummeled yesterday, the Mag 7 in particular. The market managed to rally a bit after a terrible open but by midday, the bears took control again and sent share prices downward. The Nasdaq 100 is having its worst start to a month since 2008.

  

  We should remember that pullbacks are very normal, and they happen all the time. By historic measures, this isn’t a big one.

  By general consensus, the problems started in the Asian markets, especially in Japan. On Monday, the Japanese stock market had its worst day since 1987. Then on Tuesday, it had its best day since 2008. The Nikkei was up more than 10% today. I don’t think that market will settle down soon.

  The story begins last week when the Japanese Fed decided to raise interest rates. Well, sort of. More accurately, the Bank of Japan raised rates to “around” 0.25%. That’s up from the previous range of 0% to 0.1%.

  That may not sound like a lot, and it’s not, but it’s the highest rate since 2008. The Bank of Japan also said it will reduce its monthly purchases of Japanese government bonds.

  Unfortunately, in the U.S., we had a weaker-than-expected jobs report on Friday. This led to speculation that the U.S. economy is slowing down. I’ll discuss that in more detail in a bit.

  Combine these two and you have fears that the “carry trade” is unwinding. Let me take a moment to explain, because the carry trade is what currently drives the world.

  The carry trade is when investors can borrow money in a low-rate currency, such as the Japanese yen, and invest it in a currency with a higher interest rate, such as the U.S. dollar. The investors “carry” the money across the borders, and presto! It’s instant money.

  The carry trade has been hugely popular in recent years, and many investors have cashed in. Bear in mind that as recently as April, Japan still had negative interest rates. The carry trade was a simple and easy path to free money.

  

  Well, sort of. The carry trade is all fine and dandy as long as the currencies are far apart. Once that gets tripped up, you suddenly have a mad dash towards the exits, and that’s what happened. I’m sure many hedge funds had margin calls on their carry trade positions. There’s an old saying on Wall Street: “if you can’t sell what you want, sell what you can.” That’s pretty much what happened.

  Kit Juckes, the chief foreign exchange strategist at Société Générale, said, “You can’t unwind the biggest carry trade the world has ever seen without breaking a few heads.” Indeed. Over the last three weeks, the global stock market has lost $6.4 trillion.

  The Japanese yen had been gradually sliding against the dollar, until a few weeks ago. Then, all of a sudden, the yen started soaring versus the dollar (see the chart above).

  What happened is that the weak jobs report caused investors to think that interest rates in the U.S. will soon go down.

  Oddly, the carry trade isn’t over just yet, but a lot of folks are quickly closing their positions. No one wants to be the last one standing when the music stops.

  The July Jobs Report Was a Big Miss

  Let’s take a closer look at last week’s jobs report because that was another catalyst for the recent unpleasantness. On Friday, the Labor Department said that the economy created 114,000 net new jobs last month. That was a big miss. Wall Street had been expecting a gain of 185,000. The number for June was revised downward to a gain of 179,000.

  

  The unemployment rate rose to 4.3%. That’s still quite low, but it’s the highest rate since October 2021. The U-6 rate, which includes discouraged workers, increased by 0.4% to 7.8%. That’s also the highest since October 2021.

  Average hourly earnings increased by 0.2%. That was also below Wall Street’s forecast for 0.3%. That’s bad news for workers, but it will probably help lower inflation. Here are some more details:

  From a sector standpoint, health care again led in job creation, adding 55,000 to payrolls. Other notable gainers included construction (25,000), government (17,000), and transportation and warehousing (14,000). Leisure and hospitality, another leading gainer over the past few years, added 23,000.

  The information services sector posted a loss of 20,000.

  While the survey of establishments used for the headline payrolls number was discouraging, the household survey was even more so, with growth of just 67,000, while the ranks of the unemployed swelled by 352,000.

  Wall Street has quickly shifted from being bullish because rates are going lower to adopting a cautious outlook due to a fragile economy, and that’s sending rates down.

  The change in sentiment has been dramatic. Now I hear investors complaining that the Fed is acting too slowly and that the elevated rates are hurting the economy.

  Traders don’t believe the Fed’s forecasts anymore. Wall Street now narrowly expects a 0.5% rate cut next month. That would be followed by 0.25% cuts in November and December. After that, the market expects an additional three cuts before the end of April 2025.

  Add it all up, and Wall Street sees the Fed targeting short-term rates between 3.50% and 3.75% within nine months. A few weeks ago, that outlook would have seemed looney. Now it’s the conventional wisdom.

  What was interesting about yesterday’s stock market is that the biggest gap wasn’t between growth and value, as we’ve seen with the big rotation. Instead, the gap was between cyclical stocks and defensive stocks. In other words, traders were arguing about the health of the economy, and the bears were getting their way.

  Wall Street bounced back some today. The old Wall Street rule is that you walk back one-third of a big move, and that proved fairly accurate today. Both the S&P 500 and Nasdaq rose a little more than 1% today.

  Interestingly, the stock market peaked on July 16 which seems to be a popular time for market peaks. In 2022, the S&P 500 peaked at 4,130.29 on July 29 and then sank 13.4% to 3,577.03 on October 12th.

  In 2023, the S&P 500 peaked at 4,607.07 on July 27th and then sank 10.6% to 4,117.37 on October 27.

  In 1990, the S&P peaked at 368.95 on July 16th and then fell 20% to 295.46 on October 12th, mostly in response to Saddam Hussein’s invasion of Kuwait on August 2.

  Then, in 1998, in a carbon copy of 1990, the S&P peaked at 1,186.75 on July 17th and then fell 19.2% by October 8th.

  Broadridge Rallies on Earnings and Guidance

  I wanted to touch on Tuesday’s earnings report from one of our Buy List stocks, Broadridge Financial Solutions (BR). I’ll have more details on it in our premium issue later this week, but the company is doing so well that I wanted to share it with you.

  The company runs a great business. This is how Barron’s described Broadridge two years ago:

  The company has a near monopoly in the business of managing and distributing investor communications for practically every public company in the U.S., plus mutual funds, exchange-traded funds, and more. That includes proxies, regulatory disclosures, and other reports and filings required of all U.S. securities issuers. Those are non-discretionary communications that companies and funds need to distribute no matter what the world is doing. That segment tends to grow at the pace of overall stockholdings in the U.S., with Broadridge able to eke out higher profit margins thanks to a continuing shift from printed documents delivered by mail to digital investor communications.

  Broadridge’s fiscal Q4 earnings rose 9% to $3.50 per share. That matched Wall Street’s consensus. The company also raised its dividend by 10% to $3.52 per share. This is BR’s 18th annual dividend hike in a row. It’s also the 12th double-digit increase in the last 13 years.

  For the coming year, Broadridge sees recurring revenue growth of 5% to 7%, and adjusted EPS growth of 8% to 12%.

  Broadridge has been a great stock for us. The shares got a nice 4.8% jump in today’s trade. Since the start of 2023, Broadridge has gained 67% for us.

  

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

  – Eddy

• Morning News: August 6, 2024
  Eddy Elfenbein, August 6th, 2024 at 7:09 am

  Eurozone Retail Sales Mark Disappointing Backslide

  Stocks See Choppy Trading as Nerves Still Run High

  Online Brokerages Futu, UP Fintech Suspend Night Trading of U.S. Stocks

  The Economy Is Looking Pre-Recessionary

  Recession Fears May Be Overstated, but Not Unfounded

  Market Selloff Upends Fed Rate-Cut Calculus

  The Fed Should Resist Placating Markets

  Japan Leads Hopes for Global Market Rebound. Most Gains Still Aren’t Much

  JPMorgan Says Carry Trade Unraveling Is Only Half Complete

  ‘Don’t Be Fooled’—Coinbase Issues Serious Warning After $800 Billion Bitcoin And Crypto Price Crash

  Citigroup’s Trading Division Hit With Fresh Toxic-Culture Claim

  Google’s Antitrust Loss Is a Hollow Victory for Regulators

  How the Google Antitrust Ruling May Influence Tech Competition

  Made-in-China Goes Upscale as a New Generation of Brands Battles Slowdown

  World’s Five Leading Chipmakers Have Now Promised U.S. Investment

  SK Hynix Wins $950 Million of US Grants, Loans for AI Chip Site

  Oil Is Oversold But It’s in Front of a Macro Train

  Saudi Aramco to Return $31 Billion to Shareholders, Government After Profit Beat

  Why Californians Have Some of the Highest Power Bills in the U.S.

  CNET to Be Sold to Ziff Davis in Sign of Possible Media Deals to Come

  Uber Posts Earnings Beat as Rideshare Demand Remains Strong

  Bayer Posts Net Loss as Tough Agriculture Market Bites

  Kenvue Beats Sales Estimates, Bucking Consumer Goods Trend

  Taco Bell Owner’s Sales Miss Views, Reflecting Dining Slump

  Star Power Elevates Pin Trading, the Unofficial Sport of the Olympics

  How Going to the Movies Is Changing, in Charts

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• Morning News: August 5, 2024
  Eddy Elfenbein, August 5th, 2024 at 7:08 am

  Green-Energy Flops Revive Bets on Natural Gas

  Woodside to Buy Ammonia Plant From OCI Global for $2.35 Billion

  Guyana Fight Shows Big Oil’s Need for Cheap Crude

  A Gas Carrier Faking Its Location Helps Russia Avoid Sanctions

  China Caixin PMI Signals Pickup in Services-Sector Activity

  Israel, Mideast Markets Fall on Iran Threat, Global Stock Plunge

  Markets Around the World Are Jolted by Fears of Slowing U.S. Growth

  Global Selloff Intensifies as Traders See Multiple Risks

  The Market Meltdown Intensifies

  Fed Charged With Backing Away From Its Real-Rate Pledge

  Everyone Is Talking About the Sahm Recession Indicator. Here’s What You Need to Know

  JPMorgan CEO Contenders Cite Intense Competition During Market Revival

  Homes to Stay Unaffordable Whatever the Fed Does, Survey Shows

  It’s Getting Harder for Companies to Keep Politics Out of the Workplace

  How 2024 Became the Zoom Election

  Adani Unveils $213 Billion Succession Plan as Scrutiny Persists

  Apple Investors Urged to Stay Calm After Buffett Slashes Stake

  With Smugglers and Front Companies, China Is Skirting American A.I. Bans

  AI Chip Startup Groq Gets $2.8 Billion Valuation in New Funding Round

  Infineon Cuts Jobs, Guidance as Chip Inventory Glut Weighs on Market Recovery

  Ford Turns ‘Dirty’ Business Into a Profit Driver. GM and Stellantis Are Taking Notice

  Declaring ‘Crisis,’ South Korean Firms Tell Managers to Work 6 Days a Week

  L’Oreal Buys Stake in Swiss Skincare Company Galderma

  Why Russians, But Not Russia, Are Competing in the Olympics

  LeBron James Faces the Basketball World He Helped to Create

  Streamers Can’t Get Enough of True Story TV. Cue the Lawsuits.

  Why ‘The Great Gatsby’ and Other Broadway Shows Are Turning to Influencers

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• Morning News: August 2, 2024
  Eddy Elfenbein, August 2nd, 2024 at 7:03 am

  In Xi’s China, Politics Eventually Catches Up With Everyone

  Norway Adjusted Unemployment Hits Highest Level in 19 Months

  South Korea’s Inflation Reaccelerates in July

  Hard Landing Concerns Jolt Global Markets

  Japan Stocks Tumble in Biggest Two-Day Rout Since 2011 Tsunami

  Fed Will Scour Jobs Report for Signs of Weakness

  Markets Now Fear the Fed’s Waiting Game Is Too Long

  Dimon Pushes for Private-Sector Representation in Next Cabinet

  SoftBank Drop Wipes $2.6 Billion Off Masayoshi Son’s Fortune

  Big Tech’s AI Race Has One Main Winner: Nvidia

  Big Tech Fails to Convince Wall Street That AI Is Paying Off

  Samsung Built an Apple Watch Ultra of Its Own

  Nintendo’s Switch Sales, Profit Slump as Successor Console Awaited

  Amazon Cautions That When the News Gets Nutty, People Shop Less

  Retailers Locked Up Their Products—and Broke Shopping in America

  Making Money From News Aimed at Gen Z Is Easier Said Than Done

  Why the World Is Running Out of Essential Undersea Cables

  Exxon Earnings Jump, While Chevron Drops

  Chevron to Quit California for Texas After Warning on Regulation

  Rolls-Royce Defies Market Slump as Shares Extend Epic Rally

  Nike Bets on Olympic Spending Spree to Revive Slumping Sales

  Judge Overturns $4.7 Billion ‘Sunday Ticket’ Verdict Against the NFL

  World Cycling Head Warns Saudis Against Funding Breakaway League

  Disney’s Movie Studio Bounces Back After Two Challenging Years

  Inflation Math is Changing America’s Dinner Plans

  The Future of Junk Food Could Be Healthy Food

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• Morning News: August 1, 2024
  Eddy Elfenbein, August 1st, 2024 at 7:04 am

  For Europe’s Big Oil, Profits Still Count on Crude

  Four in Ten German Manufacturers Eye Move Abroad on Energy Costs

  Exxon Almost Walked Away From Its $1 Trillion Oil Discovery

  Shell Earnings Beat Market Views Despite Lower Gas Trading, Refining Margin Hit

  Midwestern Farmers Who Say Yes to Solar Power Face Neighbors’ Wrath

  How Thousands of Middlemen Are Gaming the H-1B Program

  More Than 100 Silicon Valley Investors Pledge to Support Kamala Harris

  Trump Promises Lower Interest Rates, but the President Doesn’t Control Those

  Bank of England Cuts Interest Rates for First Time Since 2020

  Fed on Course for September Rate Cut as Risks to Job Market Grow

  Why the Fed Risks Falling Behind

  Societe Generale Hurt by Weak Performance at French Retail Unit

  Barclays Announces $960 Million Buyback, Lifts Outlook as Investment Bank Shines

  Ackman’s IPO Dream Implodes From $25 Billion to Zero in Weeks

  Three Big Differences Between the AI and Dot-Com Bubbles

  DC Welcomes Ex-OpenAI Board Member After Sam Altman Drama

  Meta’s Upbeat Earnings Buy Time for AI Investment to Pay Off

  Meta’s Lesson in Allaying Wall Street’s A.I. Fears

  Reddit Acquires Generative AI Startup Memorable AI

  Power-Hungry Data Centers Are Gobbling Up Texas Amid AI Boom

  Applied Materials Is Denied US Chips Grant for $4 Billion Silicon Valley Project

  ArcelorMittal Trims Steel Outlook After Earnings Slumped on Lower Steel Prices

  Spirit Airlines Curtailing Workforce as Quarterly Loss Widens

  Nike Paid Him to Make Gold-Dipped Sneakers for LeBron. Now, It Is Suing Him.

  After Years of Raising Prices, Food Companies Hit Consumers’ Limits

  Wendy’s Cuts Sales Guidance as US Guest Counts Drop

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