The Stock Market Continues to Chill Out
Posted by Eddy Elfenbein on June 27th, 2022 at 11:19 am

The stock market is up modestly today. As I write this, the S&P 500 is up 0.22%. I think this is a continuation of the “chilling out” theme I’ve discussed. Those big daily changes seem to have gone away, for now. Of course, they can return at any time.

Energy is the big outlier today. The XLE is up over 3% today while the rest of the market is mostly flat.

The stock market traditionally gets a nice lift at the middle of the year. June 29 has been the historic turning point. Nearly half of the Dow’s average annual gain has come between June 29 and September 6.

There’s no guarantee, but that’s the long-term average.

Not much econ news this morning. Pending home sales rose by 0.7% in May.

I recently had a fun chat with Michael Gayed. You can listen to it here.

Morning News: June 27, 2022
Posted by Eddy Elfenbein on June 27th, 2022 at 7:05 am

Morgan Stanley’s Big Bear Sees Temporary Respite From Selloff

A $2 Trillion Free-Fall Rattles Crypto to the Core

The Flamboyant Absurdity of a ‘Late’ or ‘Behind the Curve’ Federal Reserve

Russia Pushed Into Historic Default By Sanctions

Russian Gas Cuts Threaten World’s Largest Chemicals Hub

Oil Giant Finds a Climate Bargain Doing Deals in Some of Mexico’s Poorest Areas

How A Massive Refinery Shortage Is Contributing to High Gas Prices

A Shale Booster Shot: ‘Re-Fracs’ Rise as Cheap Way to Lift U.S. Oil Output

The Quest to Beat High Gas Prices

Tesla, Ford and GM Raise EV Prices as Costs, Demand Grow

Icons of Italian Automotive Style Struggle to Go Electric

How Elon Musk Helped Lift the Ceiling on C.E.O. Pay

Meme Stock Investors Bet on Bankrupt Revlon Being the Next Hertz

Amazon’s Prime Day Isn’t Quite the Blockbuster It Once Was

The Former Electrical Engineer Leading Disney’s Streaming Strategy

Air Travel This Summer Is Expensive, Messy—and Booming

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Morning News: June 24, 2022
Posted by Eddy Elfenbein on June 24th, 2022 at 7:01 am

In Russia’s War, China and India Emerge as Financiers

China’s Quest for Iron Threatens West African Ecosystem

Recession Trades Mount as Powell Triggers Rush to Defensives

Fed Confronts a ‘New World’ of Inflation

Stocks Temper Their Inflation Expectations on Copper Pounding

The Strange Art of Asking People How Much Inflation They Expect

How to Start Investing, Even in a Bear Market

The SPAC Era Comes to a Whimpering End

Government to Cancel $6 Billion in Student Loans for Defrauded Borrowers

FDA Orders Juul e-Cigarettes Off the Market Over Safety Concerns

The Controversial Economics of Abortion Law

Hackers Steal $100 Million by Exploiting Crypto’s Weak Link

As Midterms Loom, Elections Are No Longer Top Priority for Meta C.E.O.

McDonald’s Tightens Restaurant Ownership Rules as It Looks for New Franchisees

Netflix Lays Off 300 Employees as Bad Year Continues to Hit Company

Ken Griffin Moving Citadel From Chicago to Miami Following Crime Complaints

Accounting Firm EY Grapples With Partner Pay, Bear Market in Breakup

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Morning News: June 23, 2022
Posted by Eddy Elfenbein on June 23rd, 2022 at 7:08 am

Europe’s Economy Slows Sharply as Recession Risks Grow

Korean Currency falls to 13-Year Low Amid Global Recession Fears

Inflation Surge Earns Monetarism Another Look

Jerome Powell Takes a Pounding

How Singapore Got Its Manufacturing Mojo Back

Companies Brace for Impact of New Forced Labor Law

Wall Street’s Hiring Frenzy Eases As Worries Grow Over Economy, Market Slump

What’s A Reverse Currency War and Who’s Fighting One?

Wall Street Gets Ready to Rumble Over Stock-Trading Rules

High Energy Prices Could Sink U.S. Stocks During Earnings Season

Can Crypto’s Richest Man Stand the Cold?

Should You Buy Now, Pay Later? Tread Carefully.

Big Changes to 401(k) Retirement Plans Get Closer With Senate Vote

Bridgewater Builds a $10.5 Billion Bet Against European Companies

Cost of Owning a Home Surges Above the Cost of Renting One

Vapers Who Fear Juul FDA Ban Are Rushing to Hoard E-Cigarettes

7-Eleven Franchisee Who Rebelled Against Company Loses in Court

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Morning News: June 22, 2022
Posted by Eddy Elfenbein on June 22nd, 2022 at 7:07 am

One Price Dodging Inflation: China-to-U.S. Shipping Rates

First Pineapples, Now Fish: To Pressure Taiwan, China Flexes Economic Muscle

Finding Alternative Route for Ukraine’s Grain Exports Isn’t So Simple, Experts Say

World’s Largest Truck Maker Says It’s Facing Enormous Supply Chain Pressure

The World’s Bubbliest Housing Markets Are Flashing Warning Signs

Britain’s Inflation Crisis Deepens, Fueling Strike Action

High Gas Prices Hit Demand as Drivers Cut Back at the Pump

Biden to Call for Three-Month Federal Gasoline Tax Suspension

Biden Administration Targets Removal of Most Nicotine From Cigarettes

Big Returns for Investing in Fine Wine and Whiskey? It Was Fraud, U.S. Says

Once-Hot NFT Collections Tank Alongside Cryptocurrencies

When You Should’ve Bought Bitcoin, and When It Became a Terrible Idea

Corporate America Looks for Leeway on U.S. Climate Disclosures

U.S. Tech Companies Yank Job Offers, Leaving College Grads Scrambling

Microsoft Plans to Eliminate Face Analysis Tools in Push for ‘Responsible A.I.’

A 30-Year-Old Heir Is Leading the Makeover of Tiffany’s

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CWS Market Review – June 21, 2022
Posted by Eddy Elfenbein on June 21st, 2022 at 6:14 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 Worst Market Since 1932

The good news is that the stock market rebounded on Friday and today. The bad news is that that comes after a very sharp selloff. Last week was the worst week for the S&P 500 in two years, and this is the worst start to a year for the S&P 500 since 1932.

I know it’s painful, but to borrow from Hyman Roth in The Godfather 2, “this is the business we’ve chosen.” This is what markets do. Every so often, the stock market goes through a stretch where it can’t seem to do anything right. Fortunately, these periods don’t last long.

For prudent long-term investors, bear markets are very good opportunities. When other investors panic and sell, that usually offers a great chance to pick up bargains. In a bit, I’ll tell you about one of my favorites that just got an upgrade. Wall Street is the only place where a sale is announced and everyone runs out of the store screaming.

One of the important truths of the stock market is that it tends to rise slowly and drop off quickly. The old saying on Wall Street is that bulls walk up the stairs while bears jump out the window. Boy, is that right.

Today’s surge was a good example of a contra-trend rally. That’s a fancy phrase meaning all that stuff that’s been doing horribly did well today, and all the stuff that’s been doing well did poorly today. Bitcoin did very well today, as did Tesla. I’m not sure how long that will last. As we know, bear market rallies are common and mainly false.

You could even call this a “double contra-trend rally” because the previous trend was the opposite of the previous rally.

Confused? I don’t blame you. In this week’s issue, I’ll try to make some sense of what’s going on.

How to Break Down the Bear

Not only are bear markets sharp and quick, but even within bear markets, the most painful days are bunched together. The market crash of 2008 is a good example. I need to explain that I follow a slightly different chronology from convention.

I think it’s better to see the market blowup of 2008-2009 in three segments. There was the “initial selloff” from October 9, 2007 to August 28, 2008. Then came the “panic phase” from August 29, 2008 to November 20, 2008. Finally, there was the “retest phase” from November 20, 2008 until March 9, 2009.

The initial selloff lasted 224 days and the S&P 500 lost 16.90% (blue line). The panic phase lasted 59 days and the market lost 42.15% (red line). Ouch! The retest phase was 72 days and the market lost 10.09% (green line).

(There’s nothing official about those phases. I just made them up, but I think it’s a better way to analyze what happened.)

My point is that the panic phase was by far the worst of the worst. By no means do I want to ignore the other two periods, but those were fairly standard lousy markets.

Which brings me to 2022. I suspect that we just came through our panic phase. In seven days, the S&P 500 lost 11.9%. That’s slightly more than half of the entire bear market (-23.6% through last Thursday).

In plainer terms, it took more than 100 days to make half of our losses. It took seven days to make the other half. The panic phases are sharp and unpleasant, but they tend to be short-lived. It looks like we may be past ours. The hard part is that we’ll only know for sure in retrospect.

Historically, the worst parts of a bear market don’t happen at the start. More often, the pattern is that of a slowly rolling snowball that turns into an avalanche. That happened in both 1987 and 1929. As the small losses mounted, the panic spread and those small losses became big losses.

The market panic of two years ago is an exception. Once the world understood the gravity of Covid, the market quickly tanked. In March 2020, the Dow Jones Industrial Average had two of its worst five days in market history. There’s a famous Variety cover from 1929, “Wall St. Lays an Egg.” The market drop of March 16, 2020 was worse than that.

The Fed Holds the Key

How much will the selling go on? That’s impossible to say. The Federal Reserve holds the key. Since 1950, the S&P 500 has had 17 drops of 15% or more. Of those drops, 11 times the market reached its low as the Fed started to lower interest rates.

For now, the market expects the Fed to hike rates by another 2% before the end of the year. As long as inflation is a threat, then pressure will be on the Fed to raise rates, and there’s no sign that inflation is abating. Companies are feeling the pressure. According to FactSet, 417 companies mentioned inflation during their Q1 earnings calls.

What really spooked the Fed was the recent report from the University of Michigan on consumer sentiment. It said that households expect inflation to run at 3.3% for the next five years.

This is major a concern because so much of inflation is self-fulfilling. When consumers expect inflation, they get it. Jerome Powell talks a lot about expectations for inflation. Once expectations take hold, they’re not so easy to change.

The unpleasant reality is that the Fed has a very poor track record of attacking inflation without causing a recession. To a limited degree, you can say that may have happened in the mid-90s. Outside that, the evidence is not in the Fed’s favor.

I don’t think an economic inflation is imminent, but the odds of one starting within the next 12 months are high. Goldman Sachs just said it placed the odds at 30%, but that’s an increase from where they had it at 15%. For a recession within two years, Goldman placed the odds at 48%. Historically, stocks have fallen 24% during recessions. We’ve nearly done that without a recession.

Church & Dwight Is an Ideal Defensive Stock

Recessions are Wall Street’s most honest auditor. That’s when you really see which companies are strong and which are not.

Recessions also reveal which companies are closely tied to the economic cycle. During a recession, you want to make sure you own plenty of defensive stocks. These are businesses whose fortunes don’t depend so much on where we are in the economic cycle.

Speaking of defensive stocks, we had good news today for one of the best defensive names on our Buy List. Shares of Church & Dwight (CHD) were upgraded by Wells Fargo. The firm raised CHD to a buy from neutral.

Like so many other stocks, CHD has struggled this year. At the start of the year, CHD was close to $105 per share. Lately, it’s been as low as $80 per share. Wells Fargo said that its stable of businesses is poised to withstand any setback in the economy.

Church & Dwight is about as defensive a stock as you can get. The company makes condoms and baking soda. When will that lose demand?

For Q1, Church & Dwight had earnings of 83 cents per share. That beat expectations of 77 cents per share.

For the year, C&D sees earnings growth at the low end of their 4% to 8% range. The company said that’s due to the pressures from inflation. For Q2, CHD expects sales growth of 5% to 6% and earnings of 70 cents per share. I think they can beat that.

While CHD has been selling a lower volume of products, thanks to price increases, revenue is up. Last quarter, net sales increased 4.7% to $1.28 billion.

Thanks to the upgrade, shares of Church & Dwight rallied 4.6% today. The next earnings report is due out late next month.

If you want to learn about the other names on our Buy List, then please sign up for a premium subscription: $20 per month or $200 for the whole year.

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

– Eddy

Morning News: June 21, 2022
Posted by Eddy Elfenbein on June 21st, 2022 at 7:07 am

Companies Find Leaving Russia Difficult, Though Many Are Trying

US Sanctions Help China Supercharge Its Chipmaking Industry

Dutch Government Activates ‘Early Warning’ Because of Russian Cutbacks on Gas

Italy Says Proposal to Cap Gas Prices Is Gaining Support in EU

Biden Says He Is Considering Seeking a Gas Tax Holiday

Are High Prices Unpatriotic or as American as You Can Get?

Inflation Collides With Growth Fears to Trigger Big Swings in the Bond Market

Morgan Stanley, Goldman Strategists See More Stock Market Losses

Goldman Warns US Recession Risk Now Higher and More Front-Loaded

Crypto’s Latest Meltdown Leaves Punters Bruised and Bewildered

US Home Prices to Sink by 2023 as Mortgage Rates Hit 6%: Analyst

Why You Might Buy Your Next Car Online

Anticipating U.S. Downturn, Elon Musk Details Tesla Staff Cuts

Kellogg to Separate Into Three Businesses

Vegas Company Promised Fast Internet. Rural America Waits…and Waits

Nobel Peace Prize Sold to Help Ukrainian Kids Shatters Record at $103.5 Million

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Morning News: June 20, 2022
Posted by Eddy Elfenbein on June 20th, 2022 at 7:09 am

Europe May Shift Back to Coal as Russia Turns Down Gas Flows

French Nuclear Power Crisis Frustrates Europe’s Push to Quit Russian Energy

More Than Half of Global Consumers Didn’t Save During Pandemic

Hot Housing Market Keeps Home Foreclosures at Bay

Nerve-Racking Week Leaves Bond Investors Calling for Fast Rate Hikes

US Recession This Year Is Now More Likely Than Not: Nomura

Wall Street’s Classic Strategy Set for Worse Quarter Than 2008

Stocks Historically Don’t Bottom Out Until the Fed Eases

U.S. Banks Expect a Clean Bill of Health After Fed’s Stress Tests

When Customers Say Their Money Was Stolen on Zelle, Banks Often Refuse to Pay

‘Banking While Black’ Is the Next Target for Civil Rights Lawyer

Small Businesses Fall Behind on Hiring as Inflation Takes a Toll

Labor Shortage Stymies Construction Work as $1 Trillion Infrastructure Spending Kicks In

Red Flags for Forced Labor Found in China’s Car Battery Supply Chain

Apple Workers at Maryland Store Vote to Unionize, a First in the U.S.

Chinese Splash Out on Tech Goods, Camping Gear in Shopping Fest

U.S. Investors’ Buy of Chelsea FC from Roman Abramovich Puzzles Wall Street

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Morning News: June 17, 2022
Posted by Eddy Elfenbein on June 17th, 2022 at 7:02 am

WTO Strikes Global Trade Deals After ‘Roller Coaster’ Talks

BOJ Maintains Ultra-Low Rates, Warns Against Sharp Yen Falls

Russia Slashes Gas Flows, Aiming Economic Weapon at Europe

High U.S. Fuel Exports Are Contributing to $5-a-Gallon Gas

One of China’s Most Famous Hedge Funds Is Springing Back to Life

U.S. Economic Growth Shows Signs of Slipping

Wall Street Shudders as Focus Returns to Recession Risks

By Design, the Fed May Be Tightening Too Much

This Is Going to Hurt

One More Sign the Housing Market is Cooling Off

Gun Control Advocates Have More Money Now, but Money Can’t Buy Zeal

Amazon CEO Andy Jassy’s First Year on the Job: Undoing Bezos-Led Overexpansion

Why Amazon Isn’t Expecting a Robust Prime Day This Year

Elon Musk Talks Staffing, Free Speech, Remote Work in Twitter Employee Meeting

How Free-Wheeling Texas Became the Self-Driving Trucking Industry’s Promised Land

How a Religious Sect Landed Google in a Lawsuit

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Morning News: June 16, 2022
Posted by Eddy Elfenbein on June 16th, 2022 at 7:06 am

Triple-Whammy for European Gas Supplies Sends Prices Soaring

Germany Appeals for Gas Conservation After Russia Tightens Flows

Swiss National Bank Hikes Rates by Half a Point, Franc Surges

Bank of England Hikes Rates For the Fifth Time in a Row as Inflation Soars

Powell Sets Path to Restrain Economy and Stop Runaway Inflation

Six Takeaways from the Fed’s Big Meeting on Wednesday

Bear Markets and Recessions Happen More Often Than You Think

U.S. Retail Sales Declined in May as Inflation Stings Consumers

Rising Interest Rates Could Cool Industrial Investment, Executives Say

Private Equity Faces ‘Crisis of Value’ Over Inflated Prices

Jim Chanos On Why Some of the Worst-Hit Stocks Still Have a Long Way Down

Robinhood’s Stock Is Now Worth Less Than Its Cash on Hand

Ethereum Mining Is Going Away, and Miners Are Not Happy

Inside a Corporate Culture War Stoked by a Crypto C.E.O.

Bill Gates Says Crypto and NFTs Are a Sham

Workers Don’t Feel Quite as Powerful as They Used To

Cosmetics Maker Revlon Files For Chapter 11

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