Oil Monday
Posted by Eddy Elfenbein on March 9th, 2020 at 11:07 am

This is a very dramatic day on Wall Street. Let me explain what’s happening.

For the last few years, Russia has cooperated with OPEC in keeping oil prices up. The cartel wanted to have more cuts. Russia balked and said no and walked out of last week’s meeting. In their mind, it only serves to help American shale companies.

The Saudis responded by opening the floodgates of production. Combined with weaker demand due to the coronavirus, the price for oil plunged. At one point, oil was down over 30%.

The stock market opened much lower. After five minutes of trading, the S&P 500 was down by 7%. That triggered a circuit breaker where the exchange was shut down for 15 minutes. Hopefully, that should cool things off. The market has since reopened and we’re sitting on big losses.

Some energy stocks are down 20% or 30% today. If I were CEO of an energy stock, I would halt all new drilling, cut my dividend and hold off on new capex. I think we’ll see some layoffs in that sector very soon.

One more thing: today is the eleventh anniversary of the bear market low in 2009.

Morning News: March 9, 2020
Posted by Eddy Elfenbein on March 9th, 2020 at 7:01 am

‘Punched in the Face’: Oil, Stocks, Bond Yields, and Bitcoin Plunge After Crude Producers Signal A Brutal Price War

Saudi Aramco Drops 10% After Kingdom Triggers Oil Price Fall

Stock Futures Were Halted Sunday Night. Here’s When S&P 500 Circuit Breakers Kick In on Monday.

The Market Is Rocky. Will Target-Date Funds Change Their Strategy?

Historic Day in Markets Has Traders Rethinking What’s Possible

Gold Wavers After Topping $1,700 an Ounce Amid Mayhem in Markets

In Coronavirus Fight, China’s Vulnerable Fall Through the Cracks

Warren Buffett’s Advice on How Investors Should Respond to a Super-Contagious Disease

Japan’s Economy Contracts 7% in December Quarter, Risking Recession

Amazon Launches Business Selling Automated Checkout to Retailers

The Robber Bank

Howard Lindzon: Did They Ring The Bell To Buy Stocks Yet?

Jeff Miller: Weighing the Week Ahead: Why it is Crucial to Use the Right Time Frame

Michael Batnick: A Few Things I’m Thinking About

Ben Carlson: Why I’m More Worried About the Bond Market Than the Stock Market

Be sure to follow me on Twitter.

Morning News: May 8, 2020
Posted by Eddy Elfenbein on March 8th, 2020 at 7:04 am

Worst Postwar U.S. Jobs Report Is On Tap

Why Friday’s U.S. Jobless Figures Won’t Capture the True State of the Coronavirus Economy

It’s JPMorgan vs. Citi as Wall Street Splits on Market Direction

The Results Are In for the Sharing Economy. They Are Ugly.

Where the Small-Business Relief Loans Have Gone

Mortgage Lenders Tighten Screws on U.S. Credit in Echo of 2008

Green Hydrogen’s Time Has Come, Say Advocates Eying Post-Pandemic World

Neiman Marcus, a Symbol of Luxury, Files for Bankruptcy

Teen Hacker and Crew of ‘Evil Geniuses’ Accused of $24 Million Crypto Theft

Nick Maggiulli: Which Portfolio is Right for You?

Ben Carlson: Can Millennials Count on Social Security In Financial Planning?

Michael Batnick: The Rise and the Fall

Jeff Carter: If You Are Rich, Or Have A Knowledge Job You Don’t Feel The Pain

Jeff Miller: Close Reading: Will the Market “Tumble Back to its Coronavirus Lows in March?”

Joshua Brown: You Don’t Even Know What Risk Is, “Code Red” Revisited & Financial Advice on CNBC

Be sure to follow me on Twitter.

February NFP = +273K; Unemployment 3.5%
Posted by Eddy Elfenbein on March 6th, 2020 at 8:37 am

The February jobs report is out. The U.S. economy created 273,000 net new jobs last month. Expectations were for 175,000.

The unemployment rate is 3.5% and the broader U-6 rate is 7%.

The labor force participation is 63.4%. Average hourly earnings rose nine cents last month to $28.52. That’s an increase of 0.3%. In the last year, average hourly earnings are up 3%.

December’s NFP was revised higher by 37,000 and January’s was raised by 48,000.

Healthcare gained 57,000, restaurants and bars added 53,000 and government added 45,000. On the downside, retail lost 7,000 jobs.

Here’s a 20-year look at jobs and the stock market.

CWS Market Review – March 6, 2020
Posted by Eddy Elfenbein on March 6th, 2020 at 7:06 am

“The stock market is going to fluctuate. Sometimes it will fluc down; other times it will fluc up.” – Louis Rukeyser

In last week’s issue, I wrote, “I think there’s a good chance the Fed will cut rates before the next meeting.”

Sure enough, that’s exactly what happened. On Tuesday, the Federal Reserve cut interest rates by 0.5% two weeks before its scheduled meeting. And the market responded…by falling flat on its face. The S&P 500 fell by 2.8%, which came after one of the market’s best days in decades.

So how come a rate cut didn’t work? Well, as much as we hope, low rates won’t cure any virus. Simply put, the market is on edge right now. It’s hard to state just how volatile the market has become. It hasn’t been like this in years. Check out the daily changes for the S&P 500.

Consider some stats. The S&P 500 has now closed up or down by more than 2.5% for four straight days. It hasn’t done that in more than eight years. At one point, the S&P 500 closed up or down by more than 4% three times in five days. In the eight years prior to that, it happened just twice. (For that last stat, Brian Sullivan gave me a shout-out on CNBC.).

Trading Nation and @EddyElfenbein got a shout-out from @SullyCNBC on tonight's @CNBCFastMoney. Aw, shucks. pic.twitter.com/QWEW9fDxdX

— Trading Nation (@TradingNation) March 4, 2020

In this week’s issue, I’ll break down what’s happening, and more importantly, I’ll tell you how to position yourself. But I’ll warn you, it’s very likely we’re not done just yet. I’ll also update you on this week’s earnings report from Ross Stores. The deep-discounter beat earnings and hiked its dividend, but guidance wasn’t so hot. I’ll have more on that in a bit. But first, let’s look at the Fed’s surprise rate cut.

The Fed Cuts Rates and the Market Drops

I’d like to credit my Fed prediction to my wisdom and sagacity. In reality, I simply saw that the Fed had few other choices. They had to cut, and cut fast. The stock market was plunging, bonds were soaring and commodity prices were in free fall.

I like to follow the “break evens.” That’s basically the market’s estimate for what inflation will be. The 10-year break-even had dropped sharply in just a few days. That was a clear sign from the market that a rate cut was needed. The entire TIPS (Treasury Inflation Protected Securities) yield curve is negative. I wasn’t surprised to see that the Fed’s vote this week was unanimous.

In its statement, the Fed said, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.” We may see negative rates soon.

Of course, lower rates won’t do much to stop the spread of coronavirus, but they may help soften the economic dislocations caused by the virus. Cruise stocks, for example, have been creamed. Many airline stocks are near multi-year lows. Natural gas is at a four-year low.

I think it’s likely that economic growth will take a hit this year, but it’s too early to say how long and by how much. But the slide in the yield of long-term bonds suggests that Wall Street isn’t expecting much in terms of growth this year. At a first guess, I’d say we can expect a flat economy with 0% growth. Look at how steeply the 10-year yield fell.

The fallout from the world of the coronavirus isn’t always so obvious. For example, shares of Clorox (CLX) have done well. Makes sense once you think about it. Campbell Soup (CBP) is also up. (People staying at home?)

Quick quiz: Guess what country’s stock market just hit a fresh two-year high?

Give up? The answer may surprise you. It’s China. “The blue-chip CSI 300 Index jumped 2.2% on the day to 4,206.72, its highest point since February 2018.” In China, seven of 31 provincial-level governments have pledged to spend $505 billion on infrastructure projects. That’s a staggering number and it will get even bigger as other cities join in. I’m curious to see if the U.S. will do something similar.

I also want to point out that our Buy List continues to do well in a relative sense. Outperforming in a down market is a key aspect of long-term success. I don’t yet have Friday’s final numbers, but it looks like our Buy List is set to outperform the S&P 500 for the fifth week in a row. Since our portfolio is focused on high-quality stocks, it tends to fare better in downdrafts. We also beat the market last year in a strong up year. Since February 20, the S&P 500 has shed 10.52%, but our Buy List is down by 8.97%.

What to Do Now

There are three things to do now.

1. Do not panic and sell.
2. Expect more volatility. We’ll probably retest the low.
3. Pick up bargains with any free cash.

I’ll restate the Peter Lynch quote from last week: “The real key to making money in stocks is not to get scared out of them.”

I can’t predict that we’ve already seen the low. Going by historical patterns, we probably haven’t. The market likes to test and retest prior low points. Last Friday, the S&P 500 got down to 2,855.84. I think we’ll test that soon. If it breaks, then the bears will be back. On Thursday, the S&P 500 closed below its 200-day moving average, which is not an encouraging sign.

Now to point #3. What bargains? Thanks to the downturn, some of our Buy List stocks look pretty good. Here are three:

Shares of AFLAC (AFL) are quite attractive here. The stock has gotten seriously beaten. Remember that most of their business comes from Japan. In fact, the company had a coronavirus case in one of its call centers. The shares are now down more than 25% from their 52-week high.

Don’t forget how well run this company is. Going by yesterday’s close, AFL currently yields 2.7%. That’s a solid dividend, too. Last month, AFLAC raised its dividend for the 37th year in a row. For 2020, the duck stock expects earnings of $4.32 to $4.52 per share. I think there’s a chance that AFL many lower guidance at some point.

I’m dropping my Buy Below down to $46 per share, but if you can pick up AFL below $42, then you’ve made a good deal.

Globe Life (GL) also looks very good in this range. For 2020, Globe life expects earnings of $7.03 to $7.23 per share. That gives the stock a P/E Ratio of less than 13. I’m lowering my Buy Below to $100 per share, but if you can get GL below $90, that’s a very good entry price.

I also like Check Point Software (CHKP). The stock recently hit a 52-week low. The last earnings report was pretty good. I’m dropping my Buy Below price on Check Point to $110 per share.

The selloff has thrown several of our Buy Below prices off. I don’t think it’s worthwhile to do a mass adjustment in one issue, but I’ll gradually readjust several Buy Belows over the next few weeks.

Ross Stores Beats Earnings and Raises Dividend

On Tuesday, Ross Stores (ROST) reported fiscal Q4 earnings of $1.28 per share. This was for the months of November, December and January. That’s the key holiday-shopping season for Ross. Previously, Ross had given us a range of $1.20 to $1.25 per share.

They key stat to watch for any retailer is same-store sales. For Ross, that rose by 4% last quarter. Ross has been expecting same-store sales growth of 1% to 2%. For the year, Ross made $4.60 per share. That’s up from $4.26 in 2018. Annual sales rose 7% to $16.0 billion.

Barbara Rentler, Chief Executive Officer, commented, “We delivered strong sales and earnings growth for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multi-year comparisons and a fiercely competitive holiday season.”

Ms. Rentler continued, “Fourth quarter operating margin of 13.3% was slightly better than expected, driven by higher merchandise margin.”

During Q4, Ross bought back 2.7 million shares for $309 million. For the year, they bought back 12.3 million shares for $1.275 billion. There’s still $1.275 billion left in the current authorization.

Ross also raised its quarterly dividend by 12%. The quarterly payout will rise from 25.5 cents to 28.5 cents per share. The new dividend is payable on March 31 to stockholders of record as of March 17. Ross has raised its dividend every year since 1994.

Now for guidance:

For the 52 weeks ending January 30, 2021, the Company is planning same-store sales to grow 1% to 2% and earnings per share of $4.67 to $4.88. We also plan to open about 100 stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations.

For the first quarter ending May 2, 2020, comparable-store sales are forecast to be up 1% to 2% with earnings per share projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019.

That’s not so hot, but I think Ross is playing it safe. Wall Street had been expecting $1.25 per share for Q1 and $5.01 per share for the year. The stock just fell to a six-month low. I still like Ross, but I’m lowering my Buy Below price to $110 per share.

That’s all for now. The jobs report is due out later today. Next week, there’s not much in the way of economic reports. The CPI comes out on Wednesday. I expect it will show more low inflation. Also on Wednesday, we’ll get an update on the Federal budget. The deficit is looking quite large this year. Then on Thursday, we’ll get the weekly jobless-claims report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: March 6, 2020
Posted by Eddy Elfenbein on March 6th, 2020 at 7:01 am

Coronavirus Wreaks Financial Havoc as Infections Near 100,000

Bonds Extend Rally as Investors Retreat From Stocks

Sovereign Bond Yield Collapse Shows the World Is in Crisis Mode

It’s Time to Really Fret, Says Manager Who Beat 98% of Peers

Why the Coronavirus Could Threaten the U.S. Economy Even More Than China’s

The Fed is Already Behind the Curve as Goldman Says Firepower Could Be Half as Much as Usual

Mortgage Rates Dip To Lowest Point On Record

Tencent-Backed WeDoctor Invites Banks to Lead $1 Billion Hong Kong IPO

Costco Crushed February Same-Store Sales. It Was the Coronavirus.

Jamie Dimon’s Emergency Heart Surgery Puts Spotlight on JPMorgan’s Bench

Tito’s Vodka: Please Don’t Use Our Booze as Coronavirus Hand Sanitizer

U.A.W. Corruption Case Widens as Former Chief Is Charged

Cullen Roche: Three Things I Think I Think – Corona Edition

Michael Batnick: Don’t Catch a Falling Knife

Ben Carlson: Advice Doesn’t Have to Be Complicated to Be Effective

Be sure to follow me on Twitter.

Morning News: March 5, 2020
Posted by Eddy Elfenbein on March 5th, 2020 at 7:27 am

Global Economy Is Gripped by Rare Twin Supply-Demand Shock

A Global Outbreak Is Fueling the Backlash to Globalization

Larry Kudlow Says ‘We’re Not Going to Panic’ Over the Economy

Dow Futures Tumble as U.S. Coronavirus Cases Increase, California Declares State of Emergency

Fed ‘Beige Book’ Shows Business Worried About Coronavirus and the Election

DealBook: Lloyd Blankfein Says He Knows Why the Market Is Moving

OPEC Backs Extra 1.5 Million BPD Output Cut if Russia Joins In

Airlines May Lose Up to $113B in Revenue – IATA

British Airline Flybe Collapses as Coronavirus Deals Final Blow

HP Rejects Xerox’s Hostile Takeover Offer, Calling Bid Too Low

Nick Maggiulli: How Stocks Perform After the Fed Cuts Rates

Ben Carlson: How Do We Get People to Save More For Retirement?

Michael Batnick: Animal Spirits: The Emergency Rate Cut & Today Was Weird

Joshua Brown: What You Should Buy In A Recession

Jeff Carter: Rearranging Distribution

Be sure to follow me on Twitter.

Morning News: March 4, 2020
Posted by Eddy Elfenbein on March 4th, 2020 at 7:05 am

Global Health Crisis 1, Economic Policymakers 0

The Fed Has No Tools for an Outbreak. Here’s Why It Acted Anyway.

Fed Makes Emergency Rate Cut, but Markets Continue Tumbling

Bonds Hold Gains After Fed’s Surprise Rate Cut

Treasury 10-Year Yield Sets Record Below 1% on Virus Fears

Trump Balks at Stimulus, Saying Economy Is Immune to Coronavirus

A Hedge Fund Pioneer Bets on Higher Rates, Recovery In Stocks

A U.S. Steel Mill Found a Savior in China. Rivals See a Trojan Horse

What Happens in Vegas if No One Stays in Vegas?

How An Ill-Timed Bet On A U.S. Oil Refinery Cost ICBCS Millions

SoftBank-Backed CloudMinds Blocked From Exporting U.S. Tech to China

U.S. Surges Ahead as World’s Top Hotspot for the Fabulously Rich

Ben Carlson: Questions Every Investor Needs To Ask Themselves Right Now

Nick Maggiulli: 3 Reasons Why You Should Invest in Bonds

Joshua Brown: They Did It: The First Emergency Interest Rate Cut Since 2008, Why the Rate Cut “Didn’t Work” & We Might Need a Retest

Be sure to follow me on Twitter.

Ross Stores Beats Earnings and Hikes Dividend
Posted by Eddy Elfenbein on March 3rd, 2020 at 5:41 pm

Ross Stores (ROST) reported fiscal Q4 earnings of $1.28 per share. This is for the months of November, December and January. Previously, Ross had given us a range of $1.20 to $1.25 per share.

Same-store sales rose by 4%. Ross has been expecting growth of 1% to 2%. For the year, Ross made $4.60 per share. That’s up from $4.26 in 2018. Annual sales rose 7% to $16.0 billion

Barbara Rentler, Chief Executive Officer, commented, “We delivered strong sales and earnings growth for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multi-year comparisons and a fiercely competitive holiday season.”

Ms. Rentler continued, “Fourth quarter operating margin of 13.3% was slightly better than expected, driven by higher merchandise margin.”

During Q4, Ross bought back 2.7 million shares for $309 million. For the year, they bought back 12.3 million shares for $1.275 billion. There’s $1.275 billion left in the current authorization

Ross is also raising its quarterly dividend 12%, from 25.5 cents to 28.5 cents per share. The new dividend is payable on March 31 to stockholders of record as of March 17. Ross has raised its dividend every year since 1994.

Now for guidance:

For the 52 weeks ending January 30, 2021, the Company is planning same store sales to grow 1% to 2% and earnings per share of $4.67 to $4.88. We also plan to open about 100 stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations.

For the first quarter ending May 2, 2020, comparable store sales are forecast to be up 1% to 2% with earnings per share projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019.

Wall Street had been expecting $1.25 per share for Q1 and $5.01 per share for the year. The shares are down about 3% after hours.

The Fed Cuts by 0.50%
Posted by Eddy Elfenbein on March 3rd, 2020 at 11:06 am

Me a few days ago.

I think there's a good chance of a non-meeting rate cut from the Fed.

Soon.

— Eddy Elfenbein (@EddyElfenbein) February 27, 2020

And today.

Federal Reserve issues FOMC statement

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

The market rallied. For a bit.