• Another All-Time High
    Posted by on September 2nd, 2020 at 4:16 pm

    The numbers for this market are amazing. The S&P 500 rallied for the ninth time in the last ten days. It’s up 19 times in the last 24 sessions.

    On our Buy List, we had new highs today from Ansys (ANSS), Church & Dwight (CHD), Check Point Software (CHKP), Danaher (DHR), Intercontinental Exchange (ICE), Moody’s (MCO), RPM International (RPM), Sherwin-Williams (SHW) and Silgan Holdings (SLGN).

    On top of that, Broadridge Financial Solutions (BR), FactSet (FDS), Hormel Foods (HRL), Stepan (SCL) and Trex (TREX) came close to new highs.

    The market cap of Apple surpassed the market cap of the entire Russell 2000.

  • Is Market Expecting Drama on Election Day?
    Posted by on September 2nd, 2020 at 2:22 pm

    In financial markets, an investor can invest in volatility. Bloomberg points out that the futures contract tied to volatility near Election Day is unusually high. The best explanation is that the market expects fireworks near Election Day. More properly I should say, “the odds” of fireworks are very high.

    “In the history of the VIX futures contracts, we’ve never had an event risk command this sort of premium into forward-dated vol at a specific tenor,” Bloomberg macro strategist Cameron Crise wrote in a blog post.

    The cliché is that the market hates uncertainty. My guess is that the big fear is an unresolved election. I can’t imagine anyone would enjoy the election descending into rounds of lawsuits that carry on for weeks.

  • ADP: 428,000 Private Payrolls Added in August
    Posted by on September 2nd, 2020 at 10:39 am

    This morning, ADP reported that 428,000 private payroll jobs were created last month. That sounds impressive but it is still way short of Wall Street’s estimate for 1,170,000.

    Big business dominated job creation, as firms with more than 500 employees added 298,000 workers. Medium-sized businesses were next with 79,000 while companies with fewer than 50 workers grew by 52,000.

    Job creation skewed heavily to services, which added 389,000 compared with the 40,000 for goods producers. (The total doesn’t add up to 428,000 due to rounding.)

    After lagging through the early part of the pandemic recovery, leisure and hospitality led with 129,000 new jobs while education and health services contributed 100,000 and professional and business services grew by 66,000. Construction also added 28,000 and manufacturing was up 9,000.

    Tomorrow we’ll get another jobless-claims report. After persistent declines, that data series has been a little more volatile in recent weeks. Right now, we’re trending at about one million. Continuing claims have drifted lower and are currently at 14 million.

    The big jobs report comes out on Friday. The unemployment rate is currently at 10.2%. That may fall back into the single digits. Economists expect non-farm payrolls to rise by 1.4 million.

  • Morning News: September 2, 2020
    Posted by on September 2nd, 2020 at 7:05 am

    Argentina Gains Room To Breathe With Crucial Debt Deal

    Australia In First Recession For Nearly 30 Years

    One of the World’s Richest Petrostates Is Running Out of Cash

    U.S. Election Priced as Worst Event Risk in VIX Futures History

    ESG Scores Aren’t Enough to Achieve a Net-Zero Future

    Amazon’s New Offerings Make India Centre Of Fintech Push

    Russians Again Targeting Americans With Disinformation, Facebook and Twitter Say

    Dating App Bumble to Plan IPO at $6 Billion-Plus Value

    In Hard Times, a Barrage of Ads Promises Peace of Mind

    Nick Maggiuli: What’s Driving the Rise of the Individual Investor?

    Joshua Brown: Big Trends Monthly: Here Comes September

    Howard Lindzon: Make Soup Great Again… And The Stay In Your Basement Economy

    Jeff Miller: Investing for the Long Run: Looking Beyond the Obvious

    Michael Batnick: All Wrapped In One

    Ben Carlson: The 2 Variables That Drive Stock Prices

    Be sure to follow me on Twitter.

  • Zoom Zooms 38%
    Posted by on September 1st, 2020 at 1:34 pm

    The stock market’s amazing run continues. Yesterday looked to be the S&P 500’s eighth up day in a row. However, a quick dip at the close prevented it. No worries. We’re up again today.

    The superstar stocks of this rally are leaving everyone else behind. Yesterday, shares of Tesla jumped over 12%. Why? Well, they did a 5-for-1 stock split. Of course, a stock split doesn’t add any value, but that didn’t stop the bulls. The company also announced a stock offering to raise $5 billion.

    Apple also rallied on its 4-for-1 split. This was Apple’s fifth split since they went public 40 years ago. They’ve done three 2-for-1 splits, one 4-for-1 and one 7-for-1. That adds up to 224-for-1.

    Shares of Zoom exploded higher today after a very strong earnings announcement. The numbers are astounding. As I look at it, the stock is currently up $124 per share or 38%. That’s just today. Zoom is up 565% this year.

    We also had some key economic reports this morning. The ISM Manufacturing Index rose to 56. That’s the best reading in 19 months. Home prices recorded their biggest jump in 19 months.

  • Morning News: September 1, 2020
    Posted by on September 1st, 2020 at 7:06 am

    India’s Economy Shrank Nearly 24% Last Quarter

    Big Oil’s Patchy Deals Record Casts Shadow Over Green Makeover

    Small-Business Failures Loom as Federal Aid Dries Up

    Coffee, Ketchup And Nike Air Max: It’s The COVID Consumer Economy

    Walmart Announces Membership Service in Attempt to Compete With Amazon

    Geely and GM Venture Both Wade Into China’s Pickup Truck Competition

    TikTok Deal Faces Complications as U.S. and China Ratchet Up Tit-for-Tat

    Return To Big Offices? Why Bank Branches May Get A New Lease on Life

    Maersk to Cut Jobs in Major Reorganization

    Apple Preparing Bullish 5G iPhone Rollout Alongside New Watches and iPad

    JPMorgan Says Investors Should Prepare for Rising Odds of Trump Win

    Racial Quotas Start Catching On With Major U.S. Employers

    Ben Carlson: My Strategy For Dealing With FOMO

    Howard Lindzon: Heather Hartnett of Human Ventures Joins Me On ‘Panic With Friends’ – The Future Of Work Is Human

    Joshua Brown: Warren Buffett’s Japan Bet, Warren Buffett’s Gold Bet, etc & Art Cashin On The Short-Term Effects of Stock Splits

    Be sure to follow me on Twitter.

  • Best August Since 1984
    Posted by on August 31st, 2020 at 10:39 am

    The stock market is down slightly as I write this, although the Nasdaq is up. This looks to be the best August for the S&P 500 since 1984.

    Over the last century, as well as 50 years and 20 years, September is the worst month in stock market history.

    But look at what comes after September, the best quarter of the year, by far. In the last 20 years – which includes the terrible fourth quarters of 2008 and 2018 – fourth quarters have surpassed the previous three quarters combined.

    In other news, TikTok said it may announce a deal today to sell its U.S. business. The deal could fetch $20 billion to $30 billion. Microsoft is thought to be a top bidder.

    AT&T said it’s looking to sell its DirecTV unit. Five years ago, they paid $49 billion for it. Let’s just say that it will sell for less. Much less.

  • Morning News: August 31, 2020
    Posted by on August 31st, 2020 at 7:00 am

    As Japan’s Abe Leaves, ‘Abenomics’ Will Remain, for Good or Ill

    Buffett’s Berkshire Wagers $6 Billion on Japan Trading Firms

    Kashkari Says There’s No Urgency for Fed to Update Rate Guidance

    Steven Mnuchin Tried to Save the Economy. Not Even His Family Is Happy.

    Staying Afloat: A Pandemic Financial Guide for Millennials

    China Throws a Wrench Into Trump’s Plan to Force TikTok Sale

    N.B.A. Brings Flash to E-Sports, but Can It Hold On to Its Viewers?

    U.S. Scraps Philips Ventilator Order In 2020 Earnings Blow

    Roger Nusbaum: A Great Year To Test Alternative Strategies

    Cullen Roche: Three Things I Think I Think – Lumbering Along

    Joshua Brown: Six Lessons from Pandemic Summer

    Jeff Miller: Weighing the Week Ahead: Risky Business or Business as Usual?

    Howard Lindzon: You Gotta Have Faith?

    Ben Carlson: Bull Case/Bear Case & The Case For a Post-Covid Spending Boom

    Michael Batnick: Animal Spirits: Sectors & The Business Cycle & The Way Things Were

    Be sure to follow me on Twitter.

  • Happy 90th Birthday, Warren Buffett
    Posted by on August 30th, 2020 at 8:10 am

    Warren Buffett turns 90 years old today. When he was born, Nebraska had only been a state for 63 years.

    The stock market was closed on August 30, 1930, but the day before, the Dow closed at 240.42. Still, that was down a lot from its big peak of less than one year before.

    It took 90 years for the Dow to rise 119-fold.

  • CWS Market Review – August 28, 2020
    Posted by on August 28th, 2020 at 7:08 am

    “There is a danger of expecting the results of the future to be predicted from the past.” – John Maynard Keynes

    On Thursday, the stock market closed higher for the sixth day in a row, and it was the fifth all-time high close in a row. This has been an incredible run for the stock market. Over the last two months, the S&P 500 has gained nearly 16%.

    This is quickly becoming the Honey Badger market—it simply doesn’t care about anything. Lockdowns, no problem. Social unrest, who cares? Mass unemployment, hold my beer. No matter what comes our way, the market just keeps going and going.

    In this week’s issue, I want to discuss a recent speech by Federal Reserve Poobah Jerome Powell. Normally, I try not to pay too much attention to what the Fed says, but this time, it’s worth some closer inspection. I’ll break it all down for you.

    We also had a good earnings report from Hormel Foods. The Spam folks beat expectations. I’ll have a summary. I also have some new Buy Below prices for you.

    The Fed Ditches Its 2% Inflation Target

    The Federal Reserve is holding its annual shindig in Jackson Hole, Wyoming. This event is sponsored by the Kansas City Fed, and it’s notable because the Fed has historically used the late-summer conference to announce important policy changes.

    The theme this year is “Navigating the Decade Ahead: Implications for Monetary Policy.” I know, it sounds kind of dry, but this year’s conference is worth some attention. More specifically, I’m referring to Powell’s speech on Thursday, which was entitled “New Economic Challenges and the Fed’s Monetary Policy Review.”

    Let me pause for a moment to warn you that central bankers are bred to speak in convoluted jargon. Some of this is by design. It’s a nice advantage to have when no one understands what the heck you’re talking about. Former Fed Chairman Alan Greenspan once said, “If I’ve made myself too clear, you must have misunderstood me.”

    Fortunately, your humble newsletter writer is well versed in the arcane dialect of Fedspeak, so I can translate it for you. In his remarks, Powell said that the Fed will shift its emphasis when deciding to adjust interest rates. Previously, the Fed stressed the need to raise interest rates early in an effort to combat inflation. The feeling was that inflation needed to be fought before it showed up.

    Powell now says that’s no longer needed. The battle against inflation is over. Just looking at recent history, the threats to the U.S. economy have been a pandemic and a financial crisis. For the most part, inflation has been safely bottled up. With this, the Fed is ditching its 2% inflation target.

    In 2012, the Federal Reserve adopted a policy of targeting inflation at 2%. They weren’t alone. Many central banks around the world adopted similar policies. The benefit of targeting inflation is that it gave the public a clear view of what the Fed was trying to do. With this, the Fed got better (much better) at communication, and the Fed also has improved its transparency.

    The Fed has undershot 2% inflation so consistently that no one bats an eye anymore. At root, Powell is officially adopting a policy that’s already existed. The Fed’s just admitting it. Powell cited four major changes in the Fed’s understanding of the economy. One is that normal economic growth is now assumed to be much less than what it had been. During latter third of the 20th century, the U.S. economy routinely grew by 3% per year in real terms. Not anymore. Now we’re lucky if we can get 2%.

    The Fed also assumes that interest rates now need to be much lower than they have been. Under the old playbook, during an expansion, the Fed would raise interest rates to 2% or 3% above inflation. During a recession, it would cut rates to about the level of inflation. That hasn’t been the case in over 10 years.

    Here’s a look at real short-term interest rates. Notice how much lower they are than in years past.

    Economists speak of the natural rate of inflation. This is the rate at which everything comes into balance. No one knows exactly what the natural rate is, but it’s widely understood that whatever it is, it’s much lower than where it used to be.

    Powell also noted that before Covid-19, the labor market was doing quite well. The unemployment rate dropped to a 50-year low. Even when the labor-force participation rate started to rise, it did absolutely nothing to spark inflation. How times have changed. In the 1980s, bond investors would have totally freaked out.

    One problem with lower inflation is that the Fed has had less room to boost the economy with rate cuts. That explains why the Fed has embarked on some non-traditional policies.

    To be blunt, the Fed needs some inflation. Powell said:

    “Our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

    To be clear, the Fed wants inflation to average 2%, but it’s not going to worry if it rises above 2%.

    What does this mean for us? It’s good news. For one, I don’t like to see central bankers wedded to outmoded ways of thinking. Theories should fit the facts, not the other way around.

    It’s also good to keep interest rates low. The Fed has killed many stock rallies with overly aggressive rate hikes.

    Most importantly, stocks have performed well under modest inflation. I’ve run the numbers and found that inflation doesn’t became a problem for stocks until it hits 5.7%, and we’re a long way from there.

    The story out of Jackson Hole simply confirms what we all knew. The Fed was never going to sacrifice the health of the U.S. economy in order to preserve some random inflation target.

    Now let’s look at our one Buy List earnings report from this week.

    Hormel Foods Beats Earnings

    On Tuesday, Hormel Foods (HRL) reported fiscal Q3 earnings of 37 cents per share. That beat Wall Street’s estimate of 34 cents per share. This was for the quarter that ended on July 31.

    Looking at the numbers, this was a solid quarter for Hormel. Overall sales rose 4% to $2.4 billion. Sales volume also rose by 4%. That’s important, because you don’t want to rely overly on price increases. Hormel’s operating free-cash flow rose 72% to $242 million. That’s a good sign.

    “We had an excellent third quarter with strength across our retail and deli businesses, along with a rebound in our foodservice business,” said Jim Snee, chairman of the board, president and chief executive officer. “The intentional balance we have built across our portfolio has once again enabled us to generate stable cash flows in a very dynamic time period, even as we absorbed significant incremental costs in our supply chain due to the COVID-19 pandemic.”

    Here’s how the quarter broke down by Hormel’s different business units:

    Refrigerated Foods
    Volume up 8%; organic volume up 7%
    Net sales up 5%; organic net sales up 2%
    Segment profit down 11%

    Grocery Products
    Volume up 6%
    Net sales up 7%
    Segment profit up 36%

    Jennie-O Turkey Store
    Volume down 9%
    Net sales down 4%
    Segment profit down 67%

    International & Other
    Volume down 5%
    Net sales up 2%
    Segment profit up 26%

    I also like that Hormel has a solid balance sheet. Its cash on hand is now $1.7 billion. That’s up from $0.7 billion a year ago. The big gain is due to the bond offering and also halting share buybacks. Total debt is up to $1.3 billion from $0.3 billion a year ago.

    For Hormel’s outlook, Snee said he expects to see the current quarter mirror the strength of Q3, but he was cautious to add that it’s an uncertain environment. He also said he expects the food service to post a year-over-year decrease for Q4.

    HRL pulled back, but that’s after a pretty nice run. Hormel remains a buy up to $53 per share.

    That’s it for our Buy List earnings report. The next stock to report is FactSet (FDS), and it won’t report until September 24. RPM International (RPM) will probably report in early October. Things won’t get busy again until the Q3 earning season heats up in mid-October. Now let’s look at some updates to our Buy Below prices.

    Buy List Updates

    Shares of Ansys (ANSS) got to another new high on Thursday. We now have a 29.1% gain in ANSS this year. This week, I’m raising our Buy Below on Ansys to $340 per share.

    Shares of Globe Life (GL) have been trending higher recently. The insurance company recently resumed its share repurchases. GL’s last earnings report was pretty good, and the stock is only going for about 12 times estimates earnings. I’m raising my Buy Below on Globe Life to $90 per share.

    I covered the recent earnings report from Ross Stores (ROST) in last week’s issue. The deep-discounter surprised us by reporting a small profit. Ross was widely expected to report a loss. I held off on changing our Buy Below price. Now that I’ve had more time to consider it, I’m going to lift our Buy Below on Ross Stores to $98 per share.

    That’s all for now. There are some important economic reports due out next week. On Tuesday, the ISM Manufacturing Index comes out. It will be interesting to see if the economy is still rebounding. On Wednesday, the ADP releases its payroll report. On Thursday, we’ll get to see another initial-jobless-claims report. Then on Friday, the August jobs report comes out. For July, the unemployment rate was 10.2%. 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

    P.S. Please join me for a webinar this Tuesday, September 1 at 4 p.m. ET. Noah Hamman, the CEO of AdvisorShares, will be joining me. Noah is an expert on all things ETF. You can register here.