Morning News: October 6, 2023
Posted by Eddy Elfenbein on October 6th, 2023 at 7:04 am

Russia Lifts Diesel-Export Ban That Battered Global Markets

Exxon in Talks to Buy Shale Driller Pioneer Natural in What Could Be 2023’s Biggest Deal

Chevron Labor Dispute Flares Up Again in Australia

New Shein Executive Aims to Expand Supply Chain Outside China

China Is Becoming a No-Go Zone for Executives

The IMF’s $43 Billion Argentina Problem Is About to Get Worse

Rates Are Jumping on Wall Street. What Will It Do to Housing and the Economy?

The 5% Bond Market Means Pain Is Heading Everyone’s Way

Corporate America Is Ignoring Jay Powell and Bingeing on Debt

Why Are Investors So Jittery?

Finance CEOs Who Have Stuck It Out for 11 Years Are Eyeing Exit

America Has a Bankruptcy Problem

September Jobs Report May Be Last Good One Before Sharp Slowdown

How to Protect Your Retirement From Nagging Inflation

Between a Rock and a ‘Hard’ Insurance Market

Tesla Cuts Model 3, Y Prices in US After Quarterly Sales Dip

The Birkenstock IPO Is Coming. Nobody Mention Crocs.

New This Holiday Season: Discounts on Shipping Packages

Philips Shares Fall 7% After U.S. Drug Regulator Deals Fresh Blow to Sleep Device Recall

PGA-LIV Deal Faces Delay Over Antitrust, Players Demand Stake

Down With Efficiency! (When We Get Around to It.)

Confessions of a Pop-Tarts Taste Tester

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Morning News: October 5, 2023
Posted by Eddy Elfenbein on October 5th, 2023 at 7:06 am

Pakistan Considers Long-Term LNG Deal as Domestic Output Slides

Oil Extends Plunge as Brent Falls Below $85 on Demand Worries

High Gas Prices Reek of Low Cigarette Sales

Diesel Prices Could Keep Inflation High

McCarthy’s Ouster Raises Likelihood of a Government Shutdown

Fed’s Bid to Avoid Recession Tested by Yields Nearing 20-Year Highs

Only an Equities Crash Can Rescue the Bond Market, Barclays Says

Traders from Moore Capital Are Spinning Out $3 Billion Hedge Fund to Wager on Inflation

Rising Interest Rates Mean Deficits Finally Matter

The Economics of ‘Free Stuff’ Is That There’s No Free Stuff

They Dredged the Mississippi River for Trade. Now a Water Crisis Looms

America’s Factory Boom Brings Billion-Dollar Projects to Tiny Towns

New U.A.W. Chief Has a Nonnegotiable Demand: Eat the Rich

In This City, the Right to Own a Car Starts at $76,000. And That Doesn’t Include the Car

China’s E.V. Threat: A Carmaker That Loses $35,000 a Car

A Start-Up’s Alternative to Uber: Employing Its Own Drivers

Relocation Concerns Slow Hiring of New Tech Leaders

‘This Is a False Advertisement’: X Ads Are Being Challenged by Reader Context

Ozempic Is Making People Buy Less Food, Walmart Says

French Train Maker Alstom Slumps After Cash Flow Warning

Caroline Ellison Is One of the Only People Who Knows ‘Truth’ Behind SBF’s Fall

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Morning News: October 4, 2023
Posted by Eddy Elfenbein on October 4th, 2023 at 7:07 am

Fraud Is Forcing Global Trade to Fix Its Paper Problem

Oil Prices Edge Lower Ahead of Supply Data as Saudis Affirm Extension of Production Cut

Japan Keeps Yen Traders Guessing Over Whether It Intervened

ECB Interest Rate Hikes May Be Over, Centeno Says

Bond Selloff Threatens Hopes for Soft Landing

Investors Eye Profit Rebound After Yearlong Earnings Recession

A ‘Shadow’ Lending Market in the U.S., Funded by Insurance Premiums

Every Generation Makes Money Mistakes. Here’s What They Are

Chaos in Washington Adds to Market Jitters

McCarthy Exit Means More Turmoil Before New US Shutdown Fight

Why 8% Mortgage Rates Aren’t Crazy

As Student Loan Payments Resume, Biden Cancels $9 Billion in Debt

Kaiser Workers Launch Largest Health Care Strike in US History

America’s High EV Costs Are Driving Buyers to Hybrids

Amazon Used Secret ‘Project Nessie’ Algorithm to Raise Prices

SAS Stock Dives 95% as Restructuring Announced

How Dodgy Spare Parts Got Into Jet Engines, Leaving Airlines Scrambling

F.C.C. Issues First Fine Over Space Junk Rule

Spotify Gave Subscribers Music and Podcasts. Next: Audiobooks

Netflix Plans to Raise Prices After Actors Strike Ends

Hollywood Ignored Tyler Perry, So He Built His Own Empire

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CWS Market Review – October 3, 2023
Posted by Eddy Elfenbein on October 3rd, 2023 at 7:41 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 Continues to Drift Lower

Wall Street is still in a cranky mood, and the culprit is higher interest rates. There appears to be an emerging consensus that the Federal Reserve will hold interest rates “higher for longer.”

Wall Street doesn’t like that. Last week, the S&P 500 closed out its first losing quarter since Q3 of last year. The index continued to fall today. The S&P 500 closed at its lowest level since June. The Dow is now down for the year.

The S&P 500 has already dropped below its 50-day moving average and it’s not too far from breaking below its 200-day moving average. The index has traded above its 200-DMA without stopping for six straight months. Falling below moving averages is often an omen of bad things to come.

What’s next? All eyes are focused on Friday’s jobs report. So far, the labor market has remained calm, but any weakness could convince the bears that they’ve been right.

For August, the economy created 187,000 net new jobs. That was higher than both June and July, and the unemployment rate rose from 3.5% to 3.8%. For this Friday, Wall Street expects to see 170,000 net new jobs created for September and it expects the unemployment rate to fall to 3.7%.

However, the number I’ll be watching most closely is average hourly earnings. The consensus on Wall Street is for earnings to rise by 0.3%. Workers have been getting paid more but that’s mostly keeping with inflation. That’s probably part of the reason why we’ve seen organized labor activity recently.

I won’t make a prediction for Friday’s report, but I will note that other labor reports have been pretty good. For example, the initial jobless claims report is near a seven-month low. On Tuesday, the Bureau of Labor Statistics said that job openings increased in August from 8.9 million to 9.6 million.

I was also impressed by Monday’s ISM Manufacturing Index. This report comes out on the first business day of the month. Monday’s report came in at 49.0. Any number above 50 means the factory sector of the economy is growing, and any number below 50 means it’s contracting.

This was the 11th month in a row of contraction, but it wasn’t by much. Monday’s report was the highest in 10 months.

Despite those selected positive notes, Wall Street seems to be very worried.

As grumpy as the stock market has been, the bond market is even grumpier. On Tuesday, the yield on the 10-year Treasury reached its highest level since 2007.

The yield on the 10-year got as high as 4.781% while the 30-year reached 4.874%, also the highest since 2007. A little over three years ago, the 10-year yield was going for just 0.5%.

Rising interest rates are bad for stocks for two major reasons. One is that interest expense is an important part of a company’s income statement. If it costs more to borrow money, companies will do less of it. It also costs more to refinance existing debt.

The other reason is that higher yields provide stronger competition for investors’ money. The one-year Treasury is going for 5.5%. Sure, it’s not for me, but I certainly can understand investors who’d prefer to make an easy 5.5% for one year than deal with the frenzy of stock market volatility. That 5.5% works out to more than 1,800 Dow points over the coming year, and it’s basically risk-free. What we want to look at isn’t so much the absolute level of interest rates but rather, their direction. Lower yields are good for stocks and higher yields are dangerous.

What’s interesting is that “real” yields, meaning after inflation, are rising as well. Since May 11, the yield on the 10-year TIPs, the inflation-adjusted security, has increased by 1%. It’s not just an inflation story (but that is a big problem).

The two-year yield is often considered to be the maturity that is most sensitive to the Fed’s interest-rate policy. The two-year yield recently rose to 5.129%.

The Federal Reserve doesn’t meet for another month, but the interest rate “hawks” have gotten a little stronger. The futures market still indicates that the Fed will pause at its next meeting, but the dissenters are growing. One week ago, the odds of a 0.25% rate hike in November were just 16%. Now they’re at 30%.

This week, Raphael Bostic, head of the Atlanta Fed, said he can see interest rates at the current range of 5.25% to 5.5% well into next year.

He’s not alone. Loretta Mester, the president of the Cleveland Fed, said rates could be held higher “for some time.” The next CPI report will be out on Thursday, October 12.

I’ve also been struck by how many conservative stocks have been getting squeezed by this market. For example, utility stocks are lagging badly. Check out this chart of the S&P 500 versus the S&P 500 Utility ETF:

Related to this is that growth stocks have been holding up much better than value stocks have this year. I’m not sure that can last for much longer. If the broader economy starts to get shaky, that will help the relative performance of many defensive stocks.

The Boring Stock Portfolio

In his book, One Up on Wall Street, Peter Lynch extolled the virtues of investing in boring stocks. There are many stocks that are very good businesses, but they really don’t do anything interesting. As such, investors tend to overlook them.

Just because the sector isn’t interesting doesn’t mean it’s not important, or unprofitable. These are companies that are rarely mentioned on TV.

There’s a group of boring stocks that I like to follow. Here’s a sample of some good but very dull stocks.

American Water Works (AWK) is a nice, dull stock. AWK is a public utility that provides water to 1,700 communities across 24 states. Water is a good business to be in. No town wants to be another Flint, Michigan water disaster.

American Water “owns 80 surface water treatment plants, 480 groundwater treatment plants, 160 wastewater treatment plants, 52,500 miles of pipes, 1,100 groundwater wells, 1,700 pumping stations, 1,300 water storage facilities, and 76 dams.”

Amphenol (APH) is a former Buy List stock. The company makes electronic and fiber optic connectors. Bor-ing. Over the last 31 years, it’s up more than 42,000%.

Many people assume that Clorox (CLX) is a brand that’s owned by some larger multinational. No so. Clorox owns Clorox. The company also owns Pine-Sol and Liquid-Plumr. Clorox was founded in 1913.

Cummins (CMI) is an engine company but it’s so much more. The company makes diesel and natural gas engines, plus electric and hybrid powertrains. It’s also engaged in filtration and power generation. Cummins employs more than 70,000 people around the world.

Donaldson (DCI) is a filtration company. It makes air filters for several different sectors. Another former Buy List stock.

Eaton (ETN) is a power management company that’s based in Dublin, Ireland. The company has been listed on the NYSE for 100 years. Only 32 companies have been listed that long.

Graco (GGG) makes fluid-handling systems. Snore. Over the last 30 years, it’s only up 20,000%.

Illinois Tool Works (ITW) “produces engineered fasteners and components, equipment and consumable systems, and specialty products.” Yes, it’s based in Illinois.

Public Storage (PSA) is the largest self-storage real estate investment trust (REIT) in the United States. There are currently more than 2,600 Public Storage locations around the world. PSA has relatively few employees. The lots are automated so customers can access their units at any time.

The company does a lot more than just provide the space. They also provide a broad range of services for their clients. PSA offers insurance and packing products. The company also had a subsidiary that provides boxes and truck rentals.

Sysco (SYY) is a major supplier to restaurants and dining facilities. The company has 600,000 clients.

WD-40 (WDFC) is like Clorox. Many people assume it’s a brand owned by a larger company. Nope, WD-40 is owned by WD-40.

Most every homeowner is familiar with WD-40. The lubricant spray is instantly recognizable by its yellow and blue label. Some folks at the firm were working on a Water Displacement formula. The first 39 tries failed, but #40 worked and the name was born.

Did you know WD-40 can soften leather? It can also clean tile and erase crayon. It can even unstick Legos.

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: October 3, 2023
Posted by Eddy Elfenbein on October 3rd, 2023 at 7:06 am

OPEC+ Shows No Sign of Easing Oil Squeeze as Ministers Meet

US Supreme Court to Hear Case Targeting Consumer Financial Watchdog

The Fed Seeks to Up Its Influencer Status

Fed’s Mester Says One More Rate Hike May Be Needed This Year

Wall Street Thinks America’s Homes Are Overvalued

Americans’ Growing Reluctance to Quit Their Jobs, in Five Charts

A Plot to Oust the House Speaker Hits Weary Investors

‘Dumb Money’ Exposes the Baffling Allure of Bad Investment Advice

Can AI Beat the Market? Wall Street Is Desperate to Try

J.P. Morgan Growth Equity and Index Ventures Back Logistics Payment Platform Loop

Brookfield Raises $12 Billion for Flagship Private Equity Fund

Zoom’s Ex-CMO Will Now Pitch Hybrid Work as CEO of Video-Tech Firm Neat

Meta Explores Charge for Ad-Free Instagram and Facebook. Its Model Is Under Threat

From $26 Billion to Bust: Sam Bankman Fried’s Astonishing Rise and Fall

U.S. Car Sales Expected to Increase Again in the Third Quarter

China Is Suffering a Brain Drain. The U.S. Isn’t Exploiting It

A Rural Michigan Town Is the Latest Battleground in the U.S.-China Fight

China Evergrande Shares Soar as Trade Resumes Amid Police Probe

Key Taiwan Tech Firms Helping Huawei With China Chip Plants

Rare Look Inside TikTok Parent’s Finances Shows Slowing Revenue Growth

Tiger Woods-Backed Golf League Signs Sponsorship Deal with SoFi

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Morning News: October 2, 2023
Posted by Eddy Elfenbein on October 2nd, 2023 at 7:06 am

Does China’s Property Bust Make a Financial Crisis Inevitable?

China’s Precarious Economy Signals More Support Is Needed

BOJ to Buy Additional Bonds to Curb Rise in Sovereign Yields

Kenya’s Stock Market Becomes World’s Worst Performer

Why a US Recession Is Still Likely — and Coming Soon

Will Companies Keep Their Pandemic-Era Gains? It Depends

Higher Rates Starting to Hit US Profits, Goldman Strategists Warn

Wall Street’s Most Hated Regulator Faces a Fundamental Threat

Severe Crash Is Coming for US Office Properties, Investors Say

With Banks Offering 5% Returns, Financial Advisers Fight Irrelevance

Americans Are Still Spending Like There’s No Tomorrow

Why Consumers Are Mad About Inflation Even Though It Has Fallen

Birkenstock Attracts Norwegian Wealth Fund to $1.6 Billion IPO

Vaccine Breakthrough Behind Pfizer, Moderna Shots Wins Nobel

Aging Trees Show a Crisis Looms for the World’s Everything Oil

The Secret Behind the First $1 Billion Green Hydrogen Startup

Rivian’s Quest to Build the Ultimate Truck Burns Through Billions

Crypto Goes on Trial, as Sam Bankman-Fried Faces His Reckoning

Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry

Airbnb Is Fundamentally Broken, Its CEO Says. He Plans to Fix It.

Peak TV Is Over. A Different Hollywood Is Coming

Longtime Union Leader Steps Fully Into Hollywood’s Spotlight

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Morning News: September 29, 2023
Posted by Eddy Elfenbein on September 29th, 2023 at 7:03 am

Oil Prices Near $100 per Barrel Raise Questions Over Demand Destruction

Evergrande Tycoon Crossed a Red Line When Wealth Funds Ran Dry

Japan’s 30-Year Bond Yield Reaches Highest Level Since 2013

Eurozone Inflation Rate Drops to 4.3 Percent

Europe Is Trying to ‘Trump Proof’ the Transatlantic Relationship

Turmoil Over Migrants at U.S.-Mexico Border Is Straining Trade Flows

The Threat of an American Debt Crisis

BlackRock CEO Larry Fink Sees 10-Year Yields Heading Above 5%

Quirk of Bond Futures Threatens to Accelerate Surge in US Yields

A Silver Lining From the Pandemic: A Surge in Start-Ups

Huawei Takes Revenge as China Catches Up on Semiconductors

Biden’s $100 Billion Chip Bet Caught Up in Arizona Union Showdown

UAW Expected to Expand Auto Strikes Friday

EVs Will Hit Detroit Harder Than a UAW Raise

Billionaire Agarwal Shakes Up Vedanta Empire as Debt Bill Looms

VW Scraps Plan for New €2 Billion EV Factory in Germany

How West Africa Can Reap More Profit From the Global Chocolate Market

Meal-Kit Maker Blue Apron to Be Sold (Ending Disastrous Six-Year Experiment with Public Ownership)

Nike Clears a Low Bar With Investors

Henry Kravis, Endeavor, Fenway Eye PGA Tour Deal to Rival Saudi Arabia’s

The U.S. Tried to Pitch Peanuts at Japanese Baseball Games. It’s a Tough Nut to Crack

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Morning News: September 28, 2023
Posted by Eddy Elfenbein on September 28th, 2023 at 7:06 am

Evergrande Halts Trading After Founder Put Under Police Control

Saudi Arabia and Russia Win Big in Gamble on Oil Cuts

Oil Touches $95 With Shrinking Inventories Fanning Fresh Rally

Feeding the World Once Brought the US Untold Influence—No More

Want to Spur Green Energy in Wyoming? Aim for the Billionaires

Standoff in Congress Brings Government to Brink of Shutdown

Missing ‘Gold Standard’ Economic Data Will Test Alternatives in US Shutdown

Bond Selloff Pushes Treasury Yield to New ‘07 Peak

What’s Driving the September Stock Swoon

In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head

US SEC Nearing Settlement with Wall Street Firms Over WhatsApp Probe

GameStop’s Billionaire Backer Cohen Replaces Ousted CEO

Elon Musk Wins US Space Force Contract for Starshield

Meet the A.I. Jane Austen: Meta Weaves A.I. Throughout Its Apps

To Bring Socializing Back to Social Networks, Apps Try A.I. Imagery

Google User Data Has Become a Favorite Police Shortcut

The Magic Number: 32 Hours a Week

What Worries UAW’s Striking Workers, in Their Own Words

Car Sales Are Slowing. Car-Listing Websites Are Just Getting Started

Peloton Soars After Deal With Lululemon to Share Fitness Content

Logistics Companies Grow Cautious on Holiday Hiring

When Corporate Confessions Make Companies Look Good—and When They Don’t

Delta CEO: Airline ‘Probably Went Too Far’ with SkyMiles Changes

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Morning News: September 27, 2023
Posted by Eddy Elfenbein on September 27th, 2023 at 7:06 am

China Has Second Thoughts About Controlling Prices in Its Multi Trillion-Dollar Housing Market

China Puts Evergrande’s Billionaire Founder Under Police Control

What the U.S.-China Chip War Means for a Critical American Ally

US Investors Want Clarity on Biden’s Vague Curbs on China Tech

ECB’s Holzmann Floats Tenfold Hike in Minimum Reserves

IPO Optimism Grows, Fueling Hope for Global Recovery

US Government Shutdown’s Economic Risks Grow the Longer It Lasts

DOJ Steps Up Probe Against Credit Suisse, UBS Over Alleged Russian Sanctions Evasion

Crypto’s Wild D.C. Ride: From FTX at the Fed to a Scramble for Access

A $12 Million Request to Cover a Crypto Scam Sank a Bank CEO

Why Now Is a Horrible Time to Refinance Student Loans

Britain Approves Huge, Controversial Oil and Gas Field in the North Sea

E.U. Law Sets the Stage for a Clash Over Disinformation

Lina Khan vs. Jeff Bezos: This Is Big Tech’s Real Cage Match

How Elon Musk Came to Influence the Fates of Nations

A Futuristic Plan to Make Steel With Nuclear Fusion

This Ford vs. GM Feud Could Shape the Future of EVs in America

Auto Workers Aren’t Striking Only For Higher Wages. They Want Their Pensions Back, Too

Las Vegas and Its Big, Big Ambitions

Las Vegas Hospitality Workers Authorize Strike at Major Resorts

Costco Keeps Members and Investors Guessing

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CWS Market Review – September 26, 2023
Posted by Eddy Elfenbein on September 26th, 2023 at 5:40 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 S&P 500 Drops to a Three-Month Low

Wall Street has been in a sour mood lately. As I’ve discussed before, early fall has historically been a tough time for Wall Street. It’s happening again this year. On Tuesday, the Dow had its worst day since March. The S&P 500 closed at its lowest level since June 7.

It’s as if everyone got back from the Labor Day weekend in a lousy mood. This time, investors are worried about a sluggish economy and (another) potential government shutdown. Mind you, the market hasn’t experienced a sudden drop. Instead, it’s been a slow and gradual decline. Nor has the damage been severe — at least not yet.

Since the end of July, the S&P 500 has pulled back by 6.9%. The S&P 500 had already dropped below its 50-day moving average, which can be a sign of continued weakness. The index isn’t far from its 200-day moving average (the green line in the chart above). The S&P 500 has traded above its 200-DMA without stop for more than nine months.

Counting Thursday, the S&P 500 has now had six daily drops of more than 1% in August and September. In July and August, there were zero 1% drops.

Of course, we should remember that the market had a very nice run from mid-March until late July. The S&P 500 gained 19% in 20 weeks.

As impressive as the July peak was, it was still well short of the all-time peak from early 2022. This means the stock market has gone 21 months without making a new high. And I’m not adjusting that for an unpleasant bout of inflation which isn’t fading as quickly as we hoped.

Here’s an odd stat for you. The S&P 500 has closed higher for the last 12 Mondays in a row. That’s an all-time record (via Callie Cox).

The market may be sensing a growing unease among consumers. On Tuesday, the Conference Board reported that consumer confidence fell to a four-month low. I like to keep a close eye on the report because so much of the economy comes down to how optimistic people are.

For September, the Conference Board’s Consumer Confidence Index fell to 103. That’s down from 108.7 for August. It’s the second-lowest reading for this year. In fact, this month’s number came close to dipping below May’s number of 102.5 which would have been the lowest number this year.

Interestingly, the drop in consumer confidence was felt most strongly among folks who make more than $50,000 per year.

Within the Consumer Confidence report, the Conference Board also tracks its Expectations Index. For September, that fell to 73.7. Unofficially, a reading below 80 often tells us that a recession is near. I don’t want to sound alarmist, but we should note that consumers are feeling anxious.

What’s driving all this negative sentiment? That’s not much of a secret. Consumers are worried about higher interest rates, higher mortgage rates and rising gasoline prices. America’s credit card debt recently hit $1 trillion. Overall household debt is now more than $17 trillion.

Folks are feeling the strain. Bank of America recently said that the number of people tapping their 401(k) accounts due to financial stress jumped 36% from a year ago.

Look at the bond market where we see rising yields. The 10-year Treasury yield recently hit a 16-year high while the two-year yield touched a 17-year high. In fact, the two-year yield came within 17 basis points of making a 23-year high. Two years ago, the two-year yield was going for 0.3%. Now it’s going for 5.1%.

The housing market is also feeling the squeeze of higher rates. On Tuesday, the Census Bureau said that sales of new homes fell 8.7% from July to August (that’s seasonally-adjusted and annualized). That’s the slowest pace since March.

Guess what happens when there’s more supply than demand? That’s right. Prices drop. The median price of a new home sale in August was $430,300. That’s down 2% from last year. Housing affordability is at a three-decade low.

Homebuilders are cutting prices to get rid of their homes. Interestingly, the supply of new homes was already fairly tight. The problem is that higher mortgage rates are holding back demand.

Expect 10% Earnings Growth for Q3

This week is the final week of trading for Q3. In a few weeks. the Q3 earnings season will start up. The overall earnings results should be pretty good, but that’s largely because earnings one year ago were weak.

Right now, analysts expect earnings to be up nearly 10% compared with last year’s Q3. Wall Street sees the S&P 500 reporting earnings of $55.27 per share. (That’s the index-adjusted number. Every one point in the S&P 500 works out to about $8.35 billion.)

This is a big downward shift in expectations. In the middle of 2022, Wall Street had been expecting Q3 2023 earnings of more than $63 per share. Over the course of the last year, analysts gradually pared back their Q3 estimates by more than 13%. Recently, however, earnings estimates have increased a little bit. The first reports will start coming in in about two weeks.

As important as earnings are, we also want to see the kind of guidance that companies are willing to offer for the rest of this year and into 2024.

Last year was tough for earnings. For all of 2022, earnings were down just over 5% from 2021. That means earnings growth this year will be helped by favorable comparisons. For Q4, Wall Street currently expects earnings growth of close to 14%. If that’s right, it means the S&P 500 will deliver full-year earnings growth of 11.7%.

That would place full-year earnings at $220 per share and next year’s earnings at $245 per share. That means the S&P 500 is going for 17.5 times next year’s estimate. That’s a little pricey, but I don’t think it’s unreasonable. Right now, the worry isn’t valuations but rather that earnings growth is falling off.

Here’s the S&P 500 along with its earnings. The two lines are scaled at a ratio of 20 to 1. That means that whenever the lines cross, the S&P 500’s P/E ratio is 20.

The S&P 500 is the black line. Earnings are the red line. The green line is Wall Street’s earnings forecast.

The largest tech stocks are looking very stretched. Charlie Bilello points out that the 10 stocks in the S&P 500 now account for 30.5% of the index’s value. The other 490 stocks comprise the other 70%. The Russell 2000 index is down for this year.

There’s more news to come this week. Tomorrow, we’ll get the durable goods report. Wall Street is expecting a drop of 0.5%.

On Thursday, we’ll get the latest report on initial jobless claims. These reports have been quite good recently. We’ll also get the final revision to Q2 GDP. I’m not too concerned about this report since it covers a time period that began six months ago and ended three months ago. We’ll also get the report on pending home sales.

On Friday, we’ll get reports on personal income and spending. Along with this report, the government will include the PCE price data which is the Fed’s preferred measure of inflation.

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.