The Two-Year Reaches Its Highest Yield Since 2007
Posted by Eddy Elfenbein on February 27th, 2023 at 12:12 pm

The stock market is having a good day so far. At noon, the S&P 500 is up about 0.5%. Earlier, it was up over 1%.

The yield on the two-year Treasury reached 4.857%. That’s its highest level in nearly 16 years.

Our Buy List is outpacing the market by a small amount so far today. Some of our leaders today are Trex (TREX), Middleby (MIDD) and Polaris (PII). Those are all cyclical stocks. Trex and Celanese (CE) will report after today’s close.

This morning we got the report on orders for durable goods. The headline number was very bad. Orders for durable goods plunged by 4.5%, but that drop was almost all due to Boeing. In December, Boeing got a surge in orders so that led to a slow January.

Airplane orders can be very volatile. If we exclude transportation, then orders were up by 0.7%.

From MarketWatch:

More important, business investment climbed 0.8% to mark the fastest gain since last August. Investment had declined in three of the last four months of 2022.

Still, the annual rate of growth in business investment slowed again to 4.3% from 5% — less than half the pace compared with one year ago.

These orders exclude military spending and the auto and aerospace industries.

Finally some good news for housing. This morning, the National Association of Realtors said that pending home sales rose by 8.1% last month. That’s the largest increase since June 2020.

Even with that increase, over the past year, pending sales are down more than 24%. From Bloomberg, “The jump beat all estimates in a Bloomberg survey of economists, which called for a 1% advance.”

Shares of Union Pacific are up about 10% on news that the CEO is stepping down. If the news of you leaving your job adds $11 billion in market value, then it probably wasn’t meant to be.

Morning News: February 27, 2023
Posted by Eddy Elfenbein on February 27th, 2023 at 7:02 am

Gas Crisis Is Far From Over for Europe Inc.

As Oil Companies Stay Lean, Workers Move to Renewable Energy

Higher Interest Rates Slam Stocks and Profits, But Spare Workers

What Layoffs? Many Employers Are Eager to Hang On to Workers

I.R.S. Decision Not to Tax Certain Payments Carries Fiscal Cost

As Wall Street Chokes on Bad Buyout Loans, Rivals Seize Opening

Buyout Firms Looking for Bargains Will Be Left Disappointed

Goldman Turns to ‘Make-or-Break’ Unit as CEO Solomon Put to Test

JPMorgan Investment Arm Purges Its ESG Funds of Adani Stocks

Why Warren Buffett Doesn’t Worry Much When the Market Goes Down

Lamar Jackson and the NFL’s Salary Cap Capably Indicate What ‘Inflation’ Isn’t

Americans Are Saving $500 Million Monthly on Internet Fees

How Repaying Student Loans Is Changing—Dramatically

Apartment Rents Fall as Crush of New Supply Hits Market

Why We Don’t Build More Apartments for Families

Apple’s iPhones Winning Over Gen Z—and the World’s Premium Market

From McDonald’s to Ralph Lauren, U.S. Companies Are Planning China Expansions

China Renaissance Says Its Missing Founder Bao Fan is Cooperating With a Government Probe

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Morning News: February 24, 2023
Posted by Eddy Elfenbein on February 24th, 2023 at 7:04 am

A Year After Russia’s Invasion of Ukraine, Tough Sanctions Linger

Europe Has Weathered an Energy Crisis, for Now

How One Ukrainian Company Survived, and Thrived, Through a Year of War

Israel’s Tech Industry Rebels Against Netanyahu’s Judicial Overhaul

As India Shakes Off Shackles, It Emerges as Global Economic Power

US Likely to Put a Tech Cap on South Korean Chipmaking in China

The World’s Most Painful Trade Is Finally Ending as Dollar Peaks

Biden to Nominate Former Mastercard Executive Ajay Banga to Lead World Bank

Bank of Japan Governor Nominee Predicts Inflation Rate Will Fall Soon

Economy Showing Strength in Early 2023 After Last Quarter’s GDP Gain Revised Modestly Lower

How ‘Base Effects’ Trip Up Our Understanding of the Economy

Inverted Yield Curve: Is It Still a Recession Indicator?

Why the Time to ‘Fix’ the 40 in Your 60/40 Portfolio Is Now

Investors Are Dumping Equities and Cash Amid Fears of Hawkish Fed, BofA Says

JPMorgan Could Reach $1 Trillion Market Value by 2030, Morgan Stanley Says

Egg Prices Will Fall Nearly 30% this Year, USDA Says

History May Wonder Why Microsoft Let Its Principles Go for a Creepy, Clingy Bot

Netflix Drops Prices in Over 30 Countries Amid Password-Sharing Crackdown

The Billionaire’s Daughter Knows What You’re Thinking

Goldman Expects $2.3 Billion More in Potential Losses from Legal Disputes

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Morning News: February 23, 2023
Posted by Eddy Elfenbein on February 23rd, 2023 at 7:09 am

China’s Tech Rainmaker Vanishes, and So Does Business Confidence

China’s Cities Are Cutting Health Insurance, and People Are Angry

Yellen Calls for More Ukraine Support and Warns China Against Helping Russia

Russian Oil Is Still Flowing, and That Is What the West Wants

Without Gas and Cash, Fed Up Nigerians Head to Polls

A $14 Billion Bailout for Eskom Leaves South African Power Crisis Unresolved

How Arizona Is Positioning Itself for $52 Billion to the Chips Industry

U.S. Aims to Create Semiconductor Manufacturing Clusters With Chips Act Funds

SEC, New York Regulator Oppose Binance.US’ $1 Billion Voyager Deal

Fed Minutes Show Most Officials Favored Quarter-Point Rate Rise

White House Considers Two Economists for Fed Vice Chair

Jerome Powell’s Worst Fear Could Come True in Southern Job Market

After Multibillion-Dollar Fintech Binge, Wall Street Has a Writedown Hangover

Why Interest Rates on Savings Accounts Are Still So Low

US Housing Market Posts $2.3 Trillion Drop, Biggest Since 2008

These Three Words Are Taking Over LinkedIn

U.S. Labor Board Limits Gag Clauses in Severance Agreements

Newmont’s Gold Output Stagnates as It Chases Big Takeover

Lucid Sees Disappointing 2023 EV Production as Orders Drop Amid Weakening Demand

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Morning News: February 22, 2023
Posted by Eddy Elfenbein on February 22nd, 2023 at 7:05 am

The EV Question for Auto Executives: How Fast to Make the Shift?

China’s Leading Electric Carmaker Has Arrived in Germany

China Urges State Firms to Drop Big Four Auditors on Data Risk

China’s Economic Support for Russia Could Elicit More Sanctions

Ukrainians Dig Into Their Own Pockets to Fund Everything From Drones to Mortars

U.S. Mortgage Interest Rates Jump to Highest Level Since November

US Home-Purchase Applications Drop to 28-Year Low as Rates Jump

US to Cut Mortgage Insurance Costs for Some New Homeowners

Inside Taiwanese Chip Giant, a U.S. Expansion Stokes Tensions

How Arizona Is Positioning Itself for $52 Billion to the Chips Industry

JPMorgan Restricts Staff’s Use of AI-Powered ChatGPT Bot

Stellantis Rises on Surprise Buyback, Strong Earnings

Palo Alto Networks’ Earnings Blowout Spotlights the Club’s Newest Stock

Chesapeake to Sell Shale Oil Assets to British Chemical Maker Ineos for $1.4 Billion

Japan Auto Giants Offer Biggest Raises in Decades Amid BOJ Focus

New York City Coffers are Flush With Cash as It Taps Bond Market

Pay and Plug: Federal Funds Spur Cleanup of Lost Oil Wells

These 61 Companies Moved to a 4-day Workweek. Here’s What Happened to Revenue — and Employees’ Relationships to Their Jobs

How Hybrid Work Is Changing Offices of the Future

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CWS Market Review – February 21, 2023
Posted by Eddy Elfenbein on February 21st, 2023 at 7:21 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’s Worst Day of the Year

Wall Street has apparently re-entered one of its gloomy phases. The S&P 500 has fallen the last two weeks and today was not a good day for the bulls. The S&P 500 lost 2% today making it the worst day of the year so far.

Until recently, the market had been doing quite well. From October 12 to February 2, the S&P 500 gained more than 16%. Now that appears to be yet another of several bear-market rallies we’ve seen over the last 14 months. Today was the market’s lowest close since January 20.

It will be interesting to see if the bears can keep this downturn moving. The S&P 500 closed today below 4,000 for the first time in a month. The index is still above its 50- and 200-day moving averages, but the 50-DMA is getting close. It may seem surprising to you that the market is still up 4.1% this year because sentiment has been so negative this month.

The market’s latest drama centers around the fact that the despite the Fed’s best efforts, the U.S. economy, outside of housing, continues to do well. There’s even talk of the Fed resorting to a 0.50% rate hike at its next meeting. This isn’t the dominant view, at least not yet, but it may be gaining momentum.

Goldman Sachs said it sees the Fed hiking by another 0.75% this year, with zero rate cuts until 2024. We’ll learn more tomorrow when the Fed releases the minutes from its last meeting.

Earlier today, Walmart released a very good earnings report. Walmart is so big that its earnings report is effectively like a report on American consumer behavior. The company said that December was its best sales month in its history. For the quarter, Walmart made $1.71 per share. That was 20 cents more than expectations.

For the quarter, Walmart had sales of $164 billion. That’s a gigantic number and it’s up 7.3% from the same quarter one year before. Despite the good news from the quarter that just ended, Walmart gave a muted forecast for this year. The company warned investors that consumers are getting more cautious. Americans are starting to pull back as they feel the impact of higher prices. The CFO said, “prices are still high and there is considerable pressure on the consumer.”

Until now, most of the fallout from the rate hikes has fallen on the housing market, and not so much on consumers. That might be changing.

Walmart wasn’t alone. Today Home Depot cautioned that this year might not be as strong as they had hoped. Of course, there’s a key difference with Home Depot because its business is closely tied to the housing cycle, and higher mortgage rates have severely impeded the housing market.

Shares of Lowe’s also took a hit today. That’s common on Wall Street. Traders assume that if one company in an industry is having issues, then they all are. On our Buy List, Trex fell over 6% today. The deck company will report earnings this coming Monday. Even with today’s drop, Trex is still our top-performing stock this year.

Morgan Stanley said that the stock market “could” drop by 26% in the first half of this year. These pronouncements always make me smile since the word “could” is doing an awful lot of work. Sure, many things could happen, but what’s likely to happen? Also, it’s 26%. Not 25% or 27%, but 26%. I appreciate the specificity.

Morgan contends that that the risk-reward ratio has turned against stocks. That makes sense since short-term rates have increased. The one-year Treasury yield closed today at 5.07%. In May 2021, it was yielding 0.04%.

For some investors, it will be tempting to sit out of the market and earn an easy 5% for one year. That’s not me, but I understand the feeling. Higher rates become stiff competition for stocks, and prices will adjust. That explains a lot of what happened today. And yet, housing continues to be a mess.

Today’s Terrible Housing Report

Today we got the home sales report for January, and it was ugly. U.S. home sales fell for the 12th month in a row. CNN said it “was the weakest home sales activity since 2010.”

The data for single-family homes goes back to 1968, and this is the longest streak in declining home sales on record. According to the National Association of Realtors, sales of existing homes fell 36.9% over the last year.

The annualized rate of new home sales fell from over six million one year ago to four million last month. The average rate for a fixed-year mortgage has nearly doubled from around 3.5% to over 6%.

It’s as if the Fed wants to throw a net around consumers but it keeps catching the housing market instead.

Despite the lower home sales, home prices are still going up. In January, the median home price was $359,000. While that’s down from the peak of $413,800 in June, it’s still up 1.3% over last year. That’s the lowest year-over-year change in more than ten years.

It’s a buyer’s market. Last month, the average home spent 33 days on the market. That compares with 19 one year ago. As bad as housing is, I suspect it may finally turn before the end of this year.

Stock Focus: Illinois Tool Works

I like to reserve this space for stocks you may not have heard of. My goal is to show investors that there are lots of great stocks to buy once you leave the area where the popular stocks and cool kids hang out.

This week’s focus is on a very big company that’s still not well-known. Illinois Tool Works (ITW) has 46,000 employees and a market cap of $71 billion which makes it a large-cap stock. It’s odd to call a company like this “little known,” but that seems to be the case. On Wall Street, 18 analysts cover ITW. I’m a sucker for any company with an old-fashioned sounding name.

Illinois Tool Works is based in Glenview, Illinois. The company describes itself as “a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $15.9 billion in 2022. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required.”

Since 1990, the shares are up 88-fold. Check out this long-term chart:

Last August, ITW increased its dividend for the 51st year in a row.

Earlier this month, ITW reported Q4 earnings of $2.95 per share. That beat Wall Street’s forecast by 37 cents per share. The stock gapped up 4.6% after the earnings report came out, but it’s given the entire gain back since then.

ITW is a classic cyclical stock which means its fortunes are closely tied to where we are in the economic cycle. These are the kinds of stocks that have suffered lately, especially today. Contrast that with Hershey, one of our Buy List stocks, which is a classic non-cyclical. HSY was one of 36 stocks in the S&P 500 to close higher today.

For all of last year, ITW made $9.77 per share. For the current year, the company expects earnings between $9.40 and $9.80 per share. That gives the stock a P/E Ratio of 24 to 25 which is on the rich side. This is the kind of stock to buy just before the economy hits bottom. That means when the Fed is already cutting rates instead of what we’re seeing now.

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 to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

Morning News: February 21, 2023
Posted by Eddy Elfenbein on February 21st, 2023 at 7:06 am

Europe’s Economy Picks Up After Year of War in Ukraine

U.S., Allies to Tighten Screws on Russian Sanctions Evasion -Treasury’s Adeyemo

Putin Tells Business Elite: Don’t Beg for Western Money, Invest in Russia

China’s Newest Weapon to Nab Western Technology—Its Courts

Star Banker’s Disappearance Surprises Even China’s State Lenders

Looming U.S. Default Risk Prompts Investors to Cut Some Debt Exposure

Morgan Stanley Says S&P 500 Could Drop 26% in Months

Credit Suisse Shares Hit Record Low on Outflow Claims Probe

After Testing Four-Day Week, Companies Say They Don’t Want to Stop

Why Big Layoff Announcements Don’t Always Mean Big Workforce Cuts

You Want at Least $3 Million in Savings to Retire Comfortably

Office Landlord Defaults Escalate as Lenders Brace for More Distress

The Cheap, Powerful Climate Fix Energy Companies Are Ignoring

HSBC Posts Higher Profit After Rise in Global Interest Rates

Home Depot Misses on Revenue, Issues Muted Outlook

Tencent in Talks to Sell Meta’s Quest 2 VR Headset in China

Big Soda’s Alcohol Drinks Worry Health Experts

It’s Time to Tear Up Big Tech’s Get-Out-of-Jail-Free Card

‘Effective Altruism’ Led Bankman-Fried to a Little-Known Wall St. Firm

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Morning News: February 20, 2023
Posted by Eddy Elfenbein on February 20th, 2023 at 7:08 am

Russian Crude Exports Surge Despite Impending Cut to Output

Russia and China Have a Stranglehold on the World’s Food Security

China Sets New Rules for Overseas IPOs. What It Means for DiDi, Alibaba and Others

Turkey’s Reeling Economy Is an Added Challenge for Erdogan

Investors Already Bet Nigeria’s Next Leader Has No Chance of Fixing Fiscal Crisis

Despised Dictator’s ‘Scary’ Shrine Becomes a Bet on Albania’s Future

Workers’ Pay Globally Hasn’t Kept Up With Inflation

Debt-Ceiling Standoff Prompts Backup Plans, but They Face Hurdles Too

JPMorgan Strategists Say Stock Rally Will Fade

How Pete Buttigieg and Washington Lobbyists Are Fueling the US Airline Crisis

Supreme Court to Hear Case That Targets a Legal Shield of Tech Giants

Meta Verification Fee Could Raise $3 Billion in Revenue

Amazon Corporate Workers Face Pay Reduction After Shares Slip

Walgreens CEO Bets on Doctors Over Drugstores in Search for Growth

From CEOs to Coders, Employees Experiment With New AI Programs

Why the Tesla Recall Matters

Adani Maps Comeback Strategy After $135 Billion Hindenburg Rout

Hedge Fund Billionaire Extracts Billions More to Retire

A Fight Over Wine Sales Highlights Push in U.S. to Expand Access to Alcohol

Uniqlo’s Quest to Conquer the US, One Cashmere Sweater at a Time

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Morning News: February 17, 2023
Posted by Eddy Elfenbein on February 17th, 2023 at 7:02 am

Cash Crisis Hits Nigeria Cocoa Exports in Fresh Blow to World Supply

‘Boring is the New Sexy’ as UK’s Stock Index Closes Above 8,000 for the First Time

Americans Have Nearly $1 Trillion in Credit Card Debt

U.S. Households Lifting Economy After Being Stung by Inflation Last Year

The Uneasy Dance Between the Markets and the Fed

Why a Strong Economy Is Making Stock Investors Jittery

BofA Says Says Hard Landing to Hit Stocks in Second Half

The S&P 500 Is The Most Popular And Overpriced Benchmark In The World

Lesser-Known Hedge Fund Boss Joins Ranks of Best Paid With 193% Gain

Star Banker’s Disappearance Unnerves China’s Business Elite

Crypto Fugitive Do Kwon Tapped Hoard of 10,000 Bitcoin Via Swiss Bank, SEC Says

Susan Wojcicki, YouTube’s Longtime C.E.O., Says She Will Step Down

The Extraordinary Exit of the Women of Silicon Valley

Wall Street Brings Its Financial Engineering to English Football

Microsoft Defends New Bing, Says AI Chatbot Upgrade Is Work in Progress

Why China Didn’t Invent ChatGPT

In a Violent America, Safety Becomes a Sales Pitch

Barnes & Noble Takes Page From Amazon With $40-a-Year Membership Program

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Morning News: February 16, 2023
Posted by Eddy Elfenbein on February 16th, 2023 at 7:04 am

The World’s War Machine Is Running Low on Ammunition

‘The World’s Largest Construction Site’: The Race Is On to Rebuild Ukraine

China Hits Back at US with Sanctions on Lockheed, Raytheon

Tesla’s Growing Competition in China Goes Beyond Just EVs

A Tiny Puerto Rican Port Is Turning Into a Test Lab for Trade Fluidity

Lael Brainard’s Fed Departure Could Leave Immediate Imprint on Inflation Fight

US Rates May Be Heading Higher Than Wall Street or the Fed Think

C.B.O. Warns of Possible Default Between July and September

The U.S. Debt Ceiling and Markets: Gauging the Fallout

This Is What Happens If the US Actually Hits the Debt Ceiling

U.S. Retail Sales Rebounded Sharply in January

The Retail C.E.O. Pipeline Is Running Dry

A $6 Trillion Bond Wall Revives an Arcane Corner of Wall Street

SEC Proposes Rule That Could Squeeze Crypto Platforms

Crypto Investors Had Their Funds Frozen. Now They Might Have to Pay Taxes Too

Fear Made John McAfee Rich. It Also Ruined Him

From Math Camp to Handcuffs: FTX’s Downfall Was an Arc of Brotherhood and Betrayal

America’s Priciest Neighborhoods Are Changing as the Ultra-Rich Move to Florida

Magic: The Gathering Becomes a Billion-Dollar Brand for Toymaker Hasbro

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