Morning News: November 11, 2022
Posted by Eddy Elfenbein on November 11th, 2022 at 7:02 am

Europe Braces for Recession as Economies Falter

China Eases Quarantine, Ends Flight Bans in Covid Zero Shift

US Finds Others Aligned Against It in Saudi-Sparked Oil Row

After Months of Stubborn Inflation, Glimmers of Hope Emerge

The Lack Of a ‘Red Wave’ Signals a Better Economy

Japan Sets Up Advanced Chip Business With Toyota, Sony

SoftBank Posts Profit of More Than $21 Billion After Selling Alibaba Shares

Credit Suisse Overhaul Draws Scrutiny From Some Investors, Proxy Adviser Over Governance

The Crypto Ponzi Scheme Avenger

The Incredibly Stupid Catastrophe Caused by Sam Bankman-Fried and FTX

FTX Latest: EU License Under Threat as Asset Freeze Fuels Crisis

FTX Crypto Exchange Boss Says He Is Trying to Raise More Money

Two Weeks of Chaos: Inside Elon Musk’s Takeover of Twitter

Musk Warns Twitter Bankruptcy Possible as Senior Executives Exit

Amazon, in Broad Cost-Cutting Review, Weighs Changes at Alexa and Other Unprofitable Units

It’s the New Saying Among Tech CEOs: I Apologize

Adidas Says It Will Relaunch Kanye West’s Shoe Designs Without the Yeezy Name

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Stock Market Soars on CPI Report
Posted by Eddy Elfenbein on November 10th, 2022 at 10:06 am

The stock market is soaring higher this morning thanks to an encouraging CPI report.

For October, consumer prices rose by 0.4%. That was 0.2% less than expected. Over the past year, consumer prices increased by 7.7%.

If we exclude food and energy, then consumer prices rose by 0.3% last month. That was also 0.2% less than expected. In the last year, core prices are up 6.3%.

As soon as the news came out at 8:30 ET, the Dow Jones futures soared 800 points. The S&P 500 is close to its highest close in two months.

Fed watchers have also taken notice. Yesterday, the odds of a 0.75% hike at the Fed’s December meeting were 43%. Now they’re 19%. That’s why stocks are up.

Morning News: November 10, 2022
Posted by Eddy Elfenbein on November 10th, 2022 at 7:01 am

Shrunken Mississippi River Slows US Food Exports When World Needs Them Most

Price of Diesel, Which Powers the Economy, Is Still Climbing

Why Inflation Has Lasted for So Long

What Happens When Americans’ Cash Runs Out

As the Fed Raises Rates, Worries Grow About Corporate Bonds

Regulators Look to Lessen Treasury Market Reliance on Big Bank Dealers

FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe

Is This Crypto’s Lehman Moment?

When Tech Stocks Sputter, the Entire Stock Market Sinks

Tech’s Talent Wars Have Come Back to Bite It

When Your Layoff Has a Hashtag

Work From Anywhere! (Well, Not Really)

Musk’s First Email to Twitter Staff Ends Remote Work

Rivian’s Losses Mount as It Continues to Burn Through Cash

Nio Reports Strong Third-Quarter Revenue as It Gears Up for a Big Year-End Production Push

Carvana’s Earnings Crash Spurs Bond Selloff

Redfin Shuts Home-Flipping Business, Lays Off 13% of Staff in Slumping Housing Market

Disney Has a Disney World Problem, Too

Goldman Sachs’s 80 New Partners Are the Happiest People on Wall Street Today

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Morning News: November 9, 2022
Posted by Eddy Elfenbein on November 9th, 2022 at 7:05 am

China Producer Prices Turn Negative in Warning Sign for Global Economy

China’s Great ‘Zero-Covid’ Guessing Game

Entrepreneur Caught in the Middle of U.S.-China Chip War

Europe Doubles Down on Big Government

Euro Area’s Inflation Shock Weighs Most on Poorest Households

Iran Calls for Deeper Energy, Trade Ties with Russia

Kerry’s Climate Credit Plan Risks Payouts for Carbon-Cutting Mirage

Some Investors Bet Fed Could Lift Rates to Two-Decade High

US Mortgage Rates Rise to 7.14%, Near Highest Level Since 2001

Crypto World Is Rocked as World’s Largest Exchange Rescues Rival

Sam Bankman-Fried’s ‘Emperor’ Aura Makes Downfall a Crypto Stunner

Wells Fargo Embroiled in Yet Another Scandal

Meta to Cut Over 11,000 Jobs; Zuckerberg Says ‘I Got This Wrong’

The Advertising Industry Is Bringing Elon Musk to His Knees

Elon Musk Sells Almost $4 Billion of Tesla Stock After Twitter Takeover

Adidas’ Break-Up with Kanye West Has Halved Its Earnings Forecast for 2022

Disney+ Adds 12 Million Subscribers, but Cites ‘Peak Losses’

AMC Stock Falls After Net Loss Widens. The Meme Trade Needed a Bigger Win.

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CWS Market Review – November 8, 2022
Posted by Eddy Elfenbein on November 8th, 2022 at 8:17 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.”)

Some Cautious Reasons for Optimism

For the first time in a long time, I would call myself an optimist on the stock market. Not that we’re out of the woods just yet, but I sense that the recent selling pressure is overdone.

The market has already thrown several false rallies our way, but the current uptrend may last. The S&P 500 is already up close to 10% since its intra-day low from October 13. The index is also above its 50-day moving average (the blue line in the chart below) which has often been an omen for good returns. Interestingly, the market has historically made several important lows during October.

I don’t want to overstate the case. Of course, we should always be prudent, but there are concrete reasons to be optimistic. For example, the Federal Reserve is probably getting near the end of its rate hikes. In fact, I think rates may be held steady for most of 2023.

Also, the stock market is reasonably priced. It’s been a good thing for disciplined investors to see so many “lockdown darlings” get punished harshly this year. From peak to trough, Peloton lost more than 96% of its value. Stocks like Facebook and Netflix have also been hammered.

Meanwhile, to take an example from our Buy List, Silgan Holdings (SLGN), just hit a new 52-week high. Silgan is going for about 12 times next year’s earnings. The shares are quietly up more than 15% this year. It seems like the more attention a stock usually gets in the media, the worse it’s done this year.

While I think the economy will be in a recession next year, it will probably be a shallow one. Inflation is still a serious problem, but it finally has the attention of people who were quick to dismiss it.

We don’t have all the numbers in yet, but it looks like the S&P 500 will post minor earnings growth compared with last year’s Q3 (though not as much as inflation). This is a very different market than we had only a few months ago. The New York Times quoted Patrick Fruzzetti: “The main thing to remember is that the markets tend to rally post election only because markets don’t like uncertainty.” I have to agree.

On Friday, the government released the jobs report for October, and it wasn’t bad. Last month, the U.S, economy created 261,000 net new jobs. While that’s a decent number, it’s the smallest monthly increase since December 2020.

I don’t mean to dismiss the report. It beat Wall Street’s forecast of 205,000. The stock market opened higher on Friday but then zig-zagged for a bit before closing higher by 1.4%. Not that long ago, a report like that probably would have tanked the market.

The details of the report were somewhat mixed. The unemployment rate rose 0.2% to 3.7%. The labor force participation rate declined for the second month in a row to 62.25%.

The labor force participation rate can be easily influenced by demographic factors such as more retirees. If we look at just the labor force participation rate for prime working age people (ages 25 to 54), that’s 82.5%. That’s not far from where it was pre-Covid.

The frustrating part continues to be wages. For October, average hourly earnings rose by 0.4%. In the last year, average hourly earnings are up 4.7%. That’s the smallest increase in over a year. We need to see this number improve. While many workers are seeing their pay go up, they’re seeing prices go up even more.

The government also tracks a broader measure of unemployment, the U-6 rate. For October, that increased to 6.8%. Here are some more details:

Health care led job gains, adding 53,000 positions, while professional and technical services contributed 43,000, and manufacturing grew by 32,000.

Leisure and hospitality also posted solid growth, up 35,000 jobs, though the pace of increases has slowed considerably from the gains posted in 2021. The group, which includes hotel, restaurant and bar jobs along with related sectors, is averaging gains of 78,000 a month this year, compared with 196,000 last year.

Heading into the holiday shopping season, retail posted only a modest gain of 7,200 jobs. Wholesale trade added 15,000, while transportation and warehousing was up 8,000.

After last Wednesday’s Fed meeting, Fed Chairman Jerome Powell gave a press conference that sounded noticeably more hawkish than the policy statement let on. The financial markets took the cue and sold off. That has passed and the market has gained ground for three days in a row.

For the December 13-14 Fed meeting, futures traders continue to be evenly divided. Half think there will be a 0.5% increase. The other half expects a 0.75% increase. Personally, I’m leaning towards another 0.75% hike. In total, we’re probably looking at another 100 to 125 basis points in further rate increases. After that, I suspect the Fed will pause for several months.

Of course, much of this hinges on the incoming data. The next big test for Wall Street will come Thursday morning when the CPI report for October comes out. The last report showed inflation running at 8.2% over the last 12 months. That’s very high but it’s still below the peak of 9.1% in June.

In the last CPI report, the big problem was that the core rate increased by 6.6% over the last 12 months. That was the fastest pace since August 1982. That’s when the stock market reached rock bottom after a nasty 16-year bear market. Even if headline inflation has already peaked, we may be facing a slow decline.

Ansys and McGrath Rally After Big Earnings Beats

I recently highlighted two stocks for you and both have been doing quite well. This week, I want to bring you updates on both stocks.

In our issue from four weeks ago, I focused on Ansys (ANSS). I’ve always been a big fan of this stock but last year, I thought it got way too pricey. We cut the stock from the Buy List at the end of last year, and I’m glad we did. The stock has had a rough year in 2023. Ansys is down more than 45% this year.

Despite the falling share price, business at Ansys has been doing very well. As we know, a strong business can be a very different animal from a strong stock. In August, Ansys had an earnings report that was very good. Last Wednesday, the company released its Q3 earnings report and it smashed expectations.

For Q3, Ansys said it expected Q3 earnings between $1.56 and $1.70 per share. It turns out that they made $1.77 per share. The CEO said Ansys beat its “financial guidance across all key metrics.” What impressed me is that it’s able to maintain an operating profit margin close to 40%. This is such a good business.

For Q4, Ansys now sees earnings ranging between $2.58 and $2.90 per share. That works out to full-year earnings of $7.48 to $7.90 per share. Wall Street liked what it saw. In the four trading days since the report, Ansys has rallied 9.1%. I haven’t made our Buy List decisions yet for next year, but I’m considering adding Ansys back to our Buy List.

Two months ago, I told you about little McGrath RentCorp (MGRC). The company is in the unusual business of renting relocatable modular buildings, portable storage containers, electronic test equipment and liquid containment tanks. This means things like modular classrooms. Or imagine a construction site in the middle of nowhere. McGrath can rent the foremen an instant office. These things are more common than you might expect. I always like small niche businesses like this.

The odd thing about McGrath is that almost no one follows it, but the company has raised its dividend for 31 years in a row. Earlier this year, the company solidly beat earnings for Q1 and Q2, but I wanted to bring you up to speed on the latest earnings report.

On October 27, McGrath reported very strong numbers for Q3. Sales rose 16% to $200.5 million, and earnings increased to $1.25 per share. That beat by eight cents per share. The stock jumped 11.6% on the news. The shares reached a new all-time high today. In the last 30 years, the stock is up 100-fold.

Here’s a stat that tells you so much about Wall Street. Sixty analysts currently follow currently Meta Platforms. Most have it rated as a buy or a strong buy. Only two analysts follow McGrath.

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.

AFLAC Raises Dividend
Posted by Eddy Elfenbein on November 8th, 2022 at 5:08 pm

For the 40th year in a row, AFLAC (AFL) has increased its dividend. The quarterly payout will rise by 5%, from 40 to 42 cents per share. The new dividend is payable on March 1 to shareholders of record at the close of business on February 15.

Additionally, its Board of Directors authorized the purchase of up to 100 million shares of its common stock. This authorization is in addition to the 25.6 million shares as of September 30, 2022, that remained under the August 11, 2020 authorization, bringing the total number of shares available for purchase to approximately 125.6 million. The company anticipates that the repurchase of shares will be conducted from time to time in open market or negotiated transactions, depending on market conditions.

Commenting on the announcements, Aflac Incorporated Chairman and Chief Executive Officer Daniel P. Amos said: “I am pleased with the Board’s action to increase the first quarter 2023 dividend. We treasure our record of 40 consecutive years of dividend increases, and our dividend track record is supported by the strength of our capital and cash flows. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders. At the same time, we are listening to our shareholders and understand the importance of prudent liquidity and capital management. We remain committed to maintaining strong capital ratios on behalf of our policyholders and balance this financial strength with tactical capital deployment.”

Reynolds Earned 24 Cents per Share
Posted by Eddy Elfenbein on November 8th, 2022 at 10:27 am

This morning, Reynolds Consumer Products (REYN) reported Q3 earnings of 24 cents per share. That was one penny more than Wall Street had been expecting.

Revenues were up 7% to $967 million. Like so many other companies, Reynolds sold less stuff but charged more for it. A key to a high-quality company is the ability to pass along price increases.

“We closed the gap between pricing and cost increases this quarter while also building share and delivering earnings in line with our expectations,” said Lance Mitchell, President and Chief Executive Officer. “Household foil trends also improved as we attained key retail price points, and Reynolds and Hefty gained share in multiple categories including household foil, waste bags and disposable tableware. The economic environment remains dynamic, inflationary pressures continue and price elasticity continues to be uncertain. However, our cumulative pricing actions, easing commodity costs and accelerating Reyvolution cost savings position us for substantial margin expansion in the fourth quarter and recovery of pre-pandemic profitability in 2023.”

For Q4, Reynolds expects revenue growth of 9% to $1.021 billion and adjusted EPS between 54 and 60 cents per share.

That would bring the full-year results to revenues of $3.556 billion, an 8% increase, and earnings between 1.30 and $1.36 per share.

The stock fell 7.3% in today’s trading.

Morning News: November 8, 2022
Posted by Eddy Elfenbein on November 8th, 2022 at 7:00 am

Europe’s Energy Crunch Will Trigger Years of Shortages and Blackouts

African Leaders Say They Need Cash Not Cheap Loans

Japan’s Waning Appetite for Treasurys Fuels Anxiety on Wall Street

Supreme Court Seems Poised to Streamline Challenges to Agency Power

Wall Street’s Alchemists Turbocharged Wild Swings in Treasuries

Investors Bet on Midterm Bounce for Stock Market

The Fed Won’t Say It, but It Doesn’t Want a Strong Stock Market

Credit Suisse Spinoff Asks If World Needs a New Investment Bank

Kenya Discloses Part of Secret Railway Contract With China

Germany Poised to Block Chip Facility Sale to Chinese Owner

Nvidia Offers Alternative Chip for China to Clear U.S. Export Hurdles

Renault to Separate EV Unit in Sweeping Overhaul

Foxconn Plans to Invest $170 Million in EV Truck Maker Lordstown Motors

Apple Built Its Empire With China. Now Its Foundation Is Showing Cracks.

When Does Collaboration Become Collusion?

Millennials Are Changing What It Takes to Succeed in Sales

More Workers Get Side Hustles to Keep Up With Rising Costs

Facing a Tide of Criticism, Elon Musk Is Tweeting Through It

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Slow Day Ahead of the Elections
Posted by Eddy Elfenbein on November 7th, 2022 at 10:29 am

The stock market is starting the week up a little bit. I think most of Wall Street’s attention is focused on tomorrow’s mid-term election. Shares of Meta Platforms (META) are up about 5%. Of course, that’s coming after the stock was severely punished. On Friday, Meta got as low as $88 per share. The Wall Street Journal said the company could begin large-scale layoffs this week.

There’s not much economic news today but there will be a few Fed speakers. Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins will speak about women in economics. Richmond Fed President Tom Barkin will speak on inflation. The futures market currently sees the Fed raising its target range for the Fed funds rate to 5.00 to 5.25% next year.

Reynolds Consumer Products (REYN) is up 1.6% today. The company is due to report its earnings tomorrow morning. Wall Street expects 23 cents per share.

Morning News: November 7, 2022
Posted by Eddy Elfenbein on November 7th, 2022 at 6:28 am

China’s Exports Drop Sharply as Global Economy Slows

China’s Business Elite Sees the Country That Let Them Thrive Slipping Away

India’s Top Court Backs Modi’s Job Quota for ‘Economically’ Poor

Japan Extra Budget Said to Lift Bond Issuance by $34 Billion

Insurer That Sparked Perpetual Bond Selloff Will Repay After All

Mexico’s Pemex Had a Plan to Fix Its Flaring Problem, but Abandoned It

COP27 Latest: Macron Tells US, China to Pay for Climate Change

Energy Sticker Shock Grabs Spotlight Before Midterms

Despite What You’re Told, There Are No ‘Bubbles’ and Certainly No ‘Fed Bubbles’

Goldman Cuts S&P 500 Earnings Estimate, Citing Margin Headwinds

The Shadow Is Born: How the Fed Helped Spawn a $23.7 Trillion Market

Fed ‘Hasn’t Accomplished Anything’ on Labor Market, Dudley Says

Inflation, Recession Fears Have Some Holiday Shoppers Trading Down

Big Tobacco Heralds a Healthier World While Fighting Its Arrival

Activision Insiders Fret $69B Microsoft Merger Could Fall Apart

Walgreens Unit Close to Roughly $9 Billion Deal With Summit Health

British Soccer, Brought to You by American Crypto Optimism

Reality of Irving’s Import to Nike: ‘They Can Drop Him’

Seizing a Russian Superyacht Is Much More Complicated Than You Think

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