Stocks rallied strongly for a second straight session as investors digested earnings and prepared to face the Fed in next week’s FMOC meeting. A key economic figure has manufacturing and services in contraction mode adding to the recession case.
Recess time? Not that it matters really, because, after all it is just a word. Go on say it… recession. It sounds scary because when your favorite news channel paints it across your TV screen it is usually preceded by some sort of ominous music. Now, it must be said that recession is not a good thing, but let’s put it into perspective. When you think back to 2008 and 2009 what do you remember? Well, let’s start with the obvious. Most of us remember losing quite a bit of money in our stock portfolios. That was bad… really bad. You may also remember unemployment. There were lots of layoffs in late 2008 into 2009 which resulted in the unemployment rate spiking as high as 10% by October 2010. You may recall scenes of Lehman Brothers employees carrying boxes containing their personal belongings out the front entrance of the 160-year-old investment bank as it closed its doors for good. “For Sale” signs dotted the landscape as upside-down financed investment properties were shed below cost. It was a tough time. Do you remember GDP growth during that period? Of course, you don’t because that was just a figure compiled by an army of nerdy economists in some basement in Washington DC. Let us see if we can draw some parallels to today’s situation.
Starting with our equity portfolios… need I say more? The S&P500 is down by some -20% since January’s high, some of our favorite go-to stocks have fared far worse, and even supposedly safe bonds are down around -17% over the same period. It is fair to say that the investment environment is challenging, and that is the PG-rated description. Yeah, that kind-of feels similar to 2008, doesn’t it? Ok, moving on to unemployment. If you weren’t looking for a job in 2009, surely a nephew, friend, neighbor, or grandchild was. Unemployment reached a high not experienced since 1983. Today, thankfully, unemployment is at a 60-year low, and there are plenty of unfilled jobs, many of which were vacated during the pandemic. The banking system, which was in crisis in 2009, is in a far better place today due to careful management and regulation, so a fresh Global Financial Crisis does not appear likely. So far, we are “same” and “better” in our comparison.
Now, we move on to inflation. In 2008, the Consumer Price Index / CPI was, indeed, elevated, but only topped out at +5% in 2008. In today’s +8% environment, we would be happy to have +5% inflation. Inflation is a significant tax on budgets and will affect our ability to consume if it hasn’t already. Speaking of budgets. If you have a variable rate mortgage or you are purchasing a home using a fixed mortgage. You will be spending considerably more in your monthly payment. Today, a 30-year fixed mortgage rate is at 7.3% while it was it topped out at 6.4% in 2008. So, it would be safe to add a “worse” in our comparisons to 2008/2009. So, in my completely unscientific comparison, this period, on average, feels similar to 2008/2009. But, in fairness, we really cannot, or should not compare this time to 2008/2009 as it is far from an apples-to-apples comparison. I want to leave you with 2 final thoughts, however. The pain we felt in 2009 and the discomfort we are feeling today has nothing to do with the word “recession”… it is just a word. Finally, you may recall that Great Recession / Global Financial Crisis pain in 2008/2009 passed. If you rode out the 2008/2009 recession with your stock portfolio, the pandemic, and even this latest painful swoon, you would feel pretty good. The S&P500 gained some +158% over that period. If you bought at the end of The Great Recession, your return would be +313%. Those are not just words… they are numbers.
WHAT’S SHAKIN’
General Motors Co (GM) shares are higher by +4.82% in the premarket after the automaker announced that it beat EPS by +18.84% on a Revenue miss of -1.14%. The company said that it is experiencing some relief in supply chain holdups allowing it to deliver more vehicles. The company further said that it is not witnessing a pullback in demand despite higher interest rates. The company has a forward P/E of 5.76, which is cheaper than the 7.65 median of its peers. Dividend yield: 1.00%. Potential average analyst target upside return: +40.8%.
The Coca-Cola Co (KO) shares are higher by +2.74% in the premarket after it announced that it beat EPS and Revenue estimates by +8.54% and +5.61% respectively. The company also raised its full year guidance. Dividend yield: 3.05%. Potential average analyst target upside return: +14.4%.
United Parcel Service Inc (UPS) shares are higher by +2.87% in the premarket after the company announced that it beat EPS estimates by +5.01% on a slight -0.57% Revenue miss. The company expects to achieve its full year guidance but has seen, similar to its peers, a decline in volume. The announcement comes in contrast to competitor FedEx (FDX) which just weeks earlier reported a huge EPS miss facing similar demand challenges. Dividend yield: 3.97%. Potential average analyst target upside return: +23.0%.
Corning Inc (GLW) shares are lower by -5.66% in the premarket after it announced that it missed EPS and Revenue estimates by -1.19% and -0.60% respectively. The company’s Q4 guidance was below analysts’ expectations. The company has experienced a slowdown in demand for its display technology. That brings into question Apple’s (AAPL) results, which are due to be released on Thursday. Dividend yield: 3.34%. Potential average analyst target upside return: +20.6%.
Also, this morning: Polaris (PII), Valero (VLO), Haliburton (HAL), Sherwin-Williams (SHW), Archer-Daniels-Midland (ADM), and Biogen (BIIB) all beat on EPS and Sales, while General Electric (GE), Pulte Group (PHM), and Cleveland Cliffs (CLF) came up short.
YESTERDAY’S MARKETS
Stocks rallied yesterday in a bad-is-good reflex after a PMI release came in lower than expected. The S&P500 gained +1.19%, the Dow Jones Industrial Average climbed by +1.34%, the Nasdaq Composite Index advanced by +0.86%, and the Russell 2000 Index rose by +0.43%. Bonds slipped and 10-year Treasury Note yields added +2 basis points to 4.24%. Cryptos added +2.22% and Bitcoin slipped by -0.59%.
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