Pain relief is a good business these days

Stocks pared midday losses to close in the green yesterday as enthusiastic investors shook off uncertainty. Manufacturing posted an unexpected jump in the NY Fed region puzzling… and upsetting investors’ hopes for a dovish Fed.

Oversized sandwich. In these times, it is not enough to just offer a quality product. Nowadays, one has to draw attention by employing often extreme measures. I mean, who wants to eat an ordinary turkey sandwich, especially if it looks… um, ordinary in an Instagram post? No, a winning sandwich has to be piled so high, that no normal human can actually fit it into their mouth. It must also include all sorts of things, mostly decadent, that one would normally not associate with turkey. Those are the makings of a great, insta-worthy sandwich… and a trip to the doctor with symptoms of gout… and a shrinking bank account. I didn’t employ that tagline to talk about extreme social culture, though I did diverge momentarily.

I am referring to the growing number of factors that investors must consume when making investment decisions these days. There used to be a time, not too long ago, when buying the dip was a winning strategy for most. Even focusing on a narrow set of stocks would have been a profitable strategy. Sure, throw in a couple of small longshots for good measure. The economy had almost nothing to do with the success of that strategy. Inflation? Nonexistent. Unemployment? The lowest since the late 1960s. Interest rates? Pegged near 0%. Revenue growth? Companies could always find more! The debt ceiling? Mere talking points for angry politicians. Friends, that was smoooooth sailing. Even a global pandemic leaving millions of deaths in its wake could not break the strategy. All you had to do was wait patiently for a dip, then pick the most popular stock from a small list of usual suspects and… buy. A very thin, very soggy, but very satisfying turkey sandwich, indeed.

Today, things are very, very different. Inflation, though it is receding, is still high and persistent. The Fed will have no choice but to try and keep rates as high as possible for as long as possible to maintain pressure on prices. If we go by forward guidance from companies, earnings will continue to slump through the year. Layoffs and cost cutting will eventually show up in the economic numbers. The threat of a recession looms. It may be a mild one, or it may not officially get the “recession” classification, but the economy is headed for a slowdown. That sandwich of worry is getting thicker and thicker. Remember that just a thick sandwich is not enough. To guild the lily, we have to throw in some real arcane stuff. How about stagflation? You know, low economic growth with persistent high inflation. Stagflation has been looming in the shadows since the 1980s and it has been showing its face around lately. You don’t believe me? Just look at how volatile bond yields and the yield curve have been. We are not done yet. What about the debt ceiling? That used to be a political football, which ultimately always managed to be resolved after hard negotiations. Default was never really on the table. Given today’s political climate, can we expect the issue to get resolved without any fallout? We will certainly find out in the coming weeks. We are left, at the end of the day, with possibly the largest sandwich of challenges that we have seen in decades. The question is whether that pile of exotic looking peppers on top are hot or sweet.

WHAT’S SHAKIN’ THIS MORNIN’

Bank of America Corp (BAC) shares are higher by +1.98% in the premarket after it announced that it beat EPS and Revenues by +14.91% and +3.87% respectively. The company saw an increase in bad loans which was offset by unexpected rises in trading of fixed income, commodities, and currencies. Additionally, net interest income rose slightly more than expected at +25%. Dividend yield: 2.89%. Potential average analyst target upside: +19.8%.

JB Hunt Transportation Services Inc (JBHT) shares are lower by -2.63% in the premarket after it announced that it missed EPS and Sales by -6.05% and -4.99% respectively. The company attributes the miss to lower demand. While that certainly has implications for the company, it may provide some broader insights into the macro economy. Dividend yield: 0.95%. Potential average analyst target upside: +7.5%.

Johnson & Johnson (JNJ) shares are higher by +1.47% in the premarket after it announced that it beat EPS and Revenue targets by +6.32% and +4.69% respectively. The company also raised its full year guidance on both EPS and Revenues which were above analyst expectations. The company saw significant strength in its consumer health division with strong demand for Tylenol and Motrin. I wonder if we can glean something from that ? Dividend yield: 2.87%. Potential average analyst target upside: +9.3%.

YESTERDAY’S MARKETS

Stocks had a bumpy session but ultimately closed higher as investors eyed the political rhetoric around the debt ceiling. The S&P500 rose by +0.33%, the Dow Jones Industrial Average climbed by +0.30%, the Nasdaq Composite Index advanced by +0.28%, and the Russell 2000 Index jumped by +1.22%. Bonds declined and 10-year Treasury Note yields rose by +8 basis points to 3.60%. Cryptos slipped by -0.57% and Bitcoin lost -2.97%.

NEXT UP

• Housing Starts (March) are expected to have declined by -3.5% after climbing by +9.8% in February.
• Building Permits (March) may have declined by -6.5% after leaping by +15.8% in the prior period.
• Fed speakers: Governor Michelle Bowman.
• Earnings after the closing bell: Netflix, First Horizon, Western Alliance Bancorp, Omnicom, United Airlines, Intuitive Surgical, and Interactive Brokers.