Stocks rallied yesterday as traders shook off the Fed’s negative talking points from a day earlier. Consumers are not giving up on buying, which is good for the economy and, unfortunately, not good for the rate-cuts case.
Retail therapy. Have you ever had a close look at the market and thought, “it’s obvious, I cracked the code, simply sell this or buy that, and I will make out like a bandit!” If you have, and you did (make out like a bandit, that is), don’t tell anyone, because either you were lucky, or you really did find the golden ring when no one else has. When many of us look at the market we fall into 1 of 2 categories. We are (1) either overly positive and confident and likely to ignore the clear negative signals that exist, or we (2) are confident that risk is too great, and we avoid taking advantage of a clear opportunity. Come on, you know you fall into at least 1 of those two categories. Spoiler alert: I am not going to tell which one is the right way… because neither is, sorry.
Investing is hard! Investing is risky! Assessing and accepting risk is how we reap returns. It goes back to that old axiom, adopted by Wall Street, but probably invented way before the first traders met under that legendary buttonwood tree in lower Manhattan. “No risk, no reward,” goes the saying. This obviously implies that you must take risk in order to have the potential for great returns. It also implies that if you think that you have found an opportunity for great returns and that there are no risks, you are a) completely unaware of the risks lurking below the surface or b) those returns will never materialize.
Have you been sitting on the sidelines of the markets lately? Don’t worry, you are not alone. Data shows that investors (both institutional and retail) are sitting on large piles of cash at the moment. That is surely comforting in the wake of last year’s pullbacks… UNTIL YOU SEE the Nasdaq soar higher and higher, and you start to question yourself, “what am I missing?” The Fed has all but guaranteed that it will hike rates 1, maybe 2 more times before the end of 2023. This, while most economists are talking about a recession, not if, but when. The supposedly clairvoyant Treasury Yield curve is green around the gills in a most peculiar, upside-down sort of way. BUT things can change, so there is hope. New hope can come everyday with fresh new economic data. Tuesday’s CPI data and Wednesday’s PPI data was softer than expected. Fed friendly, for sure. This morning’s weekly jobs number came in weaker than expected, which is also Fed friendly. Ok, two bullish data points for the market. But wait, there is more data! Retail Sales, which was expected to have declined last month, actually came in with a gain! A gain which was pretty much across the board. With consumers lined up to buy things, there is very little incentive for retailers and their suppliers to lower their prices. Strong Retail Sales, needless to say, is not a Fed friendly number. HOWEVER, if it is the economy that you are concerned about, the strong Retail Sales number should ease your fears. Consumption makes up nearly 2/3 of the economy, and healthy retail is a big part of that. So, was that a good number or bad number? If the answer was clear, there would be no risk… and consequently no real potential return.
Even if you believed that the strong showing in retail is good for the economy, the Fed still looms large above the capital markets, and once again, Chairman Powell could not have been clearer in his hawkish jawboning of the markets. The Fed simply skipped rate hiking for a single meeting. Its projections show rates higher by +50 basis points by the end of the year. Further, the Fed sees the unemployment rate rising through the end of the year, and higher yet by the end of next year. That is probably why the Fed also sees rates -75 basis points lower than they are today, BUT NOT BEFORE those 2 additional hikes this year. Is it clear that this should be daunting for interest rate sensitive stocks between now and New Years? You wouldn’t know it by yesterday’s market action which featured a fairly broad rally with the tech-heavy Nasdaq extending its yearly gains even further. Are traders missing the obvious risks like group ‘1’ mentioned above? No, more than likely traders are looking at the potential beyond these next few months, assessing that taking that risk now may yield bigger results to be had a year from now. Investing is not easy, and it is risky, but if you have discipline and you weigh returns AND risks, while you are never guaranteed triumph, you will at least increase your probability of success over the long run. Stay disciplined!
WHAT’S SHAKIN’ THIS MORNIN’
Intel Corp (INTC) shares are higher by +0.50% after the company announced that it reached a deal with German officials which will provide the company with $11 billion in subsidies to build a semiconductor plant in Germany. That is good news for the company which has been struggling to keep up the competition and has recently begun an aggressive expansion across Europe. Intel is not scheduled to release results until late next month, but analysts have moved down their average EPS target by -1.72% in the past 4 weeks. Dividend yield: 1.39%. Potential average analyst target upside: -10.2%. WHY IS THIS NUMBER NEGATIVE? Because the stock is currently trading higher than median average price targets of analysts. While that can be interpreted as the stock being overpriced, it does not mean that the stock will not continue to climb as analysts, like Wells Fargo, potentially raise price targets.
Adobe Inc (ADBE) shares are higher by +3.89% after the company announced that it beat EPS and Revenue estimates by +3.28% and +0.97% respectively. The company, further, upped its full year guidance, pleasing investors who have also recently applauded the company’s potential in the latest AI boom. Potential average analyst target upside: +1.1%.
YESTERDAY’S MARKETS
Stocks rallied yesterday as investors cheered a strong Retail Sales figure while taking the prior day’s tough Fed talk in stride. The S&P500 gained +1.22%, the Dow Jones Industrial Average climbed by +1.26%, the Nasdaq Composite Index advanced by +1.15%, and the Russell 2000 Index traded higher by +0.81%. Bonds rose and 10-year Treasury Note yields fell by -6 basis points to 3.71%. Cryptos slipped by -3.11% and Bitcoin added +2.48%. The S&P500 ESG Index gained +1.18%.
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