Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
Will Inflation Persist Along With Labor Shortages?
Check out the accompanying pdf and chart collection. Executive Summary: Putin must be day-trading oil futures. … Why the inflation story is one of countervailing forces: Consumers’ inflation expectations have been edging down even as price pressures continue to ramp up. Supply-chain disruptions should continue to ease as the pandemic abates, but labor shortages will persist for the foreseeable future. Wages and prices have been spiraling upward together recently, and productivity growth can’t improve fast enough to slow the wage-price spiral for now. … Also: As the world braces for a wave of monetary tightening after years of ease in the extreme, we examine which of the major central banks likely will make their moves when, and why.
Yes! We Have No Bananas
Check out the accompanying pdf and chart collection. Executive Summary: With the Fed far behind the inflation curve and the yield curve spread rapidly narrowing, are fears of an imminent recession (a.k.a. “banana”) justified? For now, we’re singing the 1923 hit song with the ambivalent message “Yes! We Have No Bananas.” That’s because most indicators don’t point toward the prospect of a recession but a couple do: the fastest business cycle in history and inflation rates that could lead to a Volcker 2.0 scenario. We also consider what’s up with this yield curve. And we explain why we’re maintaining our long-standing recommendation to overweight US stocks in global portfolios.
Putin & Inflation Remain Persistent
Check out the accompanying pdf and chart collection. Happy Saint Valentine’s Day! (1) Putin says collapse of USSR was geopolitical disaster. (2) He wants to put Humpty Dumpty back together again. (3) War is imminent, maybe. (4) A message to other former Soviet states. (5) Higher oil prices, higher S&P 500 Energy stock prices. (6) Tweaking odds from 65/35 to 60/40 on Roaring 2020s vs Great Inflation 2.0 alternate scenarios. (7) No sign of peak in CPI, though base effect may still be having an effect. (8) More upward pressure on energy, metals, and food prices. (9) 1970s déjà vu all over again in some respects. (10) Fed has never been further behind the inflation curve, while hoping it will bend. (11) Paying the price for the Fed’s original sin. (12) Movie review: “Nightmare Alley” (+).
What’s in Style?
Check out the accompanying pdf and chart collection. (1) Work in progress. (2) Overweight stocks and cash, but underweight bonds. (3) Key assumption: Inflation peaks soon. (4) Risk is it doesn’t. (5) Record negative real interest rates. (6) OMG moment ahead? (7) Cash for buying cheaper stocks and bonds. (8) The “CFO Put,” again. (9) Fundamentals still looking great. (10) Three favorite S&P 500 sectors. (11) The MegaCap-8 still have a huge influence. (12) Hard to overweight them. (13) SMidCaps are still cheap. (14) Why we are not fans of Growth vs Value. (15) Gentler robots.
Europe’s Cold Winter War
Check out the accompanying pdf and chart collection. (1) Upward payroll revisions suggest Fed stayed easy for too long. (2) Small businesses facing labor shortages and cost increases. (3) No sign of a peak in NFIB prices index. (4) Europe needs Russian gas, and Russia needs European customers for its gas. (5) Is Germany a weak link? (6) Winter will be followed by spring and summer. (7) Russia likely to make good on contractual deliveries. (8) Nord Stream 2 trump card.
Anatomy of a Correction
Check out the accompanying pdf and chart collection. (1) Invitation to register for video podcast on “Predicting Inflation.” (2) The latest mini-correction lasted 24 days. (3) Fed fooled by a few weak employment gains last year that were revised much higher. (4) When in doubt, predict volatility. (5) The most negative real fed funds rate since start of data in 1960. (6) Will the inflation curve bend? (7) Wage-price spiral would be nightmare scenario for the Fed, and investors. (8) Sentiment: more in correction camp than bear camp. (9) Lots of cash to fuel another record year for M&A. (10) Assessing the valuation correction.
Another Year of Living Dangerously
Check out the accompanying pdf and chart collection. (1) Here is how the federal government mucked up the labor market and Fed policy. (2) Subsidizing unemployment creates more unemployment. (3) Lots of workers out sick during January. (4) Earned Income Proxy at record high, but inflation erodes its purchasing power. (5) Big upward revisions in payrolls. (6) Nearing full recovery in full-time jobs. (7) Early in a productivity growth boom ignited by chronic labor shortages. (8) Through a dark mirror and things that go bump in the night. (9) The cases for several bad happenstances. (10) Another oil shock combined with wage-price spiral? (11) Axis of Evil. (12) Movie review: “Help” (+ + +).
Coming Home
Check out the accompanying pdf and chart collection. (1) Looking at positive possibilities. (2) An end to Covid, an unkinked supply chain, and peaking inflation. (3) More US manufacturing bulks up at home. (4) Billions earmarked for new semi plants. (5) Auto companies retooling old plants, building new ones. (6) Bills would offer enticements to onshore. (7) Small manufacturers jump on the trend, too. (8) Robots counter rising labor costs. (9) Stretch helps DHL in warehouses. (10) Introducing Elon Musk’s Optimus robot. (11) Robots pouring coffee and mixing cocktails at the Olympics.
Great-Looking Fundamentals
Check out the accompanying pdf and chart collection. (1) January was bad for stock prices but good for their fundamentals. (2) Omicron didn’t infect analysts’ outlook for earnings. (3) Neither did supply-chain disruptions. (4) Both pandemic and supply problems may be receding. (5) Record highs, again, for S&P 500/400/600 forward revenues, earnings, and margins. (6) NRRIs and NERIs declining but remain positive. (7) M-PMI implies slower growth in revenues and earnings—and smaller stock gains. (8) Searching for hints of a peak in latest inflation data. (9) Rapidly rising home prices: Rounding up all the suspects. (10) Plenty of business for both single-family and multi-family homebuilders.
The Big Chill? Not!
Check out the accompanying pdf and chart collection. (1) Blaming the slow-acting Fed for volatility. (2) The arithmetic behind our new S&P 500 targets. (3) No change in our outlook for revenues, earnings, or margins. (4) Lowering our forward P/E assumption. (5) Making the case for relatively high P/E. (6) A minor correction for the S&P 500, so far. (7) Businessweek cover showing bull buried in snow is bullish. (8) Home, sweet home. (9) Indecisive excerpts from Powell’s presser.
‘Humble & Nimble’
Check out the accompanying pdf and chart collection. (1) The case for a neck brace. (2) The S&P 500 may have adjusted for this year’s tightening round, but we’re pushing 5200 target into early 2023. (3) Record forward earnings and profit margins for all major S&P indexes. (4) The air has come out of several speculative bubbles without serious consequences. (5) Three measures of sentiment. (6) BBR is bearish, which is bullish. (7) VIX in correction territory. (8) Credit yield spread remains calm. (9) Nothing new decided at latest FOMC meeting. (10) March FOMC meeting should be decisive. (11) The Fed’s runoff issue. (12) Soft landing ahead? (13) Movie review: “The Power of the Dog” (- -).
The Fed, Stocks & CBDC
Check out the accompanying pdf and chart collection. (1) Fed Chair Powell fails to calm investors’ nerves. (2) Bracing for higher interest rates and balance-sheet reductions. (3) The cloud, 5G, and consumer spending boost earnings of Microsoft, Corning, and AmEx. (4) The average stock not down as much as index performance would suggest. (5) The MegaCap-8 stocks take their toll. (6) Athletes can try China’s digital currency—the e-CNY—at the Olympics. (7) The Fed is STILL studying a digital dollar. (8) Assessing the digital dollar’s impact on banks, monetary policy, privacy, and money laundering.
The Monetary Policy Cycle
Check out the accompanying pdf and chart collection. (1) More on Panic Attack #73. (2) How is this taper tantrum different than the previous three? (3) From cooing doves to squawking hawks. (4) Tracking the Fed’s monetary policy cycle. (5) Bond yields rise during tightenings, fall during easings. (6) Yield-curve spread usually widens late during tightenings; this time, it’s been narrowing before tightening has even started. (7) Stocks have rallied before and early during tightenings. (8) The P/E tends to rise and fall as the federal funds rate falls and rises. (9) A déjà vu of 2000 all over again? (10) S&P 500 forward revenues, earnings, and margins all at record highs. (11) Tracking Covid around the world. (12) Learning to live with the pathogen.
MAMU, R.I.P.
Check out the accompanying pdf and chart collection. (1) With benefit of hindsight, MAMU is dead. (2) Retreating speculative excesses is a good thing as long as nothing breaks. (3) Taking some air out of MegaCaps is also good for the long-term health of the market. (4) Lots of bearish sentiment in options market and in Bull/Bear Ratio. (5) Can the Treasury market absorb an extra $175 billion per month? (6) A short history of Quantitative Tightening. (7) Xi wants Powell to cease and desist. (8) Record-low births of Chinese babies in 2021. (9) World’s largest nursing home.
Superbubble Bursting or Just Another Panic Attack?
Check out the accompanying pdf and chart collection. (1) Grantham’s superbubble. (2) Is the fourth superbubble bursting? (3) Back to 2500 on S&P 500? (4) Eight counterpoints. (5) The causes of bear markets. (6) The case against a recession. (7) Air is coming out of speculative bubbles without adverse economic consequences. (8) A correction in MegaCap-8 valuations. (9) Sentiment getting very bearish. (10) Geopolitical risks. (11) Panic Attack #73 is all about the Fed, and it might linger. (12) What does the Fed’s balance-sheet runoff mean for the Treasury and for liquidity? (13) Movie review: “Munich: The Edge of War” (+ +).
Morning Briefing 2022-01-20
Check out the accompanying pdf. (1) Throwing the book at Meta. (2) Meta keeps regulators around the world busy. (3) FTC antitrust case allowed to proceed. (4) Congress wants Meta and Big Tech to end anticompetitive practices and protect children. (5) State attorneys general target Meta too. (6) UK regulator requires Meta to sell Giphy. (7) EU considers the Digital Markets Act. (8) Lawsuit aims to sidestep Section 230. (9) Microsoft’s Activision deal should boost revenue and increase its gaming content. (10) Race to fill the metaverse with content. (11) Metaverse “land” prices skyrocket. (12) Walmart appears ready to jump into the metaverse, too.
A Very Brief US History Of the Postwar 1940s
Check out the accompanying pdf and chart collection. (1) Winston Churchill and Mark Twain on history. (2) The best of times or the worst of times? (3) Factions, partisanship, and the Constitution. (4) The system works best when it doesn’t work for any one faction. (5) WWII was followed by labor strife, racial strife, and a red scare. (6) Inflation soared during the second half of 1940s. (7) Comparative inflations. (8) Meet Joe Manchin, again. (9) Sinema is in the same opposition party as Manchin. (10) Alternative outcomes for BBB.
Mega Valuation
Check out the accompanying pdf and chart collection. (1) The valuation question, especially about the MegaCap-8. (2) Buffett Ratio off the charts. (3) Forward P/S well exceeds forward P/E because forward profit margin has been rising to new record highs. (4) MegaCap-8 forward P/S and forward P/E are elevated, but so are their margins relative to the rest of S&P 500. (5) Only three MegaCap-8 stocks are in tech sector of S&P 500. (6) Record worldwide demand for semiconductors. (7) US computer output at record high. (8) A whiff of stagflation last week. (9) Omicron less lethal, but spreads faster and disrupts business. (10) Retail sales weakness should be offset by inventory restocking. (11) Durable goods inflation not likely to persist, while rent inflation could do so. (12) Movie review: “Ray Donovan: The Movie” (+ + +).
Financials, China, and Wireless Charging
Check out the accompanying pdf and chart collection. (1) Higher interest rates boosting Financials. (2) Commercial and investment bank stocks at or near highs. (3) Jefferies’ earnings disappointment spooks market. (4) Could SPACs be to blame? (5) China roiled by Covid shutdowns. (6) The push for Olympic blue skies disrupts plants in northern China. (7) China’s property developers still digging out from debt. (8) Keeping an eye on hypersonic missile developments in China and North Korea. (9) Pulling the plug on electricity outlets. (10) Wireless electricity transmission at home, in space, at the office, and on the road.
Earnings Season Starting
Check out the accompanying pdf and chart collection. (1) Latest earnings reports should beat expectations again. (2) Real Q4 GDP tracking at 6.8%. (3) S&P 500 forward earnings at another record high. (4) Our latest forecasts for S&P 500 earnings and the stock price index. (5) Profit margins likely to stall at record high. (6) Consumers shopped and borrowed at solid paces during Q4. (7) Homebuilders seeing demand and raising prices. (8) US petroleum usage at record high. (9) Financials boosting profits by reducing loan-loss reserves. (10) Industrials experiencing record new orders, especially for capital goods. (11) Global M&A likely to continue to boom in 2022.
Is the Party Ending Or Just Moving?
Check out the accompanying pdf and chart collection. (1) Drinking the Fed’s punch. (2) Party getting out of hand. (3) Fed will soon stop filling up the punch bowl, but there will be lots of liquidity left in there. (4) Inflation spiked by spiked punch. (5) FOMC minutes’ talk about paring Fed’s balance sheet shocks investors. (6) Bond Vigilantes no longer punch drunk? (7) Expected inflation is up, but prices-paid index is down. (8) Are rising bond yields so bearish for Growth? (9) No, but they are bullish for Financials. (10) Mag-8 accounts for almost 50% of Growth’s market cap. (11) When in doubt, diversify with Energy, Financials, and the Mag-8.
The Markets, the Fed, and Jobs
Check out the accompanying pdf and chart collection. (1) Investors discounting more hawkish Fed. (2) A week of rotation from Growth to Value. (3) Growth P/E down, Value up. (4) Lots of chatter, again, about a great rotation. (5) Stay away from disruptive hyped-up tech stocks. (6) FOMC agrees: “Transitory” is out, “persistent” is in until further notice. (7) Discussing normalization. (8) Powell mentioned paring Fed’s balance sheet late last year. (9) Labor market is booming. (10) More full-time jobs replacing part-time ones. (11) Real wage rate stalls at record high. (12) Alternative wage measures. (13) Movie review: “King Richard” (+).
All Things Tech
Check out the accompanying pdf and chart collection. (1) Checking out CES, virtually. (2) Autos are the new tech. (3) Semis introduce new chips as global sales keep climbing. (4) Check out Gallium’s new AR headset, an app for dog nose prints, and a digital frame for your NFTs. (5) Tech had a great 2021, but a rough start to 2022. (6) A look ahead at Tech industries’ earnings estimates. (7) SenseTime—China’s Google—is spreading around the world. (8) SenseTime’s facial recognition and AI expedite purchasing, fight Covid-19, and make cars smarter. (9) China may also be using it to track the country’s Muslim minority. (10) SenseTime’s shares rally after Hong Kong IPO.
Covid-19, Mag-8, And FOMC-19
Check out the accompanying pdf and chart collection. (1) Powell’s pivot on inflation puts contrarians on alert. (2) Alternative bets. (3) M-PMI prices-paid index recedes. (4) Omicron and done? (5) The fastest-spreading virus on record. (6) The wild brushfire analogy for optimists. (7) Milder symptoms. (8) Herd immunity, here we come? (9) Cases soaring in US and Europe. (10) The Magnificent 8 were magnificent again in 2021. They might be again in 2022. (11) Growth isn’t cheap. (12) Rearranging the deck chairs on the USS FOMC. (13) Biden likely to choose more progressives to fill Fed vacancies. (14) Meet Sarah Raskin.
Bonds Have More Fun With Old People
Check out the accompanying pdf and chart collection. (1) Enlightening students about “entrepreneurial capitalism.” (2) Will bond market conundrum persist in 2022? (3) Two-year Treasury note anticipating three rate hikes this year. (4) Gravitational pull of near-zero yields in Germany and Japan. (5) Bearish indicators for bonds remain bearish. (6) Age Wave remains bullish for bonds. (7) Chronic labor shortages should stimulate productivity. (8) Bond funds had record inflows in 2021! (9) Will the worst S&P 500 industries in 2021 be among the best in 2022? (10) Last year was another good year for Stay Home investors. So should be 2022.