Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
Commodities Go Limit Up
Check out the accompanying pdf and chart collection. Executive Summary: Is China’s President Xi able to stop Putin’s War? With high stakes for both China’s economy and its reputation on the world stage, he has every reason to try. The Dragon must restrain the Bear. … The CRB raw industrials spot price index typically peaks and troughs in lockstep with business cycles. This time is different: The CRB’s vertical ascent reflects not booming global demand as usual but looming supply crunches. … And: Blocking Russian exports from global markets will mean painful supply constraints for the rest of the world, not only of oil and gas but also of metals and agricultural products.
Past & Future Earnings
Check out the accompanying pdf and chart collection. Executive Summary: Today, we examine the fundamental data that drive the stock market, as just reported for Q4 and as projected by industry analysts and by us for this year and next. S&P 500 companies’ Q4 results show record highs for revenues and earnings, but the profit margin continued to edge down from the Q2 peak. … Our stagflation economic forecast prompts us to raise our S&P 500 revenue, but not earnings, estimates. We expect relatively flat S&P 500 profit margins around 13% this year and next. … Also, we look at what declining forward P/Es have meant for the four major investment styles.
It’s a Mad, Mad, Mad, Mad World
Check out the accompanying pdf and chart collection. Executive Summary: With the whole world at the mercy of Mad Vlad, the pandemic now seems like a walk in the park. A nuclear power plant catastrophe has been narrowly averted, but Putin’s war has melted down Russia’s stock market and currency. … For the US economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war. A recession can no longer be ruled out. … For stock investors, we think 2022 will continue to be one of this bull market’s toughest years. We’ve dropped our year-end 2022 and 2023 S&P 500 targets to 4000, a 16% decline, and 5000, a 25% rebound to a new record high.
Sentiment, Retailers, China & Crypto
Check out the accompanying chart collection. Executive Summary: Bargain buying now for the long term may make sense, suggests the Bull-Bear Ratio and lessons from past geopolitical shocks. A caveat: This time may be different given coming interest-rate increases and the potential for disrupted energy markets. … Retailers’ recent earnings reports have been decidedly optimistic, but stock investors aren’t convinced. Why are they spooked when the C-suite folks are sanguine? … China’s President Xi may have a change of heart about former BFF Putin; we explain why we think so. … And: Cryptocurrencies’ new wartime uses.
The Case for a Ceasefire
Check out the accompanying pdf and chart collection. Executive Summary: The Cold War is back on. What’s next in the hot war between Russia and Ukraine? Major considerations include whether Russia gains the upper hand militarily, the fact that it is losing much economically, and whether negotiations will provide an exit for both sides. … Longer term, Russia’s future is bleak if demography is indeed destiny. … And: What’s with all the slicing and dicing of apples and oranges that Fed banks do to understand inflation? We’d toss out most of the concoctions.
Inflation in the Second Cold War
Check out the accompanying pdf and chart collection. Executive Summary: The end of the Cold War in the late 1980s was very disinflationary—perpetuating freer trade, greater global prosperity, and lower inflation. Will February 24, 2022 mark the start of Cold War 2.0 and with it the Great Inflation 2.0? To answer that, we look at the history of inflation from a geopolitical perspective before we examine four powerful constraints on inflation, the “4Ds”—some of which have been weakening. … Also: a look at what’s been keeping frackers from fracking more oil.
‘Stop the World—I Want To Get Off!’
Check out the accompanying pdf and chart collection. Executive Summary: “Buy to the sound of cannons, sell to the sound of trumpets.” That advice worked on Thursday as Russia invaded Ukraine. What about that shocking day reassured investors enough to drive the stock market up? We take a look. … Also working that day was the Bull-Bear Ratio’s contrarian buy signal. … Economically, the war may bring heightened global inflation, more supply-chain disruptions, and possibly higher energy prices. For the US economy, stagflation could result, but we still don’t expect a recession. … And: Is madman Putin’s plan already doomed? ... Finally, Dr. Ed reviews “CODA” (+).
Sentiment, Industrials, and Crispr
Check out the accompanying pdf and chart collection. Executive Summary: Stock market bearishness is increasing, which is bullish from a contrarian perspective. The Bull/Bear Ratio has dropped close to levels that have heralded great buying opportunities in the past. That doesn’t preclude further stock market declines, but it does suggest that bargain buying for the long term makes sense. … A confluence of trends points to boom times for manufacturing industries and the businesses that support them. Some of these trends are industry specific, some apply to manufacturing broadly. … Also: a look at exciting new medical applications for disruptive technology Crispr.
Inflating Fundamentals vs Deflating Valuations
Check out the accompanying pdf and chart collection. Executive Summary: The Ukraine crisis has triggered the stock market’s 74th panic attack of this bull market, by our count. Coming on the heels of the 73rd panic attack, the two together qualify as a correction. Could it become a bear market? Perhaps if much higher oil and gas prices result from the crisis, but that’s hard to conclude. What we do expect over the near term is more of the same sideways trading with volatile swings. Notably, however, geopolitical crises have often been buying opportunities for stock investors. … And while valuations have been deflating lately, fundamentals—revenues, earnings, and profit margins—have been inflating dramatically. … Also: What members of the “Federal Open Mouth Committee” have been saying about the course of monetary policy.
Pieces of the Economic Puzzle
Check out the accompanying pdf and chart collection. Executive Summary: Are consumers more depressed about inflation or more optimistic about employment? Our Consumer Optimism Index, which captures both trends, stands well below pre-pandemic levels, suggesting the former. In fact, January’s strong retail sales may reflect inflation-driven behavior, i.e., the inclination to buy in advance of price rises. … We also examine what’s happening behind the data for industrial production, inventories, transportation, construction, capital spending, and trade. … And: What’s the Fed’s take on the inflation problem? Officials have abandoned the term “transitory” but apparently not the hope. We have only one word for that: “delusional.”
Insurance, Tech & EVs
Check out the accompanying pdf and chart collection. Executive Summary: Visions of higher interest rates to come are stoking investors’ optimism about prospects for financial services companies, fueling the S&P 500 Financials sector’s impressive ytd outperformance. Within the sector, the insurance industry has been faring well by both earnings and share-price measures as pricing power and strong investment returns have helped to offset higher costs and losses. … Also: Washington has guns out for Big Tech; we recap recent regulatory and (bipartisan!) legislative initiatives afoot. … And we survey the playing field for electric vehicles after their starring roles in Super Bowl ads.
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.