[Italics-bold within the brackets are my additions/elaborations] [New M* Discussions doesn’t allow any colors for cut-and-paste from WORD]
MW Cover: Michael Gaugler [Janney Montgomery Scott] now likes industrials and chemicals: MWA, XYL, RXN, KWR, HMHC.
Pg M3, Trader: A week of reversals – winners became losers and vice versa. Momentum broke. Real rates are low and the Fed is expected to cut rates next week. In the near zero cost-of-capital environment, zombie companies can exist for longer – almost 15% of the fastest growing companies by sales are losing money; 80% of the IPOs are money losers. This doesn’t mean that the market is topping but keep in mind that nobody rings the bell at the top.
FedEx [FDX] has been volatile around its earnings report that will be on Tuesday. But FDX options remain cheap and a straddle [buying both put and call] is recommended, or just buy the stock.
There may be a short-squeeze in United [UAL] – investors had become too negative due to oil prices and Boeing 737 MAX issues. In fact, with this market move, many shorts are caught on the wrong side of the trade [NWL, CTL, etc].
[The CME FedWatch tool, based on current fed fund futures quotes, shows the following probabilities for 2019:
For 2nd hike [cut], 0% for hike [79.6% for cut] at FOMC 9/18/19;
For 3rd hike [cut],
0% for hike [34.0% for cut] at FOMC 10/30/19;
0% for hike [54.9% for cut] at FOMC 12/11/19;
A huge pullback in rate cut probabilities. May be in September and December.
For the week [index changes only], DJIA +1.58%, SP500 +0.96%, Nasdaq Comp +0.91%, Russell 2000 +4.85%. DJ Transports +4.96%; DJ Utilities -0.15%. US$ -0.54%, oil/WTI -2.96%, gold -1.02%.
YTD [index changes only], DJIA +16.68%, SP500 +19.97%, Nasdaq Comp +23.23%.
Pg M6, Europe: L’Oreal [OR.fr/LRLCY; fwd P/E 31] is attractive. It had a rare miss in Q2. It is making changes in its US business, including a new US President/CEO.
Pg M6, Emerging Markets: Don’t chase EM bonds as they have run up a lot [EMB +14% YTD; duration 12 (wrong, that is effective maturity; M* shows duration 7.4)]. Compare that to US HY HYG [+11.5% YTD; duration 3.5]. Besides currency risks, EM bonds have higher duration risk [in spite of the wrong data used by Barron’s].
Pg M9, Commodities: EM countries are buying gold to diversify their foreign exchange reserves. In 2019/H1, central banks purchased 374 metric tons of gold [about $18 billion at current prices]. Central banks are not price-sensitive buyers. Gold is now 19.6% of Russian foreign reserves, only 2.8% for China.
Pg M7, Options: A contrary play is to buy calls on big banks [BAC, JPM]; one can sell puts too. There is too much negativity on banks due to falling rates and trade concerns.
[SP500 VIX 13.74, SKEW 118.40] [10-Yr TYVIX 5.88] [Yahoo Finance data]
Pg M23, M28: A good week in Europe [Belgium +2.97%, Denmark -1.87%] and a good week in Asia [Japan +4.58%, New Zealand -3.66%]. The equity CEF index [data to Thursday] underperformed the DJIA and its discount was -6%.
Treasury rates 3-mo yield 1.96%, 2-yr 1.79%, 5-yr 1.75%, 10-yr 1.90%, 30-yr 2.37% [Treasury data*]. Dollar fell, DXY 98.19, -0.2% [M31]. Gold fell to $1,503, -1.4% [notable deviation again from pg M3]; the gold-miners fell [M34]. [^XAU was at 89.49, -5.06% for the week]
Top FDIC insured savings deposit rates*: Money-market accounts 2.37%; 1-yr CDs 2.37%; 5-yr CDs 2.76% [M29].
*For local rates https://www.depositaccounts.com/banks/rates-map/
Pg 22: Cover Story, “Railroad Stocks Struggle as Challenges Mount”. Railroads [CSX, UNP, CNI, NSC] have outperformed SP500 but the future is uncertain due to declining freight volumes and competition from trucking. Much of the efficiency gains from precision scheduled railroading [PSR] are behind. There were also gains from price increases and controversial price shifting away from truckers. The P/Es may be under pressure.
Supplement on Top Independent Advisors with features on advisors and advisory firms.
Pg 7, Up & Down Wall Street: The Fed is expected to cut rates on Wednesday. With rates low, monetary policy may take backseat to fiscal policy and that is happening in the US, Euro-zone, Japan. There was a sudden shift from growth and momentum to value. Cyclicals should also benefit. Bond yields rose and bonds and bond-proxies [utilities, consumer-staples, real-estate] fell. Active managers benefitted from these developments.
Pg 11, Streetwise: There was a violent shift from growth to value last week. Will it continue? Index stock fund assets are now more than those for the active stock funds. Payment processor Square [SQ] is testing a free stock trading service to compete with Robinhood. Viacom [VIAB] is testing free, ad-supported streaming Pluto TV. Apple [AAPL] underpriced its streaming Apple TV+ at $4.99/mo with 1-yr free for phone, computer, Apple TV buyers. [A collection of several disjointed ideas]