‘Own what the Mother of All Bubbles crowd doesn’t.’ This market strategist expects stagflation and is investing for it now.

‘Own what the Mother of All Bubbles crowd doesn’t.’ This market strategist expects stagflation and is investing for it now.

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There’s always a bull market somewhere — if you can find it.

Keith McCullough encourages investors to join him in the hunt. You’ll need to be agnostic and open-minded, the CEO of investment service Hedgeye Risk Management says. If you’re wedded just to U.S. stocks, or the market’s latest darlings, you’re setting yourself up for disappointment — particularly in the hostile environment McCullough sees coming.

This coming challenge for U.S. stock investors, in a word, is stagflation, McCullough says. Stagflation — higher inflation plus slow- or no economic growth — is hardly a bullish outlook for stocks, but McCullough’s investment process looks for opportunties wherever they may be. Right now that’s led him to put money into health care, gold, Japan, India, Brazil and energy stocks, among others.

In this recent interview, which has been edited for length and clarity, McCullough takes the Federal Reserve and Chair Jerome Powell to the woodshed, offers a warning about the potential fallout from Powell’s upcoming speech at Jackson Hole, Wyo., and implores investors to discount happy talk and always watch what they do, not what they say.

MarketWatch: When we spoke in late May, you criticized the Federal Reserve for being obtuse and myopic in its response to inflation and, later, to the threat of recession. Has the Fed done anything since to give you more confidence?

McCullough: The Fed forecast of the probability of recession should be trusted as much as their “transitory” inflation forecast or a parlor game. People should not have confidence in the Fed’s forecast. The “no-landing” or “soft-landing” thesis is looking backwards. The Fed is grossly underestimating the future, doing what they always do, in looking at the recent past.

Their policy is wed to what they say. They claim they’re not going to cut interest rates until they get to their target. But any hint of the Fed arresting the tightening gives you more inflation. So there’s this perverse relationship where the Fed is the catalyst to bring back the inflation they’ve spent so much time fighting.

Read: ‘The Fed is way late and they’ve already screwed it up.’ This stock strategist is banking on gold, silver and Treasurys to weather a recession.

MarketWatch: U.S. Inflation has come down quite signficantly over the past year. Doesn’t that show the Fed is well on the way to achieving its 2% target?

McCullough: A lot of people are peacocking and declaring victory over inflation when we’re about to have reflation that sticks. We have inflation heading back towards 3.5% and staying there.

Our inflation forecast is that it’s set to reaccelerate in the next two inflation reports, which will lead to another rate hike in September. The Fed’s view is that until they get to the 2% target they’re not done. A lot of people are really confident because inflation went from 9% to 3% that it’s getting closer to 2%, therefore the Fed is done. Given what Fed Chair Jerome Powell said, the next two inflation reports are critical in determining whether we hike rates in September. I think maybe even one in November. This is a major catalyst for the next leg down in the equity market.

The Fed is going to see inflation go higher, and they’ve already articulated to Wall Street that no matter what happens, that should constitute a rate hike. That’s a policy mistake. They’re going to continue to tighten into a slowdown. When the Fed tightens into a slowdown, things blow up.

MarketWatch: By “things blow up,” you mean the stock market.

McCullough: I don’t think the Fed cuts interest rates until the stock market crashes. The Fed is going to be tightening when the U.S. economy and corporate profits are at a low point, going into the fourth quarter. It’s not dissimilar from 1987 where all of a sudden a market that looked fine got annihilated in very short order. There are a lot of similarities to 1987 now; the market’s quick start in January, people in love with stocks. That’s a catalyst for the stock market to crash.

When the Fed has an inconvenient rule, particularly for the U.S. stock market, they just move the goal posts or change the rule. If they actually started to cut interest rates, inflation would go up faster. This is exactly what happened in the 1970s and what Powell explains is the risk of going dovish too soon – that he becomes [much-criticized former Fed chair] Arthur Burns. That’s why you had rolling recessions in the 1970s; the Fed would go dovish, devalue the U.S. dollar
DX00,
-0.21%,
and the cost of living for Americans would reflate to levels that are prohibitive.

People can’t afford reflation at the gas pump, or in their health care. It’ll be fascinating to see how Powell pivots from fighting for the people to bailing out Wall Street from another stock market crash, which will therein create the next reflation.

“ ‘The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market.’”

MarketWatch: Speaking of a Powell pivot, the Fed chair speaks at Jackson Hole this week. Last year he put markets on notice for rate hikes. What do you think he’ll say this time?

Powell’s going to see inflation accelerating. I think Jackson Hole is going to be a hawkish meeting. That might be the trigger for the stock market.

Take the bond market’s word for it. The bond market is saying the Fed is going to remain tight and seriously consider another rate hike in September. The reasons why markets crash in October during recession is that the fourth quarter is when companies realize that there’s no soft landing and they need to guide down.

The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market. We’re short high-yield and junk bonds through two ETFs: iShares iBoxx $ High Yield Corporate Bond
HYG
and SPDR Bloomberg High Yield Bond
JNK.
On the equity side the best thing is to short the cyclicals; I would short the Russell 2000
RUT.

MarketWatch: What’s your advice to stock investors right now about how to reposition their portfolios?

McCullough: Own what the “Mother of All Bubbles” crowd doesn’t. The things we’re most bullish on include gold
GC00,
+0.21%.
The Fed is going to keep short term rates high and both the 10 year and 30 year go lower. Gold trades with real interest rates. I think gold can go a lot higher, towards 2,150. Our ETF for gold is SPDR Gold Shares
GLD.

Also, you can be long equities and not take on the heart-attack risk that is the U.S. stock market. I’m long Japanese equities — ETFs for this include iShares MSCI Japan
EWJ
and iShares MSCI Japan Small-Cap
SCJ.

We’re long India with iShares MSCI India
INDA
and iShares MSCI India Small-Cap
SMIN.
Both Japan and India are accelerating economically. Were also long Brazil iShares MSCI Brazil
EWZ,
which is weighted to energy. We are bullish on energy.

MarketWatch: Clearly accelerating inflation and slowing economic growth is an unhealthy combination for both investors and consumers.

McCullough: What I’m looking for, with inflation reaccelerating, is stagflation.

Stagflation pays the rich and punishes the poor. You want to be the landlord. The prices of things people own are going to go up, and the prices of things you need to live are also going to go up. So for example, we are long energy, uranium and timber as stagflation plays. ETFs we’re using for that include Energy Select Sector SPDR
XLE,
Global X Uranium
URA,
and iShares Global Timber & Forestry
WOOD.

One positive thing that happens from stagflation is that because it’s so hard to find real consumption growth, there’s a premium on the growth you can find.

If there is something that actually accelerates, then those stocks will work, which puts a nice premium on stock picking. You can be long anything that is accelerating because so many things are decelerating. So avoid U.S. consumer, retailers, industrials and financials, which are all decelerating. Health care is our favorite sector, which we own through the ETFs Simplify Health Care
PINK
and SPDR S&P Health Care Equipment
XHE.

Instead, people are betting we’re going to go back to some crazy AI-led growth environment. Now everyone thinks everything is AI and rainbows and puppy dogs. I’m old enough to remember we were in a banking crisis in March. From an intermediate- to longer-term perspective, I don’t know why you wouldn’t want to protect yourself until this inflation cycle plays out.

Also read: Jackson Hole: Fed’s Powell could join rather than fight bond vigilantes as yields surge

More: Will August’s stock-market stumble turn into a rout? Here’s what to watch, says Fundstrat’s Tom Lee.

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You can still run with the stock market’s bulls, but watch the exits

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The stock market, as measured by the S&P 500 Index
SPX,
-0.64%
), has been moving upward. The U.S. benchmark index is essentially crawling up the higher “modified Bollinger Bands” (mBB), which is a bit of an overbought condition, but not a sell signal.

The next major resistance appears to be in the 4650 area, which at one time seemed far away but is now within range. There is minor support at 4527 (last week’s lows), with stronger support below that, at 4440, 4385, 4330 and 4200. Given the strong upward momentum of the market, a couple of those could be violated without giving the bull market any problem, but a fall below 4330 would be a game changer.

The S&P 500 has recently closed above the +4σ mBB, which sets up a “classic” sell signal. That “classic” signal was generated on Thursday when SPX closed below the +3σ Band — 4560. But we do not trade the “classic” signals, preferring to wait for the further confirmation of a McMillan Volatility Band (MVB) signal. Just because a “classic” sell signal has occurred does not mean that a MVB sell signal will automatically follow. We will keep you up to date on these developments weekly.

Equity-only put-call ratios have continued to edge lower as stocks have risen. This means that the put-call ratios are still on buy signals, but they are in deeply overbought territory because they are so low on their charts. The computer programs that we use to analyze these charts are once again warning of a sell signal, but we prefer to wait until we can visibly see the ratios begin to rise before taking on any negative position based on these ratios. Despite the fact that these ratios are at lows for the last year or so, it should be noted that they were much lower all during the 2021, as that bull market was pressing forward, and eventually gave way to a bear market.

Market breadth has been generally positive. Both breadth oscillators are on buy signals and are in overbought territory. They could withstand a day or two of negative breadth and still remain on those buy signals. Perhaps more importantly, cumulative volume breadth (CVB) is approaching what could be a major buy signal. If CVB makes a new all-time high, then SPX will follow. CVB is within just a small distance of its all-time high and could attain that today. Doing so would mean that an upside target of 4800+ would be in force for SPX.

New Highs on the NYSE continue to dominate New Lows, so this indicator remains strongly positive for stocks.

VIX
VIX,
+9.25%
is languishing between 13 and 14. As long as this continues, stocks can rise. The only time problems would surface would be if VIX spurted higher. So far, that hasn’t happened. It appears that “big money” still has some fear of this market, so they are buying SPX puts, keeping VIX a bit elevated. It should also be noted that VIX normally makes its annual low in July and begins to rise in August. So that is a potentially negative seasonal factor on the horizon.

The construct of volatility derivatives remains bullish for stocks, since the term structures of both the VIX futures and of the CBOE Volatility Indices continue to slope upwards.

Overall, we are maintaining our “core” bullish position because of the bullish SPX chart. We are raising trailing stops and rolling deeply in-the-money calls upward as we go along. Eventually, we will trade other confirmed signals around that “core” position.

New recommendation: Potential CVB buy signal

We made this recommendation last week and recommended using the cumulative total of daily NYSE advancing volume minus declining volume as a guide. That cumulative total did reach our projected value as of July 26. In reality, the “stocks only” CVB ended just shy of a new all-time high. We are going ahead with the recommendation, since the way that we stated it last week did generate the buy signal.

Buy 4 SPY Sept (29^th) 480 calls: Since CVB reached a new all-time high, we are going to buy SPY
SPY,
-0.66%
calls with a striking price equal to SPY’s all-time high. We will hold without a stop initially.

New Recommendation: Emerging markets ETF (EEM)

There has been a high-level buy signal generated from the weighted put-call ratio for the Emerging Markets ETF
EEM,
-1.23%.
Put buying has been extremely strong for more than a month and is now is abating. This has generated the buy signal.

Buy 5 EEM Oct (20^th) 41 calls in line with the market

We will hold these calls as long as the EEM weighted put-call ratio remains on a buy signal.

Follow-up action:

We are using a “standard” rolling procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread, or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.

Long 800 KOPN:
KOPN,
-4.76%
The stop remains at 1.70.

Long 2 SPY Aug (4^th) 453 calls: This is our “core” bullish position. The calls have been rolled up three times. Stop out of this trade if SPX closes below 4330. Roll up every time your long SPY option is at least 6 points in-the-money.

Long 1 SPY Aug (4^th) 453 call: Bought in line with the “New Highs vs. New Lows” buy signal. The calls have been rolled up three times. Stop out of this trade if, on the NYSE, New Lows outnumber New Highs for two consecutive days. Roll up every time your long SPY option is at least 6 points in-the-money.

Long 2 PFG Aug (18^th) 80 calls: This position has been was rolled up twice. We will hold this PFG
PFG,
-1.07%
position as long as the weighted put-call ratio remains on a buy signal.

Long 10 VTRS
VTRS,
-1.43%
August (18^th) 10 calls: The stop remains at 10.15.

Long 5 CCL
CCL,
+3.23%
Aug (18^th) 17 calls: Raise the stop to 17.10.

Long 2 PRU
PRU,
-0.46%
Aug (18^th) 87.5 calls: We will continue to hold these calls as long as the weighted put-call ratio remains on a buy signal.

Long 8 CRON
CRON,
-1.66%
Aug (18^th) 2 calls: Hold these calls without a stop while takeover rumors play out.

Long 6 ORIC
ORIC,
-9.06%
Aug (18^th) 7.5 calls: The stop remains at 7.40.

Long 2 EW
EW,
-9.78%
Aug (18^th) 95 puts: Continue to hold these puts as long as the weighted put-call ratio remains on a sell signal.

All stops are mental closing stops unless otherwise noted.

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the best-selling book, Options as a Strategic Investment. www.optionstrategist.com

©McMillan Analysis Corporation is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corporation, or accounts managed by such persons may have positions in the securities recommended in the advisory.

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#run #stock #markets #bulls #watch #exits

Here’s what Wall Street’s most bullish analyst heading into the year thinks of the stock market now

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It’s back to business on Monday, but there’s a bit of nervousness after the near coup/rebellion/cage fight in one of the world’s biggest nuclear powers over the weekend.

Questions remain over a possible power struggle in Russia, as it continues to wage war on Ukraine. But barring bigger developments, investors are returning their focus on whether aggressive central banks will spark a recession and market fallout.

Read: What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

Wall Street has been growing more bullish after entering 2023 in a fearful state, following the S&P 500’s
SPX,
-0.77%
worst year since 2008. One analyst who led bullish views headed into 2023 was Deutsche Bank’s chief U.S. equity and global strategist, Binky Chadha, who sees a 4,500 finish, and others have been playing catch up to him.

In our call of the day, Chadha spoke to MarketWatch about why he’s not budging from that bullish call and what, if anything, could derail his optimistic view.

He said the year has been playing out as the bank had forecasted — strong rallies led by a squeeze on markets due to underweight positioning, with tech in the driver’s seat — the Nasdaq
COMP,
-1.01%
is up 16% so far this year. The path higher will be more of a grind as some of that positioning has caught up, he says.

Investors underweight in equities from late last year have largely caught up with their exposure, while others stay wary, says Deutsche Bank’s Binky Chadha.

Deutsche Bank

Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

Chadha said he’d rethink his more bullish outlook on “signs of corporate risk aversion. Companies pulling back and going back into the bunker.” That is corporates becoming risk averse, cutting working capital, hoarding cash, and paring capital expenditure, he said. For now, he doesn’t see that.

The strategist also weighed in on narrow market leadership, where S&P 500 gains are led by just a handful of names. “Keep in mind that the selloff of last year was also narrow,” he said, when energy stocks soared on higher prices.

But this year the reversal has seen techs rally and now he sees indeed the gains spreading to more names. He said the bank recently removed its overweight on mega-tech stocks because earnings are rebounding, but markets have priced in a lot more than they expect.

As for where to put money now? “I wouldn’t be long financials here. The events of March have painted financials with a very broad brush. Most of the large -cap financials are really beneficiaries of what happened in March, but the market has put a risk premium on them,” said Chadha

As for cyclical consumer stocks, the risk/reward is asymmetrical because so much is priced in for the downside. “Everybody in the market has been waiting so long for the recession and some things are priced for even more than an average recession,” he said.

“And so I think you want to be long the cyclical parts of the consumer, and I think you want to be underweight defensives, because rates stay here and that’s where everybody has been hiding,” he said.

And what would make Chadha lift that 4,500 S&P 500 target? “Better prospects for the economy, better prospects for gorwth. In the event of a soft landing, and to be clear that is not our house view, but that would not be a terrible thing.” And that would eventually lead to upside for markets, he said.

The markets

Stock futures
ES00,

YM00,
+0.01%
are marginally lower, with Treasury yields
TMUBMUSD10Y,
3.691%
and oil prices
CL.1,
+0.48%
dipping, and silver
SI00,
+1.97%
making some strides. Lots of weakness across Asia, led by the Shanghai Composite
SHCOMP,
-1.48%,
while Europe stocks
SXXP,
-0.07%
are lower after a newsy Russia weekend, and natural gas futures
NG00,
+1.17%
are higher both in the U.S. and Europe. The ruble
USDRUB,
+0.91%
is down 1.7% against the dollar
DXY,
-0.27%,
which is a little softer overall.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Goldman Sachs became the third Wall Street bank in a week to downgrade Tesla shares
TSLA,
-3.03%
to neutral, saying the stock has had a strong runup and competition grows for the EV maker. The stock is down 2% in premarket.

PacWest shares
PACW,
+0.56%
are up 8% after the regional bank said it sold its loan portfolio to Ares Management
ARES,
-2.37%
in deal that will generates $2 billion ‘to improve liquidity.’

Lucid
LCID,
-4.54%
stock is up 7% after the EV and battery pack maker agreed a deal to provide Aston Martin with powertrain and battery system technology for luxury EVs.

IBM
IBM,
-1.33%
has confirmed a $4.6 billion all-cash deal for privately held software group Appio. IBM shares are down slightly.

The Fed’s preferred inflation gauge — the personal consumption expenditures price index — is a big economic highlight, due Friday. Durable goods and some housing market data is coming Tuesday, with appearances by Fed Chairman Jerome Powell on Wednesday and Thursday.

German business sentiment fell in June Fell in June as the country’s manufacturing outlook worsened.

Russia’s defense minister Sergei Shoigu was spotted visiting troops in Ukraine on Monday — his first public appearance since the weekend rebellion pushing for his ouster. Not heard from — President Vladimir Putin or Belarus-bound Wagner chief Yevgeny Prigozhin.

Best of the web

We asked a language model to write career advice based on caterer-turned-coup leader Yevgeny Prigozhin. Here’s what it generated.

Second-quarter corporate profits are set for their biggest drop since the start of the pandemic. But then the worst could be over.

Here’s to not traveling, which turns us into the worst version of ourselves as it convinces us we’re at our best.

Octupus farming — a symbol of what humans should not be doing

The chart

“If this is still a bear market rally it will end up being the longest bear market rally in history (which probably means it isn’t a bear market rally!),” says the Weekly S&P 500 Chartstorm blog by Callum Thomas, head of research and founder @topdowncharts, referring to the below chart:

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker	Security name
TSLA, -3.03%	Tesla
GME, -2.55%	GameStop
AMC, -3.84%	AMC Entertainment
NVDA, -1.90%	Nvidia
LCID, -4.54%	Lucid
NIO, -5.49%	Nio
AAPL, -0.17%	Apple
SPCE, -18.42%	Virgin Galactic
MULN, -4.83%	Mullen Automotive
AMZN, -0.63%	Amazon.com

Random reads

Man bought lifetime United Airlines pass three decades ago, has “lived like a sultan” ever since.

Kylie Minogue’s “Padam Padam’ single is fast-tracking its way to gay classic status.

Naples tells billionaires to park their superyachts somewhere else.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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Bank of America execs blew $93.6 billion. Here’s how they did it.

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In several notes to clients this month, Odeon Capital Group analyst Dick Bove has pointed out that Bank of America’s big spending on stock buybacks over the past five years has been a waste for its shareholders, with the bank’s stock price declining slightly during that period.

The idea behind repurchasing shares on the open market is that they reduce a company’s share count and therefore boost earnings per share and support higher share prices over time. This doesn’t seem to be a bad idea, especially for a company such as Apple Inc.
AAPL,
+1.01%,
which has generated excess capital and has appeared to be firing on all cylinders for a long time. For a company that is continuing to expand its product and service offerings while maintaining high profitability, buybacks can be a blessing to shareholders.

But for banks, for which capital is the main ingredient of earnings power, a more careful approach might be in order. The data below show how buybacks haven’t helped the largest banks outperform the broad stock market over the past five years. And now, banks face the prospect of regulators raising their capital requirements by 20%, according to a Wall Street Journal report.

Before showing data for the 20 companies among the S&P 500 that have spent the most money on buybacks over the past five years, let’s take a look at how share repurchases are described in a misleading way by corporate executives — and by many analysts, for that matter. During Bank of America’s
BAC,
-0.79%
first-quarter earnings call on April 18, Chief Financial Officer Alastair Borthwick said the bank had “returned $12 billion in capital to shareholders” over the previous 12 months, according to a transcript provided by FactSet.

Borthwick was referring to buybacks and dividends combined. Neither item was a return of capital. In fact, Bove summed up the buybacks elegantly in a client note on June 9: “The money that the company uses to buy back the stock is simply given away to people who do not want to own the bank’s stock.”

It is also worth pointing out that the term “return of capital” actually means the return of investors’ own capital to them, which is commonly done by closed-end mutual funds, business-development companies and some real-estate investment trusts, for various reasons. Those distributions aren’t taxed and they lower an investor’s cost basis.

Dividends aren’t a return of capital, either, if they are sourced from a company’s earnings, as they have been for Bank of America.

One more thing for investors to think about is that large companies typically award newly issued shares to executives as part of their compensation. This dilutes the ownership stakes of nonexecutive shareholders. So some of the buybacks merely mitigate this dilution. An investor hopes to see the buybacks lower the share count, but there are some instances in which the count still increases.

How buybacks can hurt banks

Banks’ management teams and boards of directors have engaged in buybacks because they wish to boost earnings per share and returns on equity by shedding excess capital. But Bove made another industry-specific point in his June 9 note: “If the bank buys back stock it must sell assets that offer a return to do so; it lowers current earnings.” Buybacks can also hurt future earnings. Less capital can slow expansion, loan growth and profits.

According to Bove, Bank of America CEO Brian Moynihan, who took the top slot in 2010 and saw the bank through the difficult aftermath of its acquisition of Countrywide and Merrill Lynch in 2008, “is one of the brightest, most capable executives for operating a banking enterprise.”

But he questions Moynihan’s ability to manage the bank’s balance sheet. Bove expects that Bank of America will need to issue new common shares, in part because rising interest rates have reduced the value of its bond investments.

In a June 5 note, Bove wrote: “Mr. Moynihan indicated twice [during a recent presentation] that the bank has excess cash that apparently could not be invested profitably. Possibly he is unaware that the cost of deposits at the bank in [the first quarter of] 2023 was 1.38% while the yield in the Fed Funds market can be as high as 5.25%.” In other words, the bank could earn a high spread at little risk with overnight deposits with the Federal Reserve.

That is a very simple example, but if Bank of America had grown its loan book more quickly over recent years while focusing less on buybacks, it might not face the prospect of a near-term capital raise, which would dilute current shareholders’ stakes in the company and reduce earnings per share.

Top 20 companies by dollars spent on buybacks

To look beyond banking, we sorted companies in the S&P 500
SPX,
+0.51%
by total dollars spent on buybacks over the past five years (the past 40 reported fiscal quarters) through June 9, using data suppled by FactSet. It turns out 11 have seen prices increase more quickly than the index. With reinvested dividends, 12 have outperformed the index.

Company	Ticker	Dollars spent on buybacks over the past 5 years ($Bil)	5-year price change	5-year total return with dividends reinvested
Apple Inc.	AAPL, +1.01%	$393.6	279%	297%
Alphabet Inc. Class A	GOOGL, +0.84%	$180.6	116%	116%
Microsoft Corporation	MSFT, +0.87%	$121.5	221%	239%
Meta Platforms Inc.	META, +1.58%	$103.4	42%	42%
Oracle Corp.	ORCL, +6.11%	$102.6	140%	161%
Bank of America Corp.	BAC, -0.79%	$93.6	-2%	10%
JPMorgan Chase & Co.	JPM, -0.18%	$87.3	27%	47%
Wells Fargo & Co.	WFC, -1.01%	$84.0	-24%	-13%
Berkshire Hathaway Inc. Class B	BRK.B, -0.80%	$70.3	70%	70%
Citigroup Inc.	C, +0.09%	$51.4	-29%	-16%
Charter Communications Inc. Class A	CHTR, +1.09%	$48.5	20%	20%
Cisco Systems Inc.	CSCO, +1.00%	$46.5	15%	34%
Visa Inc. Class A	V, +0.75%	$45.6	66%	72%
Procter & Gamble Co.	PG, -1.26%	$42.1	89%	116%
Home Depot Inc.	HD, +1.01%	$41.0	51%	71%
Lowe’s Cos. Inc.	LOW, +1.92%	$40.8	111%	131%
Intel Corp.	INTC, +4.67%	$39.0	-40%	-31%
Morgan Stanley	MS, +1.04%	$36.7	67%	93%
Walmart Inc.	WMT, +0.33%	$35.6	82%	99%
Qualcomm Inc.	QCOM, +2.12%	$35.1	101%	130%

S&P 500	SPX, +0.51%		55%	69%
Source: FactSet

Click on the tickers for more about each company or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The four listed companies with negative five-year returns are three banks — Citigroup Inc.
C,
+0.09%,
Wells Fargo & Co.
WFC,
-1.01%
and Bank of America — and Intel Inc.
INTC,
+4.67%.

Don’t miss: As tech companies take over the market again, don’t forget these bargain dividend stocks

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AI news is driving tech ‘building blocks’ stocks like Nvidia. But another ‘power’ area will also benefit, say these veteran investors

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Kneel to your king Wall Street.

After forecasting record revenue backed by a “killer AI app,” Nvidia has teed up the Nasdaq
COMP,
-0.61%
for a powerful Thursday open. Indeed, thanks to that chip maker and a few other generals — Microsoft, Apple, Alphabet, etc.— tech is seemingly unstoppable:

Elsewhere, the Dow
DJIA,
-0.77%
is looking rattled by a Fitch warning over debt wranglings ahead of a long weekend.

But our call of the day is accentuating the positive with some valuable insight on tech investing amid AI mania from a pair of seasoned investors.

Inge Heydorn, partner on the GP Bullhound Global Technology Fund and portfolio manager Jenny Hardy, advise choosing companies carefully given high valuations in some parts of tech that could make earnings vulnerable.

“But looking slightly beyond the volatility, tech has the advantage of being driven by many long-term secular themes which will continue to play out despite a weaker macro,” Hardy told MarketWatch in follow-up comments to an interview with the pair last week. GP Bullhound invests in leading global tech companies, with more than $1 billion in assets under management.

“We try to make sure we’re exposed to these areas that will be more resilient. AI is the perfect example of that –- none of Microsoft, Amazon or Google will risk falling behind in the AI race -– they will all keep spending, and that will continue to drive earnings for the semiconductor companies that go into these servers higher,” said Hardy, who has worked in the investment industry since 2011.

“The way that we think about investing around [AI] is in the building blocks, the picks and shovels infrastructure, which for us is really the semiconductor companies that go into the training servers and the inference servers,” she said.

Nvidia
NVDA,
-0.49%,
Advanced Micro Devices
AMD,
+0.14%,
Taiwan Semiconductor
TSM,
-0.34%
2330,
+3.43%,
Infineon
IFX,
-0.33%,
Cisco
CSCO,
-1.02%,
NXP
NXPI,
-4.88%,
Microsoft
MSFT,
-0.45%,
ServiceNow
NOW,
+0.48%
and Palo Alto
PANW,
+7.68%
are all in their portfolio. They also like the semiconductor capital equipment industry — AI beneficiaries and tailwinds from increasingly localized supply chains — with companies including KLA
KLAC,
-1.40%,
Lam Research
LRCX,
-1.33%,
ASML
ASML,
-2.15%
and Applied Materials
AMAT,
-1.96%.

As Hardy points out, “lots of big tech has given us lots of certainty as it relates to AI, lots of certainty as it relates to the amount they are going to spend on AI.”

Enter Nvidia’s results, which Hardy said are proof the “AI spend race has begun…Nvidia’s call featured an impressive roster of companies deploying AI with Nvidia – AT&T, Amgen, ServiceNow – the message was that this technology adoption is widespread and really a new normal.” She said they see benefits spreading across the AI value chain — CPU providers, networking infrastructure players, memory and semicap equipment makers.

Heydorn, who traded technology stocks since 1994 and also runs a hedge fund with Hardy, says there are two big tech trends currently — “AI across the board and power semiconductors driven by EV cars and green energy projects.”

But GP Bullhound steers clear of EV makers like Tesla
TSLA,
-1.54%,
where they see a lot of competition, notably from China. “Ultimately, they will need semiconductors and the semiconductors crucially are able to keep that pricing power in a way that the vehicle companies are not able to do because of the differences in competition,” she said.

Are the tech duo nervous about anything? “The macro economy is clearly the largest risk and further bank or real-estate problems,” said Heydorn, as Hardy adds that they are watching for second-order impacts on tech.

“One example would be enterprise software businesses with high exposure to financial services, which given those latest problems in that sector, might see a re-prioritization of spend away from new software implementations,” she said.

In the near term, Heydorn says investors should watch out for May sales numbers and any AI mentions from Taiwan via TSMC, mobile chip group MediaTek
2454,
-0.42%
and Apple
AAPL,
+0.16%
supplier Foxxconn
2354,
-0.74%
that may help with guidance for the second half of the year. “The main numbers in Taiwan will tell us where we are in inventories. They’re going to tell us if the 3-nanonmeters, that’s a new processor that’s going into Apple iPhones, are ready for production,” he said.

Read: JPMorgan says this is how much revenue other companies will get from AI this year

The markets

Nasdaq-100 futures
NQ00,
+1.90%
are up 1.8% , S&P 500
ES00,
+0.55%
futures are up 0.6%, but those for the Dow
YM00,
-0.34%
are slipping on debt-ceiling jitters. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.756%
is up 4 basis points to 3.75%.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily. Follow all the stock market action with MarketWatch’s Live Blog.

The buzz

Fitch put U.S. credit ratings on ‘ratings watch negative’ due to DC “brinkmanship” as the debt-ceiling deadline nears. House Speaker Kevin McCarthy told investors not to worry as an agreement will be reached.

Best Buy
BBY,
-0.49%
stock is up 6% after an earnings beat, while Burlington Stores
BURL,
+3.19%
is slipping after a profit and revenue miss. Dollar Tree
DLTR,
-0.50%
and Ralph Lauren
RL,
+0.24%
are still to come, followed by Ulta
ULTA,
+0.17%,
Costco
COST,
-0.44%
and Autodesk
ADSK,
+0.06%
after the close.

Nvidia is up 25% in premarket and headed toward a rare $1 trillion valuation after saying revenue would bust a previous record by 30% late Wednesday.

Opinion: Nvidia CFO says ‘The inflection point of AI is here’

But AI upstart UiPath
PATH,
-1.74%
is down 8% after soft second-quarter revenue guidance, while software group Snowflake
SNOW,
+1.13%
is off 14% on an outlook cut, while cloud-platform group Nutanix
NTNX,
-0.55%
is rallying on a better outlook.

Elf Beauty
ELF,
+1.69%
is up 12% on upbeat results from the cosmetic group, with Guess
GES,
-0.80%
up 5% as losses slimmed, sales rose. American Eagle
AEO,
+4.50%
slid on a sales decline forecast. Red Robin Gourmet Burgers
RRGB,
+3.51%
is up 5% on the restaurant chain’s upbeat forecast.

Revised first-quarter GDP is due at 8:30 a.m., alongside weekly jobless claims, with pending-home sales at 10 a.m. Richmond Fed President Tom Barkin will speak at 9:50 a.m., followed by Boston Fed President Susan Collins.

A Twitter Spaces discussion between presidential candidate Florida Gov. Ron DeSantis and Elon Musk was plagued by glitches.

The best of the web

Before Tina Turner died at 83, she gave us these 5 retirement lessons

Can WallStreetBets’ spectacular short-squeeze be repeated?

Paralyzed walks naturally again with brain and spine implants

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker	Security name
NVDA, -0.49%	Nvidia
TSLA, -1.54%	Tesla
GME, +0.47%	GameStop
BUD, -1.94%	Anheuser-Busch InBev
AMD, +0.14%	Advanced Micro Devices
PLTR, -3.24%	Palantir Technologies
AAPL, +0.16%	Apple
AMZN, +1.53%	Amazon.com
NIO, -9.49%	Nio
AI, +2.54%	C3.ai

Random reads

“No way.” Abba says it won’t perform at 50th anniversary Eurovision win

The Welsh harbor that looks like a dolphin from high above.

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Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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This once popular ETF used to hedge against inflation is now out of favor. What investors are doing now.

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Hello! This is markets reporter Isabel Wang bringing you this week’s ETF Wrap. In this week’s edition, we take a look at inflation-protected bond ETFs. They saw significant outflows in the past week as U.S. consumer prices showed signs of moderating in April, though inflation pressures continued to squeeze Americans’ pocketbooks.

Please send tips, or feedback, to [email protected] or to [email protected]. You can also follow me on Twitter at @Isabelxwang and find Christine at @CIdzelis.

Sign up here for our weekly ETF Wrap.

The iShares TIPS Bond ETF
TIP,
+0.22%,
which tracks an index of Treasury inflation-protected securities, or TIPS, has seen outflows of nearly $340 million over the past week. Outflows on Wednesday alone exceeded $100 million following the release of a widely followed inflation report, according to FactSet data.

The U.S. Consumer Price Index report Wednesday showed inflation cooled to the lowest annual rate in two years, but it still remained about more than double the prepandemic average and well above the Federal Reserve’s 2% target rate.

CPI rose 0.4% in April from the previous month, much faster than the 0.1% increase recorded in March. Prices climbed 4.9% on a year-over-year basis, down from 5% in March. Excluding volatile food and energy categories, the core CPI rose 0.4% monthly and 5.5% from a year ago, both in line with expectations.

Todd Rosenbluth, head of research at VettaFi, said the outflows indicate that investors are responding to inflationary data, and they continue to “be nervous about having exposure to TIPS products.”

TIPS are a type of Treasury security issued by the U.S. government, which are indexed to inflation to protect investors from a decline in the purchasing power of their money. Unlike other Treasury securities where the principal is fixed, the principal value of a TIPS adjusts with movements in inflation. When it matures, investors get either the inflation-adjusted price or the original principal, whichever is greater.

“Investors have been racing into TIPS ETFs in 2021 in anticipation of higher inflation, and then they’ve been paring back that exposure ever since,” Rosenbluth told MarketWatch in a phone interview on Thursday.

“The CPI numbers that came out show that inflation is still here to stay in perhaps different ways than people had been expecting…Now I think there are some mixed signals as to whether or not there are more hikes to occur,” he said.

Market participants hope that the lower-than-expected inflation data may leave room for the central bank to refrain from raising interest rates further at its June meeting. They also placed a 42% chance that policy makers would begin to trim borrowing costs at their July 25-26 meeting, according to CME FedWatch Tool.

There is “certainly a risk” for investors who pulled their money out of the inflation-linked bond ETFs to overestimate the disinflationary process and position for the price pressures to fall back to prepandemic levels, warned Tim Urbanowicz, head of research and investment strategy at Innovator ETFs.

“The risk to see additional hikes probably outweighs the probability that you’re going to see cuts this year,” said Urbanowicz.

See: ‘The Fed is way late and they’ve already screwed it up.’ This stock strategist is banking on gold, silver and Treasurys to weather a recession.

The divergence between the Fed and the financial markets has driven investors to move back to fixed-income ETFs, especially ultra short-term bond funds. Avoiding interest-rate volatility has replaced inflation protection to be at the forefront of investors’ playbooks, said market strategists.

The SPDR Bloomberg 1-3 Month T-bill ETF
BIL,
+0.07%
has seen over $86 million of inflows in the week to Wednesday, while the inflows over the past three months totaled nearly $5.3 billion. The iShares 0-3 Month Treasury Bond ETF
SGOV,
+0.06%
has recorded a total of $3.9 billion inflows over the same three-month period, according to FactSet data.

“There is a lot of gravitation towards yield products,” said Urbanowicz. “The flows that we’re seeing on the shorter end of the yield curve continue to be prominent. Also other yield enhancement strategies are becoming extremely popular…as a way to really generate extra income.”

“Inflation was a fear for investors in prior years, and then sentiment has shifted towards interest-rate hikes and interest-rate sensitivity,” said Rosenbluth. “Investors want to manage their interest-rate sensitivity, and in particular, still have a focus on Treasury ETFs given the debt-ceiling crisis, and given what’s going on with inflation.”

Another example is BondBloxx Bloomberg One Year Target Duration U.S. Treasury ETF
XONE,
+0.04%,
which made its debut in September 2022. The fund has attracted over $514 million of inflows in the past week, and is among the top five ETFs that gathered maximum capital in the week to Wednesday, per FactSet data.

“It’s rare to see an ETF that new get that level of demand,” said Rosenbluth.

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

Top Performers	%Performance
Sprott Uranium Miners ETF URNM, -3.18%	9.3
ARK Innovation ETF ARKK, +0.18%	8.5
Global X Cybersecurity ETF BUG, -0.57%	8.3
VanEck Rare Earth/Strategic Metals ETF REMX, +0.12%	8.1
Global X Uranium ETF URA, -3.29%	8.0
Source: FactSet data through Wednesday, May 10. Start date May 4. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater.

…and the bad

New ETFs

IndexIQ announced on Wednesday the launch of the IQ CBRE Real Assets ETF
IQRA,
-1.06%,
an actively managed ETF across real estate and infrastructure equity securities, subadvised by CBRE Investment Management Listed Real Assets LLC.
PIMCO said Wednesday that it launched the PIMCO Commodity Strategy Active ETF, which invests in a range of commodity-linked instruments and seek out “diverse sources of excess returns” by incorporating multifactor considerations such as storage costs of physical commodities and historic performance trends.
J.P. Morgan Asset Management on Thursday announced the launch of two new ETFs: JPMorgan BetaBuilders Emerging Markets Equity ETF
BBEM,

and JPMorgan BetaBuilders U.S. TIPS 0-5 Year ETF
BBIP,
-0.16%.
BBEM seeks investment results that closely correspond to the performance of the Morningstar Emerging Markets Target Market Exposure Index SM, while BBIP tracks the performance of the ICE 0-5 Year U.S. Inflation-Linked Treasury Index.

Weekly ETF reads

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Big bank earnings in spotlight following historic failures: ‘Every income statement line item is in flux’.

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JPMorgan Chase & Co.
JPM,
-0.11%,
Citigroup Inc.
C,
+0.20%
and Wells Fargo & Co.
WFC,
+2.74%
— along with PNC Financial Services Group Inc.
PNC,
+0.37%
and BlackRock Inc.
BLK,
+0.05%
— report earnings Friday as Wall Street’s fixation on a recession continues to run deep. And following the implosion of Silicon Valley Bank
SIVBQ,
-12.21%,
Signature Bank
SBNY,
+3.97%
and Silvergate Bank
SI,
-2.72%,
along with efforts to seal up cracks in First Republic Bank
FRC,
+4.39%
and Credit Suisse Group AG
CS,
+1.27%,
Wall Street is likely to review quarterly numbers from the industry with a magnifying glass.

“Every income statement line item is in flux and the degree of confidence in our forecast is lower as the probability of a sharper slowdown increases,” Morgan Stanley analyst Betsy Graseck said in a note on Wednesday.

For more: Banks on the line for deposit flows and margin pr e ssure as they reel from banking crisis

She said that the collapse of Silicon Valley Bank and Signature Bank last month would trigger an “accelerated bid” for customers’ money, potentially weighing on net interest margins, a profitability gauge measuring what banks make on interest from loans and what they pay out to depositors. Tighter lending standards, she said, would drive up net charge-offs — a measure of debt unlikely to be repaid — as borrowers run into more trouble obtaining or refinancing loans.

Phil Orlando, chief investment strategist at Federated Hermes, said in an interview that tighter lending standards could constrain lending volume. He also said that banks were likely to set aside more money to cover loans that go bad, as managers grow more conservative and try to gauge what exposure they have to different types of borrowers.

“To a significant degree, they have to say, what percentage of our companies are tech companies? What percentage are financial companies? Do we think that this starts to dribble into the auto industry?” he said. “Every bank is going to be different in terms of what their portfolio of business looks like.”

He also said that last month’s bank failures could spur more customers to open up multiple accounts at different banks, following bigger concerns about what would happen to the money in a bank account that exceeded the $250,000 limit covered by the FDIC. But as the recent banking disturbances trigger Lehman flashbacks, he said that the recent banking failures were the result of poor management and insufficient risk controls specific to those financial firms.

“COVID was something that affected everyone, universally, not just the banking companies but the entire economy, the entire stock market,” he said. “You go back to the global financial crisis in the ’07-’09 period, that’s something that really affected all of the financial service companies. I don’t think that’s what we’re dealing with here.”

Also read: Banking sector’s growing political might could blunt reform in wake of SVB failure, experts warn

JPMorgan
JPM,
-0.11%
Chief Executive Jamie Dimon has said that Trump-era banking deregulation didn’t cause those bank failures. But in his annual letter to shareholders last week, he also said that the current turmoil in the bank system is not over. However, he also said that the collapse or near-collapse of Silicon Valley Bank and its peers “are nothing like what occurred during the 2008 global financial crisis.”

“Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight,” Dimon said. “Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known — both to regulators and the marketplace.”

“The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep,” Dimon continued. “It is unlikely that any recent change in regulatory requirements would have made a difference in what followed.”

The Federal Reserve’s decision to raise interest rates, along with a broader pullback in digital demand following the first two years of the pandemic, stanched the flow of tech-industry funding into Silicon Valley bank and caused the value of its bond investments to fall.

Don’t miss: An earnings recession seems inevitable, but it might not last long

But the impact of those higher interest rates — an effort to slow the economy and, by extension, bring inflation down — will be felt elsewhere. First-quarter earnings are expected to decline 6.8% for S&P 500 index components overall, according to FactSet. That would be the first decline since the second quarter of 2020, when the pandemic had just begun to send the economy into a tailspin.

“In a word, earnings for the first quarter are going to be poor,” Orlando said.

This week in earnings

For the week ahead, 11 S&P 500
SPX,
+0.36%
components, and two from the Dow Jones Industrial Average
DJIA,
+0.01%,
will report first-quarter results. Outside of the banks, health-insurance giant UnitedHealth Group
UNH,
+0.70%
reports during the week. Online fashion marketplace Rent the Runway Inc.
RENT,
+3.75%
will also report.

The call to put on your calendar

Delta Air Lines Inc.: Delta
DAL,
+0.69%
reports first-quarter results on Thursday, amid bigger questions about when, if ever, higher prices — including for airfares — might turn off travelers. The carrier last month stuck with its outlook for big first-quarter sales gains when compared with prepandemic levels. “If anyone’s looking for weakness, don’t look at Delta”, Chief Executive Ed Bastian said at a conference last month.

But rival United Airlines Holdings Inc.
UAL,
+1.50%
has told investors to prepare for a surprise loss, even though it also reported a 15% jump in international bookings in March. And after Southwest Airlines Co.’s
LUV,
+0.03%
flight-cancellation mayhem last year brought more attention to technology issues and airline understaffing, concerns have grown over whether the industry has enough air-traffic controllers, prompting a reduction in some flights.

For more: Air-traffic controller shortages could result in fewer flights this summer

But limitations within those airlines’ flight networks to handle consumer demand can push fares higher. And Morgan Stanley said that strong balance sheets, passengers’ willingness to still pay up — albeit in a concentrated industry with a handful of options — and “muscle memory” from being gutted by the pandemic, could make airlines “defensive safe-havens,” to some degree, for investors.

“It is hard to argue against the airlines soaring above the macro storm underneath them (at least in the short term),” the analysts wrote in a research note last week.

The numbers to watch

Grocery-store margins: Albertsons Cos.
ACI,
+0.53%.
— the grocery chain whose merger deal with Kroger Inc.
KR,
+0.96%
has raised concerns about food prices and accessibility — reports results on Tuesday. Higher food prices have helped fatten grocery stores’ profits, even as consumers struggle to keep up. But Costco Wholesale Corp.
COST,
-2.24%,
in reporting March same-store sales results, noted that “year-over-year inflation for food and sundries and fresh foods were both down from February.” The results from Albertsons could offer clues on whether shoppers might be getting a break from steep price increases.

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Chips, energy and an Amazon rival: Stock picks from a fund manager with three decades of experience

Post By Stock Advertising, Advertising/Marketing/Public Relations, article_normal, Automotive, banking, Banking/Credit, business, Business/Consumer Services, C&E Exclusion Filter, commodity, Commodity/Financial Market News, computers, Computers/Electronics, consumer services, Content Types, corporate, Corporate/Industrial News, credit, E-Mini Dow Continuous Contract, E-Mini Nasdaq 100 Index Continuous Contract, E-Mini S&P 500 Future Continuous Contract, Economic News, electronics, Equity Markets, ES00, Factiva Filters, financial market news, Financial Services, Industrial Electronics, Industrial Goods, industrial news, integrated circuits, Internet, Internet/Online Services, market research, Market Research/Public Relations, Marketing, Motor Vehicles, NQ00, online services, Passenger Cars, public relations, S&P 500 Index, semiconductors, SPX, Technology, YM00

Markets are again on the backfoot ahead of Thursday’s open. Credit Suisse shares have shot higher on plans to borrow billions, a day after collapsing and upending already fragile markets.

The European Central Bank raised its key interest rate by 50 basis points as some had expected. That’s as stress returns for some U.S> lenders.

Onto our call of the day, which comes from the manager of the Plumb Balanced Fund
PLIBX,
-1.08%,
Tom Plumb, who has three stock ideas to share. But first, some timely advice from the manager’s three decades of experience.

“The market is really going to be volatile here, but if you look at 1981 to 1982, it was a significant amount of pressure on the stock market, but the fourth quarter of 1982…the S&P 500
SPX,
-0.21%
was up 40%,” Plumb told MarketWatch in a recent interview.

“I think people still have to look at what their comfort with risk is…for the first time in 15 years, they have a reasonable expectation that a balanced portfolio will modify the volatility because they’re earning 4% to 7% on their higher quality fixed income investments,” he said.

“You just have to make sure the companies you own aren’t overleveraged, they’re not dependent on capital and that they’re not standing, as we say, on the railroad tracks for different trends that are really going to be developing,” said Plumb.

That brings us to his first pick, microcontroller maker Microchip Technology
MCHP,
-0.17%,
which he has owned at different periods over 20 years and sits in a sector he likes — chips.

The first microcontroller was put on a car to regulate the fuel injection system in 1987 and the average car now has about 400 of those, controlling everything from temperature, to safety, he notes. Microchip trades at about 14 times forward earnings, and likes the fact they’re normally conservative on the guidance front.

And: Intel’s stock nabs an upgrade: ‘Things are moving enough in the right direction.’

“They focus on industrial aerospace, defense, auto and auto centers. They have almost no exposure to PCs and cellphone markets,” return free cash to shareholders, with regular dividends over the past 15 years. While not as sexy as AI, Microchip delivers on the basis of a “good, solid company,” he said.

Read: Chip stocks fall as delivery times shrink, Samsung plans to build world’s largest chip complex

His next pick is down to the Ukraine war’s causation of a rethink of energy independence, capacity and companies that can produce commodities such as liquid natural gas. With that Philips 66
PSX,
-0.22%
is “probably the best company in the mid market,” trading at about 7 times earnings, with a 4% dividend yield meaning investors are paid as they wait, he said.

“Earnings obviously are pretty volatile, but their main thing is capacity utilization rates on the refineries. Refineries are only a quarter of their revenues, but it’s 60% of their profits, and then they transport the LNG,” he said. LNG exports will be significant as countries try to diversify energy inputs, and “carbon-based energy is gonna still have a significant place in the world for a long time,” he adds.

His last pick is an old favorite for the manager — Latin America’s answer to Amazon.com
AMZN,
+1.21%
— MercadoLibre
MELIN,
-0.63%

MELI,
-0.58%,
whose shares have been on the recovery road after coming off COVID-19 pandemic-era highs. The company is now “getting to scale and you’re seeing a tremendous increase in not only their revenues, but their profit margins are expanding,” he said.

“So it looks like you’re going to have 28% revenue growth maybe for the next four years at least, and get 50% plus growth in their reported earnings,” he said, noting increasing benefits of electronic transactions and digital advertising.

“So you’ve got three legs: you’ve got the financial, you’ve got the Amazon type, online retailer and the third is the advertising. All of these things are putting them in a spot that’s unique in Latin America, Mexico and South America,” said Plumb.

Last word from Plumb? Like many others, he’s worried that the Fed has moved too fast with rate hikes and that those delayed effects are playing out. He worries about risk to insurance companies and long-term lenders of commercial real estate, which he thinks will be “an area of significant potential risk over the next couple of years.”

The markets

Stock futures
ES00,
-0.54%

YM00,
-0.78%

NQ00,
-0.27%
extended losses after the ECB rate hike, while bond yields
TMUBMUSD10Y,
3.440%

TMUBMUSD02Y,
3.961%
have also turned lower, and the dollar
DXY,
-0.14%
lower. Asian stocks
HSI,
-1.72%

NIK,
-0.80%
fell, while European equities
SXXP,
+0.06%
turned mixed after the ECB hiked interest rates. German 2-year bund yields
TMBMKDE-02Y,
2.466%
are also rising after a big plunge. Oil prices
CL.1,
-1.39%
are weaker.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

“Inflation is projected to remain too high for too long.” That was the ECB statemetn following a 50 basis point rate hike to 3%, a move that some had been on the fence over, given fresh banking stress. President Christine Lagarde will speak soon.

U.S. data showed weekly jobless claims dropping 29,000 to 1.68 million, while import prices declined 0.1%, housing starts rebounded by a 9.8% jump and building permits surged 13.8%. The Philly Fed manufacturing gauge remained deep in contraction territory in March, hitting a negative 23.2, versus expectations of 15.5

Treasury Sec. Janet Yellen is expected to tell the Senate Finance Committee on Thursday that the U.S. banking system is “sound.”

That’s as First Republic shares
FRC,
-29.97%
have dropped 35% to a fresh record low amid reports the battered lender is considering a sale. The lender was cut to junk by Fitch and S&P on Wednesday. Elsewhere, PacWest Bancorp
PACW,
-18.29%
is down 14%.

Meanwhile, “everything is fine,” with Credit Suisse, said the head of top shareholder Saudi National Bank on Thursday, a day after he effectively blew up markets by saying the Middle Eastern bank wouldn’t boost its stake. Credit Suisse shares
CS,
+3.51%

CSGN,
+15.73%
are surging on a pledge to borrow money from the Swiss National Bank and repay debt.

Adobe shares
ADBE,
+2.99%
are up 5% after topping Wall Street expectations for the quarter and hiking its outlook.

Shares of Snap
SNAP,
+6.77%
are up 6%, following a report that the Biden administration has told its Chinese owners to sell their TikTok stakes or face U.S. ban.

Shares of DSW parent Designer Brands
DBI,
+14.13%
are headed for a 2-year low after a surprise profit, but disappointing revenue.

Goldman Sachs is lifting its odds of a U.S. recession in the next 12 months by 10 percentage points to 35%, over worries about the economic effects of small bank stress.

Best of the web

Chinese companies are still trying to get their money out of SVB.

A rare Patek Philippe watch owned by the last emperor of China’s Qing dynasty could break auction records.

An issue with your tissue? ‘Forever chemicals’ are in toilet paper, too.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

Ticker	Security name
TSLA, +0.89%	Tesla
CS, +3.51%	Credit Suisse
FRC, -29.97%	First Republic Bank
BBBY, +8.25%	Bed Bath & Beyond
CSGN, +15.73%	Credit Suisse
AMC, -2.45%	AMC Entertainment
GME, -1.38%	GameStop
AAPL, +0.08%	Apple
NIO, +0.91%	NIO
APE, -8.10%	AMC Entertainment Holdings preferred shares

Random reads

Cookie Monster NFTs? No thanks, say the furry guy’s fans.

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This Spanish ice cream screams childhood days.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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India is becoming a hot market for investors, but it risks falling victim to its own success

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India is poised to become the world’s most important country in the medium term. It has the world’s largest population (which is still growing), and with a per capita GDP that is just one-quarter that of China’s, its economy has enormous scope for productivity gains.

Moreover, India’s military and geopolitical importance will only grow. It is a vibrant democracy whose cultural diversity will generate soft power to rival the United States and the United Kingdom.

One must credit Indian Prime Minister Narendra Modi for implementing policies that have modernized India and supported its growth. Specifically, Modi has made massive investments in the single market (including through de-monetization and a major tax reform) and infrastructure (not just roads, electricity, education, and sanitation, but also digital capacity). These investments – together with industrial policies to accelerate manufacturing, a comparative advantage in tech and IT, and a customized digital-based welfare system – have led to robust economic performance following the COVID-19 slump.

These investments — together with industrial policies to accelerate manufacturing, a comparative advantage in tech and IT, and a customized digital-based welfare system — have led to robust economic performance following the COVID-19 slump.

Yet the model that has driven India’s growth now threatens to constrain it. The main risks to India’s development prospects are more micro and structural than macro or cyclical. First, India has moved to an economic model where a few “national champions” — effectively large private oligopolistic conglomerates — control significant parts of the old economy. This resembles Indonesia under Suharto (1967-98), China under Hu Jintao (2002-12), or South Korea in the 1990s under its dominant chaebols.

In some ways, this concentration of economic power has served India well. Owing to superior financial management, the economy has grown fast, despite investment rates (as a share of GDP) that were much lower than China’s. The implication is that India’s investments have been much more efficient; indeed, many of India’s conglomerates boast world-class levels of productivity and competitiveness.

But the dark side of this system is that these conglomerates have been able to capture policymaking to benefit themselves. This has had two broad, harmful effects: it is stifling innovation and effectively killing early-stage startups and domestic entrants in key industries; and it is changing the government’s “Make in India” program into a counterproductive, protectionist scheme.

We may now be seeing these effects reflected in India’s potential growth, which seems to have declined rather than accelerated recently. Just as the Asian Tigers did well in the 1980s and 1990s with a growth model based on gross exports of manufactured goods, India has done the same with exports of tech services. Make in India was intended to strengthen the economy’s tradable side by fostering the production of goods for export, not just for the Indian market.

Instead, India is moving toward more protectionist import-substitution and domestic production subsidization (with nationalistic overtones), both of which insulate domestic industries and conglomerates from global competition. Its tariff policies are preventing it from becoming more competitive in goods exports, and its resistance to joining regional trade agreements is hampering its full integration into global value and supply chains.

“ India should be focusing on industries where it has a comparative advantage, such as tech and IT, artificial intelligence, business services, and fintech. ”

Another problem is that Make in India has evolved to support production in labor-intensive industries such as cars, tractors, locomotives, trains, and so forth. While the labor intensity of production is an important factor in any labor-abundant country, India should be focusing on industries where it has a comparative advantage, such as tech and IT, artificial intelligence, business services, and fintech. It needs fewer scooters, and more Internet of Things startups. Like many of the other successful Asian economies, policymakers should nurture these dynamic sectors by establishing special economic zones. Absent such changes, Make in India will continue to produce suboptimal results.

“ The recent saga surrounding the Adani Group is symptomatic of a trend that will eventually hurt India’s growth. ”

Finally, the recent saga surrounding the Adani Group
512599,
-4.98%
is symptomatic of a trend that will eventually hurt India’s growth. It is possible that Adani’s rapid growth was enabled by a system in which the government tends to favor certain large conglomerates and the latter benefit from such closeness while supporting policy goals.

Again, Modi’s policies have deservedly made him one of the most popular political leaders at home and in the world today. He and his advisers are not personally corrupt, and their Bharatiya Janata Party will justifiably win re-election in 2024 regardless of this scandal. But the optics of the Adani story are concerning.

There is a perception that the Adani Group may be, in part, helping to support the state political machinery and finance state and local projects that would otherwise go unfunded, given local fiscal and technocratic constraints. In this sense, the system may be akin to “pork barrel” politics in the US, where certain local projects get earmarked in a legal (if not entirely transparent) congressional vote-buying process.

Supposing that this interpretation is even partly correct, Indian authorities might reply that the system is “necessary” to accelerate infrastructure spending and economic development. Even so, this practice would be toxic, and it would represent a wholly different flavor of realpolitik compared to, say, India’s vast purchases of Russian oil since the start of the Ukraine War.

While those shipments still account for less than one-third of India’s total energy purchases, they have come at a significant discount. Given per capita GDP of around $2,500, it is understandable that India would avail itself of lower-cost energy. Complaints by Western countries that are 20 times richer are simply not credible.

The scandal surrounding the Adani empire does not seem to extend beyond the conglomerate itself, but the case does have macro implications for India’s institutional robustness and global investors’ perceptions of India. The Asian financial crisis of the 1990s demonstrated that, over time, the partial capture of economic policy by crony capitalist conglomerates will hurt productivity growth by hampering competition, inhibiting Schumpeterian “creative destruction,” and increasing inequality.

It is thus in Modi’s long-term interest to ensure that India does not go down this path. India’s long-term success ultimately depends on whether it can foster and sustain a growth model that is competitive, dynamic, sustainable, inclusive, and fair.

Nouriel Roubini, professor emeritus of economics at New York University’s Stern School of Business, is chief economist at Atlas Capital Team and the author of “Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them” (Little, Brown and Company, 2022).

This commentary was published with permission of Project Syndicate —
India at a Crossroads

More: This perfect storm of megathreats is even more dangerous than the 1970s or the 1930s.

Also read: Freeing the U.S. economy from China will create an American industrial renaissance and millions of good-paying jobs

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Panic is not an investment strategy. How financial advisers can help you think through the unthinkable.

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Financial planners spend much of their time preparing clients for an uncertain future. They cite worst-case scenarios and pepper clients with anxiety-inducing hypothetical questions. (For instance: What if you die tomorrow? What if your portfolio sinks 50%? What if someone in your family has a serious health crisis?)

So how do advisers help clients prepare for the worst and be optimistic? It’s helpful to transform anxiety into action, which gives clients a sense of control over what’s to come. Devising an action plan makes people feel as if they’re ready for anything, even calamities.

“I want to take away the fear,” says Scott Bishop, a Houston-based certified financial planner. “If people are worried, they don’t listen. It’s like when a doctor says, ‘You have cancer.’ You don’t hear anything else.”

Bishop has found an effective way to reduce client anxiety: He creates what he calls “survival guides” to help people brace for threats to their financial security. Through podcasts and articles, Bishop educates clients on how to be proactive in the face of recession or layoffs and other challenges. He urges them to research their options, ask smart questions and take practical steps to anticipate and address potential financial risks. “Don’t just worry about it,” he said. “Do something.”

Bishop calls his kits survival guides because he wants clients to confront their fears head-on and withstand whatever comes. “It is scary, so let’s put a plan in place to survive,” Bishop says. “Otherwise, people can be really complacent in their expectations,” get overly comfortable and cling to a status quo that can vanish in a flash.

To prepare for a layoff, for instance, he suggests developing a plan for managing cash if paychecks stop coming. At least six months of emergency funds is ideal.

People also need to imagine what their financial life would look like after a layoff. What ongoing expenses would they incur? What expenses could they cut (and perhaps cut them now to save money)? What are their loan options, such as a home equity line of credit?

“The last thing you’d want to do after getting laid off is buy a new car or have another big expense,” Bishop said. “So you’ll want to plan now to control your spending to make sure you can maintain your current lifestyle” if you’re temporarily jobless.

Bishop’s layoff survival guide also explores health insurance options and the cost of a monthly COBRA premium if they want to keep their employer-sponsored health coverage. He also suggests contacting the company’s human-resources representative about other post-layoff benefits. Questions might include:

Can I cash out my unused or unpaid vacation time?
What kind of severance package might I expect?
Can I borrow from my 401(k)?
Can I cash out my stock options?

Knowing these answers in advance may take some of the sting out of a layoff. This also allows for a clear understanding of what’s next, rather than panic.

“You can’t make good decisions in an emotional state,” Bishop said. “I don’t want you to worry about the next shoe dropping. It’s like fight-or-flight [response]: Can you make it better by running away from problems? Or is it better to confront them and prepare to solve them before they happen?”

More: I pay my adviser 1%, but feel like we have ‘poor communication’ and some ‘issues.’ Is this too much to pay and what’s the move here?

Plus: Investors are running towards the safety of cash — but here are 3 ways they could screw that all up, pros say

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