Tag: Equity Markets

May 25, 2023

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

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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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#news #driving #tech #building #blocks #stocks #Nvidia #power #area #benefit #veteran #investors

May 11, 2023

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 christin[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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#popular #ETF #hedge #inflation #favor #investors

April 9, 2023

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 pressure 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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#Big #bank #earnings #spotlight #historic #failures #income #statement #line #item #flux

March 16, 2023

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

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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.

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

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TSLA,
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BBBY,
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APE,
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February 25, 2023

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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November 5, 2022

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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