Tag: MSFT

Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week

Post By Stock , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Stock-market investors may take their cues from a series of important events in the week ahead, including the Federal Reserve’s monetary-policy meeting, a closely-watched December employment report and an onslaught of earnings from megacap technology names, which all promise insight into the state of the economy and interest-rate outlook. 

The benchmark S&P 500 index
SPX
Thursday closed at a record high for five straight trading days, the longest streak of its kind since November 2021. The index finished slightly lower on Friday, but clinched weekly gains of 1.1%, while the Nasdaq Composite
COMP
advanced 1% and the blue-chip Dow Jones Industrial Average
DJIA
gained 0.7% for the week, according to Dow Jones Market Data.

“What we’re seeing is the market participants are still playing catch-up from 2023, putting money on the sidelines to work,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management.

“Wall Street is still back at it trying to eke out gains as quickly as possible, so it’s very short-term oriented until we get big market-moving events,” he said, adding that one of the events could well be “a disappointing Fed speech.”

Fed’s Powell has good reasons to push back on rate cuts

Expectations that the Fed would begin easing monetary policy as early as March after its fastest tightening cycle in four decades have helped fuel a rally in U.S. stock- and bond-markets. Investors now mostly expect five or six quarter-point rate cuts by December, bringing the fed-funds rate down to around 4-4.25% from the current range of 5.25-5.5%, according to the CME FedWatch Tool. 

See: Economic growth underlined by fourth-quarter GDP reinforces Fed’s cautious approach to rate cuts

While no interest-rate change is expected for the central bank’s first policy meeting this year, some market analysts think comments from Fed Chair Jerome Powell during his news conference on Wednesday are likely to shift the market’s expectations and push back against forecasts of a March cut. 

Thierry Wizman, global FX and interest rates strategist at Macquarie, said a stock-market rally, “too-dovish” signals from the Fed’s December meeting, a still-resilient labor market and escalating Middle East conflicts may indicate that Powell has to keep the “[monetary] tightening bias” next week. 

The rally in the stock market could “conceivably backfire” by virtue of a loosening of financial conditions, while the labor market has not weakened to the extent that the Fed officials would have hoped, Wizman told MarketWatch in a phone interview on Friday.

Further complicating things, fears that inflation could spike again in light of the conflict in the Middle East and Red Sea could reinforce Fed’s cautious approach to rate cuts, he said. 

See: Oil traders aren’t panicking over Middle East shipping attacks. Here’s why.

Meanwhile, a shift to “neutral bias” doesn’t automatically mean that the Fed will cut the policy rate soon since the Fed still needs to go to “easing bias” before actually trimming rates, Wizman said. “I think the market gets too dovish and does not realize the Fed has very, very good reasons to push this [the first rate cut] out to June.” 

Markets are ‘laser-focused’ on January employment report

Labor-market data could also sway U.S. financial markets in the week ahead, serving as the “big swing factor” for the economy, said Patrick Ryan, head of multi-asset solutions at Madison Investments. 

Investors have been looking for clear signs of a slowing labor market that could prompt the central bank to start cutting rates as early as March. That bet may be tested as soon as Friday with the release of nonfarm payroll data for January.

Economists polled by The Wall Street Journal estimate that U.S. employers added 180,000 jobs in January, down from a surprisingly strong 216,000 in the final month of 2023. The unemployment rate is expected to tick up to 3.8% from 3.7% in the prior month, keeping it near a half century low. Wage gains are forecast to cool a bit to 0.3% in January after a solid 0.4% gain in December. 

“That’s going to have everyone laser-focused,” Ryan told MarketWatch via phone on Thursday. “Anything that shows you real weakness in the labor market is going to question if the equity market is willing to trade at 20 plus times (earnings) this year.” The S&P 500 is trading at 20.2 times earnings as of Friday afternoon, according to FactSet data. 

Six of ‘Magnificent 7’ may continue to drive S&P 500 earnings higher

This coming week is also packed with earnings from some of the big tech names that have fueled the stock-market rally since last year. 

Five of the so-called Magnificent 7 technology companies will provide earnings starting from next Tuesday when Alphabet Inc.
GOOG,
+0.10%
and Microsoft Corp.
MSFT,
-0.23%
take center stage, followed by results from Apple Inc.
AAPL,
-0.90%,
Amazon.com
AMZN,
+0.87%
and Meta Platforms
META,
+0.24%
on Thursday. 

Of the remaining two members of the “Magnificent 7,” Tesla Inc.
TSLA,
+0.34%
has reported earlier this week with its results “massively disappointing” Wall Street, while Nvidia Corp.’s
NVDA,
-0.95%
results will be coming out at the end of February.

See: Here’s why Nvidia, Microsoft and other ‘Magnificent Seven’ stocks are back on top in 2024

A number of the companies in the “Magnificent 7” have seen their stock prices hit record-high levels in recent weeks, which could help to drive the value of the S&P 500 higher, said John Butters, senior earnings analyst at FactSet Research. He also said these stocks are projected to drive earnings higher for the benchmark index in the fourth quarter of 2023.

In One Chart: Tech leads stock market’s January rally by wide margin. Watch out for February.

In aggregate, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft are expected to report year-over-year earnings growth of 53.7% for the fourth quarter of last year, while excluding these six companies, the blended earnings decline for the remaining 494 companies in the S&P 500 would be 10.5%, Butters wrote in a Friday client note.

“Overall, the blended earnings decline for the entire S&P 500 for Q4 2023 is 1.4%,” he said. 

Check out! On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching — and how that’s affecting the economy and your wallet. MarketWatch’s Jeremy Owens trains his eye on what’s driving markets and offers insights that will help you make more informed money decisions. Subscribe on Spotify and Apple.  

Source link

#Stockmarket #rally #faces #Fed #tech #earnings #jobs #data #makeorbreak #week

How RRG Helps Us Find Pair Trading Opportunities

Post By Stock , , , , , , , , , , , , , , , , , , ,

KEY

TAKEAWAYS

  • DJ Industrials closing in on overhead resistance
  • Weekly RRG showing some strong opposite rotations
  • Identifying two potential pair trading setups (MSFT-MRK & NKE-CAT)

The Dow Jones Industrial Index ($INDU) is reaching overhead resistance between 35.5k and 35.7k, which means that upside potential is now limited. Even if the market manages to break that area, the next resistance level is already around just 37k.

However, the relative rotation graph featuring the rotation for all 30 members of the DJ Industrials Index is showing some potentially very interesting pair trade setups.

DJ Industrials

On the weekly chart above, that overhead resistance area is clearly visible. The previous highs, which define the resistance zone, date back to late 2021 and early 2022, almost two years ago. This makes it a very important resistance zone.

An upward break of that resistance will obviously be a very bullish signal. But the recent rally, coming out of the late October low, has been very steep, and it would not be strange to see some form of consolidation against the aforementioned resistance zone.

With overhead resistance nearby, the near-term risk is now to the downside. Looking at the chart, a setback after a peak against resistance could take the Dow as low as 32.3k. This would still keep $INDU within the boundaries of this year’s trading range.

Opposite Tails on Weekly RRG

The weekly relative rotation graph above shows the rotations for all thirty stocks inside the Dow Jones Industrial Index. With the benchmark index still inside a trading range, some of the opposite rotations that are visible on the graph suggest that a few interesting pair trading opportunities are present.

In order to clean up the RRG and put emphasis on the more interesting rotations, I have taken out the tails with less favorable characteristics.

In order to see if I could get confirmation, I have run the same RRG on the daily time frame.

Given the current rotational patterns, many different pair trading opportunities can be found. I encourage you to do your own research and find out whether you have a particularly strong view of specific stocks or combinations of stocks, positive or negative. Here, I will pick two examples of potential pair trades from the RRGs above and look at the individual charts.

NKE vs. CAT

On the weekly RRG, Nike and Caterpillar’s tails are rotating in opposite directions. NKE is inside the improving quadrant and rapidly heading toward leading. CAT is inside the weakening quadrant and rapidly heading toward lagging. Both tails are at the extremes of the RRG and far away from the benchmark. This indicates a big potential for alpha.

NKE

NKE is nearing resistance between 110 and 115, suggesting that there is limited upside potential left, unless NKE can clear this barrier in the coming weeks. However, as we are looking for pair trades, we need to focus more on the relative strength conditions. And these are clearly picking up for NKE.

The JdK RS-Momentum line is already well above 100 and is dragging the JdK RS-Ratio line higher. When both RRG-lines are moving up at the same time, this causes an RRG heading between 0-90 degrees, which we know is an indication of strength.

CAT

On the price chart, CAT has just bounced off its rising support line. The relative performance, however, is not looking that good. The JDK RS-momentum line already dropped below 100 a few weeks ago and is now rapidly dragging the RS-Ratio line lower. This rapid decline in relative strength suggests a further underperformance for CAT in the next few weeks.

Off-setting the relative strength of NKE against the relative weakness of CAT makes for a potentially interesting pair-trading opportunity.

MSFT vs. MRK

The weekly RRG details for Microsoft and Merck show opposite rotational patterns. MSFT has just completed a rotation from leading through weakening and is now back into leading, making it one of the strongest stocks, if not the strongest, in this universe. The opposite goes for MRK, which rotated from lagging into improving and is now crossing back into the lagging quadrant.

We know that rotations that complete on one side of the graph indicate a new up- or down-leg in an already established up or downtrend.

MSFT

The recent break to new all-time highs is holding up well. It has also caused the raw RS-line to push to new highs where it is also holding. This is a strong combination of facts.

After a brief dip below 100, the JdK RS-Momentum line has now crossed back above that level again, dragging the RS-ratio out of its low just above 100. This causes the tail on the RRG to push back into the leading quadrant at a strong RRG-heading.

The combination of strong relative strength and a break to new highs on the price chart makes Microsoft the best chart in this universe for the time being.

MRK

MRK reached its all-time high in May of this year, but has been in a steady downtrend since then. The price of Merck reached support just above 100 a few weeks ago and is still hovering slightly above that area at the moment. A break lower will very likely accelerate the decline, very likely, toward the next level of support, between 92.50 and 95.

The raw RS line is breaking an important horizontal support level, completing a toppish formation. The RRG lines already picked up on the new downtrend in July. The recent hiccup of the RS-Momentum line above 100 is the result of the sideways consolidation of relative strength above support.

With raw RS breaking support and the RS momentum line dropping below 100, both RRG-Lines are now once again moving lower while below 100. This is causing the tail on the RRG to move deeper into the lagging quadrant while traveling at a negative heading.

Both tails completing a rotation at the same side of the RRG suggests a continuation of the ongoing outperformance of MSFT over MRK.

Enjoy your Thanksgiving weekend, but #StayAlert, –Julius

Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
Founder, RRG Research
Host of: Sector Spotlight

Please find my handles for social media channels under the Bio below.

Feedback, comments or questions are welcome at [email protected]. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

To discuss RRG with me on S.C.A.N., tag me using the handle Julius_RRG.

RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

Source link

#RRG #Helps #Find #Pair #Trading #Opportunities

Santa May Be Warming Up His Sled; What’s Next? Watch the Fed and the Bond Market

Post By Stock , , , , , , , , , , , , , , , , , , , , , ,

The traditional year-end rally may have started with last week’s liftoff on Wall Street, as the Fed’s rate hikes start to bite and the economy shows signs of slowing. Investors hope the economy slows just enough to reduce inflation.

The stock market seems to have bottomed, as short sellers panicked and recently frightened buyers rushed back into the markets. It’s about time, as the signs of a pending reversal have been in place for the past two months, namely a slowing economy and fears about the Fed’s rate hike cycle, which have been mounting as investor’s pessimism rose to a fever pitch. Moreover, the self-perpetuating talk of doom loops led to a bout of panic selling, which reversed as the Fed held rates steady and Friday’s employment report showed a cooling in the labor market.

Of course, there are no certainties in any market. And this rally could easily fizzle. But the longer stocks hold up and bond yields remain subdued, the higher the odds of the rally intensifying.

Buckle up! Santa may be warming up his sled.

The Signs Were There

I’ve been expecting a major reversal in both bonds and stocks since September when the selling in the U.S. Treasury market, and the subsequent rise in yields entered an absurd trading pattern. I chronicled the entire process, including the likelihood of a pending reversal in bond yields on October 15, 2023, when I wrote:

“The slightly-hotter-than-predicted PPI and CPI numbers certainly put a temporary damper on the recent short-covering rally in stocks and bonds, raising investor fears about further interest rate increases. But, as I’ve noted recently, fear is often the prelude to a buying opportunity. Such an opportunity may be developing in the U.S. Treasury Bond market and related interest-sensitive sectors of the stock market, such as homebuilders, real estate investment trusts, and select technology stocks.”

Prior to that, I had suggested that a historic buying opportunity in homebuilder stocks was approaching, while providing an actionable trading plan for such a development here.

Last week, in this space, I wrote: “The stock market is increasingly oversold, so investors should prepare for a potential bounce before the end of the year, especially given the usual bullish seasonality which begins in November and can run through January.”

Bond Yields Crash and Burn and Stocks Respond with Bullish Reversal and Broad Rally

What a difference a week makes, especially in the strange world of the U.S. Treasury bond market. Just two weeks ago, the U.S. Ten Year note yield (TNX) tagged 5%, a chart point which triggered heavy selling in stocks from the mechanical trading crowd, also known as commodity trading advisors (CTAs) and their hedge fund brethren. The selling was further enhanced by headlines about mortgage rates moving above 8%.

But as I noted here, the selling spree had the smell of panic, especially given the lack of a new low in the RSI indicator, when the New York Stock Exchange Advance Decline line (NYAD), as I describe below, made a lower low. The key was whether NYAD broke below its March lows, which it didn’t. This provided the perfect setup for a massive short squeeze, which is currently unfolding.

Here are some details. The U.S. Ten Year Note yield has rolled over, with two significant technical developments occurring:

  • TNX is now trading inside the upper Bollinger Band, which is two standard deviations above its 200-day moving average. This marks a return to a “normal” trading pattern;
  • It is also testing its 50-day moving average and the 4.5% yield area. Normal trading action suggests that a consolidation in this area should occur before TNX makes a move toward 4.3%; and
  • Bullishly for the homebuilder and housing-related real estate stocks, as well as the rest of the market, mortgage rates seem to have topped out as well.

Moreover, as I discuss below, the rally seems be quite broad, as measured by the New York Stock Exchange Advance Decline line. In addition, money is moving back into large-cap technology stocks, as in the Invesco QQQ Trust (QQQ), which also rebounded above its 50-day moving average. Especially encouraging on this price chart is the rally in On Balance Volume (OBV), which signals that the rally is being fueled by real buying along with short-covering, as evidenced by a rising ADI line.

Big tech certainly got a boost, as Microsoft (MSFT) continued its recent climb and is approaching a potential breakout which, if left unhindered, could well take the stock to the $400 area in the next few weeks.

But it’s not just big tech that’s rising. A less obvious member of the QQQ stable, food producer and packager Mondelez (MDLZ), has been quietly moving higher and is now approaching its 200-day moving average. MDLZ’s On Balance Volume (OBV) line is rising nicely as money piles into the shares.

Huge Potential Gains Lurk in Homebuilders

Even better is the unfolding rebound above the 200-day moving average in the SPDR S&P Homebuilders ETF (XHB), where OBV is exhibiting an equally bullish trading pattern. As I noted above, I issued a Buy alert on the homebuilders a few weeks ago, and thus subscribers to my service have been well-positioned for this move in the sector.

Consequently, the rally in the homebuilders may just be starting, especially if interest rates don’t rise dramatically from current levels. As the price chart above shows, mortgage rates may have topped out, along with bond yields. This reversal is already being reflected in the bullish action visible in the homebuilder stocks. Note the following:

  • Rates are still trading above normal long term trends. 
  • The upper purple line on the chart is two standard deviations above the 200-day moving average.
  • Since mortgage rates follow the trend in TNX (above), the odds favor a further decline in mortgage rates, with the first downside target being 6.5%.

Note the nearly perfect correlation between falling bond yields (TNX), falling mortgage rates, and rising homebuilder stocks (SPHB).

Join the smart money at Joe Duarte in the Money Options.com. You can have a look at my latest recommendations FREE with a two-week trial subscription. And for frequent updates on real estate and housing, click here.

Incidentally, if you’re looking for the perfect price chart set up, check out my latest YD5 video, where I detail one of my favorite bullish setups. This video will prepare you for the next phase in the market. 

Market Breadth Reverses Bearish Trend

The NYSE Advance Decline line (NYAD) did not remain below is March lows for long, and has now nearly fully reversed its bearish trend as it approaches its 200-day moving average. The price chart below shows the similarity between the unfolding market bottom and that which occurred in October 2022. The circled areas highlight this super cool technical phenomenon where the lack of a new low in the RSI, when NYAD made a new low, marked the bottom. Also note the double top in VIX, which is also repeated.

The Nasdaq 100 Index (NDX) rallied above its 50-day moving average, with both ADI and OBV turning higher as short sellers cover (ADI) and buyers move in (OBV).

The S&P 500 (SPX) also rebounded above its 200-day moving average, returning to bullish territory after its recent dip below 4150.

VIX is Back Below 20

The CBOE Volatility Index (VIX) didn’t stay above the 20 level for long, which is a bullish development.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Source link

#Santa #Warming #Sled #Whats #Watch #Fed #Bond #Market

Which is More Likely — SPX Over 4600 or Below 4200?

Post By Stock , , , , , , , , , , , , , , , , , ,

KEY

TAKEAWAYS

  • Top investors use probabilistic analysis to think through different scenarios to determine which appears the most likely.
  • By thinking through each of four potential future paths for the S&P 500, we can be better prepared for whichever scenario actually plays out in the coming weeks.

We are now in the seasonally weakest part of the calendar year. The summer doldrums often lead to a meaningful pullback in the third quarter, and 2023 has, so far, not disappointed by following the seasonal tendencies quite well.

The month of August saw leading names like Apple (AAPL) and Microsoft (MSFT) pull back from new highs, causing many investors to rethink the “2023 is going to go up all year” thesis. So now that we’ve experienced an initial drop, what’s next for the S&P 500?

Today we’ll revisit the concept of “probabilistic analysis”, where we lay out four different potential scenarios for the S&P 500. There are three things I hope you take away from this exercise.

  1. It’s important to have a thesis as to what you think will come next for stocks. This should be based on a meaningful combination of four key pillars: fundamental, technical, macroeconomic, and behavioral. And your portfolio should be positioned to reflect what you see as the most likely outcome.
  2. It’s also important to consider alternative scenarios. What if the market is way more bullish than you’d expect? What if some five-standard-deviation event pops up, and stocks suddenly drop 20 percent? The best way to break out of your predetermined biases is to actively consider alternative points of view.
  3. It’s incredibly important to think about how you would adapt to one of those alternate scenarios. How would your portfolio perform in a risk-off environment in the coming months? Are you prepared for a sudden spike in risk assets, and at what point would you need to change your positions to match this new reality?

I have found that the most successful investors don’t know all the answers, but they ask the best questions. So let’s broaden our horizons a bit, and consider four potential future paths for the S&P 500 over the next six to eight weeks. But first, we’ll review the recent pullback for the major equity averages.

A brief seasonality check on the S&P 500 will show that August and September tend to be quite weak for the main US equity benchmark. So the drop we saw in early August actually follows the seasonal playbook quite well, as would further weakness in September.

We’ve been thinking about the possibility of a much deeper correction for risk assets, and it’s a distinct possibility that we’re now in an A-B-C pullback, which would take us to a new swing low right around options expiration in the third week of September. But at the same time that charts like LVS are displaying classic topping patterns, we can’t help but notice that stocks like Alphabet (GOOGL) appear to be firmly entrenched in a protracted bullish phase.

An uptrend is defined by a persistent pattern of higher highs and higher lows, and GOOGL certainly seems to be displaying that classic bullish phase quite well. How bearish do you want to be when Alphabet is just pounding higher month after month?

With our benchmarks pulling back and breadth conditions deteriorating, as well as key growth stocks like GOOGL still holding above support, let’s lay out four potential scenarios for the S&P 500 over the next six-to-eight weeks. And remember the point of this exercise is threefold:

  1. Consider all four potential future paths for the index, think about what would cause each scenario to unfold in terms of the macro drivers, and review what signals/patterns/indicators would confirm the scenario.
  2. Decide which scenario you feel is most likely, and why you think that’s the case. Don’t forget to drop me a comment and let me know your vote!
  3. Think about each of the four scenarios would impact your current portfolio. How would you manage risk in each case? How and when would you take action to adapt to this new reality?

Let’s start with the most optimistic scenario, involving a strong summer push for stocks.

Scenario #1: The Very Bullish Scenario

What if the pullback of the next five weeks is over, and the market goes right back to a full risk-on mode? Stocks like AAPL and MSFT would most likely return back to test new highs and interest rates would probably come down enough, as economic data continues to show at the Fed’s efforts have successfully slowed down the economy.

This Very Bullish Scenario would mean a break above 4600, and when we revisit the chart in late September, we’re talking about the possibility of new all-time highs for the S&P 500 and Nasdaq in October.

Scenario #2: The Mildly Bullish Scenario

Markets can correct in two ways: price and time. A price correction (see February 2023) involves the chart moving lower quickly as the market quickly sheds value. A time correction (see April-May 2023) means there’s not much of a price drop, and the “correction” is more of a pause of the uptrend.

There’s a possibility that the July high around 4600 still holds as resistance, and a time correction keeps the S&P 500 in the 4300-4600 range. Keep in mind that there are plenty of opportunities for sectors like Energy to thrive in a sideways market, but the major indexes don’t make any headway in either direction.

Scenario #3: The Mildly Bearish Scenario

What if the A-B-C correction outlined above plays out, and the S&P 500 index pushes lower to retest the 200-day moving average? If interest rates remain elevated, and growth stocks continue to pull back, this would be a very reasonable outcome for the equity markets.

One of my mentors used to say, “Nothing good happens below the 200-day moving average.” The good news is the Mildly Bearish Scenario means we drop further from current levels, but still manage to find support at this important long-term barometer.

Scenario #4: The Super Bearish Scenario

This is where things could get really nasty. What if the market goes full risk-off, interest rates push higher, economic data comes in hotter than expected, and the Fed is forced to consider further rate hikes instead of debating when to ease monetary conditions?

This Super Bearish Scenario would mean the S&P 500 breaks down through 4300 and 4200, leaving the 200-day moving average in the rearview mirror, and in late September we’re debating whether the S&P 500 and Nasdaq will make a new low before year-end 2023.

Have you decided which of these four potential scenarios is most likely based on your analysis? Head over to my YouTube channel and drop a comment with your vote and why you see that as the most likely outcome.

Also, we did a similar analysis back on the S&P 500 back in June. The “mildly bullish” scenario ending up matching the market action pretty closely. Which scenario did you vote for?

Only by expanding our thinking through probabilistic analysis can we be best prepared for whatever the future may hold!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
Learn More

Source link

#SPX

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

Post By Stock , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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

Source link

#Bank #America #execs #blew #billion #Heres

Where’s the Money Going? Watch Volume and Price Action

Post By Stock , , , , , , , , , , , ,

A driver who goes with the flow of traffic and adjusts to traffic conditions usually gets places in good time and safely. Similarly, a good trader who trades in sync with price action is likelier to make better trades and preserve more capital.

The key: Recognize price movement and take advantage of the move. When you see a clear move in one group of stocks, identify the top performers and make your way into that lane. When the momentum slows, you may want to exit your position and join the next moving group. But that doesn’t mean you should constantly move in and out of stocks; it pays to be patient and ensure the odds are in your favor before bailing or jumping in.

Identifying the Movers and Shakers

There are different ways to identify groups of stocks that are moving. Technical analysts can choose to identify trends, turning points, and/or investor sentiment using the appropriate indicators. In addition to focusing on a handful of indicators, it may also help to keep an eye on volume.

In his book Technical Analysis Explained, Martin Pring states that volume often moves ahead of price. So an increase or decrease in volume could be an advance warning of a potential price trend reversal. If you think about it, volume gives you an idea of whether traders are bullish or bearish. If price moves up on strong volume, it’s generally an indication of bullish momentum. And when the volume starts falling, it could be a signal that the upward price movement is slowing down.

Combining volume with price movement can help identify developing trends and the end of a trend. Open up a long-term chart of your favorite stock and see how volume and trend move. The chart below looks at recent price movement in Microsoft (MSFT)’s stock price. Note the exponential rise in volume when price hit a high in the short-term move. After that, volume fell as the stock price traded sideways. If volume expands when price starts moving in a clear direction, it could indicate the strength of the next move.

CHART 1: VOLUME AND PRICE ACTION. Volume and price expand until it spikes at a short-term high. After that, volume drops as price moves sideways. Think of volume as a barometer for the next price move.Chart source: StockCharts.com. For illustrative purposes only.

You can do a similar volume and price analysis with different stocks by going back further in time. Better yet, analyze volume action in different groups of stocks, such as the S&P Sector ETFs. The CandleGlance tool on the StockCharts platform gives you a bird’s eye view of the different sectors.

How to Access It

  • From the Member Tools on Your Dashboard or from the Charts & Tools tab.
  • Select S&P Sector ETFs from the Predefined Groups dropdown menu. You’ll see charts of all 11 ETFs and a chart of the S&P 500 index ($SPX).
  • Select chart duration and indicator. There are different volume indicators you could use, such as Rate of Change (ROC), On-Balance Volume (OBV), Accumulation/Distribution, the Force Index, and so on. In the chart below, the OBV is added with an overlay of its 20-day simple moving average.

You can customize your CandleGlance charts and save it as a ChartStyle. That way your settings will automatically appear on the CandleGlance charts—major timesaver.

The recent regional bank crisis is an example of how investors started pulling out of the banking sector and moving their capital to other sectors. If you add a volume indicator such as OBV to the charts, some interesting observations surface.

CHART 2: CHARTS AT A GLANCE. The CandleGlance chart of the S&P Sector ETFs with a volume indicator of your choice (OBV was used here) helps to see where the rotation occurs.Chart source: StockCharts.com. For illustrative purposes only.

The OBV suggests that money is moving into the market, but only in some sectors. “The inflows are more concentrated on the large caps and specific sectors, and not the broad market,” said Buff Dormeier, CMT, chief technical analyst at Kingsview Partners.

What’s more interesting is how much money was flowing into the market. “In the week of March 13, the S&P 500’s capital inflows were $90 billion, the highest inflows in nearly 10 years,” added Dormeier. “Capital outflows totaled $36 billion and, if you take them together, it was the largest since March 2020, which was at the onset of the pandemic.”

The following week saw a similar trend. “In the week of March 20, cap-weighted inflows surpassed outflows with $30.5 billion out to $50 billion flowing in,” Dormeier continued.

Where Are the Inflows and Outflows? 

The CandleGlance view helps to see which sectors are experiencing the greatest outflows and which ones are experiencing significant inflows. Communication Services (XLC) and Technology (XLK) are seeing significant inflows, whereas Real Estate and Financials are seeing significant outflows. 

Generally, a falling interest rate environment helps growth stocks, and money is flowing into large-cap growth stocks and out of small- and mid-caps. Does that mean investors expect the Fed to stop raising rates soon? It’s possible, but let’s remember the other side of the coin. When money flows out of small- and mid-caps, it could mean that the underlying economy may not be stable. These are conflicting signals which means the market is still fickle.

Trading With the Flow

We’re not out of the woods yet. Even though volume in the stock market is increasing and the stock market seems like it wants to go up, it could change anytime. So, create your own CandleGlance charts so you always have a bird’s eye view of the market. When you see price action speeding up in one sector and slowing down in another, change lanes so you can keep up with price movement. Don’t rush, be patient, and, more important, be disciplined. It’ll get you where you want to go.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
Learn More

Subscribe to ChartWatchers to be notified whenever a new post is added to this blog!

Source link

#Wheres #Money #Watch #Volume #Price #Action

Starbucks workers contend company is busting unions. ‘This will be a priority for me,’ congressman says.

Post By Stock , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

SANTA CLARA, CALIF. — Starbucks Corp. employees met with U.S. Rep. Ro Khanna at his California office on Friday and contended the company is retaliating against employees who unionize or are trying to organize, and is not bargaining in good faith.

The giant coffee chain denies those allegations. But what the Democratic congressman from Silicon Valley heard Friday from Starbucks
SBUX,
-0.41%
employees and union representatives in a meeting attended by MarketWatch echoes other complaints from around the nation that the company is engaging in union-busting — and he vowed to continue to try to help make sure the employees are treated fairly.

Edith Saldano, who works at a location in Santa Cruz County, sat next to the congressman and told him that the company “has embarrassed us over and over again and has not respected us.” Saldano said that during her store’s first bargaining session in November, Starbucks’ lawyers walked out after three minutes.

Saldano fought back tears as she recounted that she had “waited all day” and lost out on a day’s worth of work, which she really needed because she was “houseless” at the time in an area known for its high cost of living. She handed Khanna the employees’ contract proposal.

“We’re asking that you read it over and that you talk to them,” said Saldano, who added that she also sits on the national bargaining committee.

Khanna agreed to take a look and told Saldano: “I appreciate you for fighting not just for yourself but for everyone.”

The congressman has prided himself on being pro-labor and standing with low-wage workers, including Silicon Valley janitors and California’s fast-food workers, through the years. Khanna told the Starbucks employees Friday he has also met with the company’s unionized workers in Los Angeles, and that he hopes to help persuade the company — which is in transition and is set to have its new chief executive officially take over in a couple of months — change its approach to the growing movement to unionize at hundreds of its stores.

The National Labor Relations Board has accused Starbucks of illegally firing workers who have unionized, and the company is facing hundreds of charges of violating labor laws. Judges have ruled against the company in some of those cases. Starbucks in turn has filed complaints with the NLRB, accusing the union of not bargaining in good faith.

In-depth: Unions’ push at Amazon, Apple and Starbucks could be ‘most significant moment in the American labor movement’ in decades

A couple of other Starbucks employees who asked to remain anonymous for fear of reprisal at a Bay Area store where they’re seeking to unionize also gave emotional testimonies at Khanna’s office on Friday. They spoke of having their hours reduced to the point where they don’t qualify for benefits, and being understaffed and overworked in physically demanding jobs.

“They run us into the ground until we’re too fatigued, and we’re replaced with cheaper baristas,” one of the employees said. “We’re organizing because we’re powerless as individuals.”

The other said Starbucks “is dominating the market by any means necessary,” and that employees “need the support of congressmen” and other leaders.

Brandon Dawkins, vice president of organizing for SEIU Local 1021, said possible retaliation by the company is also “putting fear into stores that want to unionize… they see what the unionized workers are going through.”

Khanna thanked the employees for their “courage,” and said “this will be a priority for me just like last Congress,” and outlined how he plans to continue to try to help.

Starbucks spokesman Andrew Trull said Friday that allegations that the company has not bargained in good faith are “simply false.” Trull said Starbucks has “come to the table” for more than 85 bargaining sessions at different stores since October.

“At each of these sessions with Workers United, Starbucks has been met by union representatives who insist on broadcasting in-person sessions to unknown individuals not in the room and, in some instances, have posted excerpts of the sessions online,” Trull said.

As for the allegations that Starbucks is reducing the number of hours available for employees who unionize, Trull said “Starbucks has a longstanding practice of adjusting store hours to reflect seasonal changes in customer demand.”

A spokesperson for Starbucks Workers United said longtime Starbucks employees say “the current pattern of reducing hours does not fit the history in the company.” In addition, the union spokesperson said the company is complicating scheduling of meetings by not allowing bargaining committee members unpaid time off; that the union and the company have agreed to virtual bargaining sessions; and that the union introduces participants for every meeting.

Outgoing Starbucks Chief Executive Howard Schultz refused to appear before a Senate committee last week that wanted to ask him about the accusations of labor-law violations by the company.

The company’s letter to Sanders said that since Schultz is on his way out as CEO, the company was offering its chief public affairs officer, Al Jones, to appear before the committee instead.

The chair of the Senate Health, Education, Labor and Pensions Committee, Democratic Sen. Bernie Sanders, said in a statement lasst week that he intends “to hold Mr. Schultz and Starbucks accountable for their unacceptable behavior.”

In October, Khanna and 30 other lawmakers sent a letter to Schultz, urging him and the company to work with the unions that have formed at hundreds of Starbucks stores around the nation.

For more: Starbucks urged to work with unions in letter from members of Congress

Since then, the congressman’s staff has been in touch with the company, whose representatives have told them that Starbucks is allowing workers to exercise their rights under the National Labor Relations Act.

Khanna told the employees on Friday that he has corresponded with new Starbucks CEO Laxman Narasimhan and expects to meet with him after he takes over April 1.

“I’m hopeful that between the approach to him and the approach to some of the board members, who I know, that they may see the light — allowing for reasonable unionization and reasonable terms,” Khanna said. He mentioned that Microsoft Corp.
MSFT,
-1.56%
last year came to a neutrality agreement with the Communications Workers of America; Microsoft CEO Satya Nadella is a Starbucks board member.

Source link

#Starbucks #workers #contend #company #busting #unions #priority #congressman