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

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.  

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The Magnificent 7 dominated 2023. Will the rest of the stock market soar in 2024?

2023 will go down in history for the start of a new bull market, albeit a strange one.

Despite some year-end catch-up by the rest of the S&P 500 index, megacap technology stocks, characterized by the so-called Magnificent Seven, have dominated gains for the large-cap benchmark
SPX,
which is up 23.8% for the year through Friday’s close.

That’s the result of “extreme speculation,” according to Richard Bernstein, CEO and chief investment officer of eponymously named Richard Bernstein Advisors. And it sets the stage for investors to take advantage of “once-in-a-generation” investment opportunities, he argued, in a phone interview with MarketWatch.

MarketWatch’s Philip van Doorn last week noted that, weighting the Magnificent Seven — Apple Inc.
AAPL,
-0.55%

 , Microsoft Corp.
MSFT,
+0.28%
,
 Amazon.com Inc.
AMZN,
-0.27%
,
 Nvidia Corp.
NVDA,
-0.33%
,
 Alphabet Inc.
GOOG,
+0.65%

GOOGL,
+0.76%
,
 Tesla Inc.
TSLA,
-0.77%
,
 and Meta Platforms Inc. 
META,
-0.20%

— by their market capitalizations at the end of last year, the group had contributed 58% of this year’s roughly 26% total return for the S&P 500, and that’s down from a breathtaking 67% at the end of November.

The chart below shows that the percentage of stocks in the S&P 500 that have outperformed the index in the year to date remains well below the median of 49% stretching back to 1990:


Richard Bernstein Advisors

Meanwhile, the tech-heavy Nasdaq Composite
COMP
has soared more than 40% this year, while the more cyclically weighted Dow Jones Industrial Average
DJIA,
which hit a string of records this month, is up 12.8%.

The narrowness of the rally gave some technical analysts pause over the course of the year. They warned that that it was uncharacteristic of early bull markets, which typically see broader leadership amid growing confidence in the economic outlook.

Bernstein, previously chief investment strategist at Merrill Lynch, sees parallels with the late-1990s tech bubble, which holds lessons for investors now.

The market performance indicates investors have convinced themselves there are only “seven growth stories,” he said. It’s the sort of myopia that’s characteristic of bubbles.

The consequences can be dire. In the 1990s, investors focused on the economy-changing potential of the Internet. And while those technological advances were indeed economy-changing, an investor who bought the tech-heavy Nasdaq at the peak of the bubble had to wait 14 years to get back to break-even, Bernstein noted.

Today, investors are focused on the economy-changing potential of artificial intelligence, while looking past other important developments, including reshoring of supply chains.

“I don’t think anyone is arguing AI won’t be an economy-changing technology,” he said, “ the question is, what’s the investing opportunity.”

For his part, Bernstein argues that small-cap stocks; cyclicals, or equities more sensitive to the economic cycle; industrials; and non-U.S. stocks are all among assets poised to play catch-up.

“I don’t think one has to be overly sexy on this one…it may not make a huge difference as to how you decide to execute and invest” in those areas, he said. “There’s a bazillion different ways to play this.”

Those areas are showing signs of life in December. The Russell 2000
RUT,
the small-cap benchmark, has surged more than 12% in December versus a 4.1% advance for the S&P 500. The Russell still lags behind by a wide margin year to date, up 15.5%, or more than 8 percentage points behind the S&P 500.

Meanwhile, an equal-weighted version of the S&P 500
XX:SP500EW,
which incorporates the performance of each member stock equally instead of granting a heavier weight to more valuable companies, has also played catchup, rising 6.2% in December. It’s now up 11% in 2023, still lagging behind the cap-weighted S&P 500 by more than 8 percentage points.

Bernstein sees early signs of broadening out, but expects it to be an “iterative process.” What investors should be aiming for, he said, is “maximum diversification,” in direct contrast to 2023’s historically narrow market, which reflects investors rejecting the benefits of diversification and taking more concentrated positions in fewer stocks.

To be sure, while the Magnificent Seven-dominated stock-market rally has attracted plenty of attention, it doesn’t mean those individual stocks have been the sole winners in 2023.

“I will say, ‘magnificent’ is in the eye of the beholder,” said Kevin Gordon, senior investment strategist at Charles Schwab, in a phone interview.

The seven stocks that account for such a large share of the S&P 500’s gains do so mostly due to their extremely “mega” market caps rather than outsize price gains. And that’s just, by definition, how market-cap-weighted indexes work, analysts note.

That doesn’t mean the megacap stocks are necessarily the best performers over 2023. While Nvidia, up 243%, and Meta, up 194%, top the list of year-to-date price gainers in the S&P 500, Apple Inc.
AAPL,
-0.55%

is only the 59th best performing stock, with a 49% gain. Combine that with a $3 trillion market cap, however, and Apple proves one of the biggest movers of the overall index.

What was bizarre about the 2023 rally wasn’t so much the megacap tech performance, Gordon said, but the fact that the rest of the market languished to such a degree until recently.

Clarity around the economic outlook and interest rates help clear the way for the rest of the market to play catch-up, he said. Fears of a hard economic landing have faded, while the Federal Reserve has signaled its likely finished raising rates and is on track to deliver rate cuts in 2024.

For stock pickers that didn’t latch on to the few winners, 2023 was brutal. Passive investors who just bought S&P 500-tracking ETFs should feel good.

So why not just chase the index? Bernstein argues that could spell trouble if the megacap names are due to falter. That could make for a mirror image of this year where gains for a wider array of individual stocks is offset by sluggish megacap performance.

Gordon, however, played down the prospect of “binary outcomes” in which investors sell megacaps and buy the rest of the market.

If troubled segments of the economy, such as the housing sector, recover in 2024, investors “could definitely see a scenario where the rest of the market catches up but it doesn’t have to be at the expense of highfliers,” he said.

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Meta, Alphabet and 10 under-the-radar media stocks expected to soar

The media landscape is going through a difficult transition, and it isn’t only because streaming is such a tricky business.

Companies such as Walt Disney Co.
DIS,
Warner Bros. Discovery Inc.
WBD
and Paramount Global
PARA
have made heavy investments in streaming services as their traditional media businesses wither, only to find that it is harder than it looks to emulate Netflix Inc.’s
NFLX
ability to make money from streaming.

Some of the companies are also saddled by debt, in part resulting from mergers that don’t hold the same shine in the current media landscape.

Needless to say, this is the age of cost-cutting for Netflix’s streaming competitors and many others in the broader media landscape.

Below is a screen of U.S. media stocks, showing the ones that analysts favor the most over the next 12 months. But before that, we list the ones with the highest and lowest debt levels.

All the above-mentioned media companies are in the communications sector of the S&P 500
,
which also includes Alphabet Inc.
GOOGL

GOOG
and Meta Platforms Inc.
META,
as well as broadcasters, videogame developers and news providers.

But there are only 20 companies in the S&P 500 communications sector, which is tracked by the Communications Services Select Sector SPDR ETF
.

High debt

Before looking at the stock screen, you might be interested to see which of the 53 media companies are saddled with the highest levels of total debt relative to consensus estimates for earnings before interest and taxes (EBIT) for the next 12 months, among analysts polled by FactSet. This may be especially important at a time when long-term interest rates have been rising quickly. Dollar amounts are in millions.

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Dish Network Corp. Class A

DISH 1,245%

$24,556

$1,973

15%

-57%

$1,773

Madison Square Garden Sports Corp. Class A

MSGS 1,125%

$1,121

$100

-14%

-4%

$3,400

Paramount Global Class B

PARA 656%

$17,401

$2,654

-29%

-13%

$9,529

Consolidated Communications Holdings Inc.

CNSL 651%

$2,152

$331

-26%

6%

$441

TechTarget Inc.

TTGT 629%

$479

$76

16%

-36%

$788

Cinemark Holdings Inc.

CNK 616%

$3,630

$589

61%

81%

$1,908

Cogent Communications Holdings Inc.

CCOI 548%

$1,858

$339

-19%

27%

$3,388

E.W. Scripps Co. Class A

SSP 529%

$3,084

$583

80%

-42%

$552

AMC Networks Inc. Class A

AMCX 492%

$2,945

$599

26%

-29%

$357

Live Nation Entertainment Inc.

LYV 466%

$8,413

$1,805

135%

22%

$19,515

Source: FactSet

Click on the tickers for more about each company, including business profiles, financials and estimates.

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

The debt figures are as of the end of the companies’ most recently reported fiscal quarters. The debt service ratios are EBIT divided by total interest paid (excluding capitalized interest) for the most recently reported quarters, as calculated by FactSet. It is best to see this number above 100%. Then again, these service ratios cover only one quarter.

Looking at the most indebted company by quarter-end debt to its 12-month EBIT estimate, it would take more than 10 years of Dish Network Corp.’s
DISH
operating income to pay off its total debt, excluding interest.

Shares of Dish have lost more than half their value during 2023, and the stock got booted from the S&P 500 earlier this year. The company has seen its satellite-TV business erode while it pursues a costly wireless build-out that won’t necessarily drive success in that competitive market. Dish plans to merge with satellite-communications company EchoStar Corp.
SATS
in a move seen as an attempt to improve balance sheet flexibility.

It is fascinating to see that for six of these companies, including Paramount, debt even exceeds the market capitalizations for their stocks. Paramount lowered its dividend by nearly 80% earlier this year as it continued its push toward streaming profitability, and Chief Executive Bob Bakish recently called the company’s planned sale of Simon & Schuster “an important step in our delevering plan.”

You are probably curious about debt levels for the largest U.S. media companies. Here they are for the biggest 10 by market cap:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Comcast Corp. Class A

CMCSA 266%

$102,669

$38,539

77%

33%

$187,140

Netflix Inc.

NFLX 197%

$16,994

$8,641

192%

41%

$184,362

T-Mobile US Inc.

TMUS 378%

$116,548

$30,838

32%

-5%

$156,881

Walt Disney Co.

DIS 263%

$47,189

$17,975

88%

-4%

$152,324

Verizon Communications Inc.

VZ 370%

$177,654

$48,031

36%

-11%

$140,205

AT&T Inc.

T 378%

$165,106

$43,681

31%

-20%

$100,872

Activision Blizzard Inc.

ATVI 93%

$3,612

$3,891

2159%

21%

$72,118

Charter Communications Inc. Class A

CHTR 434%

$98,263

$22,651

89%

23%

$62,380

Source: FactSet

Among the largest 10 companies in the S&P Composite 1500 communications sector by market cap, Charter Communications Inc.
CHTR
has the highest ratio of debt to estimated EBIT, while its debt service ratio of 89% shows it was close to covering its interest payments with operating income during its most recent reported quarter. Disney also came close, with a debt service ratio of 88%.

Charter Chief Financial Officer Jessica Fischer said at an investor day late last year that “delevering would only make sense if the market valuation of our shares fully reflected the intrinsic value of the cash-flow opportunity, if debt capacity in the market were limited or if our expectations of cash-flow growth, excluding the impact of our expansion were significantly impaired.”

Meanwhile, Kevin Lansberry, Disney’s interim CFO, said during the company’s latest earnings call that it had “made significant progress deleveraging coming out of the pandemic” and that it would “approach capital allocation in a disciplined and balanced manner.”

Disney’s debt increased when it bought 21st Century Fox assets in 2019, and the company suspended its dividend in 2020 in a bid to preserve cash during the pandemic.

When Disney announced its quarterly results on Aug. 9, it unveiled a plan to raise streaming prices in October. Several analysts reacted positively to the price increase and other operational moves.

Read: The long-simmering rumor of Apple buying Disney is resurfacing as Bob Iger looks to sell assets

The largest companies in the sector, Alphabet and Meta, have relatively low debt-to-estimated EBIT and very high debt-service ratios. Netflix has debt of nearly twice the estimated EBIT, but a high debt-service ratio. For all three companies, debt levels are low relative to market cap.

Low debt

Among the 52 companies in the S&P Composite 1500 communications sector, these 10 companies had the lowest total debt, relative to estimated EBIT, as of their most recent reported fiscal quarter-ends:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

New York Times Co. Class A

NYT 0%

$0

$414

N/A

32%

$6,968

QuinStreet Inc.

QNST 18%

$5

$26

-153%

-35%

$513

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Shutterstock Inc.

SSTK 26%

$63

$241

39%

-20%

$1,502

Yelp Inc.

YELP 31%

$106

$344

78%

55%

$2,909

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Scholastic Corp.

SCHL 54%

$108

$201

319%

12%

$1,314

Electronic Arts Inc.

EA 73%

$1,951

$2,678

605%

-2%

$32,425

World Wrestling Entertainment Inc. Class A

WWE 93%

$415

$448

479%

66%

$9,455

Activision Blizzard Inc.

ATVI 93%

$3,612

$3,891

2159%

21%

$72,118

Source: FactSet

New York Times Co.
NYT
takes the prize, with no debt.

Wall Street’s favorite media companies

Starting again with the 52 companies in the sector, 46 are covered by at least five analysts polled by FactSet. Among these companies, 12 are rated “buy” or the equivalent by at least 70% of the analysts:

Company

Ticker

Share “buy” ratings

Aug. 25 price

Consensus price target

Implied 12-month upside potential

Thryv Holdings Inc.

THRY 100%

$21.11

$35.50

68%

T-Mobile US Inc.

TMUS 90%

$133.35

$174.96

31%

Nexstar Media Group Inc.

NXST 90%

$157.08

$212.56

35%

Meta Platforms Inc. Class A

META 88%

$285.50

$375.27

31%

Cars.com Inc.

CARS 86%

$18.85

$23.79

26%

Alphabet Inc. Class A

GOOGL 82%

$129.88

$150.04

16%

Iridium Communications Inc.

IRDM 80%

$47.80

$66.00

38%

News Corp. Class A

NWSA 78%

$20.74

$26.42

27%

Take-Two Interactive Software Inc.

TTWO 74%

$141.42

$155.96

10%

Live Nation Entertainment Inc.

LYV 74%

$84.79

$109.94

30%

Frontier Communications Parent Inc.

FYBR 73%

$15.24

$31.36

106%

Match Group Inc.

MTCH 70%

$43.79

$56.90

30%

Source: FactSet

News Corp.
NWSA
is the parent company of MarketWatch.

Finally, here are the debt figures for these 12 media companies favored by the analysts:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Thryv Holdings Inc.

THRY 227%

$433

$191

53%

11%

$730

T-Mobile US Inc.

TMUS 378%

$116,548

$30,838

32%

-5%

$156,881

Nexstar Media Group Inc.

NXST 358%

$7,183

$2,009

63%

-8%

$5,511

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Cars.com Inc.

CARS 223%

$451

$202

41%

37%

$1,253

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Iridium Communications Inc.

IRDM 306%

$1,481

$483

54%

-7%

$5,977

News Corp. Class A

NWSA 261%

$4,207

$1,611

109%

15%

$11,940

Take-Two Interactive Software Inc.

TTWO 272%

$3,492

$1,283

-40%

36%

$24,017

Live Nation Entertainment Inc.

LYV 466%

$8,413

$1,805

135%

22%

$19,515

Frontier Communications Parent Inc.

FYBR 453%

$9,844

$2,173

85%

-40%

$3,745

Match Group Inc.

MTCH 287%

$3,839

$1,337

540%

6%

$12,177

Source: FactSet

In case you are wondering about how the analysts feel about debt-free New York Times, it appears the analysts believe the shares are fairly priced at $42.60. Among eight analysts polled by FactSet, three rated NYT a buy, while the rest had neutral ratings. The consensus price target was $43.93. The stock trades at a forward price-to-earnings ratio of 27.7, which is high when compared with the forward P/E of 21.7 for the S&P 500
.

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

The stock market, as measured by the S&P 500 Index
SPX,
-0.64%

), has been moving upward. The U.S. benchmark index is essentially crawling up the higher “modified Bollinger Bands” (mBB), which is a bit of an overbought condition, but not a sell signal.

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

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

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

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

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

VIX
VIX,
+9.25%

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

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

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

New recommendation: Potential CVB buy signal

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

Buy 4 SPY Sept (29th) 480 calls: Since CVB reached a new all-time high, we are going to buy SPY
SPY,
-0.66%

calls with a striking price equal to SPY’s all-time high. We will hold without a stop initially.

New Recommendation: Emerging markets ETF (EEM)

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

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

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

Follow-up action: 

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

Long 800 KOPN: 
KOPN,
-4.76%

The stop remains at 1.70.

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

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

Long 2 PFG Aug (18th) 80 calls: This position has been was rolled up twice. We will hold this PFG
PFG,
-1.07%

position as long as the weighted put-call ratio remains on a buy signal.

Long 10 VTRS
VTRS,
-1.43%

August (18th) 10 calls: The stop remains at 10.15. 

Long 5 CCL
CCL,
+3.23%

Aug (18th) 17 calls: Raise the stop to 17.10.

Long 2 PRU
PRU,
-0.46%

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

Long 8 CRON
CRON,
-1.66%

Aug (18th) 2 calls: Hold these calls without a stop while takeover rumors play out.

Long 6 ORIC
ORIC,
-9.06%

Aug (18th) 7.5 calls: The stop remains at 7.40.

Long 2 EW
EW,
-9.78%

Aug (18th) 95 puts: Continue to hold these puts as long as the weighted put-call ratio remains on a sell signal.

All stops are mental closing stops unless otherwise noted.

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

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

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

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

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

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

Before showing data for the 20 companies among the S&P 500 that have spent the most money on buybacks over the past five years, let’s take a look at how share repurchases are described in a misleading way by corporate executives — and by many analysts, for that matter. During Bank of America’s
BAC,
-0.79%

first-quarter earnings call on April 18, Chief Financial Officer Alastair Borthwick said the bank had “returned $12 billion in capital to shareholders” over the previous 12 months, according to a transcript provided by FactSet.

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

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

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

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

How buybacks can hurt banks

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

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

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

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

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

Top 20 companies by dollars spent on buybacks

To look beyond banking, we sorted companies in the S&P 500
SPX,
+0.51%

by total dollars spent on buybacks over the past five years (the past 40 reported fiscal quarters) through June 9, using data suppled by FactSet. It turns out 11 have seen prices increase more quickly than the index. With reinvested dividends, 12 have outperformed the index.

Company

Ticker

Dollars spent on buybacks over the past 5 years ($Bil)

5-year price change

5-year total return with dividends reinvested

Apple Inc.

AAPL,
+1.01%
$393.6

279%

297%

Alphabet Inc. Class A

GOOGL,
+0.84%
$180.6

116%

116%

Microsoft Corporation

MSFT,
+0.87%
$121.5

221%

239%

Meta Platforms Inc.

META,
+1.58%
$103.4

42%

42%

Oracle Corp.

ORCL,
+6.11%
$102.6

140%

161%

Bank of America Corp.

BAC,
-0.79%
$93.6

-2%

10%

JPMorgan Chase & Co.

JPM,
-0.18%
$87.3

27%

47%

Wells Fargo & Co.

WFC,
-1.01%
$84.0

-24%

-13%

Berkshire Hathaway Inc. Class B

BRK.B,
-0.80%
$70.3

70%

70%

Citigroup Inc.

C,
+0.09%
$51.4

-29%

-16%

Charter Communications Inc. Class A

CHTR,
+1.09%
$48.5

20%

20%

Cisco Systems Inc.

CSCO,
+1.00%
$46.5

15%

34%

Visa Inc. Class A

V,
+0.75%
$45.6

66%

72%

Procter & Gamble Co.

PG,
-1.26%
$42.1

89%

116%

Home Depot Inc.

HD,
+1.01%
$41.0

51%

71%

Lowe’s Cos. Inc.

LOW,
+1.92%
$40.8

111%

131%

Intel Corp.

INTC,
+4.67%
$39.0

-40%

-31%

Morgan Stanley

MS,
+1.04%
$36.7

67%

93%

Walmart Inc.

WMT,
+0.33%
$35.6

82%

99%

Qualcomm Inc.

QCOM,
+2.12%
$35.1

101%

130%

S&P 500

SPX,
+0.51%
55%

69%

Source: FactSet

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

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

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

and Bank of America — and Intel Inc.
INTC,
+4.67%
.

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

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

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

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

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

“The market is really going to be volatile here, but if you look at 1981 to 1982, it was a significant amount of pressure on the stock market, but the fourth quarter of 1982…the S&P 500
SPX,
-0.21%

was up 40%,” Plumb told MarketWatch in a recent interview.

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

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

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

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

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

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

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

His next pick is down to the Ukraine war’s causation of a rethink of energy independence, capacity and companies that can produce commodities such as liquid natural gas. With that Philips 66
PSX,
-0.22%

is “probably the best company in the mid market,” trading at about 7 times earnings, with a 4% dividend yield meaning investors are paid as they wait, he said.

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

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

— MercadoLibre
MELIN,
-0.63%

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

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

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

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

The markets

Stock futures
ES00,
-0.54%

YM00,
-0.78%

NQ00,
-0.27%

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

TMUBMUSD02Y,
3.961%

have also turned lower, and the dollar
DXY,
-0.14%

lower. Asian stocks
HSI,
-1.72%

NIK,
-0.80%

fell, while European equities
SXXP,
+0.06%

turned mixed after the ECB hiked interest rates. German 2-year bund yields
TMBMKDE-02Y,
2.466%

are also rising after a big plunge. Oil prices
CL.1,
-1.39%

are weaker.

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

The buzz

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

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

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

That’s as First Republic shares
FRC,
-29.97%

have dropped 35% to a fresh record low amid reports the battered lender is considering a sale. The lender was cut to junk by Fitch and S&P on Wednesday. Elsewhere, PacWest Bancorp
PACW,
-18.29%

is down 14%.

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

CSGN,
+15.73%

are surging on a pledge to borrow money from the Swiss National Bank and repay debt.

Adobe shares
ADBE,
+2.99%

are up 5% after topping Wall Street expectations for the quarter and hiking its outlook.

Shares of Snap
SNAP,
+6.77%

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

Shares of DSW parent Designer Brands
DBI,
+14.13%

are headed for a 2-year low after a surprise profit, but disappointing revenue.

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

Best of the web

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

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

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

The tickers

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

Ticker

Security name

TSLA,
+0.89%
Tesla

CS,
+3.51%
Credit Suisse

FRC,
-29.97%
First Republic Bank

BBBY,
+8.25%
Bed Bath & Beyond

CSGN,
+15.73%
Credit Suisse

AMC,
-2.45%
AMC Entertainment

GME,
-1.38%
GameStop

AAPL,
+0.08%
Apple

NIO,
+0.91%
NIO

APE,
-8.10%
AMC Entertainment Holdings preferred shares

Random reads

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

The 8-year old daughter of a Russian President Vladimir Putin ally apparently owns a multimillion-dollar London apartment.

This Spanish ice cream screams childhood days.

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

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

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Tindered out? How to avoid creeps, time wasters and liars this Valentine’s Day

Michelle has had her fair share of bad dates.

A divorced mother of four children, Michelle, 52, resolved to maintain her sense of humor when she returned to the dating market, and signed up for Hinge, an online dating service that includes voice memos, in addition to audio and video functions that enable two interested parties to talk to each other without sharing their phone numbers. 

Given that she had not dated since she was in her 20s, Michelle, who asked for her surname to be withheld, was thrown into the world of online dating, right swipes, ghosting, men who were actually living overseas, married men, men who lied about their age and men who posted photos that were 10 years old. She split from her husband of nearly two decades in 2014. 

Hinge is part of Match.com’s
MTCH,
+1.22%

group of apps along with OKCupid, Tinder, Bumble, and Christian Mingle, among others. The company promotes itself as the app that is designed to be deleted by its users. It’s a bold statement in the era of online dating, when people scroll through profiles — swiping right for yes and left for no — in search of their perfect mate.

But Hinge, like many other dating apps, introduced a video function in 2020 to help push people to “meet” during the worst days of the coronavirus pandemic. Dating experts advise applying the same rules you would to a Zoom
ZM,
+3.06%

call: dress smartly, use an overhead light rather than a backlight that casts you in shadow, and don’t sit in front of yesterday’s pile of dirty laundry.

‘It’s amazing how many guys use a picture from 10 years ago. You can barely recognize them when you meet them.’


— Michelle, 52, a divorced mother of four who searched for love online

A video date will reveal a lot more than a profile picture. “It’s amazing how many guys use a picture from 10 years ago,” Michelle said. “You can barely recognize them when you meet them. I discovered that someone who is very quick to ask for your email address or your number is more likely to be a scammer. Unfortunately, there’s a lot of scamming on dating apps.”

She’s not wrong. Nearly 70,000 Americans lost $1.3 billion to romance scams through social media and dating apps last year, up from 56,000 the year before, according to the Federal Trade Commission. That’s broadly in line with the amount of money lost the previous year, but up significantly from the $730 million lost in 2020. 

Through her work as a social worker, Michelle has learned to evaluate people and look for red flags. She has used those skills when online dating. She watches out for “goofy stuff” like a man who is writing like a character from a romance novel. “The Lifetime Channel Christmas Love Story is not happening on Hinge,” she said. “Those are the things that I kind of find funny.” 

Other red flags: Someone who lies about their age, is unwilling to meet, won’t turn on the video chat function — what have they got to hide? — and a man who is cheap. “Why did I drive 45 minutes to meet you and you can’t even buy me a cup of coffee? I don’t want someone who is stingy. Either they’re really miserly, have poor judgment, or poor people skills.”

The perilous side of handheld love machines

Dating apps are the ultimate love machine, churning out potential partners every two seconds, someone who is taller, younger, hotter, richer, broader, slimmer, sexier, kookier, weirder — and the list goes on. All of life’s parade is a swipe away. Millions of people use dating apps — from Grindr for gay men to Facebook Dating for pretty much everyone.

There is a balance between keeping people swiping and helping them find love. It’s a numbers game, and can be as addictive as playing the slots. EHarmony promotes its Compatibility Score, while OKCupid asks users to answer an almost limitless number of questions in order to match with more appropriate people. But critics say it leads to the gamification of people’s love lives.

Jenny Taitz, author of “How to Be Single and Happy: Science-Based Strategies for Keeping Your Sanity While Looking for a Soul Mate,” said one of the most common complaints about dating apps is the constant game of cat and mouse. Each user is probably talking to several people at the same time, and it’s tough to get people off the apps and into the real world.

If you like someone, she says, move to a video chat to test the chemistry. “It’s time-consuming, but you need to move from a pen pal to an in-person meetup,” she said. “It could be something that you do all the time, so you really have to have limits. If you’re having four dates a week, does that mean you’re not making time for friendships where you have an investment?”

‘The same person who volunteers at a soup kitchen might easily ghost someone. There is so much detachment.’


— Jenny Taitz, author of ‘How to Be Single and Happy’

Anonymity can often lead to ghosting, when people just disappear or stop answering messages. “We need to treat people like they would treat their future child or best friend,” Taitz said. “Bad behavior is so pervasive, and people are not held accountable for their actions. The same person who volunteers at a soup kitchen might easily ghost someone. There is so much detachment.”

Some studies have linked dating apps with depression, while other studies have found that online dating has led to a string of robberies through hook-ups on Grindr, and can also make it easier for sexual predators to find victims. These problems obviously exist in the real world, but social media and dating apps can provide an easier path for bad actors. 

Julie Valentine, a researcher, sexual-assault nurse examiner, and associate dean of Brigham Young University’s College of Nursing, analyzed 1,968 “acquaintance” sexual assaults that occurred between 2017 and 2020. She and her fellow researchers concluded that 14% of these sexual assaults resulted from a dating-app’s first in-person meeting. 

“One-third of the victims were strangled and had more injuries than other sexual-assault victims,” the study found. “Through dating apps, personas are created without being subjected to any criminal background checks or security screening. This means that potential victims have the burden of self-protection.” 

All those coffees take time and money

A spokeswoman for Match.com said it does not release data on how many people have actually used the video chat function. If people did use the function more often without sharing their phone number, it would in theory provide a layer of protection, help weed out bad actors, and help people decide whether a prospective date is compatible early in the process.

Cherlyn Chong, the Las Vegas-based founder of Get Over Him, a program to help women get over toxic relationships, does not believe the video chat function is as widely used as it should be. Chong, who describes herself as a dating coach and a trauma specialist, encourages her clients to use every method available to screen dates, in addition to meeting in a public place.

So what if a man did not want to video chat? “If they didn’t want to video, that’s fine,” Chong said. “But their reaction to the request would be a litmus test. We would know he is probably not someone to date, as he is not flexible. It’s also very telling if a woman explains that it’s a safety issue. The response of the guy in that situation would also be another litmus test.”

“Once you give someone their phone number, you don’t know what they are going to do with it,” Chong said. She said one of her clients encountered a man who shared her phone number with others, and sent it to a spam site on the internet. “You want to believe in the best of people,” she said, “but there are people who misuse your number because they can’t handle rejection.”

‘A couple of cocktails in New York City? You’re looking at $60 to $100, or a few hundred dollars for a pricier meal.’


— Connell Barrett, author of ‘Dating Sucks, But You Don’t’

Connell Barrett, author of “Dating Sucks, But You Don’t,” said video dates are a good first step. “You can see your date, and read their body language,” he said. “Because physical contact is off the table for a video date, it can free both singles to let go and not worry about the pressure about moving in for the first kiss. Good chemistry happens when there’s less pressure.”

Video dating also saves you time and money, especially if you’re the one who picks up the tab. “A couple of cocktails in New York City? You’re looking at $60 to $100, or a few hundred dollars for a pricier meal,” he said. Regular daters could end up spending up to $1,500 a month in bigger cities, if they’re dating a lot and eating out, Barrett added.

How much you spend will clearly depend on your lifestyle. Members of The League, a dating app that’s geared towards professionals, spend up to $260 a month on dates, followed by $215 a month for singletons using Christian Mingle, $198 for people signed up to Match.com, and $174 for Meta’s
META,
+3.03%

Facebook Dating subscribers, according to a recent survey. 

A video call allows people to get a sense of the person’s circumstances and personality, and can avoid wasting an hour having coffee with someone you will never see again. Be fun, be playful, don’t ask about exes or grill the other person “60 Minutes”-style, Barrett said. “A big mistake people make in dating is trying to impress the other person,” he said.

Video dating goes back to the 1970s

Jeff Ullman created the first successful video-dating service in Los Angeles in 1975 called Great Expectations. People recorded messages direct-to-camera. “We started with Betamax, moved to VHS, and upgraded to CD-ROMs,” he said. “As long as there are adults, there will be the hunt for love, and there will be the longing for ‘I’m missing someone, I’m missing something,’” he told MarketWatch.

“The best and the brightest did not go into dating services in the 1970s and 1980s,” he said. “I only went into it because I wanted to change the world. What I wanted to do was turn pity to envy. Our videos were 5 or 6 minutes long. There were no stock questions. They had to be ad-libbed. The only similar question was the last one: ‘What are the qualities that are most important in a relationship?’” 

He turned Great Expectations into a national franchise where customers paid $595 to $1,995 a year for membership ($1 in 1975 is around $5 today). “We did not hard sell you. We did a ‘heart sell.’ We had all kinds of Type As — doctors, lawyers, studio production chiefs, who all thought they were God’s gift, or God’s gift to womankind, but when they talked about their loneliness, they cried.”

People will always be searching for that perfect mate, Ullman said, whether it’s through videos, words, photos, psychological compatibility, A.I., or through arranged marriages or matchmakers. “But there is no perfect match. My wife Cindy and I are well matched. She’s not perfect. I’m not perfect. The moment either one of us begins to think we’re perfect is the moment we introduce negative forces.”

‘What I wanted to do was turn pity to envy. Our videos were 5 or 6 minutes. There were no stock questions.’


— Jeff Ullman, created Great Expectations, a video-dating service in Los Angeles in 1975

Before TikTok and Skype, people were not as comfortable in front of the camera, particularly if they had to talk about themselves. “We always hid the camera,” Ullman said. The 1970s decor of dark wood and indoor plants made that easier. “When we were finished, they’d say, ‘When are you going to start?’” But they were already on tape. They were, he said, happy with the first take 95% of the time.

Ullman required his franchisees to give members a three-day right to cancel for any reason — including “I’m not going to tell you” — if they changed their terms of service. “They just had to mail us or fax us their notice. Half of my franchisees were about to revolt.” Until, he said, they realized they could not afford to have a bad reputation in an industry where people were putting their hearts on the line.

It all started with a Sony-Matic Portable Videocorder gifted to him by his parents when he graduated from UC Berkeley in 1972. “They were very expensive, but they were portable. Whenever I went anywhere, whether it was a parade or a demonstration, which were common back then, they always let me in because they thought I was from “60 Minutes.” It gave us a sense of power.”

Fast forward to 2023: That power is in the hands of the $3 billion online dating industry and, perhaps to a lesser extent, in the hands of the singletons who are putting their own messages out into the world through words and pictures. In the 1970s, most people were still meeting in person. These days, your online competition is, well, almost every single person within a 50-mile radius.

Watching out for those ‘green flags’

Video dating has come in handy for singletons like Andrew Kneeshaw, a photographer and publican in Streete, County Westmeath, a small town in the Irish midlands. He’s currently active on three dating sites: Plenty of Fish, Bumble and Facebook Dating. In-app video calls have saved him — and his potential dates — time, gasoline and money spent on coffee and lunch. 

“Even someone local could be 15 or 20 miles away,” he said. He’s currently talking to a woman in Dublin, which is more than an hour away. “Hearing someone’s voice is one thing, but seeing that they are the genuine person they are supposed to be on the dating site definitely does help.” He could spend upwards of 20 euros ($21.45) on coffee/lunch, excluding gasoline.

He did go on a dinner date recently without having a video call, and he regretted it. “Neither of us felt there was a spark,” Kneeshaw said. So they split the check as they would likely never see each other again? “That sounds terrible, but yes,” he said. “I go on a date at best once a week. If you’re doing it a few times a week, it does add up very quickly.”

Ken Page, a Long Beach, N.Y.-based psychotherapist and host of the Deeper Dating podcast, is married with three children, and has compassion for people like Kneeshaw who live in more remote areas. In New York, he said, some people won’t travel uptown if they live downtown, and many more people won’t even cross the river to New Jersey. 

‘If it’s a video chat, you have the opportunity to get to know them more, and have that old-fashioned courtship experience.’


— Ken Page, a psychotherapist and host of the Deeper Dating podcast

He said green flags are just as important as red flags when deciding to move from a video date to an in-person date. “Is their smile warm and engaging? Are you attracted to the animation they have in their face? You just get tons more data when you see the person. You save money, and you save time before you get to the next step.”

In-person first dates can be brutal. “Your first reaction is, ‘they’re not attractive enough, I’ve got to get out of here,’” Page said. “If it’s a video chat, you have the opportunity to get to know them more, and have that old-fashioned courtship experience where attraction starts to grow. The ‘light attractions’ have more opportunity to grow without the pressure of meeting in person.”

Dating apps are a carousel of romantic dreams. The focus is on looks rather than personality or character. “There are so many people waiting online,” Page said. “That does not serve us. Unless the person really wows us, we swipe left. If you do a video chat, you will be more likely to get to know that person — instead of only getting to know the ‘9s’ and ‘10s.’”

And Michelle? The divorced Californian mother of four said she finally met a guy on Hinge last October, and they’ve been dating since then. “He’s just a fabulous guy. He actually moved slower than what I had experienced with other guys I had dated.” She kept her sense of humor and perspective, which helped. “He said, ‘You’re so funny.’ I didn’t have anything to lose.”

“It’s almost going to Zara
ITX,
+1.55%
,
” she said. “Nine times out of 10 you may not find something you like, but one time out of 10 you do.”

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