PTFE ban: The hidden consumer costs and employment losses

As part of the EU’s landmark Green Deal package, the 2020 Chemicals Strategy for Sustainability called for an ambitious concept: achieving a toxic-free environment by 2030. A central pillar of this ambition is the proposal for a universal PFAS — per- and polyfluoroalkyl substances — restriction, addressing contamination and emissions from the controversial family of substances sometimes known as ‘forever chemicals’.

Action to tackle this family of chemicals is overdue, and European industry is ready to do its part. As the president of the Federation of the European Cookware, Cutlery and Houseware Industries (FEC), I welcome the initiative. FEC members pride themselves on providing safe and durable products to consumers, and were early to phase out these problematic substances. Despite this, the current restriction proposal still needs substantial changes to achieve its goals of protecting human health and the environment while balancing socioeconomic effects, impacts on carbon emissions and circularity.

While many elements of the proposed restriction are well justified, some risk damaging the EU industry’s competitiveness and hindering progress on the green and digital transitions, all while banning substances which are known to be safe. The European authorities need to understand the impacts of the proposal more thoroughly before making decisions which will harm consumers and the European workforce, and perhaps even result in worse environmental outcomes.

The current restriction proposal still needs substantial changes to achieve its goals of protecting human health and the environment while balancing socioeconomic effects.

As the most complex and wide-ranging chemical restriction in EU history, it is essential that the institutions take no shortcuts, and take the time to clearly understand the unintended environmental and socioeconomic impacts on every sector.

The PFAS restriction proposal is broad, covering over 10,000 substances, many of which were not considered part of the PFAS family in the past. In an effort to catch all possible problematic chemicals that could be used in the future, the member countries which proposed the restriction have cast a net so wide that it also includes substances which pose no risk. Even the OECD, the source of the broad scope used by the authorities, concedes that its definition is not meant to be used to define the list of chemicals to be regulated.

In addition to the legacy PFAS substances, which have serious concerns for human health and the environment, the proposal also includes fluoropolymers in its scope, which are not mobile in the environment, not toxic and not bioaccumulative — a stark contrast to the controversial PFAS substances at the center of contamination scandals across Europe and around the globe.

As the most complex and wide-ranging chemical restriction in EU history, it is essential that the institutions take no shortcuts.

Fluoropolymers are well studied, with ample scientific evidence demonstrating their safety, and unlike legacy PFAS, technologies exist to control and eliminate any emissions of substances of concern from manufacturing to disposal.

Fluoropolymers are not only safe, their safety is a primary reason for their widespread use. They provide critical functionality in sensitive applications like medical devices, semiconductors and renewable energy technology. They are also used in products we all use in our day-to-day lives, from non-stick cookware to electrical appliances to cars. While in some cases there are alternatives to fluoropolymers, these replacements are often inferior, more expensive, or have even more environmental impact in the long run. Where alternatives aren’t yet identified, companies will need to spend large sums to identify replacements.

In the cookware industry, for example, fluoropolymers provide durable, safe and high-performing non-stick coatings for pots, pans and cooking appliances used by billions of people across Europe and around the globe. Decades of research and development show that not only are these products safe, but their coatings provide the most high-performing, durable and cost-effective solution. Continued research and development of these products is one of the reasons that the European cookware industry is considered a world leader.

Fluoropolymers are well studied, with ample scientific evidence demonstrating their safety and … technologies exist to control and eliminate any emissions of substances of concern from manufacturing to disposal.

Given the critical role that fluoropolymers play in so many products and technologies, forcing a search for inferior or even nonexistent alternatives will harm the EU’s competitiveness and strategic autonomy. In the cookware industry alone, the restriction could cost up to 14,800 jobs in Europe, reduce the economic contribution of the sector to the GDP by up to €500 million, and result in a major shift of production from Europe to Asia, where the products would be made under much less stringent environmental rules. Consumers will also suffer, with new alternatives costing more and being less durable, requiring more frequent replacement and therefore resulting in a larger environmental impact.

Beyond this, companies that enable the green transition, deliver life-saving medical treatments, and ensure our technology is efficient and powerful will all be required to engage in expensive and possibly fruitless efforts to replace fluoropolymers with new substances. What would be the benefit of these costs and unintended consequences, when fluoropolymers are already known to be safe across their whole lifecycle?

Given the critical role that fluoropolymers play in so many products and technologies, forcing a search for inferior or even nonexistent alternatives will harm the EU’s competitiveness and strategic autonomy.

The scale of the PFAS restriction is unprecedented, but so are the possible unintended consequences. Industry has contributed comprehensive evidence to help fill in the blanks left by the initial proposal, it is now up to the institutions to take this evidence into account. With such a far-reaching initiative, it is essential that the EU institutions and the member countries thoroughly consider the impacts and ensure the final restriction is proportional, preserves European competitiveness and does not undermine the broader strategic objectives set for the coming years.

Founded in 1952, FEC, the Federation of the European Cookware, Cutlery and Housewares Industries, represents a strong network of 40 international companies, major national associations and key suppliers spread over Europe, including in Belgium, Croatia, France, Germany, Italy, Spain, Switzerland and the Netherlands. Our mission is to promote cooperation between members, and to provide expertise and support on economic and technical topics.



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#PTFE #ban #hidden #consumer #costs #employment #losses

Bonds, Secular Bear Market, and the Impact on Small Caps

Bonds have had one of the worst years in modern times and one of the fastest rates of interest rate rises.

The good news is the market has absorbed the bond’s performance. A better risk-on environment is when the SPY outperforms the long bonds. The same is true with junk bonds outperforming long bonds. Another indicator of risk-on.

The yield curve remains inverted — or the potential recession indicator has not, to date, caused a recession. Hence talk of a soft landing. Will yields tap out at 5.5-5.75%? Many think so. However, higher for longer seems more likely.

Furthermore, inflation is not quite done. The PCE, due out this week, is at 4%, not 2% And just as it took from 2020 until spring 2022 to see inflation soar then peak, it is likely we will not see the impact on these rates until 2024 or even 2025. Talking technical, bonds do not look likely to rally from here (TLT). However, we are watching the October 2022 lows carefully.

A potential double bottom exists if TLTs can clear back above 98. A move under 95, though, points more to a retest and possible break of the low 91.85.

How does this impact small caps?

Small caps, as measured by IWM, are key for the fall and into 2024. You can also look at SML, the S&P 600. Over the weekend, we covered that the Russell 2000 (IWM) could be forming an inverted head-and-shoulders bottom going back from the start of 2023. First though, it must hold 180 and clear 190. No small task.

Small caps are related to commercial real estate, so that is a caveat.

Why could small caps do well? The Government has spent a lot of money on US manufacturing, and the Dallas-fed index fell less than expected. In the US quest for more independence on goods, we must look to costs and labor for the trend to sustain. It must be noted though, that prices and wages paid soared. 

The IWM chart shows a lack of leadership thus far against the SPY. The Real Motion Indicator has no real divergence from price. Nonetheless, IWM needs more everything-more rally, more leadership, and more momentum.

Our small caps quant model has done well this year, buying companies with earnings growth. The basket is an interesting combination of semiconductor companies, home building and beauty staples.


For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected].

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Mish served as guest host for the Monday, August 28 edition of StockCharts TV’s The Final Bar! Mish puts her own spin on the Market Recap, starting with the indices and then exploring sectors using her “Economic Modern Family” analysis. She then sits down with Keith Schneider for an insightful interview. Keith discusses topics such as agricultural commodities, biotechnology, and volatility.

Mish and Charles discuss a secular bear market in bonds and why gold could outshine expectations in this appearance on Fox Business’ Making Money with Charles Payne.

Mish and Paul Gruenwald discuss soft landings, recession, inflation, GDP and China on Yahoo Finance.

Mish looks at a selection of popular instruments and outlines their possible direction of travel in this appearance on CMC Markets.

Mish talks NVDA and “Trading the Weather” in these two appearanceson Business First AM.

Read Mish’s commentary on Gold in these two articles from Kitco.

Mish and Nicole discuss where to park your money, barring any watershed event, in this video from Schwab Network.

On the Friday, August 18 edition of StockCharts TV’s Your Daily Five, Mish covers bonds, the dollar, risk-off indications and several key commodities with actionable levels to consider.

Mish joins Maggie Lake of Real Vision to discuss what rising bond yields mean for investors across the market landscape, what comes next for stocks and commodities, and why she is taking profits here in the growth and AI stocks.

Mish shows why January and now the July reset worked in this appearance on Business First AM.

Mish discusses Alibaba’s stock price in this appearance on CNBC Asia.

In this guest appearance on David Keller’s The Final Bar on StockCharts TV, talks higher rates and why China may deserve a second look for investors.

Mish discusses inflation, bonds, calendar ranges and places to park your money on the Benzinga Morning Prep show.

Mish covers why August is a good time for caution in this appearance on Business First AM.

Mish and Jared go over oil and what might happen with small caps and regional banks in this appearance on Yahoo! Finance.


Coming Up:

Mish will be on break starting August 30 and return Tuesday, September 5th.

September 7: Singapore Breakfast Radio, 89.3 FM

September 12: BNN Bloomberg & Charting Forward, StockCharts TV

September 13: Investing with IBD podcast

October 29-31: The Money Show


  • S&P 500 (SPY): 440 now back to pivotal.
  • Russell 2000 (IWM): Popped off the key support. 185 pivotal.
  • Dow (DIA): Will watch to see if it can back over 347.
  • Nasdaq (QQQ): 363 pivotal.
  • Regional Banks (KRE): Needs to hold 44 to be convincing.
  • Semiconductors (SMH): 150 back to pivotal.
  • Transportation (IYT): 239 still support to hold, with 252 biggest overhead resistance.
  • Biotechnology (IBB): Compression between 124-130.
  • Retail (XRT): The 6-month calendar range low is 62.90 — needs to clear it.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

Learn More

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#Bonds #Secular #Bear #Market #Impact #Small #Caps

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

Kneel to your king Wall Street.

After forecasting record revenue backed by a “killer AI app,” Nvidia has teed up the Nasdaq
COMP,
-0.61%

for a powerful Thursday open. Indeed, thanks to that chip maker and a few other generals — Microsoft, Apple, Alphabet, etc.— tech is seemingly unstoppable:

Elsewhere, the Dow
DJIA,
-0.77%

is looking rattled by a Fitch warning over debt wranglings ahead of a long weekend.

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

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

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

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

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

Nvidia
NVDA,
-0.49%
,
Advanced Micro Devices
AMD,
+0.14%
,
Taiwan Semiconductor
TSM,
-0.34%

2330,
+3.43%
,
Infineon
IFX,
-0.33%
,
Cisco
CSCO,
-1.02%
,
NXP
NXPI,
-4.88%
,
Microsoft
MSFT,
-0.45%
,
ServiceNow
NOW,
+0.48%

and Palo Alto
PANW,
+7.68%

are all in their portfolio. They also like the semiconductor capital equipment industry — AI beneficiaries and tailwinds from increasingly localized supply chains — with companies including KLA
KLAC,
-1.40%
,
Lam Research
LRCX,
-1.33%
,
ASML
ASML,
-2.15%

and Applied Materials
AMAT,
-1.96%
.

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

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

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

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

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

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

In the near term, Heydorn says investors should watch out for May sales numbers and any AI mentions from Taiwan via TSMC, mobile chip group MediaTek
2454,
-0.42%

and Apple
AAPL,
+0.16%

supplier Foxxconn
2354,
-0.74%

that may help with guidance for the second half of the year. “The main numbers in Taiwan will tell us where we are in inventories. They’re going to tell us if the 3-nanonmeters, that’s a new processor that’s going into Apple iPhones, are ready for production,” he said.

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

The markets

Nasdaq-100 futures
NQ00,
+1.90%

are up 1.8% , S&P 500
ES00,
+0.55%

futures are up 0.6%, but those for the Dow
YM00,
-0.34%

are slipping on debt-ceiling jitters. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.756%

is up 4 basis points to 3.75%.

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

The buzz

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

Best Buy
BBY,
-0.49%

stock is up 6% after an earnings beat, while Burlington Stores
BURL,
+3.19%

is slipping after a profit and revenue miss. Dollar Tree
DLTR,
-0.50%

and Ralph Lauren
RL,
+0.24%

are still to come, followed by Ulta
ULTA,
+0.17%
,
Costco
COST,
-0.44%

and Autodesk
ADSK,
+0.06%

after the close.

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

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

But AI upstart UiPath
PATH,
-1.74%

is down 8% after soft second-quarter revenue guidance, while software group Snowflake
SNOW,
+1.13%

is off 14% on an outlook cut, while cloud-platform group Nutanix
NTNX,
-0.55%

is rallying on a better outlook.

Elf Beauty
ELF,
+1.69%

is up 12% on upbeat results from the cosmetic group, with Guess
GES,
-0.80%

up 5% as losses slimmed, sales rose. American Eagle
AEO,
+4.50%

slid on a sales decline forecast. Red Robin Gourmet Burgers
RRGB,
+3.51%

is up 5% on the restaurant chain’s upbeat forecast.

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

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

The best of the web

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

Can WallStreetBets’ spectacular short-squeeze be repeated?

Paralyzed walks naturally again with brain and spine implants

The tickers

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

Ticker

Security name

NVDA,
-0.49%
Nvidia

TSLA,
-1.54%
Tesla

GME,
+0.47%
GameStop

BUD,
-1.94%
Anheuser-Busch InBev

AMD,
+0.14%
Advanced Micro Devices

PLTR,
-3.24%
Palantir Technologies

AAPL,
+0.16%
Apple

AMZN,
+1.53%
Amazon.com

NIO,
-9.49%
Nio

AI,
+2.54%
C3.ai

Random reads

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

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

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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Market Trend Model Turns Bearish

This week, stocks started in a position of strength and ended in a position of weakness. While some groups, like semiconductors, have managed to remain strong, the major benchmarks managing to pound out a positive return for the week, the broad market message appears cautious-at-best by my read.

My main Market Trend Model is based on weekly exponential moving averages and helps me gauge the market trend on three time frames on the same chart. On Friday’s close, the medium-term model turned slightly negative, which means the model is now bearish on all three time frames.

This has only happened 11 other times since the tech bubble in 2000, and represents a confirmed distribution pattern for equities. Meaning it’s either a raging buy signal (if you think we’re in a secular bull market) or a serious sell signal (if you believe we’re now in a secular bear).

Allow me to explain.

Building a Market Trend Model

Years ago, I was trying to create a systematic model to mirror the subjective analysis I was doing every week. I’d always look at a weekly chart of the S&P 500 and ask, “What is the short-term, medium-term, and long-term trend?”

After lots of trial and error, I ended with something similar to the current setup using three sets of weekly exponential moving averages. Why did I choose exponential instead of simple moving averages? I’ll get to that below!


This chart will be one of many we’ll discuss in our upcoming FREE webcast, Charting a Financial Crisis. Join me on Tuesday, March 21 at 1:00pm ET for a visual review of the evidence and where opportunities can emerge in a period of great uncertainty. Sign up HERE for this free event!


For my model, I use the PPO indicator to show these three moving average combinations. If the indicator is above zero, it’s bullish. Below zero, and it’s bearish. Simple.

The long-term model turned negative in May 2022 after being confirmed bullish since June 2020. The medium-term model was briefly bullish in March and August of last year, then switched to a more consistent bullish reading in November. The short-term model has been volatile, switching often between bullish and bearish settings.

I should note that the medium-term model is my main risk on/off gauge. When its reading is bullish, that suggests a risk-on positioning and that I should be actively looking for new long ideas. When the model is bearish, that tells me to go more risk-off; in other words, I should focus more on capital preservation than capital growth.

So what does it mean that the model is now bearish on all three time frames? Now we need to bring in more history.

Counting the Bearish Trifectas

Let’s go back to the market top in 2000 and see how often this “bearish trifecta” has occurred.

We’ve had this “triple bearish” reading now 12 times since 2000. Only three of those happened before the 2009 market low, and the other nine came after. Four of the signals have triggered since the 2022 market peak.

What does this mean? Well, the left half of the chart shows the secular bear market that I would loosely define as 2000-2013. The first three signals occurred after the long-term model was bullish for years, and the rotation to a negative LT trend was an unusual event. Selloffs in 2001-03 and 2008-09 happened really accelerated after this bearish pattern.

After the 2009 low, this bearish trifecta could almost be considered a contrarian bullish signal, similar to a stock pulling back to an ascending 50-day moving average or the RSI dropping down to 40 during an uptrend. The bearish trifecta signals pretty much line up with every major bottom since 2009. So where does that leave us today?

Don’t Fight the Fed

Here’s where the macroeconomic argument comes in. If you believe that the market drop since the end of 2021 represents a major change of character for stocks, and that the Fed’s tightening cycle represents an end to the “easy money” era of the 2010s, then this could be just the beginning.

I would have discounted the likelihood of this scenario in a big way up until about a week ago. But with the latest financial crisis potentially still in its early stages, a larger waterfall decline from current levels now seems like a scenario we should all be considering.

On the other hand, if you think of 2022 as another buyable long-term dip along the lines of 2018 and 2016, and you assume that the Fed will reverse course quickly to alleviate further market downside (and you assume that it will work!), then perhaps this is yet another buy signal in the great secular bull market.

In either case, I’ve learned not to get too married to a narrative, and to consider all the potential outcomes. That has helped me to be better prepared for whatever comes next. And in this environment, it will definitely pay to be prepared!

By the way, interested in learning more about why I used exponential instead of simple moving averages for my Market Trend Model? Head over to my YouTube channel.

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.
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#Market #Trend #Model #Turns #Bearish

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.

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

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#Chips #energy #Amazon #rival #Stock #picks #fund #manager #decades #experience