The Long Term Investor

Sounds about right to me.

Does Q2 GDP Cancel the Recession?

https://www.fisherinvestments.com/en-us/insights/market-commentary/does-q2-gdp-cancel-the-recession

(BOLD is my opinion OR what I consider important content)

"A funny thing happened along the way to recession.

US Q2 GDP accelerated in Thursday’s report, smashing expectations and triggering a rush to revise outlooks among onlookers. Many now say a “soft landing” of slower growth that avoids recession is likely. Others say no “landing” is coming at all. Some also suggest a rapid rush will spur more hikes, causing recession anyway. In our view, all this chatter misses the mark. Q2 GDP shows America wasn’t in recession last quarter, barring a big revision. And it speaks to the better-than-feared economy stocks have long been pre-pricing. But the forward implications beyond that are very limited. Let us explain.

Exhibit 1 shows Q2 GDP (dark blue line) sprang higher at a 2.4% annualized rate, much faster than consensus estimates for 1.5%. While consumer spending (dark green columns) continued to chug along, as we wrote yesterday, business investment’s (medium green) 7.7% annualized surge stood out. Then, too, GDP components that detracted substantially in recent quarters mostly aren’t anymore. After residential investment (light green) subtracted significantly in Q2 through Q4 last year, it did so only marginally in Q1—and again in Q2. Meanwhile, inventory changes’ (yellow) big Q1 detraction—which many also took as a recessionary sign—turned into a small contribution in Q2. With consumer spending and business investment up solidly—plus housing headwinds and inventories’ drag fading—it is tough to argue America was in or even all that close to recession in Q2. Hence, pessimists’ rush to update their views.

Exhibit 1: GDP and Its Contributing Components

Source: FactSet, as of 7/27/2023. Real GDP and components, Q1 2022 – Q2 2023.

However, in the wake of the report, we have seen many draw loads of forward-looking conclusions. Sorry, but whatever those conclusions may be, these backward-looking data don’t support them. They don’t mean a soft landing is certain. Q2 growth also says nothing about more optimistic takes some are assuming—that there won’t be any landing, e.g., because the Biden administration’s Inflation Reduction Act funds a big green-energy infrastructure buildout that will fuel a long-lasting investment boom. Yes, government spending flipped from early-2022 contractions to relatively large contributions since. And there is more money allocated to dole out—with incentives for more private investment. That makes a positive contribution to growth here possible but not assured.

Thing is, these investments are scheduled to trickle out slowly. And extensive permitting processes and legal reviews have a tendency to stall projects in their tracks, blunting or further drawing out their impact. That even applies to things like solar or wind power installations, which have increasingly encountered tough opposition from localities and residents despite ostensible federal government backing.[ii] As always, investors will need to gauge how reality evolves against the growth expectations markets have priced in already.

This isn’t to say everyone is suddenly sunny. Many still expect recession, and to us, that is a good thing for markets. It suggests they still reflect one, muting the impacts if it came. Bloomberg’s July survey showed forecasters still see a 60% chance of recession in the next year. According to a National Association for Business Economics survey Monday, 71% of business economists think the likelihood of recession over the next 12 months is less than 50%, up from about an even split in April.[iii] While attitudes have turned a bit brighter, look at how economists’ projections (per FactSet) have progressed between then and now. (Exhibit 2) In April through June, they were staring down two quarters of contraction—one definition of recession—or something close to it. Over the last month they have upgraded their Q3 view, but that still gives way to a Q4 dip. Today’s outlook still isn’t very cheery.

Exhibit 2: Current Economic Projections Aren’t Exactly Cheery

Source: FactSet, as of 7/28/2023. Economists’ median quarterly GDP growth estimate, annualized.

Coloring many economists’ views are two widely watched forward-looking economic indicators: The yield curve and The Conference Board’s Leading Economic Index (LEI). The former is a traditional forecasting tool and inversions have preceded most postwar US recessions. However, the tool isn’t perfect. And today, it has been inverted for nine months. This normally signals credit contraction because the spread reflects banks’ profit margins on new loans. But that hasn’t worked this cycle since banks’ deposit rates (their main funding cost) remain well below fed-funds—so lending also remains profitable overall. The economy isn’t being starved of credit despite the apparent signal from yield curve inversion.

As for the LEI, it includes the yield curve and a slew of manufacturing-tilted components like three gauges of factory orders, manufacturing employee hours worked and more. And goods-oriented industries have seen contraction for some time. But LEI downplays services, and that sector dominates America’s economy. It is a blind spot we believe is skewing observers’ views.

Recession fears were likely one reason of several why stocks endured a downturn last year. That means they likely pre-priced an economic downturn, at least as long as those fears are sufficiently broad. There is little sign of one now, but ongoing concerns should mitigate a recession’s market impact, assuming we get one any time soon. Hard as it may be, we think this is key for investors to grasp now."

MY COMMENT

It is hard to beat the markets when it comes to discounting future events. At this point we are either looking at NO recession in the next 12 months.....or....at worst a very mild one that is irrelevant. I see the probability as.....no recession.

 

Yes.....they just could not resist that one little ZINGER at the end.

Investors are entering August in a bullish mood

https://finance.yahoo.com/news/inve...n-a-bullish-mood-morning-brief-100100051.html

(BOLD is my opinion OR what I consider important content)

"Seven months into the year, and halfway through second quarter earnings reporting season, equity investors seem to be feeling pretty good.

The S&P 500 has climbed for five straight months. It’s up 19% this year. Since JPMorgan kicked off earnings season, the index has risen about 1.5%, which isn’t fantastic but is still a gain.

In short, as we closed out July, were the bears giving up?

One of the most prominent bears has — sort of. Morgan Stanley’s Mike Wilson last week conceded “we were wrong” in a note to investors. But he kept his year-end S&P 500 target unchanged at 3,900.

Bullish investor sentiment, as measured by the American Association of Individual Investors, is near its highest level since summer 2021.

Some of the best performers in July — Zions Bancorp, KeyCorp, Comerica — show investor relief after their earnings, seen as confirmation that the banking system indeed did not suffer severe damage as a result of the bank collapses in the spring.

A stroll through the Yahoo Finance trending tickers page is a walk through a veritable meme garden — Carvana growing here, Tilray blossoming there. While it may no longer reflect just retail trader enthusiasm but also institutional interest, it’s nonetheless another sign of risk engagement.

The question is what could be the herbicide for these hardy weeds? The Fed is always a prime contender, but investors seem at least momentarily convinced of a soft landing. Earnings thus far have fallen 7.3%, about in line with estimates, and again, without killing the broader rally.

Economists have made much of both the wind-down in excess savings and the resumption of student loan payments, which could both hit this fall. Those events could, in theory, hurt not just consumer spending but equity inflows as well.

But first, a test of the calendar variety: August has been the toughest month for stocks since 1986"

MY COMMENT

YES.....everything is HAPPY.....till you get to the end of this little article. They just could not resist.

 

The start of the day today.

S&P 500 falls to start August as the busiest week of the earnings season continues

https://www.cnbc.com/2023/07/31/stock-market-today-live-updates.html

(BOLD is my opinion OR what I consider important content)

"The S&P 500 fell to start August as investors navigated a flood of corporate earnings reports.

The broad-based index lost 0.4%, while the Nasdaq Composite pulled back 0.8%. The Dow Jones Industrial Average
added about 40 points, or 0.1%,.

Pharmaceutical giant Merck reported a smaller-than-expected loss and revenue that exceeded expectations thanks to strong Keytruda sales. Merck shares rose 1.6%. Caterpillar also reported better-than-expected earnings and revenue, boosting shares nearly 7%. The surge in shares helped lift the Dow.

Pfizer added 1.7% even after posting mixed results due to plummeting Covid product sales, while Uber
lost nearly 5% on mixed earnings.

This week marks the busiest stretch of second-quarter earnings with more than 160 S&P 500 constituents slated to report results. More than half of the companies in the broad market index have already reported, with 82% topping earnings expectations, according to FactSet. This has fueled some hopes that the economy will be able to avoid a recession as inflation shows signs of cooling.

Despite the performance so far, analysts are bracing for a 7.1% earnings decline from a year ago, according to FactSet, and a third consecutive quarter of falling profits.

“The second-quarter tech reporting season is about halfway through, and so far the outcome has been mixed,” said Mark Haefele, chief investment officer of UBS Global Wealth Management. “But against the backdrop of demanding valuations for the sector as a whole, we believe investors should brace for volatility ahead and be selective within the sector.”

Wall Street also assessed a fresh batch of critical economic indicators offering more insight into the state of the economy. That included job openings data that came in slightly below expectations and manufacturing data that showed a continued contraction."

MY COMMENT

The media especially the business TV media is all over the job openings and manufacturing data. I have to believe that is partly behind the market so far today....which is DOWN.

We are also facing critical earnings on Thursday this week. BUT......as noted above......the earnings BEATS are now up to a MASSIVE......82%. A BLOW OUT of expectations.

My take today......once in a while the markets have to pause and consolidate the gains. We can not go straight up every day. A pause for a few days or a week in a bull market environment is NORMAL.

Personally.....I am more focused on the next 6-12 months.....NOT.....the next day.

 

This is one thing that IRRITATES me about my AMAZON stock. The company goes off on these tangential businesses....often will little success. It is a waste of time, money, resources, and to me shows poor management focus on what counts.......their basic business model....retail and web services.

Amazon rolls out its virtual health clinic nationwide

https://www.cnbc.com/2023/08/01/amazon-rolls-out-its-virtual-health-clinic-nationwide.html

"Key Points

• Amazon is expanding its virtual clinic service nationwide.
• The company launched Amazon Clinic last November as a way for patients to connect with telemedicine providers to help receive treatment for common conditions such as acne and hair loss.
• Amazon has been trying to break into the health-care industry for years with mixed success."

MY COMMENT

A total waste of money and corporate resources. Management is out of focus to allow this stuff to happen over,and over, and over.

 

Markets are making a SLIGHT attempt to come back at this moment. Interesting to watch the daily circus....but not really relevant to long term investing.

YES......I continue to be fully invested for the long term as usual.

 

A lingering and waffling day today. About like the open just before the close.

I have a single stock UP today.....MSFT. They seem to be a.....reverse holding....lately. They are DOWN when the rest of the big tech world is UP and they are UP today when all the rest of the big tech world is DOWN.

Waiting for the close......time to be done with this day.

 

I dont like the earnings HYPE where companies are using AI to get a short term POP in their stock price. BUT.....that is how the game is played.

AI hype boomed to start 2023. Earnings reveal gains won't appear 'overnight.'

https://finance.yahoo.com/news/ai-h...al-gains-wont-appear-overnight-170501800.html

(BOLD is my opinion OR what I consider important content)

"Three months after artificial intelligence exuberance sent stocks into a new bull market during first quarter earnings calls, AI remains the biggest buzzword of second quarter earnings season.

But this quarter's AI comments have come with some calls for patience from tech leaders and a different reception from investors.

Microsoft (MSFT), considered by many a leader in the AI space since investing $10 billion in Open AI, told investors growth from its AI services will be "gradual."

"With strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales and our Copilots reach general availability dates," Microsoft CFO Amy Hood said on the company's earnings call. "So for FY'24, the impact will be weighted towards [the second half of the 2024 fiscal year]."

The tempered expected timeline sent Microsoft stock down as much as 4%.

Still, companies like Meta (META) and Alphabet (GOOG, GOOGL) were eager to tout AI investments during their quarterly reports last week.

And shares of both companies were summarily rewarded — Meta stock rose about 9% in the two days following its report, while Alphabet stock has gained 10% since the company reported earnings.

"It's not going to be overnight," Jefferies senior analyst Brent Thill told Yahoo Finance Live. "We're not, all of a sudden, going to move into the AI house. It's going to be a slow, steady adoption pace, and it's not going to — none of these products are really available yet until the end of the year in a big way.

"So we're going to see this as a more of a '24 event than a '23 event. So again, the wave is coming. But the hype is, I think, a little maybe too strong."

Last quarter, everyone had an AI strategy; even Coca-Cola (KO) spent part of its earnings call discussing it. This quarter, things are different.

Uber (UBER), which considers itself an innovative technology company, didn't even mention artificial intelligence in its earnings call until prompted. And even then, Uber CEO Dara Khosrowshahi didn't flex that ChatGPT-style AI will be a game changer for Uber.

"The large language models are more focused on text and pictures, et cetera, kind of guessing what the next appropriate answer is," Khosrowshahi said. "So they're not as extensible at this point into problems like pricing, matching, routing."

Meta, Alphabet still all-in on AI

Even with this relative caution from some tech leaders — or perhaps just a more sober view — there remain leaders like Meta who are already seeing AI solutions drive further engagement on their platforms, leading to increased revenues.

"Investments that we've made over the years in AI, including the billions of dollars we've spent on AI infrastructure, are clearly paying off across our ranking and recommendation systems and improving engagement and monetization," Meta CEO Mark Zuckerberg told investors last week.

Zuckerberg added that recommended content from accounts that users don't follow, which uses AI to generate content for users, is the fastest-growing content category on Facebook's feed.

Then there is Alphabet (GOOG, GOOGL), which some viewed as behind Microsoft in the AI battle earlier this year, but showed growth in this arena that was cheered by investors.

Despite Microsoft's insistence on waging a search war with Google using a ChatGPT integration in Bing, Google reported search revenue up 5% in the quarter.

"Our new generative AI offerings are expanding our total addressable market and winning new customers. We are seeing strong demand for the more than 80 models, including third-party and popular open-source in our Vertex, Search, and conversational AI platforms, with the number of customers growing more than 15x from April to June," Alphabet CEO Sundar Pichai said on the earnings call.

"OpenAI's existential threat to [Google's] Search business has awakened the sleeping giant," Needham analyst Laura Martin wrote in a note after the company's earnings call.

Martin estimated in her note that 90% of Pichai's comments on the company's call centered around generative AI. Analysis from Bespoke Investment Group showed Alphabet mentioned AI 66 times on this quarter's earnings call, up from from 58 last quarter and just 8 mentions in the first quarter of 2021.

Alphabet also flaunted YouTube ad growth of 4% and flat cloud revenue growth after having seen declines in this unit during the prior two quarters.

Snap struggles remain

Then there are companies who are still talking about their AI prospects, though investors aren't yet buying it.

In its investor letter, Snap (SNAP) highlighted that more than 150 million people have used its My AI chatbot to send 10 billion messages.

"We are seeing really high volumes of conversations with My AI to provide clear intent signals about products and services that our community is interested in and, of course, that has obvious ramifications for our ad platform and monetization over time," Snap CFO Derek Andersen told investors.

"So given the results we're seeing today, we do expect to make a further step-up in investment here in Q3 to accelerate the progress on what we're seeing here."

Still, Snap stock tumbled more than 14% after the company reported its second straight quarter of revenue declines.

"The challenge here is Snap's investments to rebuild its (direct response) ad platform and offer newer products and tools to improve engagement are resulting in higher (artificial intelligence and machine learning) costs pressuring gross margins, EBITDA, and free-cash-flow," Citi managing director of internet equity research Ron Josey wrote after Snap earnings.

In other words, Snap's expected revenues from AI aren't yet large enough to offset its spending. And whether it is a bet on AI or any other new initiative, if investors don't believe in an investment, then management has a problem."

MY COMMENT

Lazy CEO's that want to juice stock performance are jumping on this bandwagon. There might be gains but they will be short lived. ONLY time will tell who is actually making money from AI and who is just full of BS.

Until you see ACTUAL results dont get your hopes up.

 

Speaking of big tech and AI.

Google reshuffles Assistant unit, lays off some staffers, to ‘supercharge’ products with A.I.

https://www.cnbc.com/2023/08/01/goo...ant-unit-again-to-supercharge-it-with-ai.html

"Key Points

• Google announced a reorganization within its Assistant unit as the company races to prioritize advancements in artificial intelligence, according to internal emails.
• There were at least a dozen organizational changes to Google’s voice technology units, and some layoffs.
• Executives said they want to “supercharge” Assistant using Google’s new large language model, Palm 2."

 

I had a moderate loss kind of day today in my ten stocks. ALL were down except for MSFT. I also lagged the SP500 today by 0.34%.

Basically a go nowhere day for the markets. BUT....that happens. The markets need to ebb and flow and that means down days at times.....sometimes often. That is how a BULL MARKET works.

A day for the markets and investors to consolidate gains and build up for the next upward move.....when it comes....no one knows, but it will come.

 

HERE is the June job openings story......I have been mostly IGNORING it all day.

Job market is undergoing an ‘immaculate cooling,’ says economist — but there are pockets of heat

https://www.cnbc.com/2023/08/01/job-market-is-cooling-says-economist-but-pockets-of-heat-remain.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• The job market is gradually cooling as metrics like job openings and “quits” fall from record highs.
• Workers, who enjoyed unprecedented bargaining power in 2021 and 2022, are seeing that leverage start to wane, economists said.
• However, there are pockets of strength. That means it’s now more important for job seekers to understand what’s going on in their industry, one expert said.

The job market is cooling. Though it remains strong — and workers still have leverage — their power doesn’t seem to be as broad based as it was earlier in the pandemic, say labor experts.

These days, whether employees still enjoy considerable leverage — to find a new job or get a raise, for example — “depends on what industry workers are in,” said Daniel Zhao, lead economist at career site Glassdoor.

“That’s a different response than might have been given in 2021 or 2022, when the market seemed to be hot all over the place,” Zhao said.

Job openings surged to historic highs as the U.S. economy started to reopen after a pandemic-era lull. Americans, buoyed by their job prospects, also quit their jobs at a record pace, a trend that came to be known as the “great resignation.” Wage growth surged at the fastest rate in decades amid stiff competition for labor; layoffs dropped to historic lows.

Put simply: Workers across the economy enjoyed unprecedented job security.

Evidence suggests that dynamic is gradually easing.

Job openings fell slightly in June to about 9.6 million — still well above historical norms but down from the peak of more than 12 million in March 2022, according to the monthly Job Openings and Labor Turnover Survey issued Tuesday.

About 150 million jobs will shift to older workers by 2030, says Bain & Company

The “quits” rate — the number of people quitting in June as a share of total employment — is hovering near its pre-pandemic level. And the rate of hiring among employers declined in June to 3.8%, roughly in line with pre-pandemic levels, according to the JOLTS report.

“The JOLTS data are consistent with further immaculate cooling of the labor market,” wrote Jason Furman, an economist at Harvard University and former chair of the White House Council of Economic Advisers during the Obama administration.

The Federal Reserve has raised borrowing costs aggressively — with the aim of slowing the economy and inflation — and banks have tightened lending, all of which ultimately affect the job market.

Conditions have ‘normalized substantially’

Though conditions have “normalized substantially” since the great resignation’s peak from mid-2021 to mid-2022, 8% more employees are quitting their jobs each month than before the pandemic, and layoffs remain 22% lower, said Julia Pollak, chief economist at ZipRecruiter.

Now, worker leverage is more industry specific, economists said.

For example, the finance and insurance sector in June saw job openings below their pre-pandemic level in February 2020.

Conversely, “arts, entertainment and recreation” saw record low layoffs and record high quits, Pollak said.

“Workers are in high demand across the sector as Americans flood back to concerts, baseball games and movie theaters,” Pollak wrote. “Quits in the industry hit an all-time high, and workers found it easier to switch into better jobs.”

Job openings across state and local government are also at all-time highs, suggesting municipalities “are now on a hiring spree” now that competition for workers is a bit less intense in the private sector, she said.

“Certain industries are still very hot,” Zhao said. “It’s more important for job seekers to understand what’s going on in their industry than it might have been a year or two ago.”"

MY COMMENT

Who knows how accurate any of this information is. Who knows if these 9.6 MILLION job openings really exist....for the typical job hunter.

One thing is sure.....GOVERNMENT.....is on a typical BLOATED BINGE. They NEVER get smaller......they have no natural predator.

 

I do agree with this little article.

Stocks could have a record year thanks to a resilient economy, strategist says

https://finance.yahoo.com/news/stoc...ilient-economy-strategist-says-192348947.html

(BOLD is my opinion OR what I consider important content)

"The stock market may have more room to run in 2023.

Oppenheimer Asset Management boosted its S&P 500 year-end price target to 4,900 from 4,400 in a new note on Tuesday, citing recent strong data readings on the US economy. That would bring a new record end to the year for the S&P 500, which has never closed out a calendar year above 4,766.

"Our price target assumes that the resilience exhibited by the US economy will continue along with a high level of sensitivity by the Federal Reserve in raising its benchmark rates further to slow the inflation rate toward its 2% target," Oppenheimer chief investment strategist John Stoltzfus wrote.

Economic data over the last month has painted a more positive picture of the US economy than many thought more than halfway through 2023. Inflation is cooling while Americans continue to gain jobs at a healthy clip,and consumers have remained resilient.

The upbeat prints have the Federal Reserve no longer predicting a recession in 2023 and officials more optimistic about the Fed's rate hiking cycle ending with a "soft landing," where inflation stabilizes without economic growth taking a significant downturn. Stoltzfus believes the current economic outlook brings the Fed closer to a "pause or an end than it has been since March 2022."

The strong economic data has investors feeling more confident in the Fed's path forward, which has helped send stocks higher. The sectors that have benefited from the optimism have shifted, too.

After Tech and Communications services led the "Magnificent Seven"-driven rally to start 2023, all 11 sectors are positive over the last two months. Cyclical sectors like Materials (XLB) and Industrials (XLI) are now up more than 14% this year. This, Stoltzfussaid,brings the breadth to the market rally many strategists had been calling for earlier this year and could give stocks the "legs to run higher into 2024."

"In our view, sector performance continues to suggest where the market wants to go despite fears of recession, inflation, aggressive monetary policy, and problems earlier this year among some regional banks," Stoltzfus wrote.

Other strategists have boosted their price targets in the last several months with hopes that a soft landing in sight and inflation cooling could serve as a tailwind for stocks to rise higher. In early July, Fundstrat's Tom Lee called for the S&P 500 to close at 4,825 by the end of 2023.

"I know this sounds counterintuitive since we had no 'recession' nor 'Fed cutting rates,' but we have had a huge decline in inflation, and as we argued for most of 2022, the inflation war is the war the Fed is waging and seemingly winning," Lee wrote on July 3, before the most recent prints on inflation.

On Monday, Citi also boosted its full-year outlook on the S&P 500 due to an upbeat stance on the economy. Citi upped its 2023 S&P 500 closing price to 4,600 from 4,000 and its mid-2024 target to 5,000 from 4,400.

"The near-term hurdles we envisioned headed into Q3 are now behind," Citi managing director Scott Chronert wrote. "The new targets reflect increased probability of a soft landing in our scenario approach."

Still, there are worries that the "last mile" to fight inflation will take longer than many expect. After all, the Fed's own inflation projections don't show it reaching its target 2% inflation rate until 2025.

Strategists worry if inflation remains sticky, or even reaccelerates, then more rate hikes may be on the horizon.

"Positive news on growth and inflation are fueling optimism for a soft-landing scenario in which inflation returns to target, providing space for DM central banks to ease," JPMorgan chief market strategist Marko Kolanovic wrote on Monday. "We remain skeptical of this outcome, however, anticipating the inflation decline to prove incomplete, leaving restrictive policies in place that should increase private sector vulnerabilities and end the global expansion.""

MY COMMENT

I do agree with the positive view of good returns for the rest of the year.

BUT......if we do not get that result.......is irrelevant to me since I am changing nothing in terms of my portfolio or strategy. I will simply remain a long term investor with my usual portfolio model.

the amrkets are very strong and in a very good place right now.

 

HERE.....is my prediction for the SP500 by year end.......5050. In other words a gain of 10% from the current level.

I base this on the the markets continuing to plod along to the UP side.....plus....some time before the end of the year one or two nice extended RALLIES.

 

A total joke on the markets. I assume they will also downgrade every other country in the world.....especially everyone's favorite....China.

Fitch downgrades U.S. long-term rating to AA+ from AAA

https://www.cnbc.com/2023/08/01/fitch-downgrades-us-long-term-ratings-to-aa-from-aaa.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA.
• The agency had placed the country’s rating on negative watch in May, citing the debt ceiling fight in Washington.
• “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.
• U.S. stock futures opened lower Tuesday evening after the downgrade.

Fitch ‘vying for credibility’ with U.S. rating downgrade, says Moneta CIO Aoifinn Devitt

Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, pointing to “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden.

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” said Fitch.

U.S. stock futures opened lower after the rating agency issued its downgrade, with Dow futures sliding about 100 points.

In May, the agency placed the nation’s AAA rating on negative watch, blaming the debt ceiling fight. At the time, lawmakers in Washington butted heads over an agreement that would keep the federal government from running out of money. President Joe Biden signed the debt ceiling bill on June 2, just days away from the “X-date” on June 5.

The country’s recent debt limit feud was mentioned again in Tuesday’s downgrade.

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the ratings agency said.

Fitch also highlighted the rising general government deficit, which it anticipates will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022. “Cuts to non-defense discretionary spending (15% of total federal spending) as agreed in the Fiscal Responsibility Act offer only a modest improvement to the medium-term fiscal outlook,” Fitch said.

The agency also noted that a combination of tightening credit conditions, weakening business investment and a slowdown in consumption could lead the economy into a “mild” recession in the fourth quarter of 2023 and first quarter of next year.

The White House disagreed with Fitch’s downgrade. “It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” press secretary Karine Jean-Pierre said.

This isn’t the first time a rating agency has downgraded the U.S. Standard & Poor’s cut the nation’s credit rating to AA+ from AAA in 2011 after Washington managed to avoid a default. At the time, the agency highlighted political risk as part of its reasoning."

MY COMMENT

LOL......the daily DRAMA......as if it matters. I remember very well the last time this happened in 2011. Same BS.

In the long run a totally meaningless event for investors. the average man on the street does not and never will even be aware this happened. In terms of day to day life of most people......NOTHING.

For the markets this is like a .....BLACK GNAT......perhaps a day of drama....that's about all. (Apologies to the black swans out there.)

 

No doubt the media will have a field day over this.....for one day. Tomorrow we move on.....back to earnings.

Anyone that thinks this has any real meaning......well.....you are welcome to invest in the debt of any other country in the world....especially China.

Our debt is and remains the GOLD STANDARD.......the sought after SAFE HAVEN.....for the entire world.

 

I like this little article.

A Gap That Isn’t Worth Minding Much

https://www.fisherinvestments.com/e...commentary/a-gap-that-isnt-worth-minding-much

(BOLD is my opinion OR what I consider important content)

"Are stocks still worth the added risk? A prominent piece in Monday’s Wall Street Journal explored the “no” argument, citing the dwindling gap between the S&P 500’s earnings yield and 10-year government bond yields. This gap, known as the equity-risk premium, theoretically represents how much stocks compensate investors for taking extra risk versus staid Treasurys. It also happens to be at its lowest in over 20 years, leading some to question the young bull market’s staying power—and others to argue the signal is mostly noise. We are inclined to agree with the latter viewpoint. Here are four charts and some words to show you why.

The equity-risk premium is straight out of finance textbooks, but we don’t hold that against it—it can actually show some useful things about sentiment. Stocks’ earnings yield—the inverse of the price-to-earnings (P/E) ratio—is a nifty, theoretical, back-of-the-envelope estimate of the long-term return you would get, excluding dividends, if earnings stayed constant. Obviously, it is not a real-world return, because stocks do pay dividends, earnings fluctuate every quarter—and usually grow over time. It also doesn’t predict stock returns because, like the P/E ratio, it is a widely known derivative of past performance—priced in, already happened. However, like P/Es, it can hint at sentiment. And when compared to bond yields, it can show how sentiment toward stocks compares to bonds.

Where things run aground is when people start looking at earnings yields and the equity-risk premium compared to the long-term average and start making mean-reversion arguments. As in, the gap is so wide stocks have to rise or fall a certain amount to get to parity or the long-term average. Or, the gap is so narrow stocks must be running out of gas—as some argue today. Tied to that is the simple hypothesis that with earnings yields quite low right now, stocks don’t have much to offer.

Whenever we see blanket statements like this, we like testing them. So let us test! Exhibit 1 shows the difference between the S&P 500’s 12-month forward earnings yield and 10-year US Treasury yields since the end of 1995. You will see bull markets with low and negative spreads, bull markets with middling spreads and bull markets with high spreads. You will also see bear markets with low or negative spreads, rising spreads and falling spreads. To us, all this proves is that the equity-risk premium isn’t predictive. Stocks and bonds have different drivers. Interest rates just aren’t everything for markets. It is that simple.

Exhibit 1: A Long Look at the Equity-Risk Premium


Source: FactSet, as of 7/31/2023. S&P 500 12-month forward earnings yield and 10-year US Treasury yield (constant maturity), 12/31/1995 – 7/28/2023.

Exhibit 2 provides another way to see this by adding the S&P 500’s 12-month forward returns to the mix. As you will see, the low and negative spreads in the late 1990s preceded good returns as well as the 2000 – 2002 bear market. In the 2010s, there were multiple points at which a healthy equity-risk premium preceded negative stock returns. Here, too, there isn’t much evidence of predictive power.

Exhibit 2: A Long Look at the Equity-risk Premium and Forward Stock Returns


Source: FactSet, as of 7/31/2023. S&P 500 12-month forward earnings yield, 10-year US Treasury yield (constant maturity) and S&P 500 total return index, 12/31/1995 – 7/28/2023.

Then again, the equity-risk premium claims to say something about stock returns relative to bonds, so let us see if relative returns are more telling. Exhibit 3 replaces forward stock returns with the difference between the S&P 500’s 12-month forward return and the ICE BofA US 7 – 10-year Treasury Index’s 12-month forward return. That is, the margin by which stocks out- or underperformed bonds on a total return basis over the next year. It probably doesn’t surprise you to see stocks trailed bonds more often than not during bear markets. But you might be surprised to see several points in the 2010s where stocks lagged bonds even though the equity-risk premium said they should be leading. Similarly, the late 1990s’ collapsed spreads preceded plenty of stock outperformance.

Exhibit 3: A Long Look at the Equity-risk Premium and Forward Relative Returns


Source: FactSet, as of 7/31/2023. S&P 500 12-month forward earnings yield, 10-year US Treasury yield (constant maturity), S&P 500 total return index and ICE BofA US 7 – 10-year Treasury total return index, 12/31/1995 – 7/28/2023.

For grins, we also ran a version of this analysis with 24-month forward returns to see if that smoothed out some of the noise. It did, to an extent, but the counterpoints to the conventional wisdom remained.

Exhibit 4: A Long Look at the Equity-risk Premium and Slightly Longer Forward Relative Returns


Source: FactSet, as of 7/31/2023. S&P 500 12-month forward earnings yield, 10-year US Treasury yield (constant maturity), S&P 500 total return index and ICE BofA US 7 – 10-year Treasury total return index, 12/31/1995 – 7/28/2023.

Therefore, we think it is an error to draw sweeping conclusions from today’s narrow spread—especially when you consider why it has collapsed. On the bond side, yields are still up tied to Fed hikes and inflation sentiment. On the stock side, we are nine and a half months into a young bull market, which is unfolding like bull markets usually do, with stocks rising before earnings recover. This is just stocks’ normal pre-pricing and pre-telling behavior. Last year, they pre-priced the forthcoming earnings decline, then they got it out of their system and started pre-telling the eventual recovery. But parallel to that, the actual earnings decline has unfolded. Therefore, the P in the P/E ratio is up while the E is down. A higher P/E means a lower earnings yield, just from new bull market skew. As earnings eventually recover, it should lower the P/E and raise the earnings yield even if stock prices keep rising, as has happened in the past. Presuming 10-year yields don’t spike again (and with inflation slowing, we don’t see much likelihood they will), that points to a widening equity-risk premium amid a broader bull market.

Not that this would be predictive! It might point to and influence improving sentiment, but that is about it. But it would also debunk today’s claim that stocks must sink for the spread to widen again."

MY COMMENT

NO....this sort of economic BS is not predictive for stocks or the current bull market. In fact most people never have any awareness about this sort of attempt to pin economic theoretical BS onto stock investing.

You know......no matteer how hard everyone tries to find some indicator that predicts the markets......it is ALL simply a big waste of time. Number one for any investor......what really matters is simply the SPECIFIC companies and funds that you hold......NOT.....some overall indicator. Number two....it is all about fundamentals and earnings and business results.