The Long Term Investor

AND....as a result of the above....more short term good news for investors.

Treasury yields retreat as weak retail sales raise concerns about consumer

https://www.cnbc.com/2024/06/18/treasury-yields-rise-ahead-of-may-retail-sales-data.html

MY COMMENT

Personally I think all the focus on day to day Ten Year yield is simply ridiculous. It is short term traders driving their trading and media BS for daily clicks. BUT....I will take it.....since the above is another good market indicator for stocks....in the extreme short term.......like.....one day.

 

AND.....we are open. With the DOW flat....the SP500 green.....and....the NASDAQ green a few minutes after the open.

Now.....that is really short term.......three minutes after the open....LOL

As to my expectations......another green close for at least the SP500 and the NASDAQ today.

 

I like this little article.

Investors can't afford to miss the AI rally: Morning Brief

https://finance.yahoo.com/news/inve...iss-the-ai-rally-morning-brief-100014639.html

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

"Wall Street strategists continue to chase the S&P 500 higher.

The latest? Julian Emanuel at Evercore ISI, who now sees the index rising to 6,000 by the end of this year amid an AI revolution still in its "early innings."

Emanuel sees earnings returning to growth this year and next, alongside stock market history that suggests valuations can remain elevated longer than investors expect, driving the index another 11% higher this year.

But the price targets and the market's path to them — in Evercore's bull scenario, the S&P 500 might reach 7,000 by the end of next year; in a bear scenario, we're back down to 4,750 — are less significant than the nudge this piece of research gives to all clients: You must have an answer when asked about your AI strategy.

For the last year, AI has been cited across the Street as the most important catalyst pushing markets higher. This came as the Federal Reserve delayed rate cuts, inflation has been slow to return to 2%, and the US economy outperformed expectations.

And as this bull market continues, Emanuel expects volatility to increase as AI becomes an even larger thematic driver for stocks.

"Convexity is a 'must own' in a Tech driven Bull Market that is going to get more volatile," Emanuel wrote. As a result, his team recommends a "strangle" options position on the Nasdaq, buying calls and puts at prices higher and lower than current prices, respectively.

Yet the details of this trade are less important than the thrust of Emanuel's reminder to clients.

Which is that you must have an AI trade.

The trade can be as simple as an options position that offers some upside reward and downside protection. Elsewhere, Emanuel's team mentions "AI Revolutionaries" and "Small Cap Standouts" as other possible portfolio tilts for the current environment.

As always, portfolio managers will work within their mandate to make the best decisions for clients. What any one strategist thinks about the S&P 500's direction in the next six months is just part of that calculation, now or at any other time.

What isn't practical, however, is to see yourself out of the AI discussion — to tell your stakeholders we're not interested, or not prepared, or not ready to find a way to bring AI into our process. For investors and everyone else.

When 2023 began, investors were bracing for recession and Wall Street was less than excited about the stock market's prospects. The surprising consensus that congealed among the investor class in late 2022 was that stocks would keep dropping in early '23 as the economy contracted. In the second half of the year, investors expected the market to rebound as the economy returned to growth.

Instead, the market ripped higher right from the get-go. AI took over the Street, while earnings, the lifeblood of long-term stock market returns, were flat.

Investors caught flat-footed in a rally fueled by the unexpected mania for chatbots, cloud storage, and massive amounts of computing power had some leeway to explain to clients why they hadn't foreseen the Nasdaq gaining 40%.

In June 2024, those excuses have worn thin."

MY COMMENT

NO.....I am not a fan of option trading for MOST investors including myself. BUT....I do strongly agree that just about any investor should have exposure to the AI BOOM. Of course this can be as sinple as owning the SP500 since ALL the big AI and tech stocks are strongly represented in the index.

 

WELL....that is about it for today. It will be another sit and wait, and do nothing, day for long term investors. It is nice to see a "normal" market again.

 

HERE is a little more light reading for any investor......I consider this "stuff".....long term market positive.

Market Concentration

https://ritholtz.com/2024/06/market-concentration/

The Great AI Retrenchment has begun
Further evidence that AGI is not imminent

https://garymarcus.substack.com/p/the-great-ai-retrenchment-has-begun

 

OK.....I am off to help my kid continue the new house move-in. Today is art hanging day.....my specialty.

 

I had a great day in the markets today. Five of nine stocks green.....and up pretty big....BOOM. I also beat the SP500 today by 1.25%.

It will be nice to take a little day off tomorrow for Juneteenth. It will also give the markets time to consolidate a bit and come back STRONG to end the week. ANOTHER....all time high for me today.

 

I will ride the NVDA wave for as long as possible...hopefully for years just like I did with MSFT. Speaking of MSFT....BUMMER for them.

Nvidia passes Microsoft in market cap to become most valuable public company

https://www.cnbc.com/2024/06/18/nvi...rket-cap-is-most-valuable-public-company.html

Key Comments

• Nvidia, up more than ninefold since 2022, surpassed Microsoft to become the most valuable public company in the world.
• The chipmaker passed the $3 trillion market cap mark in early June, to join Microsoft and Apple in that club.
• Nvidia is main beneficiary of the boom in generative artificial intelligence.

"Shares of the chipmaker climbed 3.6% on Tuesday, lifting the company’s market cap to $3.34 trillion, surpassing Microsoft, which is now valued at $3.32 trillion. Earlier this month, Nvidia hit $3 trillion for the first time, and passed Apple.

Nvidia shares are up more than 170% so far this year, and went a leg higher after the company reported first-quarter earnings in May. The stock has multiplied by more than ninefold since the end of 2022, a rise that’s coincided with the emergence of generative artificial intelligence."

MY COMMENT

Long live the new king. BUT...I still expect big things from AAPL and MSFT. I am sure these three GIANTS of the tech world will go back and forth as the largest for some time to come.

As to riding the wave.....I would rather error in favor of hanging on too long than bailing out too early....in this particular case. I believe there is GREAT potential for NVIDIA for at least the next 3-5 years and....."probably"....at least TEN years. Even after the HUGE run up ends they will still continue as one of the most dominant long term companies in the world.

 

More on the above.

Nvidia overtakes Microsoft as most valuable stock in the world

https://finance.yahoo.com/news/nvid...st-valuable-stock-in-the-world-172859451.html

 

I tend to agree with this....but....as a long term investor I really dont care much about the FED......or when they start to do cuts.

Why the Fed might need to 'get on with it' and cut rates

https://finance.yahoo.com/news/why-the-fed-might-need-to-get-on-with-it-and-cut-rates-100052243.html

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

"The Federal Reserve has projected just one interest rate cut this year. The latest round of monthly data has some economists worried it won't come soon enough.

On Tuesday, retail sales data for May revealed that the pace of consumer spending is cooling down from last year, easing concerns about an economy running too hot in the fight against inflation. In the labor market, while last month's job additions came in higher than expected, the unemployment rate hit 4%, its highest level since January 2022. Overall, Citi's Economic Surprise Index, which measures the extent to which data has come in better than forecast, is hovering near its lowest level in more than a year.

Inflation data for May, meanwhile, was more promising than expected. The headline Consumer Price Index (CPI) increased at its slowest pace since July 2022. When combining that data with a reading on wholesale prices in May, economists believe the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, increased at its slowest pace of the year during May.

With inflation falling and the economy slowing, Renaissance Macro's Neil Dutta believes it's time for the "Fed to get on with it" and begin cutting interest rates soon. This, Dutta says, will help protect the Fed's other mandate in addition to price stability: maximum employment.

"The momentum behind core inflation is probably going to continue softening from here," Dutta told Yahoo Finance. "Then I think for the Fed, the trade-offs with the labor market are becoming a little bit more onerous."

Dutta points out that any sign of weakness in the labor market has so far been regarded as a sign of rebalancing after the pandemic threw supply and demand out of whack.

Federal Reserve Chair Jerome Powell has acknowledged as much.

"We see gradual cooling, gradual moving toward better balance [in the labor market]," Federal Reserve Chair Jerome Powell said on June 12 after the central bank's most recent policy meeting. "We're monitoring it carefully for signs of something more than that, but we really don't see that."

But what concerns Dutta, and the economics team at Goldman Sachs, is where the data usually heads from here. The job openings rate is now in line with pre-pandemic levels. If it were to decline further, a pickup in the unemployment rate would usually accompany the downward trend, Dutta said, referencing the Beveridge curve.

As work from the Federal Reserve highlights, the dots on the Beveridge curve moving further along the right axis (as seen in the chart below highlighted in red) would come with diminished chances of a soft landing and, possibly, recession.

"I just don't think the Fed wants to really push the weakening in labor demand that much more," Dutta said.

He added, "The Fed knows that. It's not like the risk at this point is for the unemployment rate to unexpectedly go down. The most likely distribution of outcomes is that it's stable or it goes higher."

To be clear, Dutta and other economists are more concerned about how the economic data could spiral from here rather than where it sits today. Many aren't overly concerned about the current trends quite yet.

Deutsche Bank chief US economist Matthew Luzzetti told Yahoo Finance the "risks" in the labor market are there. But at this point, it looks more like the spending power of the US consumer is slowing toward a normal pace, not trending toward a drop-off.

"While there are some strains, particularly for parts of the households, I would be surprised if you saw a slowing in the labor market and a slowing in the consumer that was enough to get them to cut by September," Luzzetti said.

From a stock perspective, investors have taken the current Fed outlook in stride. The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) have been on a string of record closes. Three equity strategists just boosted their year-end outlooks for the S&P 500 as tech companies continue to perform better than expected.

But one of those strategists, Citi US equity strategist Scott Chronert, highlighted that the economy's "fraying" around the edges will continue to be a point of interest for investors moving forward after corporate executives were "cautiously optimistic" during first quarter earnings calls.

"We're going to be watching that pretty closely," Chronert told Yahoo Finance. "I think, in general, what we're going to see as we go into the Q2 reporting period is a little bit more evidence that the lagging effects of Fed rate hikes to this point are starting to weigh on fundamental activity. So, we have to be aware of that."

Some are worried that in exercising caution on inflation, the Fed could inadvertently wait too late to move and hurt the economy. With excess savings dwindling and credit card delinquencies rising, Allianz chief economic adviser Mohamed El-Erian told Yahoo Finance that small businesses and lower-income households, which are already struggling amid higher rates, could be left out to dry.

El-Erian argued that the balance of risks for the Fed if it waits until the end of the year to cut "is in favor of them being too late and the economy slowing more than it should.""

MY COMMENT

I do agree with most of the above....but do I really care.....no. Economist talk......is not.....investor talk.

As to inflation I would be more concerned with INSANE government spending on unproductive projects that simply do nothing but act as economic stimulus and cause inflation

 

One thing is sure....it will make for interesting watching.

Welcome to 'peak boomer' era: A wave of retirees is about to blow through their savings and cling to Social Security to stay afloat

https://finance.yahoo.com/news/welcome-peak-boomer-era-wave-180101941.html

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

"The youngest baby boomers are about to enter retirement — and most of them aren't financially prepared for this next stage of their life.

Beginning this year, over 30 million boomers born between 1959 to 1964 will start to turn 65, marking the "largest and final cohort" of that generation entering retirement, according to a report from the Alliance for Lifetime Income's Retirement Income Institute.

Many in this cohort, known as "peak boomers," are facing significant economic headwinds, the report said. It's what some have called the boomer retirement bomb — and it might be costly for the rest of the workers in the economy.

Through an analysis of data from the Federal Reserve and the University of Michigan Health and Retirement Study, the report found that 52.5% of peak boomers have $250,000 or less in assets, meaning that they'll likely deplete their savings and rely primarily on income from Social Security in retirement. Another 14.6% of that cohort have $500,000 or less in assets, meaning "nearly two-thirds will strain to meet their needs in retirement," the report said.

"America has never seen so many people reaching retirement age over a short period, and well over half of them will find it challenging to meet their needs through their retirements, let alone maintain their current standard of living," Robert Shapiro, an author of the report and the former Under Secretary of Commerce for Economic Affairs, said in a statement. "They lack the protected income that many older Boomers have from solid pensions or higher savings."

The peak boomers' retirement wave could also impact the overall US economy. The report projects that employers will have to replace as many as 14.8 million peak boomers — primarily in the manufacturing, healthcare, and education industries — which could decrease economic productivity.

On top of that, the generation's retirement is likely to have an impact on consumer spending. Using data from the Consumer Expenditure Survey, the report found that peak boomers will spend $204 billion less in 2032 than they did in 2022, with the transportation sector taking the biggest hit.

Still, as the report noted, younger employees are likely to fill some of the jobs that peak boomers will leave, and productivity will rise as technology advances.

The crisis is partially due to changes in how Americans save for retirement

Peak boomers entered the workforce just as retirement plans shifted away from defined benefit plans like pensions — which generally guarantee stable income and are employer-subsidized — to contribution plans like 401(k)s, which rely on workers to pay into them.

Of the different types of retirement-savings plans the report looked at, defined benefit pensions have the least disparities along racial, gender, and ethnicity lines (although there are significant disparities in annual payments) — but only 24% of peak boomers hold them, and even those plans are coming up against potential underfunding.

Already, many retirement-aged Americans are living on paltry incomes. A little over half of Americans over 65 live on incomes of $30,000 or less a year, per the Census Bureau's Current Population Survey, with the largest share living on $10,000 to $19,000. And, per Business Insider's calculations of CPS ASEC data, 79.2% of retirees receive some type of Social Security income.

Retirement-aged Americans, many of whom fall in that peak boomer category, previously told Business Insider that they might just have to continue working until they die or become infirm to stay afloat.

"Only the very wealthy are going to have any dignity in their old age," Pam, who is nearly 58, said. "And the rest of us are just going to pray that they can die while they still have a job because nobody wants to die on the street.""

MY COMMENT

Much fear mongering going on here. Somehow these people will muddle along......that is how it has always been.

It will be a good thing to get as many baby boomers as possible out of the productive work force. Let Gen Z and all the other generations take over and show what they can do. It will be an eye opener for employers and business. We will finally get to see how well the younger generations will do as the work force for the AMERICAN economy.

As to the poor later baby boomers and their lack of pensions.....cue.....the worlds smallest violin. Give me a break.....I dont know any older boomer that has a pension other than government workers. The real issue is that older boomers have a greater work and savings ethic than later boomers.

it will be very interesting to watch.

 

As to the above.....if you are young to middle age......take the lesson above to heart. Get with it....start to plan for your retirement as early as possible. Start to save and invest. No one is going to be there to save you when you get old and are looking at whether or not you can retire.

 

Seems like a Monday today with the little break we had yesterday. A good open for the SP500 and NASDAQ......now....lets build the green from here.

 

I dont use PE as an indicator.....although It is one item that I see in my fundamental review of a company.

The Backward Bias in Valuations
P/E ratios still aren’t predictive.

https://www.fisherinvestments.com/en-us/insights/market-commentary/the-backward-bias-in-valuations

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

"With stocks this expensive, don’t expect much from here. Variations of this sentence have made a comeback lately, all making the same point: Lofty price-to-earnings (P/E) ratios mean middling returns at best for the foreseeable future. Some of the more alarmist chatter uses the hopelessly flawed cyclically adjusted P/E, which compares stock prices to 10 years of inflation-adjusted earnings—bizarrely constructed into backward-looking uselessness. But even more traditional P/E ratios, like the 12-month trailing and forward varieties, are getting in on the act. We see some problems with the chatter.

At the highest level, P/E ratios are backward-looking. The 12-month trailing version—stock prices divided by the past year’s earnings—is obviously so. The 12-month forward version—stock prices compared to the next year’s earnings expectations—stealthily is too. Earnings expectations may try to look forward, but they are influenced by the recent past and shift up and down with prior results. And the numerator—stock prices—is inherently a snapshot of past performance. Which never predicts.

P/E fears’ flaws are more than just philosophical. As Exhibit 1 shows, P/Es often crest near stock market peaks. That is a big reason investors dislike high P/Es. But they also tend to spike early in new bull markets, with the effect pronounced by trailing P/Es (which we use here for their longer history). As a result, drawing big conclusions from a P/E’s level alone is a fool’s errand. The fact that this bull market isn’t yet two years old, young by historical standards, gives reason to pause, in our view.

Exhibit 1: A Long Look at Trailing P/Es and Stocks


Source: FactSet, as of 6/17/2024. S&P 500 total return index level and 12-month trailing P/E ratio, monthly, 3/31/1990 – 5/31/2024.

There is a simple reason for these quirky wobbles: Earnings. People always seem to forget there is a denominator in the P/E ratio, focusing on the top half—stock prices—only. But the bottom half fluctuates, growing in bull markets and getting pounded in bear markets.

This makes P/Es messy because forward-looking stocks move first. In bear markets, stocks fall as the market prices in the increasing likelihood of an earnings downturn. That downturn usually doesn’t arrive until the bear market has been underway for some time. Sometimes, it doesn’t begin until stocks—still forward-looking—have already rebounded. In either case, though, stocks normally bounce before earnings do.

Hence, early in a bull market, you get this weird divide where stocks are rising while earnings fall. This skews P/Es—the numerator jumps while the denominator sinks. It doesn’t mean stocks are overvalued. It is just math.

This math weirdness seems like where we are today, more or less. Exhibit 2 shows P/Es again, but this time with trailing 12-month earnings per share. The bear market divergence is plain as day, as is P/Es’ history of falling as earnings recover in bull markets.

Exhibit 2: A Long Look at Trailing P/Es and Earnings Per Share


Source: FactSet, as of 6/17/2024. S&P 500 12-month trailing P/E ratio and 12-month trailing earnings per share, monthly, 3/31/1990 – 5/31/2024.

We will concede that the present still looks odd, largely due to earnings’ astronomical jump in 2021 and early 2022—and the fact that they didn’t fall much after that. They still look lofty, to the naked eye, giving the perception of limited upside. But earnings, like stock prices, aren’t inflation-adjusted. That big spike? It was inflation lifting profits and keeping them elevated once trouble set in. It doesn’t represent profits coming too far, too fast and running out of room. It is just one of many ways to see how the economy swallowed a big, one-time bulge of price increases. That has largely worked its way through the system by now, creating a new, higher base for society to continue growing from.

In any case, even with the inflation bump, earnings still haven’t recovered to prior highs. Meanwhile, stocks—yes, still forward-looking—keep charting new territory. In our view, markets are pricing in the high likelihood of more earnings growth to come, which is a solid fundamental reason for them to be up.

Forward-looking factors support more earnings growth from here. Business investment is rising, with US nonresidential fixed investment climbing 4.5% in 2023 and another 3.3% annualized in Q1 2024. Companies are plowing profits back into their core businesses, launching new projects. Even with high rates, larger firms are able to self-finance growth by tapping their robust balance sheets. Some use cash on hand, while others use their size and scale to get cheaper funding through capital markets than the banks would offer. As these funds go to new business lines, products, facilities and the like, they open new avenues for earnings to grow.

This switch from two years of defense to offense is likely only just getting underway, in our view. With high rates still dominating the conversation and valuation fears now percolating, it is also underappreciated. Unloved earnings growth is the best kind—it means stocks should have plenty of positive surprises to price in. No matter what headlines argue P/Es imply today."

MY COMMENT

I really like this little article.

First I am not a fan of "MAGIC INDICATORS" that investors use to guide their thinking and behavior. I dont think there is any way one or a group of "indicators" can give anyone a good, valid, picture of where a BUSINESS....emphasis on BUSINESS rather than "stock"....is going in the near, medium, or long term.

I see the following as the guts of this article and the current bull market:

"......stocks normally bounce before earnings do."

"Forward-looking factors support more earnings growth from here...."

"....even with the inflation bump, earnings still haven’t recovered to prior highs..."

I believe the current BULL MARKET is looking good and if things continue as they are....has a long way to go.

 

As to the above......I am a strong advocate of FUNDAMENTAL ANALYSIS when looking at a new stock. As I said I am NOT a fan of rote formulas or indicators like PE, etc, etc, etc. To me this is simply borderline Technical analysis disguised as math and fundamental analysis and has no predictive indications for how a real world business is going to perform. The stock follows the business results not the other way around.

When I am looking at a new stock.....I look at the business. I do that by pulling up ALL the fundamental business results for at the minimum the past FIVE years and if available TEN years.

This is my go-to site for that data:

https://www.macrotrends.net/

What I do with that data is go through the financials line by line comparing five to ten years. I look for trends, growth, issues, odd aberrations in the data, changes from year to year that seem abnormal, etc, etc, etc. I want to evaluate how that company is functioning financially for at least five to ten years. I want to see a healthy, growing, business.

If I see something that raises an issue with me....like a big jump in debt.....or a big drop in revenue, etc, etc, etc.....I go to the internet and try to find out the reason.

In other words I do what I would call a HOLISTIC.....and at the same time a very focused...... review of the entire company financials....from the standpoint of an operating business.

At the same time, I will go online and pull up more traditional, math based, financial formula based, analysis of the stock and financials.....put together by some analyst. There is no need for "ME" to crunch these numbers since they are available online.

In spite of the above I tend to put MORE confidence in other more abstract indicators when I look at a company. This is where I use my business instincts. I consider in my personal way....management, marketing, the company products and business, momentum of the business, what customers are saying and indicating, the dominance of the company and their product, and many other sorts of categories that I just instinctively think about in my head.

In other words my off the cuff view of where the business is headed....especially long term. Peter Lynch was very good at this sort of mental analysis to find good long term strong momentum and strong growth companies.

 

The nice market today.

Stock market today: S&P 500 crosses 5,500 level as Nvidia surge continues

https://finance.yahoo.com/news/stoc...evel-as-nvidia-surge-continues-133102435.html