The Long Term Investor

I was talking about sentiment and "wall of worry" just a day or two ago.

What to Make of the Nascent High-Rate Fear Morph

https://www.fisherinvestments.com/e...at-to-make-of-the-nascent-highrate-fear-morph

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

Long-rate fears have a new target.

"We have written a lot about the sentiment phenomenon we call the Pessimism of Disbelief since this bull market began in October 2022—in a nutshell, it is the mentality that makes investors loath to acknowledge any good news. Even when big fears don’t come true, when the Pessimism of Disbelief reigns, folks don’t acknowledge it. Instead, the fear morphs and the wall of worry gets more bricks. The latest example, courtesy of Thursday’s Wall Street Journal, is the conversation surrounding small and large cap.

As the article notes, small cap (represented in this case by the S&P 600) is a smidge ahead of large cap (S&P 500) since this correction’s lowest point to date in late October, but large is still trouncing small on the year. All fair and factual. Here is where things get interesting: The piece pins small cap’s disappointing 2023 on high interest rates and warns more lackluster returns are in store. “About 40% of the companies in the S&P 600 have outstanding floating-rate debt with shorter maturities, compared with roughly 10% of companies in the S&P 500, according to the J.P. Morgan Equity Macro Research team. Even if the central bank is done raising interest rates, small-caps likely won’t see any relief from higher interest expenses until rates start falling. After that, there will be a lag because most of the floating-rate loans issued by public companies reset quarterly and are backward looking.” Meanwhile, it noted large firms “are generally more insulated, after many rushed to lock in low fixed rates in 2020 and 2021,” and quotes an analyst who describes their cash-rich balance sheets as a “moat.”

We think these are very salient observations about large firms—especially the growth-oriented giants in Tech and Tech-like industries. Funny thing: We have been pretty much alone making these same observations for the past year-plus while seemingly the entire world was busy arguing high rates were bad for growth stocks in general and Tech in particular. Ignoring those giant cash buffers and locked-in low rates, pundits argued high long rates rendered the companies’ future earnings less valuable, removing the rationale for high valuations. You can see our most recent rebuttal here.

And now, as the Journal piece notes, large firms have bounced and are still leading on the year. We would add that through yesterday’s close, S&P 500 Tech stocks are leading both the S&P 600 and S&P 500 Indexes since October’s low. But instead of couching this as a powerful counterpoint to the earlier high rates kill growth stocks worries, the article omits those prior fears entirely, cites growth firms’ plusses in passing, and zeroes in on long rates instead being bad for small cap. Rather than conceding the prior fear was false, the piece omits it and a new fear takes its place.

We point this out not as a giant we were right or to call out any paper or commentator in particular, but to show how much the narrative has changed without sentiment becoming materially sunnier. Instead we get the classic Pessimism of Disbelief fear morph—a good sign, in our view, that stocks have a nice big wall of worry to climb.

MY COMMENT

I like the above for two reasons.

First ..........the general commentary about sentiment, the media mavens and their opinions masquerading as news and fact, and the current nice "wall of worry". I welcome as big a "wall of worry" as they want to create.

I also like the other topic mentioned above....one that I have talked about many, many times in here.....the RIDICULOUS comments that the BIG CAP ICONIC TECH COMPANIES....are so sensitive to every little jump in interest rates. I have said the same thing many times.....and love the quote below:

"Funny thing: We have been pretty much alone making these same observations for the past year-plus while seemingly the entire world was busy arguing high rates were bad for growth stocks in general and Tech in particular. Ignoring those giant cash buffers and locked-in low rates, pundits argued high long rates rendered the companies’ future earnings less valuable, removing the rationale for high valuations."

How any of this IDIOCY gets to be common knowledge is beyond me. Sort of like all the coverage we now see about why the FED is not talking about cutting rates.

 

A nice open today. Although we have seen some "back-off" since. Of course NVDA is down today......as I expected. There will be a short time period now where the markets will digest where they are right now and into the future and consolidate the recent gains.

 

It appears that the OpenAI "stuff" has now been resolved. Of course.....Microsoft is the big winner....they are now locked in with this company in a much stronger position than before.

Microsoft exits OpenAI drama with 'one of best possible outcomes'

https://finance.yahoo.com/news/micr...-one-of-best-possible-outcomes-142944063.html

 

This was earlier in the day today....but the yield is currently unchanged. This topic and all the other general topics of interest to the short term markets are now strongly favoring the BULL MARKET.

10-year Treasury yield falls to two-month low, dips below 4.4%

https://www.cnbc.com/2023/11/22/us-treasury-yield-investors-weigh-interest-rate-path-ahead.html

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

"U.S. Treasury yields slipped Wednesday as investors considered what could be on the horizon for interest rates and the economy ahead of the Thanksgiving holiday.

The benchmark 10-year Treasury yield fell less than 1 basis point to 4.414%, after hitting 4.369%, its lowest level since Sept. 20. The 2-year note yields, meanwhile, rose by more than 3basis points to 4.917%.

Yields and prices move in opposite directions. One basis point equals 0.01%.

Bond markets did not react strongly to the weekly jobless claims numbers, which came in lower than expected. Initial jobless claims for the week ending Nov. 18 came in at 209,000, which was 20,000 less than a consensus estimate from Dow Jones and a drop from the prior week.

Meanwhile, the Federal Reserve released its latest meeting minutes on Tuesday, which did not suggest interest rate cuts will come soon. The minutes also noted that inflation remains too high above the Fed’s 2% target.

Data published since that meeting, which took place on Oct. 31 and Nov. 1, has however indicated that inflationary pressures are easing. The consumer price index reflected a 3.2% increase on an annual basis in October, which was below previous estimates.

That prompted many investors to believe the Fed is done hiking rates and raised questions about when rate cuts could begin, despite Fed officials remaining quiet on this topic.

One more Fed meeting is scheduled for December. Markets were last pricing in an almost 95% chance of rates being left unchanged then, according to CME Group’s FedWatch tool, which was slightly lower than before the Fed’s meeting minutes."

MY COMMENT

The good news continues. Even the FED news is generally positive......if you ignore their (FEDS) constant commentary to drive stocks lower and impact the economy........a foolish scheme that is not going to work.

 

Lots of profit taking in NVDA today. A reflection of the difference between being speculative and short term oriented.....and....long term.

I am seeing some nice positive articles about the NVDA earnings today. I expect that these earnings will be RESPECTED much more after a few days of the market digesting them.

 

Time to sit and listen to some market analysis and news on Varney......and let the markets settle in to the day.

 

I am having a nice STRONG day today. Seven of eight stocks up.....some of them.....strongly up, like AMZN and MSFT.

Unfortunately my one down stock....NVDA....is dragging my portfolio down today. I really dont mean "unfortunately"....I expected as much. I will take the gain in the seven....and...simply wait for the traders to be done with NVDA in a few days.

 

Here is where most of the focus in on NVDA:

"The stock market reaction to the report was muted, however, as the company noted new restrictions on chip exports to China would weigh on results.

"Our sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed approximately 20-25% of Data Center revenue over the past few quarters," Nvidia CFO Colette Kress said in a release.

"We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024,..."

What many sources leave off as they talk about this quote is the final few words:

"...though we believe the decline will be more than offset by strong growth in other regions."

https://finance.yahoo.com/news/nvid...-company-tempers-china-outlook-212952215.html

MY COMMENT

I expect that NVDA will come up with chip designs that satisfy the government restrictions regarding china. Even if they dont.....and without China.....they will still sell every single chip they are able to pump out.

 

A SMALL gain for me today.....but....at least I was in the green. NVDA was my only down stock today. They pulled me down since they are my largest holding by far....about twice the size of my other stocks.

The other seven were all NICELY in the green. In fact.....AMZN, MSFT, HD, and GOOGL....were all over +1%. COST also had a really good day in the neighborhood if about +0.82%.

I got beat by the SP500 today by 0.39%.

A great way to enter the Thanksgiving holiday.

 

HAPPY THANKSGIVING EVERYONE. I WILL SEE YOU ON THE OTHER SIDE....ON FRIDAY FOR THE SHORT TRADING DAY.

(I got both of my pecan pies made today, they are in the refrigerator and all ready to go.)

 

Kind of a BLAH but meaningless open today. In fact the entire day is probably meaningless. No one....is working on Wall Street today.....the day after TG. Today is a day for the AI TRADING PLATFORMS and the speculators. The market today will be extremely shallow and low volume.

A meaningless day.

 

At least as we enter the Holiday Season today we have a new fear mongering topic. I am so tired of the same od fear mongering topics.....so I welcome a new one.

The new topic that is picking up steam in the fear mongering world......the Holiday Retail expectations.

Of course according to all the experts the figures are going to be BAD. Consumers are worn out, dont have any money, are putting everything on credit cards, and are just not going to spend this year.

The good news.......the so called EXPERTS are usually....about 95% of the time it seems like.....WRONG.

My view just based on......"feelings".....that they are going to be wrong this year as usual. I think retail will do just fine....especially when you include online shopping. I think all the measures of SENTIMENT......are simply wrong and unreliable. When people answer these sorts of polls they repeat the media line....not their own actual situation.

One thing I am sure we will see......reports of drops in in-store sales. The media and others will report the actual in person retail shopping data.......and.....not include the online sales in what they report. In other words....we will see breathless headlines about the poor retail shopping season in-store.....but buried in the article......will be the data that online shopping was......in reality...... UP.

Oh well......at least it is nice to have a new fear mongering topic.....I am tired of the old ones.

 

In the end success in retail this Holiday Season will be on a company by company basis. It will all depend on execution and competent management.

 

I do like this little article.

Signs the S&P 500 rally is broadening beyond megacaps feed investor hopes

https://finance.yahoo.com/news/broadening-u-stock-rally-feeds-110424040.html

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

"NEW YORK (Reuters) — Signs the U.S. stock market rally is broadening from the so-called Magnificent Seven of mega-cap growth and technology companies is bolstering investor hopes for a rally through year-end.

Equities have risen sharply, with the S&P 500 up over 8% in November, on the cusp of a new high for 2023, fueled by falling Treasury yields and cooling inflation readings that could signal the end of Federal Reserve rate hikes. Yields fall when Treasury prices rise, and the lower returns on guaranteed fixed-income investments make stocks more appealing.

While some big investors are skeptical the rally amounts to more than just a year-end rebound, recent signs of market strength include gains in areas that have lagged this year.

In one encouraging sign, about 55% of the S&P 500 were trading above their 200-day moving averages as of Monday. That level breached 50% last week for the first time in nearly two months, according to LPL Financial.

Breadth is finally starting to broaden out to levels more commensurate with bull markets," said Adam Turnquist, chief technical strategist at LPL Financial. "This has been one of the keys to calling this recovery sustainable."

Equal weight

Among other signs, the equal-weight S&P 500 — a proxy for the average stock in the index — rose 3.24% last week. That was substantially more than the 2.24% rise for the market-cap weighted S&P 500, the biggest percentage point outperformance for the equal-weight index in nearly five months.

Even so, the S&P 500 equal-weight index has gained just 3% in 2023, against an 18% rise for the overall S&P 500 — on pace for the biggest such annual percentage-point gap in 25 years.

Much of that underperformance is due to the outsized gain in the Magnificent Seven stocks, which collectively hold a 28% weight in the S&P 500 index: Apple, Microsoft, Alphabet, Amazon, Nvdia, Meta Plaforms and Tesla. Overall, the group of stocks makes up nearly 50% of the weighting of the Nasdaq 100, which is up nearly 47% for the year to date.

Struggling small-cap and bank stocks have perked up, especially after last week's U.S. consumer price data for October was unchanged from the prior month.

The small-cap Russell 2000 is up 5.5% since the CPI data with the S&P 500 banks index up 6.5%, versus a 3% rise for the S&P 500. Year-to-date, the Russell 2000 is up 2%, while the S&P 500 banks index has fallen over 6%.

Mona Mahajan, senior investment strategist at Edward Jones, said an environment that could be conducive for a broadening of the rally "is starting to take shape."

“This environment where rates are cooling, inflation is moderating and the Fed is on the sidelines, that is typically a good backdrop for risk assets,” Mahajan said.

“Typically when rates start to move lower, you get valuation expansion and the areas that we could see some more meaningful valuation expansion is outside of large-cap tech,” she said.

The equal-weight S&P 500 is trading at a 5% discount to its 10-year average forward price-to-earnings ratio, according to Edward Jones.

Case against

Still, there are reasons to think that the market rally is not on the verge of a sustained broadening.

Investors will get further readings of consumer confidence and inflation next week. Stronger than expected data could spur a selloff in Treasuries, sending yields higher.

At the same time, the sharp rally in stocks for the week ended Nov. 17 was accompanied by high demand for upside call options, particularly in parts of the market that have underperformed this year, such as the small-caps focused iShares Russell 2000 ETF.

Some of that has already started to unwind. "We saw a huge pickup in expectations for IWM, but now those seem to have stabilized," said Steve Sosnick, chief strategist at Interactive Brokers.

The recent surge, which has pushed the broad S&P 500 up approximately 10% over the last three weeks, may not last as investors prepare to close their books for the year, said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management.

"A lot of good news is already priced in and investors may be reluctant to chase the rally," he said."

MY COMMENT

The last.......and most important.......first. This quote above:

"A lot of good news is already priced in and investors may be reluctant to chase the rally"

REAL INVESTORS do now "chase" rallies. They tend to be long term and this is simply short term behavior. This is TRADING......not INVESTING.....behavior.

This is part of the problem today. Articles like this one mix much short term "TRADING" content....under the topic of "INVESTING".

The other item above I find interesting is the comment that the "EQUAL WEIGHT SP500"....is only up by 3% year to date compared to the market cap weighted SP500 which is up by at least 18%.

I have seen much comment over the years about market cap weighting and much of it is vaguely negative....as if it is a bad thing. I call BS.....it is NOT a bad thing. I would NEVER own an equal weight average or Index. I want the winners to be emphasized in any Index I own. That guarantees that I will own....in my index.....the current winners.......at a higher level. That is exactly what I want as an Index investor.

 

Well today should be the last day of the HUGE earnings BEAT.....overhang for NVDA stock. I expect we will move on next week from the earnings topic. YES.....a HUGE BEAT even with outsize expectations.....can not satisfy the "experts" and the short term traders.

At least the past couple of days have been exact;y what you would expect. This is how the market works when you look at short term behavior. As I noted above....this is NOT "investor" behavior......this is "trader" behavior.

Now...one thing NVDA should be doing.....is a stock split. It is way past time for them to do a split. I would like to see either a 2 for 1 split.....on better.....a 3 for 1 split. This is how you reward your investors and drive the stock. AND....yes....it would open up the stock to more investors that are not willing to invest a few thousand dollars and just get 3-4 shares. This is a psychological barrier to ownership.

 

Not much going on in the markets about 1.5 hours in. Exactly what you would expect.