The Long Term Investor

As I said above.

Stocks Get Hit as War Jitters Fuel Rush to Bonds: Markets Wrap

https://finance.yahoo.com/news/asia-open-mixed-tech-rally-222955657.html

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

"(Bloomberg) -- The financial world was roiled by a flare-up in geopolitical risks that sent stocks sliding — while spurring a flight to the safest corners of the market such as bonds and the dollar. Oil rose.

Equities saw their worst day since January after a news report that Israel was bracing for an attack by Iran on government targets. Approximately 40 launches were identified crossing from Lebanese territory, some of which were intercepted, the Israel Defense Forces wrote in a post on X. US President Joe Biden said he expects Iran will attack Israel sooner rather than later — and his message to Iran is “don’t” do it.

Wall Street’s “fear gauge” — the VIX — spiked to levels last seen in October.

To Matt Maley at Miller Tabak, investors have been much too complacent about geopolitical issues.

“Since gold and oil have been pricing in a meaningful impact on the marketplace from this crisis, it’s not out of the question that the stock market will follow those other markets and see an outsized reaction before long,” Maley noted.

The S&P 500 fell 1.5% Friday, with banks and chipmakers leading losses. The gauge posted its biggest weekly drop in 2024. Treasury 10-year yields sank seven basis points to 4.52%. Andrew Brenner at NatAlliance Securities also cited “massive short covering” and rate locking before an expected flurry of debt issuance by banks after earnings.

The dollar notched its best week since September 2022. Brent oil settled above $90. Gold topped the $2,400-an-ounce mark before erasing gains.

As Iran Threatens Attack, These Are Israel’s Defenses: QuickTake

Treasuries rallied sharply, following the market’s worst two days since February, in which yields reached year-to-date highs after inflation readings savaged expectations for Federal Reserve interest-rate cuts this year. Two-year yields — which briefly topped 5% this week — plunged on Friday.

“Risk was off the menu on Friday,” said Fawad Razaqzada at City Index and Forex.com. “Investors were lighting up on risk exposure ahead of the weekend, fearing risk assets could gap lower should something happen.”

A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank analysts including Carsten Fritsch.

Escalating geopolitical tensions — most recently in the Middle East, but also including attacks on Russian energy infrastructure by Ukraine — have spurred bullish activity in the oil options market. There’s been elevated buying of call options — which profit when prices rise — in recent days, with implied volatility jumping.

Jose Torres at Interactive Brokers says the latest developments illustrate how investor sentiment and high equity valuations are vulnerable to geopolitical conflicts, persistent inflation and oil prices.

“Investors have pushed back their expectations for the start of the Fed’s easing cycle — with geopolitics possibly replacing the Fed as one of the market’s top volatility influencers,” he noted.

As Wall Street’s earnings season kicked off, big banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation.

JPMorgan Chase & Co. and Wells Fargo & Co. both reported net interest income — the earnings they generate from lending — that missed estimates amid increasing funding costs. Citigroup Inc.’s profit topped forecasts as corporations tapped markets for financing and consumers leaned on credit cards.

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s Chief Executive Officer Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.

Meantime, the latest economic data did little to alter the reduced risk appetite on Friday — with consumer sentiment down as inflation expectations rose.

BlackRock Inc. Chief Executive Officer Larry Fink said he expects the Fed to cut rates twice at the most this year, and that it will be difficult for the central bank to curb inflation.

Fink told CNBC he would “call it a day and a win” if the inflation rate gets to between 2.8% and 3%, which is above the Fed’s 2% target.

Pacific Investment Management Co. warned that the Fed could pivot back toward interest rate hikes if US inflation moves higher — with the asset manager preferring to buy bonds in other markets.

“If inflation starts to re-emerge then there’s a possibility that the Fed hikes instead of delivering any cuts,” Mohit Mittal, chief investment officer for core strategies at Pimco, said in an interview on Bloomberg Television.

Traders also kept an eye on the latest Fedspeak. A slew of officials emphasized Friday that there is no urgency to lower interest rates, pointing to still-elevated inflation and a robust labor market.

That included comments from both the Boston Fed’s Susan Collins as well as San Francisco’s Mary Daly. Atlanta’s Raphael Bostic repeated his view for one rate cut toward the end of the year, and Kansas City’s Jeffrey Schmid noted he prefers a “patient” approach to reductions.

While shifting expectations around the timing and pace of the first cuts are likely to create further yield volatility in the near term, UBS’s Chief Investment Office thinks the more important point is that the US central bank remains set to start easing this year.

With a low probability of the Fed needing to hike rates further, CIO maintains their positive outlook on quality bonds.

“We continue to favor quality bonds in our global portfolios and recommend investors lock in attractive yields before rates fall this year,” said Solita Marcelli at UBS Global Wealth Management. “We like those with 1–10-year duration, as well as sustainable bonds.”

“We also think investors should consider an active exposure to fixed income to improve diversification,” she concluded."

MY COMMENT

What country is the chief exporter of terrorism and disruption in the world......Iran. Where do they get all their funding.....why from OUR GOVERNMENT....of course. We have given them access to BILLIONS over the past years and have allowed them back into the world oil markets.

At the same time....perhaps it is time for them to directly attack Israel. It might be the worlds best shot at being done with them once and for all.....if we can just stay out of the way, support Israel, and let Israel do what they do.

As to the markets.....I dont see this as much of a threat to them......at least for more than a few weeks or so. I see this market reaction as mostly....RIDICULOUS.

 

As to the Iran fear mongering.....simply par for the course. Now if you want to see some REAL fear mongering I refer you to the headline below.

"NVIDIA IS IN A BUBBLE, STOCKS WILL DISAPPOINT FOR A DECADE, AND A RECESSION WILL STRIKE THIS YEAR, MARKETS GURU WARNS."

MY COMMENT

Now there is someone that really knows how to fear monger. I hate to even post the link....this is so ridiculous.... but here you go.

https://finance.yahoo.com/news/nvidia-bubble-stocks-disappoint-decade-170002409.html

 

Of course this little article about Iran was put up about 20 minutes before I posted it. Why it was not included in market discussion prior to that....I have no idea.

I heard it this morning on Varney for about five seconds and than nothing over the rest of the day. You would think that some expert somewhere would have put this out there as an explanation for the market drop today. BUT......NOOOOOOOOOOO. They were all probably too busy making money trading the market drop today........to mention the insider reason that it was happening.

 

NO.....I am not concerned with this happening. It is absolutely NORMAL.....in any market year.

Stocks are undergoing a needed, and (so far) modest, pullback in a longer-term bull market

https://www.cnbc.com/2024/04/13/sto...st-pullback-in-a-longer-term-bull-market.html

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

"Screenwriters refer to “second-act problems.” After the characters and the stakes of a story are established in the first act, things can get a bit messy and confusing as the central conflict is escalated before pushing toward an ultimate resolution.

The markets have entered such a muddled middle phase after a first quarter in which the plot lines were neat and tidy and the rally free of complications.

The first act of 2024 had the consensus embrace a story of brisk economic growth, a strong and rebalancing labor market, ebbing inflation, an upswing in earnings growth, repeated record highs in stock prices and the prospect of a Federal Reserve looking to trim rates into all this.

Much of this remains either true or plausible, still. Yet a third straight warmer-than-expected CPI reading last week reawakened bond-market volatility, gave an extra push to a revived reflation-asset trade and resurfaced concerns that imperfect tradeoffs might need to be made among growth, inflation, valuation and Fed policy.

The result was a 1.5-percent weekly drop in the S&P 500, with Friday’s setback exacerbated at least somewhat by a collective clenching-up of risk markets on some geopolitical worry.

Rally tested
A week after the S&P ended its first 2% dip in more than five months, an early hint of a potential change in market character, the index retreated to touch its 50-day moving average for the first time since November. It did, however, bounce off that line to close above it for the 110th straight session, according to Bespoke, making it one of the dozen or so longest such streaks in the past 80 years. Consider this test of the rally’s resilience ongoing rather than settled.



S&P 500 vs. its 50-day moving average
CNBC.com

I’ve repeatedly said this has not principally been a Fed-driven market, in the sense that it didn’t “need” rate cuts to happen soon or to be deep in order to stay supported given the otherwise sturdy macro. This doesn’t mean the market could easily shrug off the circumstances under which the Fed would retreat from its easing bias altogether this year.

That’s because the Fed merely needs inflation to settle down just a bit — even in a still-strong economy — in order to punctuate the tightening cycle with a “normalization” cut or two. So, if there are no cuts, it means inflation will be more stubborn, which probably means longer-term yields would keep threatening to pinch equity progress.

Remember, the pivot toward an easing bias by Chair Jerome Powell late last year was so avidly embraced by the market because it meant the Fed no longer saw the need to smother growth in order to suppress inflation.

Before then, Powell was routinely saying the economy needed to run “below potential for a sustained period” to corral inflation. He would frequently point out that services-sector inflation was really about wage growth, so the job market might need to soften up a lot to drag down prices there.

This is why the appreciable drop in inflation by November — a steeper decline than the Fed had been forecasting — immediately freed Wall Street to treat good economic news as good news for stocks. This dynamic hasn’t been reversed, but the signal has grown a bit staticky, draining some conviction from the macro bullish case with the S&P 500 still 24% above the October low.

Jumping yields, gold
The jumpiness in the bond market manifests some of this dissonance. The ICE BofA MOVE Index, the VIX of the Treasury market, so to speak, bottomed at a two-year low on March 28, the date of the last all-time high in the S&P 500, and has shot higher since as the 10-year yield vaulted 4.5%, before settling a bit with that geopolitical bid on Friday.

A torrent of hedging activity also washed over the equity-option and VIX futures market, a sign that traders are eager to pay up to protect gains. Gold has gone nearly vertical this month, with stupendous volumes in the SPDR Gold Shares (GLD) ETF

Friday just as the gold price put in a possible short-term buying crescendo, rushing from $2,400 an ounce to $2,440 before recoiling to $2,360.

This twitchy cross-asset action at some point could reflect a helpful upwelling of trader anxiety and a rebuilding of a wall of worry, though the middle of the squall is no occasion for such a confident forecast.

In such a period of flux, when it’s a struggle to bridge the story from setup to satisfying conclusion, it helps to return to the outline by stacking up what we know, or are pretty sure of, about the current backdrop.

Bull market’s backdrop
First, it’s a bull market, and not a particularly mature or excessively generous one yet. Whether one dates it to the ultimate October 2022 S&P 500 low or, as some prefer, to last October when market breadth bottomed, the trend is higher, the overshoots tend to happen to the upside, the pullbacks are ultimately contained and buyable.

The rare persistence and breadth of the rally (up 10% two straight quarters, no 2% dip in five months) from October 2023 through March strongly suggests an ultimate peak has not been reached, based on any number of studies of past markets that behaved similarly. Even so, as I wrote here two weeks ago when I recited some of those stats, “In those prior 11 times the S&P entered the second quarter up at least 10%, the smallest pullback the rest of the year was 4%, and those were in the 1960s.” The smallest setback in recent decades during such years was more than 6%.

We’re now in a 2.7% pullback. It’s safe to surmise that at some point the market was going to seize on some set of credible excuses to undergo a decent little shakeout at minimum.

Not to suggest the stickiness in CPI inflation is a mere empty excuse, but some perspective on the inflation picture is worth a mention. There should still be lagging disinflation in shelter running through coming reports.

And more crucially, the Fed’s 2% inflation target is based on the PCE measure, whose consumption-based weightings have taken it lower than CPI. Economists see the core PCE annualized gain coming in around 2.8% (the report is due in two weeks). The Fed members’ latest median forecast for core PCE at year-end was 2.6%, and their median expected number of rate cuts this year was three. This is not a vast distance to travel to set the stage for one of those “optional” rate cuts to occur.

The rethink of the Fed path has done nothing to interrupt the corporate-earnings recovery now anticipated, and probably required in order to validate current full valuations. FactSet’s John Butters figures first-quarter S&P 500 earnings growth will exceed 7% over the prior year, based strictly on the average margin of outperformance versus forecasts seen over the past four reporting periods.

The market reactions will be noisy and will expose pockets of “excess belief” among investors in certain favorite themes. When Fastenal fell short of expectations last Thursday, shares of this play on big industrial-capex themes fell 6.5% and dragged down WW Grainger 3.5%. Yet both stocks are still outperforming the S&P this year.

As Citi US equity strategist Scott Chronert put it on Friday, “Markets have priced in a higher probability of the Goldilocks scenario playing out this year, introducing more downside risk to ‘good but not good enough’ news… A buying opportunity may present as we progress through the reporting period if we see consistent positive surprises followed up with a rightsizing of market implied growth expectations.”

Tactically, with short-term momentum broken, a reset of attitudes is underway. The S&P 500 closed Friday at exactly the same level of five weeks earlier, on March 8 – which was perhaps the moment of maximum investor confidence in the “we can have it all” thesis. The day before, Powell had said the Fed was “not far” from being able to trim rates, then on the 8th a near-perfect employment report cemented the soft-landing consensus.

The market, in its way, is doubling back to test these premises."

MY COMMENT

I tend to agree with all the above. Great common sense in this little article.

In fact this is a necessary part of a good BULL MARKET. If stocks simply skyrocketed up I would be very concerned with over-exuberance. This is exactly what should happen in a bull market that is still at most in middle age.

 

I also like this little article although it is somewhat........obtuse.

‘Buffett really was not a great stock picker’: Financial researcher Larry Swedroe on how investors can emulate the billionaire investo

https://www.cnbc.com/2024/04/13/buf...-great-stock-picker-swedroe-on-investing.html

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

"Larry Swedroe, who is considered one of the market’s most esteemed researchers, thinks Warren Buffett’s investment style doesn’t work well anymore.

He cites the number of professional Wall Street firms and hedge funds now participating in the market.

“Warren Buffett was generally considered the greatest stock picker of all time. And, what we have learned in the academic research is Warren Buffett really was not a great stock picker at all,” Swedroe told CNBC’s “ETF Edge” this week. “What Warren Buffett’s ‘secret sauce’ was, he figured out 50, 60 years before all the academics what these factors were that allowed you to earn excess returns.”

Swedroe indicated index funds can help investors trying to mimic Buffett’s performance.

″[Investor] Cliff Asness and the team at AQR did some great research and showed that what you accounted for the leverage Buffett applied through his reinsurance company. If you bought an index of stocks that had these same characteristics, you would have matched Buffett’s returns virtually,” said Swedroe. “Now today, every investor can own through ETFs or mutual funds the same types of stocks that Buffett has bought through companies that apply this academic research — companies like Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect and a few others.”

Swedroe is the author and co-author of almost 20 books — including “Enrich Your Future - The Keys to Successful Investing” released in February.

In an email to CNBC, he called it “a collection of stories and analogies ... that help investors understand how markets really work, how prices are set, why it is so hard to persistently outperform through active management [stock picking and market timing,] and how human nature leads us to make investment mistakes [and how to avoid them].”

During his “ETF Edge” interview,′ Swedroe added investors can also benefit from momentum trading. He contends market timing and stock picking often don’t factor into long-term success.

“Momentum certainly is a factor that has worked over the long term, although it does go through some long periods like everything else will underperform. But momentum does work,” said Swedroe, who’s also the head of economic and financial research at Buckingham Wealth Partners. “It’s purely systematic. Computers can run it, you don’t need to pay big fees and you can access it with cheap momentum.”

In his latest book, Swedroe likens the stock market to sports betting and active managers to bookies. He suggests more investors “play” —or invest — the more likely they are to underperform.

“Wall Street needs you to trade a lot so they can make a lot of money on bid offer spreads. Active managers make more money by getting you to believe that they’re likely to outperform,” said Swedroe. “It’s virtually impossible mathematically for that to happen because they just have higher expenses including higher taxes. They just need you to play, and so, you know, that’s why they tell you active management’s a winner’s game.”

‘Dumb retail money’
He sees active management getting more efficient in pulling in emotional investors – which he calls “dumb retail money.”

″[Emotional investors] do so poorly [that] they underperform the very funds they invest in because they get stock picking wrong and market timing wrong,” Swedroe said."

MY COMMENT

I agree with the above. What made BUFFETT a genius was perhaps not his stock picking.....but his ability to see the markets and reality in a way that others were not able to do. He basically created his own Index by buying various companies and large chunks of others.

He assembled an INDEX called....... BERKSHIRE HATHAWAY.... that was able to match and in some years beat the SP500 and than he allowed time.....and compounding....to do the rest. He was a very patient and long term investor. He basically did the same thing over, and over, and over, for his entire investing life. He did not change every time there was a new FAD....he had the strength and personal conviction to not care if he was in or out of style with the rest of the investing world.

This is BASICALLY what I have also tried to do in my method of BIG CAP CUTTING EDGE GROWTH STOCK long term investing.

I have part of my money in the SP500 and in the Fidelity Contra fund which tends to achieve about the same returns as the SP500.....perhaps a bit more long term. That gives me a good basic start with achieving good solid market matching returns.

My individual stocks......based on the criteria that I have listed in this thread many times....tend to outperform the SP500 since they are the cream of the crop of the SP500 and the out-performers in the index. I hold these items for the long term and allow compounding to do the rest.

Once in a while I will sell a stock that is not performing or add something to my stocks to try to stay relevant with the BIG CAP GROWTH KINGS of the SP500.

I try to avoid companies like banks, insurance and financial business, auto companies, oil companies, drug companies, etc, etc, that are boom and bust. I want long term, big moat winners.....the market cap growth kings of the SP500.

Once in a while when the markets are giving away money I will do a little bit of momentum trading....but my core portfolio and investing plan never changes.

I also agree that this is the greatest danger and the greatest TRAP to the average retail investor:

"The more investors “play” —or invest — the more likely they are to under-perform.

“Wall Street needs you to trade a lot so they can make a lot of money on bid offer spreads. Active managers make more money by getting you to believe that they’re likely to outperform,”......“It’s virtually impossible mathematically for that to happen because they just have higher expenses including higher taxes. They just need you to play, and so, you know, that’s why they tell you active management’s a winner’s game.”

He sees active management getting more efficient in pulling in emotional investors – which he calls “dumb retail money.”

 

I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 60% of the total portfolio and the fund side at about 40% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio.At the same time the funds double and triple up on my individual stock holdings............that I consider the BEST individual businesses in the WORLD.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Microsoft
Nvidia
Palantir (Junior position 104 shares)
Super Micro Computer (Junior position $50,000 start value)

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (74). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis."

 

Same old, same old tomorrow as we start a new week and enter the second half of April. We are closing in on being done with ONE THIRD of the year.

Earnings from more banks, Netflix, and retail sales: What to know this week

https://finance.yahoo.com/news/earn...l-sales-what-to-know-this-week-130004824.html

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

"Stocks slid over the past week as fears sticky inflation may prevent the Federal Reserve from cutting interest rates gripped markets.

For the week, the Nasdaq (^IXIC) fell nearly 0.6% while the benchmark S&P 500 (^GSPC) slid more than 1.6%. The Dow Jones Industrial Average (^DJI) sank almost 2.5%, driven by a slump in bank stocks on Friday as quarterly earnings reports failed to impress investors.

More updates on the state of corporate America will greet investors in the week ahead. Results from Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS) will round out earnings from big banks while reports from United Airlines (UAL) and Netflix (NFLX) also highlight the week.

In economic news, an update on retail sales in March is scheduled for Monday in what's expected to be an otherwise quiet week for economic data.

Rate cut hopes are fading

Last week we noted continued stronger-than-expected data from the labor market had an increasing number of economists questioning if the Federal Reserve will cut interest rates in June. After another week of inflation data that showed price increases aren't declining as quickly as many hoped, many economists now see the Fed holding rates steady until at least the fall.

The economics teams at Bank of America and Deutsche Bank, which had previously seen easing starting in the early summer, now believe the Fed will cut for the first time in December, meaning just one total cut for 2024.

"We no longer think policymakers will gain the confidence they need to start cutting in June," Bank of America US economist Michael Gapen wrote in a research note on Thursday. "We expect inflation to remain relatively firm in the near term. We are forecasting 0.25% m/m for core PCE in March and April. This will make a cut as early as June or September unlikely absent clear signs of labor market deterioration."

Consensus is now pricing in two interest rate cuts this year, per Bloomberg data. And Deutsche Bank chief US economist Matthew Luzzetti noted that even that more tempered outlook might not come to fruition in 2024.

"Further disappointing inflation data or an election outcome that delivers fiscal stimulus and / or policies that could lift inflation (e.g., trade or immigration policies) would argue for no rate cuts this year and into 2025," Luzzetti wrote.

Consumer report card

With consensus now seeing the Fed holding interest rates higher for longer, economists will continue to watch closely for any signs that the resilience in the US consumer is dwindling.

A fresh reading on that trend is set to greet investors on Monday with the March retail sales report. Economists expect that retail sales increased 0.4% in March from the prior month. This would extend the rebound seen in February after retail sales sank 1.1% in January.

"We do not think consumer spending is poised to slow meaningfully, especially as wage growth remains solid," Wells Fargo's economics team wrote in a note to clients. "Real-time credit card spending data show consumer outlays remaining above their pre-pandemic trend in March."

Bank earnings show guidance 'risk'

The first set of earnings from some of America's largest financial institutions did little to impress investors. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) all reported declining net interest income during their quarterly reports.

JPMorgan maintained its 2024 net interest income guidance of $90 billion, but analysts had expected guidance to increase in a range of $2-$3 billion, per CNBC.

"Markets have priced in a higher probability of the Goldilocks scenario playing out this year, introducing more downside risk to 'good but not good enough' news," Citi US equity strategist Scott Chronert wrote in a note to clients on Friday. "While very early, the first set of 1Q reports from the banks highlights this risk of guidance falling short of lofty implied growth expectations, even as the overall fundamental picture remains healthy."

More banks, including Goldman Sachs, Bank of America, and Morgan Stanley, are expected to report earnings early next week as investors continue to track how higher interest rates are impacting the financial services sector.

It's all about demand

Entering the first full week of quarterly updates for the first quarter, Wall Street strategists have their eyes on how specifically companies are driving earnings growth.

Over the past year, many companies utilized layoffs and other tactics to keep margin growth intact while demand lagged. Strategists are looking for that narrative to change this quarter for the market rally to continue and earnings growth to support recent signs of an accelerating US economy.

"You're kind of at the point of the cycle where you really need to start seeing revenue growth inflecting higher, and if you don't that's going to become more of an issue," Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance. "Companies that cut labor costs aggressively last year via layoffs, you can only do that for so long. Eventually you have to see actual demand come back into play."

S&P 500 revenue for the first quarter is expected grow 3.4%, below the 10-year average of 5.1%, per FactSet data.

Given the market's recent slump on fears inflation's downward path may have stalled and the Fed could cut rates less than expected, how this earnings season plays out will be increasingly "critical" for the market rally, according to BlackRock global chief investment strategist Wei Li.

"Earnings have come to the rescue because markets are up year to date, despite the hawkish repricing," Li told Yahoo Finance. "So we'll see if earnings will continue to come to the rescue of hawkish repricing, even as the bar has increased as well for earnings.""

MY COMMENT

No mention of geo-political risk in this little article. Obviously Israel is going to be on the top of the list of market factors for this week. It appears that Iran is done and their effort yielded nothing.

As to the week.....we continue with bank earnings. How the markets react to them gives us some clue how the "experts" and media are going to spin and play the earnings game. Other than that......they are not particularly relevant to non-bank shareholders since they are not much of an indication of how non-banks are going to do with earnings.

It will be interesting to see the March Retail Sales data. I think the consumer is holding up fine.....in spite of the price increases that are hammering people. The consumer has money and is going to spend it........but at some point.....if price increases do not end.....the consumer will have to slow down. Credit cards can only go so far.

As to the FED.....yeah....it is pretty clear that a June rate cut is off the table. I do think we are now down to only one or two cuts this year......and....even those will depend on the inflation data. If we see the current government win the election.....we will have much inflation potential going forward as the government STIMULUS continues to flow unabated. We are in a period the past 3+ years of some of the most MASSIVE government stimulus in history.

I am not expecting much this next week. I dont see anything that is going to be exciting for the markets. Probably a continuation of the listless, and at the same time, skittish market that we have been stuck in for the past month or so. When we will break this pattern is not known......it never is. Stocks will rally and continue the bull market at some point....but.....when is impossible to know. When it happens it will only be obvious in hindsight.

Hopefully some of the BIG earnings will give us some help. BUT....never discount the ability of the markets and the media to totally disrespect and ignore good earnings. As usual any and all earnings will be nit-picked to death and good earnings will be totally ignored due to the obsessive focus on guidance. Of course this is a vicious circle....or negative self fulfilling prophesy for the markets.....since companies (management) are often hesitant to be very positive with guidance.

All the above is mostly short term stuff. So for long term investors it will continue to be a case of simply waiting and doing nothing. We continue to steadily move toward mid year and year end as we are nearing the end of the first third of the year in a few weeks. As usual it will take COURAGE and PATIENCE to sit and do nothing.

 

Well said about the "experts" Smokie.

 

Earnings so far.....what little there has been:

"EARNINGS INSIGHT"

"Key Metrics

Earnings Scorecard: For Q1 2024 (with 6% of S&P 500 companies reporting actual results), 83% of S&P 500
companies have reported a positive EPS surprise and 53% of S&P 500 companies have reported a positive revenue
surprise.

Earnings Growth: For Q1 2024, the blended (year-over-year) earnings growth rate for the S&P 500 is 0.9%. If
0.9% is the actual growth rate for the quarter, it will mark the third-straight quarter of year-over-year earnings growth
for the index.

Earnings Revisions: On March 31, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q1
2024 was 3.4%. Four sectors are reporting (or are expected to report) lower earnings today (compared to March
31) due to negative EPS surprises and downward revisions to EPS estimates.

Earnings Guidance: For Q1 2024, 79 S&P 500 companies have issued negative EPS guidance and 33 S&P 500
companies have issued positive EPS guidance.

Valuation: The forward 12-month P/E ratio for the S&P 500 is 20.6. This P/E ratio is above the 5-year average
(19.1) and above the 10-year average (17.8)"

https://advantage.factset.com/hubfs...k/Earnings Insight/EarningsInsight_041224.pdf

 

Poor NIKE.....LOL. I saw this today in the Portland Oregonian newspaper site. This paper being the largest in Oregon is often a good news site for NIKE. When a CEO gets this sort of headline and......"unwavering support".....it is often the KISS OF DEATH. I wonder how long he has in the job?

"Phil Knight offers ‘unwavering support’ for Nike CEO John Donahoe, who faces pressure within and without."

 

A nice little rally today in spite of the Ten Year Treasury yield pushing above 4.6% and toward 4.7%. I expect we will see the usual mid morning weakness as profit takers come in as a result of the early gains.

 

I remember very well that up until the 1980's there were very few people in the USA that owned any stocks or funds. In my memory it was not until the advent of the IRA that people started to get into mutual funds. Before that time the percentage of Americans that owned any sort of stock based investment was extremely small. Buying a stock was simply not a consideration for the vast majority of the public. Here is some interesting history.

A Short History of Stocks

https://ritholtz.com/2024/04/a-short-history-of-stocks/

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

"Confused about where we are today?

A favorite exercise is to go back to first principles to consider how we got to where we are. (That is a favorite way to find fresh insights).

On the equity side, you have to go back a century or so. Equities were considered speculative endeavors, best suited for gamblers and punters. The exceptions? A handful of “Widows & Orphan” stocks, like Ma Bell, some railroads, utilities and the rare bank that was not suffering regular runs.

There were no disclosure rules, insider trading was rampant, and market manipulation the norm. Trading syndicates could make or break any stock, and rumors dominated the NYSE. It’s probably just the merest of coincidences that the 1929 crash and the Great Depression followed…

Soon after, World War 2 broke out; once that was resolved, 40 million GI’s returned home with cash in their pocket and the GI bill paying for college. The build-out of suburbia followed, along with the Interstate highway system, the electronics industry, automobile culture and even civilian aerospace. That powered the decades-long boom that came after the war.

In the 1960 and 70s, Merrill Lynch was bullish on America – they set their sales staff loose trying to sell the American dream to upper-middle class households. The technology didn’t really exist to easily track performance or costs – we simply took it on faith that equities would do well over the long haul.

Trading volumes increased dramatically. By 1968. the NYSE was averaging about $4 billion in unprocessed transactions. The solution? From June 12, 1968 to December 31, 1968, the exchange was closed on Wednesdays to allow the clerks to catch up with the orders.

Trading was expensive, and the clubby brokerage industry had long indulged the large institutions at the expense of individuals. That changed on May 1, 1975, when the Securities and Exchange Commission mandated a change in commission structures. Deregulating the brokerage industry, SEC allowed trading fees to be set by market competition for the first time in more than 180 years.

Costs continued to fall: Over the next 25 years, commissions would fall from about 1.0% of the value of a buy or sell to around 0.25% of stock value. They continued to drift lower, until 2019, when Schwab became the first major firm to offer free trading. And even still, fund fees and taxes remained a major cost element.

Vanguard launched in 1974, to surprisingly little notice. They slowly accumulated some assets, but hardly moved the needle on Wall Street. Few noticed what was to become a revolution in investing.

In 1978, Congress enacted Internal Revenue Code Section 401(k), which allowed tax-deferred savings through a company-administered plan. It was mostly ignored at the time.

A new bull market broke out in 1982. It was “Morning in America,” and stocks had become attractive to an increasing portion of savers here. Over the next 18 years, the Dow would gain about 1,000% — most of those gains came from multiple expansion.

Lower trading costs, a rampaging bull market, and tax-deferred investing led to millions of new entrants into markets.

Even still, most people only had a rough idea of how they were performing. CRSP data was around, but not widely available; Bloomberg terminals launched in 1981, but were expensive and oriented towards market professionals. Data was expensive, professional analysis complex, and only a handful of companies served individual investors. Founded in 1984, Morningstar would mail out hard copies of information on various Mutual Funds; ValueLine sent looseleaf binder pages on individual companies with regular updates about Stocks. That new information arrived through the mail, once a quarter or so. S&P had a similar service.

When you wanted to buy or sell, you would call your stock broker on the phone to place an order. Every thing was done slowly and manually.

But a small handful of academics had discovered that nearly all active fund managers were not earning their keep. Whatever gains they had over the benchmark were soon consumed by their relatively high costs. During the bull market, this was more or less ignored.

Fidelity’s Peter Lynch was a rock-star stock picker and crushed all benchmarks over the next dozen or so years. Lots of other active managers did well. But again, there simply wasn’t an easy way to compare professional fund managers performance over the long haul relative to fees commissions and taxes.

The 2000s saw a few major changes: Computers had become ubiquitous and relatively cheap, data became widely available and people soon found out how well their active managers had — or had not — done. Most of the hedge fund community would be revealed post-2009 as not worth their costs.

The 1980s and 90s was a fabulous wealth-creation machine, right up until the wheels fell off the bus. First the Dotcom implosion occurred; then a series of scandals and frauds were revealed: Merrill Lynch Orange County Bankruptcy, the mutual fund scandal, the analyst scandals, the NASD Arbitration fraud, the earnings manipulation scandals, the IPO spinning scandal. This is before we get to the many many accounting frauds: Worldcom, Enron, Tyco, etc. Then came the GFC, with the implosion of Lehman Brothers, AIG, Bear Stearns, and most of the rest of Wall Street.

Among all of this, the academic research soon made it very clear: Nearly all of active management was not generating enough Alpha to justify their fees. Best of luck to anyone trying to guess the 5% that were in advance.

This history taught the average Mom & Pop investor a few things:

First, both Wall Street and its self-regulation were not to be trusted. There simply were too many criminals allowed to rob, cheat, and steal unchecked, and without consequences. There is another post entirely to be written about the arbitration scandals of the 1990s, but when the self-regulators are the biggest thieves in the room, you have a lot more than a PR problem.

First, the scandals weighed on people’s minds, then came the Great Financial Crisis. For many, the Wall Street bailouts were the last straw.

It is not a coincidence that following the GFC, Vanguard and Blackrock soon crossed a trillion dollars in assets, then doubled in size, then doubled again. The patsies at the table soon figured out they did not want to play Wall Street’s games. Their solution was to own the market, and let someone else pay a high management fee.

MY COMMENT

Even as late as 1980 it was very rare for a regular American to own any sort of stock or fund investment. Opening a brokerage account was a pain. Brokers did not want to mess with small accounts. You had to either go in person or call to place an order. Small orders were discouraged.....it was the era of "round lots".....100 share orders.

I remember in the early 1980's business people that I knew going down to Merrill Lynch at lunch to watch the stock ticker. There was basically NO information other than quarterly reports. In the 1960's and 1970's I remember my mom going to the public library to look at company reports.

Basically the markets were for about 5010% of the population. No one cared because EVERY job had a pension...there was no need for the average person to invest.

Now? You better invest....you are on your own unless you are a government worker.

 

Two stories today that the markets are simply thumbing their noses at.

Treasury Yields Jump to New 2024 Highs After Hot US Retail Sales

https://finance.yahoo.com/news/treasury-yields-reach-2024-highs-124053715.html

and

Retail sales jumped 0.7% in March, much higher than expected

https://www.cnbc.com/2024/04/15/ret...rcent-in-march-much-higher-than-expected.html

 

This is actually probably a good thing....but the stock is not doing well today.

Tesla to lay off more than 10% of its staff, Electrek reports

https://finance.yahoo.com/news/1-tesla-lay-off-more-094932104.html

 

Here is the start to the day and the week.

Stocks rebound as investors shake off Mideast tensions, focus on earnings

https://finance.yahoo.com/news/stoc...ast-tensions-focus-on-earnings-133115235.html

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

"US stocks rose Monday as worries over the fallout from Iran's attack on Israel eased, allowing focus to return to earnings season and inflation risks to rate-cut hopes.

The S&P 500 (^GSPC) added roughly 0.5%, while the Dow Jones Industrial Average (^DJI) moved up 0.5%, or over 360 points, after ending the week with sharp losses. The tech-heavy Nasdaq Composite (^IXIC) was up 0.4%.

Focus is shifting as investors shrug off initial concerns of a full-blown war in the Middle East after Iran's direct missile and drone strike on Israel on Saturday. Efforts by the US to encourage Israel not to retaliate have helped settle nerves, in part given the well-telegraphed attack allowed damage to be contained.

Stocks have come under pressure in recent days as earnings season got off to a lackluster start and concerns persisted that inflation has stalled in cooling to the Federal Reserve's 2% target. Traders have scaled back bets on the depth of Fed interest-rate cuts this year in the face of disappointing economic data.

Retail sales in March increased 0.7% from the previous month, as consumers continued to spend despite a higher interest rate environment. The monthly reading topped economist expectations for a rise of 0.4%, according to Bloomberg data.

Goldman Sachs (GS) on Monday got this week's earnings off to an upbeat start, as investors look to corporate results to revive the early 2024 equity rally. Shares for the Wall Street lender rallied more than 5% after first-quarter profit jumped to beat estimates.

In commodities, oil prices fell more than 1% on Monday after rising ahead of Iran's air strike. West Texas Intermediate crude futures (CL=F) were trading around $85 a barrel, while Brent futures (BZ=F) neared the $90 mark.

Meanwhile, the 10-year Treasury yield (^TNX) added about 10 basis points to trade near 4.61%, coming back from a sharp fall on Friday to eye a return to last week's five-month high. Fellow safe haven gold (GC=F) slipped after gaining as much as 1.2% last week as Middle East tensions escalated."

MY COMMENT

Good old GS has kicked off a good rally today as earnings came in with a BIG BEAT. It will be nice if the markets can put their attention on what really matters....EARNINGS.

All the news items that drive markets other than earnings are simply short term noise. None of it will be remembered a month from now.