Treading Indices

As the earnings season winds down, with 79% of reporting companies besting expectations, investors and traders have been extremely critical this quarter. And resulting markets have reacted ‘stubbornly’ barely showing any upwind movement. Companies, according to FactSet, have seen their stock regress, dropping 0.5% “during the two days before and after the released reports. Surprisingly, over the past five years, the average change for a companies’ stock over this period has been a 1% gain on positive numbers.” With a few ‘major’ earnings reports due in the coming weeks, the overall ‘earnings season’, this quarter was overwhelmingly on the ‘upside’ (79%). Of reported companies, you would think it would signal a ‘bullish’ market…yet this year is a contradiction year, with many ‘side attractions’ to dissuade the investor and trader.

Rebound…Monday opened positive after a profit-taking previous week. Investors and traders were looking at upcoming inflation ‘numbers,’ due Thursday, expected to offer some preview of what the Fed is thinking. New York Fed President, John Williams (an integral voting member) and Governor Michelle Bowman have suggested more interest rate hikes ‘might’ be needed to force inflation down, ultimately to the 2% range. Capping the day, the Dow Jones Industrial Average surged 407 points, while the S&P 500 and Nasdaq Composite were up 40 points and 85 points respectively. A noteworthy company, Berkshire-Hathaway rose 3.4% to a record setting high, reflecting a massive $10 billion profit quarter, with the stock finishing at a whopping $551,920, up $18,220. Stocks came under pressure Tuesday, as serious worries about bank stability, amongst regional banks, (regarding the Moody report) and the Chinese economic slowdown cautioned the overall market. As Fitch downgraded the U.S Government to a AA+ (a click down), for the next three years, the lingering negative effect is still ‘marking’ the market. Stocks again on Wednesday fell, with much apprehension about the upcoming release Thursday of the CPI (Consumer Price Index).

The CPI, indeed rose slightly 0.2% up over last month, on Thursday’s morning announcement. All three indices jumped up, with the Nasdaq Composite leading the way, up 0.8%. After 13 months of retreating inflation, it edged a slight bit higher. Senior economist Lydia Bousser said: “The July CPI report offered convincing evidence that inflation pressures are abating.”

The once backbone of U.S. merchandising is fast becoming obsolete, with malls nationwide losing major tenets, waste lands of vacant stores, and investment gone sour. Mall real estate valuations have spiraled downward, falling significantly the past ten years, and more rapidly the last 5 years. Recent sales of malls have been ‘pennies-on-dollar, with case in point:Crystal Mall of Waterford, Ct., had an appraised valuation of $153 million in 2012, selling recently in a foreclosure auction for $9.5 million, another mall in Muncie, Indiana, appraised at $73 million in 2014, is now worth $6 million, with no buying interest. Online shopping has taken over, scooping mall sales and what is left of downtowns. The ease of buying from home and having the item delivered ‘right-now’ has taken over. One only has to look at Amazon, the ‘new all-everything supplier’ in the U.S.

RUMBLINGS ON THE STREET

Randall W. Forsyth, Writer of “UP & DOWN WALL STREET” of Barron’s “The problem with long-term U.S. bonds isn’t so much their quality, as the Fitch downgrade suggests, as the quantity needed to fund Washington’s widening budget gap, especially as the normalization of interest rates further adds to the cost. Market players are making that point, and thus the news.”

Dana M. Peterson, chief economist at the Conference Board, Barron’s “A collapse in housing activity and year-on-year declines in home prices in response to tighter Fed policy have also reversed the tide of owners’ real estate equity, minimizing the amount available for home equity loans to cushion spending. And any new loans will cost substantially more, given 5.25 percentage points of interest-rate hiked.”

Jim Caron, chief investment officer of the Portfolio Solutions Group at Morgan Stanley Investment Management, WSJ “The massive inversion that we’ve had for a long period of time was all predicated on the fact that you were going to get a hard landing and that owning long-duration bonds as the way to protect you,” said Mr. Caron. “Now what the market’s saying is, well, if you’re not going to get a hard landing then why would I want to own 10-year notes.”

Doug Bycoff, chief investment officer at the Bycoff Group, Barron’s “The market’s looking at 2024. If we get a 5% pullback, we’re going to be waiting to pounce.”