What will the Fed and Jerome Powell do next week?
Jittery U.S. investors are still in “bad news is good news” mode because they want to see interest rates decline. And they expect to get what they want, as shown by the inverse yield curve.
Two-year U.S. Treasury notes
were yielding 4.22% early Friday, while 10-year Treasury notes
were yielding 3.56%. A lower long-term interest rate means investors expect to profit when a slowing economy causes the Federal Reserve to change its policy and push interest rates down. Bond prices move in the opposite direction and long-term prices are more sensitive.
The 10-year yield has declined from 3.88% at the end of 2022, as the flow of economic data supports the notion that inflation is slowing.
The Fed’s main policy tool is the short-term federal-funds rate, which was in a range of 0% to 0.25% at the end of 2021. The target range was increased by 25 basis points in March, then 50 basis points in May, then 75 basis points after each of the next four policy meetings through November, after which the pace slowed to a 50 basis point increase in December.
And now the consensus among economists polled by The Wall Street Journal is for the Federal Open Market Committee to slow the pace to a 0.25% on Wednesday, following its next two-day policy meeting. But what may be more important is what Federal Reserve Chairman Jerome Powell has to say after the policy announcement, as explained by Greg Robb.
Some economists believe the U.S. is already in a recession, as Jeffry Bartash reports.
More on the Fed and economic developments:
Not so fast — tech stock investors might be playing chicken with the Fed
Check out the action:
The Invesco QQQ Trust has fallen 26% since the end of 2021, but it has rallied 10% so far in 2023.
Through Thursday, the Invesco QQQ Trust
which tracks the Nasdaq-100 Index
(the largest 100 nonfinancial stocks in the full Nasdaq Composite Index
) was up 10% for 2023, following a 33% decline in 2022, with dividends reivnvested.
Some professional investors believe the market has turned for tech stocks too early, as William Watts explains.
ETF Wrap: QQQ is bleeding assets, but are ETF investors ‘finally bailing’ on growth stocks just as tech stocks jump in 2023?
More: Jeremy Grantham says ‘easiest leg’ of stock-market bubble burst is over. Here’s what’s next.
Investors, analysts and even the company’s executives cannot predict when Intel will see brighter days.
Shares of Intel
were up 14% for 2023 through the close on Jan. 26, but that was before the chip maker reported fourth-quarter results that were much worse than analysts had expected, and trumped that bad news with a dismal outlook for the first quarter.
Therese Poletti said Intel’s 2022 performance was its worst in more than 20 years, as the company’s executives couldn’t point to when the company’s revenue decline may be reversed.
A look at Intel’s dividend math before the fourth-quarter results didn’t inspire confidence that it could maintain a payout with a yield of about 5%. The current dividend amounts to $6 billion a year in payouts, while analysts expect the company’s free cash flow to run negative for 2023 and 2024.
During the company’s earnings conference call late on Jan. 26, Cowen analyst Matthew Ramsay asked about “the security” of the dividend, and whether the payout was “sort of a sacrosanct thing.” Intel CFO David Zinser’s response was slippery: “I’d just say, the board, management, we take a very disciplined approach to the capital allocation strategy and we’re going to remain committed to being very prudent around how we allocate capital for the owners and we are committed to maintaining a competitive dividend,” according to a transcript provided by FactSet.
Read on: ‘It’s not an earnings release, it’s a crime scene.’ Analysts, and social media, react to Intel’s awful quarter
More about tech earnings, with a tip
The movement of Microsoft’s stock after hours on Jan. 24 underlined the importance of listening to a company’s earnings call.
If you are tracking a company closely, you should listen to its earnings conference call after it reports quarterly results.
Shares of Microsoft initially headed higher after the company reported its quarterly earnings on Jan. 24. But the action reversed once the company’s executives began talking about developments in its cloud business during the subsequent call with analysts.
The bear case for stocks
Technical factors indicate we’re still in a bear market for stocks, according to Jeffrey Bierman.
Jeffrey Bierman, a stock trader with decades of experience, shares his views about why we’re still in a bear market for stocks in a Q&A with Michael Sincere. The two following sections fit in with his market thesis.
Maybe investors should still think about value stocks
Bierman said, “Value dominates in a bear market, and growth dominates in a bull market.”
During 2022, the benchmark S&P 500
declined 18.1%, while the S&P 500 Growth Index was down 29% and the S&P 500 Value Index was down only 5%, all with dividends reinvested, according to FactSet.
Value stocks — those of mature, slower-growing but steady companies that trade relatively low to expected earnings — may continue to be a haven for investors with no faith in a broad U.S. rally.
Bill Nygren, who co-manages the Oakmark Fund
shares five stock-selection tactics and six value stock picks with Michael Brush.
How about some investment income?
Bierman also said investors should be looking to generate income during a bear market. “If you can get 4% for a bond with half the risk of the S&P 500, then it pays to buy bonds because the yields are secure and volatility is lower,” he said.
What if you wish to generate more income than you can with Treasury bonds while also pursing long-term growth in the stock market? Here’s an exchange-traded fund with a high monthly dividend that is designed to be less volatile than the S&P 500.
MarketWatch Metrics — Housing by the numbers
MarketWatch Metrics is a new column that can show you how to make use of data when making financial decisions. This week Katie Marriner shares data from the National Association of Homebuilders that shows how many people are “priced out” of the mortgage loan market as home prices rise.
Will home prices drop where you live?
Home sales tumbled last year, but prices didn’t, in part because so many people who had locked-in low-rate mortgage loans knew better than to budge. But now Fannie Mae has lifted its estimates for home-price declines in 2023 and 2024. In an interview with Aarthi Swaminathan, Fannie’s chief economist Doug Duncan surveys the market and shares warnings signs that can point to a decline of home prices in your city.
‘Absolutely no money’
Getty Images for WICT
It can be difficult to put certain concepts into words, but Suze Orman summed up many peoples’ financial prospects in a CNBC interview this week: “Most of America today has absolutely no money, if you look at it,” she said, citing research by SecureSave, a company she co-founded.
According to a SecureSave survey, two-thirds of Americans would be unable to foot the bill for a $400 emergency. You may not be part of the two-thirds, but this information might help in your own discussions about personal finance with family and friends.
Meanwhile, here’s what Orman is doing with her own money.
How to get divorced
If you are getting divorced, it will be much easier if both parties cooperate to ease the financial pain.
The emotional impact of a divorce can be devastating, but the financial complications can be maddening. Beth Pinsker looks into all the financial aspects that need to be considered when making the big split.
A coming attraction from Kimberly-Clark that will “blow your mind”
Kimberly-Clark makes Huggies and has many other popular consumer brands. The company expects to bring something new to the changing table in the second half of 2023.
Getty Images for Huggies
makes Scott bath tissue, Huggies diapers and has many other popular brands of consumer products, including Kleenex and Depend. The company disappointed investors with its 2023 guidance, but CEO Michael Hsu was excited about a new product release coming in the second half of the year. He minced no words during a conference call with analysts on Jan. 25.
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