Recession – Event Planer http://eventplaner.net/ Tue, 17 May 2022 19:37:34 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://eventplaner.net/wp-content/uploads/2021/03/cropped-favicon-32x32.jpg Recession – Event Planer http://eventplaner.net/ 32 32 Recession risk “rises” — especially for 2023 https://eventplaner.net/recession-risk-rises-especially-for-2023/ Tue, 17 May 2022 19:37:34 +0000 https://eventplaner.net/recession-risk-rises-especially-for-2023/

As the market decline continues after a hawkish statement from the Federal Reserve on Tuesday afternoon, economists have lowered their forecasts for the economy in 2023.

“While we don’t necessarily have a recession in our forecast, we do see the risk of a recession increasing,” said Beth Ann Bovino, chief U.S. economist for S&P Global Ratings. “We now have it at around 30%; we see the risk becoming much more significant in 2023 when these cumulative Fed rate hikes to attack inflation begin to weigh on mortgage payments and monthly payments.

Bovino joined Yahoo Finance Live on Tuesday to discuss recession risks in light of the Federal Reserve’s ongoing rate hikes as well as the latest economic data on the consumer economy.

“Right now people are still sitting on nice savings,” she said. “And the reason for that is that people spent so many months in quarantine, a lot of people didn’t spend and didn’t come out.”

With demand for services picking up, she noted, consumers are starting to shift away from goods and spend more money on in-person services that have been limited or canceled due to the pandemic.

SAN FRANCISCO, CALIFORNIA - MAY 12: United Airlines customers prepare to check in for flights at San Francisco International Airport on May 12, 2022 in San Francisco, California.  According to a Bureau of Labor Statistics report, airline fares jumped 18.6% in April as demand for air travel increased due to the easing of travel restrictions related to COVID-19.  (Photo by Justin Sullivan/Getty Images)

SAN FRANCISCO, CALIFORNIA – MAY 12: United Airlines customers prepare to check in for flights at San Francisco International Airport on May 12, 2022 in San Francisco, California. According to a Bureau of Labor Statistics report, airline fares jumped 18.6% in April as demand for air travel increased due to the easing of travel restrictions related to COVID-19. (Photo by Justin Sullivan/Getty Images)

“I want to note that we saw a good reading for core spending, so that was also strong,” Bovino said. “In terms of the shift from goods, essentially goods, to services, that makes sense because we’re seeing a re-opening of the US economy, although Omicron or the newer variant has certainly raised concerns.”

Retail spending rose 0.9% in April, marking the fourth straight month of increases. Much of the increase centered on higher consumer spending on restaurants, vehicles and clothing. Other service sectors, such as airline tickets, also saw increased spending last month. Additionally, data from JP Morgan Chase monitoring credit and debit card transactions revealed an increase in dining and entertainment spending among consumers.

“It gives us a cushion this year, but eventually people will close their wallets,” Bovino said. “That doesn’t bode well for the US economy going forward.”

Despite higher consumer spending and a nearly full labor market, significant macroeconomic concerns kept investors hesitant. For one thing, many industries are still struggling with a labor shortage that has left businesses across the country understaffed. Additionally, analysts have expressed concern over recent jobs reports showing a growing number of people leaving the workforce, even as official unemployment figures remain extraordinarily low.

The stock market crashed earlier this month after the Federal Reserve raised the federal funds rate by half a percentage point – the biggest such increase since 2001.

“The Fed is responding by raising rates very aggressively,” Bovino said of expectations for future Fed rate hikes. “The 50 point base rise we’ve seen most recently isn’t just – it’s not just once. We’re expecting several more this year while we’re at it – and there’s been talk , although that was pushed back by Chairman Powell, up 75 basis points.

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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Asian stocks up but investors fear recession https://eventplaner.net/asian-stocks-up-but-investors-fear-recession/ Mon, 16 May 2022 04:42:00 +0000 https://eventplaner.net/asian-stocks-up-but-investors-fear-recession/
asian stock market

(AFP PHOTO)

HONG KONG – Asian stocks rose on Monday after a rally on Wall Street last week, but analysts say fears of a recession due to soaring inflation and supply chain problems linked to the COVID still worries investors.

Global markets have been volatile for much of 2022, fueled by uncertainty over supply chain groans due to Chinese lockdowns, inflationary pressures and European anxiety over the war in Ukraine. .

Wall Street stocks closed with a strong rally on the tech-heavy Nasdaq on Friday after a tumultuous week that saw markets fluctuate on U.S. inflation data and a continued slump in Chinese exports. powered by the country’s zero-Covid policy.

“The market continues to trade on very short-term recession signals. It is very ‘noisy’, maintaining high intraday volatility with swings of 150-250 points (being) common,” said Stephen Innes of SPI Asset Management.

“Indeed, it is the mark of a market filled with air pockets that have left more than a few investors licking their wounds.”

One of the main drivers of volatility is China’s continued lockdown. Shanghai’s economic engine, in particular, has been under strict virus restrictions since April, closing factories and suspending port activity.

Beijing’s unwavering adherence to its zero Covid strategy has reverberated around the world, rumbled through global supply chains, rattled commodity prices and stoking investor fears.

China’s National Bureau of Statistics said on Monday retail sales fell 11.1% – the lowest since March 2020 – and its industrial output also fell 2.9% year-on-year.

But there was good news over the weekend, with Shanghai’s vice mayor announcing that a gradual reopening of businesses in the city would begin “in stages” from Monday.

Analysts at investment bank Charles Schwab said “global sentiment appears to be easing” even at the suggestion of easing.

Asian markets opened Monday with generally positive performance, with Tokyo, Sydney, Singapore and Manila rising throughout the day.

But in Hong Kong and Shanghai, actions were more mixed.

Economist Clifford Bennett of ACY Securities said “there is a very real risk, even probability, of a Northern Hemisphere triple recession in the US, Europe and China simultaneously and virtually immediately.”

He added that all eyes will be on how the Federal Reserve acts in the coming months, particularly whether it tightens monetary policy further to combat soaring inflation.

“Regardless of the Fed’s action – aggressive or soft, expect a decline in stock values ​​overall,” Bennett said.

Key figures around 03:00 GMT

Hong Kong – Hang Seng Index: DOWN 0.2% to 19,852.93

Shanghai – Composite: DOWN 0.3% to 3,076.10

Tokyo – Nikkei 225: UP 0.2% to 26,492.29 (pause)

North Sea Brent: 1.3% down to $110.16 a barrel

West Texas Intermediate: 1.2% drop to $109.22 a barrel

Euro/dollar: DOWN to $1.0396 from $1.0417 at 9:30 p.m. GMT on Friday

Pound/dollar: DOWN to $1.2244 vs. $1.2262

Euro/pound: DOWN to 84.91 pence vs. 84.92 pence

Dollar/yen: DOWN to 128.88 yen against 129.19 yen

New York – Dow: UP 1.5% to 32,196.66 (closing)

London – FTSE 100: UP 2.6% to 7,418.15 (closing)

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Difficult to lower inflation without triggering a recession, warns a Harvard economist https://eventplaner.net/difficult-to-lower-inflation-without-triggering-a-recession-warns-a-harvard-economist/ Sat, 14 May 2022 00:57:49 +0000 https://eventplaner.net/difficult-to-lower-inflation-without-triggering-a-recession-warns-a-harvard-economist/

Harvard University economics professor Kenneth Rogoff warned on Friday that it would be “really difficult” to drive down the “rate of inflation” without causing a recession.

“Yes [the Fed] having to raise interest rates that much, it will cause a recession, no doubt,” Rogoff told “Cavuto: Coast to Coast.”

“I don’t think they’ll go that far. My best guess is that they fail. They raise interest rates to 3-3.5, and we end up with a very soft economy and still inflation .”

HOT INFLATION IS PROBABLY COSTING YOU $311 MORE A MONTH

Rogoff’s comments follow the Senate’s confirmation of Jerome Powell for a second term as Federal Reserve chairman, as policymakers try to manage record inflation.

He stressed that once inflation “gets out of control”, it will not be easy to “bring it under control”.

Meanwhile, the Harvard economist noted that multiple tumultuous events are impacting the US economy, in addition to the Fed “letting inflation spiral out of control.”

Kenneth Rogoff, an economics professor at Harvard University, told FOX Business that once inflation “gets out of control,” it might be hard to “get it under control.” (Photo by AL DRAGO/AFP via Getty Images/Getty Images)

“It’s not just what the Fed is doing. The shutdowns in China, [and] their COVID policy, which is a political issue. It’s hard to overstate how bad it is, they stunt growth,” Rogoff explained.

“It’s a supply shock that keeps happening, driving up prices, driving down productivity. The war in Ukraine [is] part of… driving up gas prices, it drives up food prices. »

Cavuto asked Rogoff what inflation means for the stock market.

LEARN MORE ABOUT FOX BUSINESS

He replied that there wasn’t a lot of “good news to set things straight”.

“The stock market kind of absorbs all of that. Some things like tech stocks are particularly interest rate sensitive,” he concluded.

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“[Tech stocks are] seeks to make big profits [for] long into the future, and they got tougher.”

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Is recession imminent or have the bears seized Wall Street? https://eventplaner.net/is-recession-imminent-or-have-the-bears-seized-wall-street/ Wed, 11 May 2022 12:17:00 +0000 https://eventplaner.net/is-recession-imminent-or-have-the-bears-seized-wall-street/

Wall Street has been in free fall since the beginning of this year, with the exception of the second half of March. The day-to-day fluctuations of the major indices are higher than what we saw in February-March 2020, during the coronavirus epidemic.

Market participants are faced with the real effect of the pandemic, as the impact of the coronavirus and its variants on day-to-day activities is now much less. As real business returns to normal and fiscal and monetary stimuli have ceased, the pain of the pandemic is being felt by investors.

Soaring inflation, complete destruction of the global supply chain system and geopolitical conflicts have raised serious doubts about global economic growth. In the United States, a large part of economists and financial experts fear a recession either in 2022 or next year.

Consequently, extreme volatility appeared in US stock markets. However, has the US economy become too weak to be susceptible to a recession or are the bears now raging on Wall Street, driving the downtrend?

Economic slowdown and the Fed

US inflation is currently at its highest level in 40 years and the Fed is gradually moving from an ultra-dovish policy regime to an ultra-hawkish one. According to a large part of market observers, the devastation of the supply chain and the end of the easy money policy are likely to reduce aggregate demand, leading to economic contraction.

US GDP contracted 1.4% in the first quarter of 2022 after gaining 6.9% in the previous quarter. This unexpected contraction was mainly due to a record trade deficit, lower government spending and lower inventories. Consumer spending and business investment remained stable. Even Fed Chairman Jerome Powell considered these factors in his post-FOMC statement in May.

The Fed may have viewed “inflation as transitory” for too long. Several measures of inflation have started to rise since May 2021. Yet, in December, the central bank realized that inflation had become a real threat that needed to be tackled with tougher measures.

The central bank ended the $120 billion-a-month quantitative easing program in March and raised the benchmark policy rate by 25 basis points in the same month and 50 basis points in May. It also gave a clear signal that two more 50 basis point rate hikes are coming in June and July and that the systematic $9 trillion balance sheet reduction would begin on June 1.

However, the predominant source of the surge in inflation is supply-side disruption. U.S. companies’ overreliance on China for cheap inputs, ranging from everyday consumer goods to high-end tech products, is taking its toll as the latter are stalled due to the resurgence of the COVID-19. The Russian-Ukrainian war is another concern.

In this situation, it remains to be seen how effective it will be to contain inflation by raising interest rates, reducing liquidity and thereby reducing demand. Several economic data released recently, such as manufacturing, services, labor market and retail sales remained strong despite the gap in their picks. Finally, US corporate first quarter earnings results are better than expected.

Bears fly high

While stock market bulls roar with a long-term rally, bears await the market pullback. In this respect, certain economic factors act as catalysts.

For example, Wall Street ended 2019 on an impressive note with the Dow Jones, S&P 500, and Nasdaq Composite — rallying 22.3%, 28.9%, and 35.2%, respectively. At this point, several economists and market pundits began to warn that the market was overvalued, especially when the US GDP growth rate fell below 3%, with the economic expansion continuing for 11 years, marking the longest expansion in history.

During the 11-year long bull run, the S&P 500 rebounded 400%. Additionally, the Dow and Nasdaq Composite also soared over 300% and 500%, respectively. At some point, these huge gains must be capitalized. The chaos caused by the coronavirus acted as a catalyst to sell stocks and make gains.

The pandemic-induced bear market bottomed out on March 23, 2020. Wall Street saw another bull market thereafter, exiting the shortest-ever bear market supported by unprecedented fiscal and monetary stimulus. The Dow, S&P 500, and Nasdaq Composite posted their recent highs on January 5, 2022, January 4, 2022, and November 22, 2021.

From March 23, 2020 to recent highs, the Dow Jones, S&P 500 and Nasdaq Composite are up 102.9%, 119.8% and 144.5% respectively. Therefore, another profit realization term is due. This time, the economic factor is rising inflation.

As of May 10, the Dow, S&P 500 and Nasdaq Composite are down 13%, 17% and 27.6% from their recent highs. The Nasdaq Composite is in bearish territory while the Dow Jones and the S&P 500 are in the correction zone. On May 9, the S&P 500 closed below 4,000 for the first time since March 2021 and the Nasdaq Composite closed at its lowest since November 2020.

How to invest

Wall Street is no longer overvalued. In 2022, the main driver for US equity markets will be the strength of the country’s economic fundamentals. The US economy will benefit more from government infrastructure spending.

Markets may remain volatile for the foreseeable future. However, we expect a good recovery in the second half once the Fed’s policy changes are fully adjusted to market valuation. At this stage, it will be better to stick with quality stocks. Invest in US corporate bigwigs (market capital >$50 billion) with a favorable Zacks ranking.

These companies have a robust business model and globally recognized brand equity. They have strong balance sheets and generate strong free cash flow. Five of them are – Exxon Mobil Corp. XOM, 3M Co. mmm, Marriott International Inc. MAR, Conoco Phillips COP and Automatic Data Processing Inc. ADP.

These companies reported strong results in their most recent reported quarter and issued strong guidance. These stocks carry either a Zacks rank of #1 (strong buy) or 2 (buy). You can see the full list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year-to-date.

Zacks Investment Research
Image source: Zacks Investment Research

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Four returns above 6% and better in a recession https://eventplaner.net/four-returns-above-6-and-better-in-a-recession/ Mon, 09 May 2022 13:50:00 +0000 https://eventplaner.net/four-returns-above-6-and-better-in-a-recession/

Trading charts on a screen

da-kuk/E+ via Getty Images

This article was first published to Systematic Income subscribers and free trials on May 2.

The very sharp rise in interest rates in recent months has not escaped the notice of the vast majority of income investors. More persistent inflation than initially expected pushed the Fed in a more hawkish direction. And while some investors expect the Fed to make a soft landing, the reality is that 11 of the 14 cycles of tightening in the US after World War II were followed by a recession within 2 years.

In this article, we look at a number of high-quality income stocks that are expected to outperform in the next recession. Our base case is that Treasury yields fall while credit spreads widen. In this scenario, higher quality, longer duration securities should outperform the broader income market.

Longer lasting assets look better now

In our view, there are several reasons why higher quality, longer duration assets are ultimately attractive.

First, nominal 10-year Treasury yields are not far from their decade highs after a rapid recovery from the COVID crash.

10-Year Constant Maturity US Treasury Market Yield, London Bullion Market Midday Silver Fixing Price, 30-Year Constant Maturity US Treasury Securities Market Yield and Market Yield 5-year constant maturity US Treasury securities

Fred

Second, real 10-year Treasury yields have moved closer to zero from very depressed levels. Real yields measure the level of nominal Treasury yields above inflation expectations. A level close to zero means that nominal 10-year Treasury yields are in line with current inflation expectations over the same forecast period. And while a figure well above zero would be more attractive, at least Treasury yields no longer lag inflation estimates.

10-Year Constant Maturity US Treasury Market Return, Inflation-Linked

Fred

Third, convexity in the preferred stocks sector, which we focus on in this article, is now very close to zero, which means that duration is no longer increasing. This means that while the prices of income securities may fall further if Treasury yields continue to rise, they will not fall at an accelerated rate as they have been doing so far.

UBS

UBS

Fourth, during periods of recession, credit spreads tend to widen in many asset classes, such as investment grade corporate bonds, high yield corporate bonds, municipal bonds, preferred stocks, bank and other loans. The key point is that credit spreads of higher quality assets tend to increase less than credit spreads of lower quality assets. This is why higher quality assets are likely to outperform and even rebound during a recession. Indeed, Treasury yields often fall more than investment-grade credit spreads rise.

Fifth, the valuation of many higher-quality preferred stocks is not far off the level of high-yield corporate bonds. For example, while the high yield corporate bond index is trading at a yield of 6.64% at the time of this writing, many higher quality preferred stocks are trading at yields around 6%. .

Finally, many high-quality preferred stocks trade well below their “par” level. This means that while the probability of redemption at some point in the future is very low at current yields, it is also not zero. This suggests that there is, in fact, a small chance of a huge tailwind at some point in the future.

Some ideas

A higher quality area of ​​the Preferred Marketplace is Preferred Banks. Within this sub-sector, we would favor low coupon fixed rate securities as they would be more likely to outperform as interest rates decline.

In this sub-sector, we like the following stocks:

  • Huntington Bancshares 4.5% Series H (HBANP) is trading at a yield of 6.25%. The preferred issuer is rated Investment Grade, while the issuer is rated Investment Grade by all three major agencies.
  • JPMorgan Chase 4.55% Series JJ (JPM.PK) is trading at a yield of 6.18%. The preferred is rated investment.
  • Capital One Financial 4.625% Series K (COF.PK) is trading at a yield of 6.44%. The preference is rated investment grade.

We also like the preferred agency-focused mortgage REIT sub-sector. There is only one fixed-rate stock in the sub-sector, namely the Armor Residential REIT 7% Series C (ARR.PC) which is trading at a yield of 7.46%. The stock’s equity/preferred coverage is 6.0x, which is relatively healthy.

Agency-focused mortgage REITs took a hit as the price of agencies fell relative to Treasuries as the Fed planned to reduce its holdings of MBS on its balance sheet. Given current valuations, we are unlikely to see the same pace of weakness going forward, suggesting that mREIT book values ​​should hold up relatively well going forward.

Nominal mortgage spreads hit their highest levels in years

NLY

Take away food

Historically, more than three-quarters of the time, the Fed’s tightening cycle has been followed by a recession. This suggests it’s not too early to think about which stocks are likely to outperform in times of widening credit spreads and falling interest rates – the most common combination of market action in a recession. . Higher quality, longer duration securities look attractive places to allocate capital at this stage in order to have drier assets in this eventuality.

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The recession that no one will talk about; As equity investors rush to get out https://eventplaner.net/the-recession-that-no-one-will-talk-about-as-equity-investors-rush-to-get-out/ Sat, 07 May 2022 21:28:56 +0000 https://eventplaner.net/the-recession-that-no-one-will-talk-about-as-equity-investors-rush-to-get-out/

Employment – ​​Weaker Than Narrative

Markets yawned at the April issue of the payroll survey (+428K) despite the media’s characterization of the report as “strong”. Indeed, upon further analysis, the most charitable description would be, in our view, “mixed”. In fact, “disturbing” would be our best characterization. Here’s why:

  • The overall payroll figure comes from a monthly survey of large and medium-sized companies. Because it does not survey small businesses, the BLS “adds” the jobs it assigns to this segment. This is called the “Birth-Death” model. For April, +160,000 jobs were added thanks to the “magic” of this “adjustment”. This means that the net new jobs that were actually counted in the survey were +268K, a figure which we believe would have disappointed the markets, as it would have been interpreted as a significant slowdown from the previous month and in below +400K. Wall Street Consensus. The chart above is taken from the ADP jobs report released Wednesday, May 4. Note the sharp drop in small business employment in April. Because ADP is the largest payroll services company in the United States, this data is highly credible. If this more realistic -120K had been used instead of +160K ​​(“Birth-Death”), the net for the Payroll Survey would have been +148K, not +428K! And the discourse on the “recession” would have made the rounds of the street.
  • The household survey indicates that net employment actually contracted by -353K in April. We wouldn’t call it “strong”. Worse still, -651,000 full-time jobs in this survey disappeared. Although the household survey is a bit more volatile than the wage survey, it tends to lead at cyclical turning points. It did so in February 2001 and December 2007. This is because small businesses are at the heart of the US economy and react to economic conditions much faster than large businesses.
  • A survey by the National Federation of Independent Businesses (NFIB) suggested that small businesses are cutting back on their hiring plans. Additionally, job postings on Indeed.com are down. These also tend to be leading indicators of employment.
  • The household survey is the one on which the unemployment rates are based. The overall unemployment rate (U3) held steady at 3.6%, slightly disappointing the general view that it would fall to 3.5%. The labor force participation rate (LFPR) (the percentage of the working-age population either employed or actively seeking one) fell from 62.4% to 62.2%. As a result, the labor force decreased by -363K. Strong labor markets do not experience such declines.
  • 665,000 people who had a job in March but lost it in April simply left the labor market. This phenomenon is a feature of weakening, not strengthening, employment trends. If these people had not left the labor market and if they had started to look for another job (that is, if the LFPR had maintained its March level), the U3 unemployment rate would have increased to 3.8%.
  • The broader measure of unemployment (U6), which includes people working part-time but wanting to work full-time, fell from 6.9% to 7.0%.
  • Here’s an interesting observation from economist David Rosenberg: “…employment in the employment services sector fell by 10,500…What do you think that means for labor market prospects when job hunters heads are starting to cut off their heads? »
  • Our conclusion here is that we are only just beginning to see the tip of the employment iceberg. We expect much more weakness over the next few months.

Stock Market Volatility – A Sign of “Bear”

The table shows the variations of the major indices from their near highs and for the week ended May 6. Despite the relatively small percentage changes for the week, volatility was the main feature of the market. The DJIA rarely moves more than 1% in a single session, let alone 2% or 3%. But the DJIA accomplished that in back-to-back sessions on Wednesday (+2.8%) and Thursday (-3.1%). Similar movements were observed for the Nasdaq (+3.2% and -5.0%), for the S&P 500 (+3.0%, -3.6%) and for the Russell 2000 (+2.7 %, -4.0%).

As noted, there was a lot of volatility for a rather benign week/week result. This type of volatility typically occurs in “bear” markets. And look at the middle column of the table; The Nasdaq and the Russell are both in the jaws of the “Bear” (down more than 20% from the nearby peak), while the S&P is in “Correction” (down more than 10%).

“Recession”

Readers of this blog know that we believe recent Fed and market actions will push the economy into a recession in a shorter time frame than might be expected from past tightening cycles. That’s because the markets have, in just over a month, fully applied the Fed’s “terminal” rate, a rate that will require several more rate hikes of 50 basis points (0.5 points). In past tightening cycles, the Fed has never issued forward guidance, so markets have never pushed rates much higher than where the Fed was. Therefore, as the markets have fully implemented the Fed’s 18-month plan, in this tightening cycle the recession will appear earlier than in previous tightening cycles. We are confident in this call and incoming data continues to confirm our view.

  • The chart shows the breakdown of preliminary Q1 real GDP.
  • In the first quarter, the 2.7% gain in consumer spending was supported by a decline in consumer savings. The savings rate is now lower than it was before the pandemic, so the spending cushion is now exhausted. Moreover, 80% of the growth in the first quarter occurred in January, so the transition to the second quarter was quite weak.
  • Moreover, despite rising wages, average real weekly earnings continue to contract (see chart) and are lower than they were during the Great Recession. With savings depleting, prices rising faster than wages, and interest rates rising dramatically, rising consumption levels don’t seem like a good bet.
  • While markets initially seemed to ignore the -1.4% real GDP print in the first quarter, the chart shows the percentage change in real GDP by month. Note that we haven’t seen positive real consumption growth since October, when consumers shopped “early” for the holiday season due to the then-widespread talk of “shortages”.
  • In recent months, consumer opinion surveys from the University of Michigan have indicated significantly lower intentions to buy big-ticket items. We note that spending on durable goods fell by -0.9% M/M in March, is down two months in a row (and down in four of the last five). Non-durable goods also fell -0.3% in March after falling -0.7% in February.
  • The housing market is weakening. Sales of new and existing homes are down. Remember that people buy houses, cars, and other big-ticket items based on the monthly payment. Given rising house prices (the median house price has risen from $326,000 to $375,000 over the past year) and the rise in the 30-year fixed mortgage rate (from 3.1% to 5.5%), the house that the consumer could have bought a year ago for $326,000 with a down payment of $65,000 and a monthly payment of $1,115, would now cost $375,000, would require $75,000 as down payment, and the monthly payment would have skyrocketed 53% to $1,703. The graph shows what happened to mortgage applications to buy due to rising rates.
  • Additionally, mortgage applications to refinance an existing mortgage have fallen off a cliff. Refis are often a source of cash for large purchases, another reason why we believe we will see a noticeable slowdown in consumption very soon.

Rest of the world

Needless to say, Europe and China have their own major problems. Europe is facing serious energy problems due to the war in Ukraine. Industrial production is falling in France and Germany. And the Chinese economy is at a standstill due to both the implosion of its real estate sector and the confinement of its major cities (zero tolerance Covid policy). The graph of subway traffic in Shanghai and Beijing shows the impact of these closures.

The case of bonds

During the first four months of the year, we witnessed dramatic falls in equity and fixed income markets. First Trust has done a study of what has happened historically in the following time periods where stocks and bonds fall simultaneously. There have been 16 such episodes since 1977. The chart shows that one year after such episodes, 73% of the time stocks have risen in value, while this number is 100% for bonds.

The last chart shows eleven bond market drawdowns over 3% since 1979 and how many subsequent months it took to reach a new high; less than a year in all cases.

Incoming data tells us that a recession is unfolding. Once this recession is recognized by the business community, the Fed will be forced to stop tightening. If the Fed never reaches its declared “terminal” rate, markets, which have already priced in those rates, will have to adjust to a lower rate. Under these conditions, bonds look cheap!

(Joshua Barone contributed to this blog)

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US stocks tumble on recession fears, Asian markets set to suffer https://eventplaner.net/us-stocks-tumble-on-recession-fears-asian-markets-set-to-suffer/ Thu, 05 May 2022 23:24:22 +0000 https://eventplaner.net/us-stocks-tumble-on-recession-fears-asian-markets-set-to-suffer/

AAsian stock markets are set to suffer from a sharp selloff in U.S. stocks on fears of a possible economic recession, a day after the Fed raised interest by 50 basis points for the first time in two decades. The yield on 10-year US Treasury bonds rose above 3% as bond selling resumed. The Bank of England raised the official bank rate by 25 basis points but indicated a recession in 2023, which intensified the liquidation of the stock markets.

The large swings in stock markets indicate that investors are highly uncertain about the current global economic outlook due to fears of rising rates and lingering inflation, which could begin to dampen demand. In short, an economic recession induced by inflation. However, market reactions evolved into panic selling as few fundamentals had changed. From a technical perspective, the major indices are still holding key support.

Australia and New Zealand on the eve

SPI futures slid 1.54%, indicating a weaker ASX open. Local markets could suffer from the selloff, which could cause a volatile session. Recent bank earnings could help support sentiment.

Macquarie Group kicked the ball out of the park with the release of FY22 results. With a whopping net profit of A$4.706 billion (up 56% on the previous year) and rising of $17.324 billion (up 36% over the previous year). The world’s largest infrastructure asset manager said it would maintain a cautious and conservative stance in positioning itself in the current environment. A 40% outright dividend of $3.50 per share was declared.

The NZX 50 was down 1.14% at the open. The main factor that weakened investment sentiment was an accelerated devaluation of the NZD, which will put upward pressure on import prices and cause domestic inflation, which will support more aggressive tightening moves by the RBNZ.

US and European stock markets overnight

The Dow Jones Industrial Average fell 3.12%, the S&P 3.56% and the Nasdaq 4.99%.

Broader markets ended in the red, with growth stocks leading the losses. Amazon, Meta Platforms and Netflix Inc. all plunged more than 7%. Apple fell 5.8%, Microsoft and Alphabet Inc. fell more than 4%. Tesla Motors was down more than 8%.

E-commerce stocks fell on weak second-quarter expectations as demand eased after the pandemic. Shopify fell 14.81%, eBay 12% and Esty 17.08%.

On the economic side, the 30-year mortgage rate in the United States hit 5.56%, a 13-year high, putting household affordability to the test.

The main European indices fell due to a feeling of risk aversion. The Stoxx 50 fell 0.76%, the CAC 40 slipped 0.43%, the DAX fell 0.49% and the FTSE 100 edged up 0.90%.

Merchandise

Crude oil prices were little changed on Thursday. OPEC and its allies extended their plans to increase oil production by 432,000 barrels, which had a minor impact on oil prices. Slowing economic growth caused by the ongoing lockdowns in China and rising rates also weighed on sentiment on the demand side. WTI crude futures edged up 0.72% to US$108.59 a barrel, and Brent crude futures rose 0.97% to US$111.21 a barrel .

Natural gas continued to rise, up 4.98% to US$8.83 per MMBtu, a 20% increase since the start of the month.

Precious metals pared initial gains due to a strong US dollar, but ended higher. NYMEX gold futures rose 0.45% to US$1,877.30 an ounce after hitting an intraday high of $1,909.93. Silver edged up 0.09% to US$22.50 an ounce.

Currencies

The USD index resumed its gains, rising 0.97% to 103.585, following the surge in US bond yields.

The pound fell on the back of the BOE’s 25 basis point rate hike while expressing concerns about an impending economic recession. GBP/USD plunged 2% to 1.2369. All other currencies appreciated against the USD. USD/JPY rallied back above 130. Eurodollar erased yesterday’s gains, down 0.75%, to 1.0548 after hitting intraday lows at 1.0490, which is an essential support.

All commodity currencies weakened against the greenback. AUD/USD fell 2% to 0.7113 and NZD/USD fell 1.78% to 0.6426. The Canadian dollar also depreciated against the US dollar despite the strength in oil prices. USD/CAD rose 0.67% to 1.2837.

treasures

Bond yields soared. The 10-year US Treasury yield rose above 3%, the 2-year Treasury yield reached 2.70% and the 30-year bond yield reached 3.12%.

The Australian 10-year bond yield rose to 3.38%, helped by the RBA’s hawkish rate hike.

Cryptocurrencies

Crypto markets fell as risk sentiment intensified the selling of risky assets. Bitcoin fell 8.21% to US$36,565.34 and Ethereum fell 6.67% to US$2,749.44 in the past 24 hours. Total cryptocurrency market cap fell 7.04% to US$1.68 trillion.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not expressing opinions) is provided for informational purposes only and does not take into account your personal circumstances or objectives. Nothing in this document is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically restricted from processing prior to providing such material, we do not seek to take advantage of the material prior to its dissemination.

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The recession is here. I buy these 4 dividend stocks to prepare https://eventplaner.net/the-recession-is-here-i-buy-these-4-dividend-stocks-to-prepare/ Mon, 02 May 2022 17:04:00 +0000 https://eventplaner.net/the-recession-is-here-i-buy-these-4-dividend-stocks-to-prepare/

Dollar Seedling - Growth Concept - Plants on Growing Bills

RomoloTavani/iStock via Getty Images

The signs of recession are very alarming, which has now convinced me that a US recession, and probably a global recession, is imminent. Since the Nasdaq Composite is now officially in a bear market, it looks like it will be tough to invest in the next 12-24 months.

Nasdaq composite level percent off high
Data by YCharts

To prepare my portfolio for these circumstances, I focused on attractively valued dividend-paying stocks with earnings that resist the forces of recession. Additionally, I use covered call strategies to maximize the likelihood of a positive return. I’m not just looking to beat the market, I want healthy, positive returns.

There are four stocks that have made the cut so far and I have opened long positions in each. These choices include Verizon Communications Inc. (VZ), Omega Healthcare Investors, Inc. (OHI), British American Tobacco plc (BTI), and Bristol-Myers Squibb Company (BMY).

The recession is catching up with us

One can never be certain of the future, especially of a future recession. There is no point in frequently “crying wolf” and proclaiming that a recession is imminent every year when it is clear that it is not. However, the data accumulates and therefore my confidence increases. Let’s briefly review the evidence.

For starters, retail sales rose strongly. A significant drop or slowdown in retail sales is often a sign of a recession, as can be seen in the recessions of 2001, 2008 and 2020.

US retail sales
Data by YCharts

However, when we adjust retail sales for inflation, using the Producer Price Index, we find that retail sales have already been declining since 2021. This suggests that the United States could enter in recession.

Retail sales

Federal Reserve Economic Data | FRED | St. Louis Fed

Similarly, US real GDP growth has turned negative. This is often correlated with a spike in the probability of a recession, although the probability has not moved yet today.

U.S. Real GDP and U.S. Recession Probability
Data by YCharts

The unemployment rate in the United States is now very low, around 3.6%. Unfortunately, this level of unemployment preceded each of the last three recessions. Low unemployment is not a cause of recession, but the correlation in combination with all the other factors is worrying.

Unemployment rate

Federal Reserve Economic Data | FRED | St. Louis Fed

Now it gets interesting. Two of the strongest correlations with the recession are the change in the price of oil and the inversion of the yield curve. Not all yield curves have inverted recently, however, many have included the 10-year Treasury minus 2-year curve. There is some debate over how long the curve should remain inverted, but what can be determined is that the last four recessions have been preceded by inversions. To compound the problem, oil prices have risen dramatically. It is also a common prelude to recession, as was observed in 2001 and 2008.

TV

Charts by TradingView

After a brief rebound in 2021, consumer confidence has started to decline again. Sentiment levels are approaching those reached in 2009 at the height of the Great Recession.

from

The Daily Shot (used with permission)

The yield curve inversion was short this time, which may indicate a false signal. But if not, it predicts trouble for stock markets which typically experience their most volatile cycles after the yield curve inverts.

from

The Daily Shot (used with permission)

Therefore, I choose my positions carefully. I’m looking for positions that will withstand the recession, but also perform well if there is no recession.

Call for backup – Verizon Communications Inc.

Verizon is trading at a mixed P/E of 8.58 following the stock price‘s recent decline in response to lower expectations. That compares to his normal P/E of 14.71. During the recessions of 2008 and 2020, the stock price fell. However, VZ was overvalued at the start of the 2008 recession, priced at 19 times earnings, and earnings were sustained through each recession. The stock reached a low valuation of 10x P/E during the 2008 recession, higher than the current multiple.

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QUICK charts

VZ pays a forward dividend of 5.5% with a strong dividend history of 18 consecutive years, including through two recessions. The dividend is currently well covered with a payout ratio of 46.8%. The dividend receives overall positive ratings from Seeking Alpha and is a solid high yield in my assessment.

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VZ Dividend Score (Looking for Alpha)

To maximize the probability of return, I use a covered call strategy on this position. I start with the 50 strike calls on May 20, 2022 which yield an annualized return of 5.6%. If I wanted to lock in the yield for a longer duration, I would go for the 52.50 strike on August 19, 2022 for an annualized return of 2.4%.

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Chart by author, data from TD Ameritrade

Retire with grace – Omega Healthcare Investors, Inc.

Omega is trading at a blended P/FFO of 8.08. The stock has traded poorly over the past year due to continued non-payment of rent by several operators. Despite the difficult conditions, I expect the company to persevere and continue its long-term successes. The normal P/FFO for OHI is 12.47. During the 2008 recession, the share price was volatile and the FFO fell slightly by 8.5%, but overall performance was adequate for the circumstances. The shares traded as low as 8.16 P/FFO.

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QUICK charts

OHI pays a forward dividend of 10.5% and although dividend growth has been lacking recently, the company has avoided a dividend cut for the past 16 consecutive years. The forward AFFO payout ratio is 99%, which is uncomfortably high. There is a serious risk that the dividend will have to be reduced. However, I think such a reduction would be temporary and I don’t need a 10% dividend for this job to be attractive to me. Here’s what CFO Robert Stephenson had to say about it on the latest earnings call:

Consistent with how we’ve talked about it in the past, to the extent that we’re working on these restructurings, but we think the long-term cash flow will — won’t be affected or the impact is minimal, so I believe that we will be consistent with our dividend policy. And I guess the best example of that is the gulf coast that we had.

We have $30 million in rent, and in the first quarter we’re not going to collect rent because they’re bankrupt. But we’re going to redeploy those assets by selling them, and we’ll end up with, let’s call it, $300 million net that we’re going to redeploy.

So the ultimate resolution to the Gulf Coast situation is a push from a cash flow perspective. And I think to the extent that some of these other restructurings are in the same area and there’s no reason to go ahead and say, “Hey, we’re going to change our dividend policy “But as everyone on this call knows, it’s a changing environment. We’re going to be as transparent as possible.”

What I would say today, the policy is the same, unless we see a long-term impact on our cash flow, we don’t change the dividend.

Seeking Alpha only rates the dividend yield which is very high.

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IHO Dividend Grades (Looking for Alpha)

To maximize the probability of return, I use a covered call strategy on this position. I start with the 28 strike calls on May 20, 2022 which yield an annualized return of 6.7%. If I wanted to lock in the return for a longer duration, I would go for the September 16, 2022 strike of the 30th for a 3% annualized return.

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Chart by author, data from TD Ameritrade

Don’t let profits go up in smoke – British American Tobacco plc

British American Tobacco is trading at 9.24 P/E. This compares to a normal P/E of 14.16. During the recessions of 2008 and 2020, the stock price fell by 45% and 40%. But stocks started 2008 at a P/E multiple of 18.3x and 2020 at 10.5x. Earnings in 2008 fell 14.4%, but recovered quickly. At the depth of the 2008 recession, stocks were trading at 11x P/E.

F

QUICK charts

BTI pays a forward dividend of 7.09%. The dividend has had an erratic history since 2015, but the long-term compound growth rate of the dividend is 9.5%. Seeking Alpha’s “D” rating for consistency is well deserved, but I think the safety and growth ratings are too harsh. The high payout ratio of 66.9% is intentional as the dividend is a priority for the company.

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BTI Dividend Grades (Looking for Alpha)

To maximize the probability of return, I use a covered call strategy on this position. I start with the 45 strike calls on May 20, 2022 which yield an annualized return of 4.2%. If I wanted to lock in the yield for a longer duration, I would opt for the September 16, 2022 50 Strike for an annualized return of 1.5%.

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Chart by author, data from TD Ameritrade

Keep your wallet healthy – Bristol-Myers Squibb Company

Bristol-Myers Squibb is trading at a P/E of 9.92. This compares to a normal P/E of 18.07. Earnings continued to grow during the recessions of 2008 and 2020, although the stock price fell. BMY was trading at a low P/E multiple of 7.7x in 2008.

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QUICK charts

BMY pays a forward dividend of 2.87% with 15 consecutive years of dividend growth. Seeking Alpha’s dividend ratings are all first class for BMY. The cash dividend payout ratio is a respectable 28.8%.

b

BMY Dividend Grades (Looking for Alpha)

To maximize the probability of return, I use a covered call strategy on this position. I start with the 80 Strike calls on May 20, 2022 which return an annualized return of 4.9%. If I wanted to lock in the yield for a longer duration, I would opt for the September 16, 2022 50 Strike for an annualized return of 3.8%.

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Chart by author, data from TD Ameritrade

Summary

With many signs of recession, it’s time to adjust my portfolio. Instead of going for home runs, I focus more on hits to increase the likelihood of positive returns. These four dividend-paying stocks offer the potential for double-digit returns without depending on stock appreciation. They include businesses whose earnings are resilient to the recession. This, combined with attractive valuations, limits downside risk. The covered call strategy is designed so that if my shares are called, I will be happy to take my profits and redeploy the capital on the next trade.

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Liam Dann: Recession risk is rising… why it might be good https://eventplaner.net/liam-dann-recession-risk-is-rising-why-it-might-be-good/ Sat, 30 Apr 2022 17:00:03 +0000 https://eventplaner.net/liam-dann-recession-risk-is-rising-why-it-might-be-good/ My gut tells me that a dip in recession is the most likely outcome of fighting inflation, says Liam Dann. Photo / 123RF

OPINION:

We could be heading into a recession.

We should be prepared for this. I also think it might not be such a bad thing for the economy, if it’s short and to the point…and we don’t

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How to know if a recession is coming https://eventplaner.net/how-to-know-if-a-recession-is-coming/ Wed, 27 Apr 2022 22:02:00 +0000 https://eventplaner.net/how-to-know-if-a-recession-is-coming/ The word “recession“, which is generally refers to the decline of an economic cycle, sounds bad. A down economy is obviously painful for many people to live with, even though it is a natural part of the business cycle.

But while the term “recession” is likely to be used often in the weeks and months to come, the exact definition is not so straightforward. It’s technically possible that despite extremely low unemployment and other strong economic indicators, the US is currently in a recession and no one has yet noticed.

It’s hard to predict if and when a recession will hit – even though the storm clouds always seem so obvious in hindsight.

What could cause a recession now?

Inflation, or rising costs, are at their highest level in 40 years, eating away at what people can buy.

What is likely to cause a recession is the Federal Reserve’s plan to fight inflation by raising interest rates.

Fed Chairman Jerome Powell has argued that with targeted interest rate hikes, policymakers can engineer a “soft landing” – controlling inflation without triggering a recession.

  • Interest rate — learn more about what Powell is trying to do with CNN’s Paul R. La Monica.
  • Inflation – learn more about the price hike from CNN’s Allison Morrow.

If there was a recession, who would be to blame?

If a recession hits, some people will blame the Fed for not having acted sooner to control it.

You could legitimately blame the pandemic for twisting supply chains and Russia’s war on Ukraine for affecting energy and food costs.

One person who will receive a lot of blame – rightly or not – is President Joe Biden, who is expected to champion the sour economy under his leadership.

What exactly is a recession?

I was taught in shorthand that a recession is simply a period marked by two consecutive quarters of negative gross domestic product growth. This turns out to be too simple and not entirely accurate.

By this definition, the Covid-19 pandemic, which shook up the global economy and marked a pause in everyone’s life at the start of 2020, barely caused a recession.

It turns out that two consecutive quarters of falling GDP is just one indicator pointed out by Julius Shiskin, who was head of the Bureau of Labor Statistics in the 1970s and tried to figure out how to identify a recession when it was happening. As reported in The New York Times in 1974, he highlighted these factors:
  • Duration: Is non-agricultural decline in employment for at least nine months?
  • Depth: gross national product decline of at least 1.5% for at least two quarters? And is there an increase in the unemployment rate of more than 2 points and at a level above 6%?
  • Diffusion: Will most of the economy – more than 75% of all industries – feel the pinch in employment for six months or more?

Who officially decides if there is a recession?

There will be a lot of people talking about a recession if the US economy turns.

But the undisputed arbiter is a private, nonprofit organization founded by industrialists in 1920 – the National Bureau of Economic Research – which has a committee of eminent economists.

They meet regularly to look at a bunch of economic data and they decide if the current economic cycle has reached an economic peak (high point) or trough (low point). Recessions are the periods between peaks and troughs.

When do they decide if there is a recession?

Although accurate and a good academic reference, the National Bureau of Economic Research is not forward-looking. The committee does not predict recessions; it only marks them.

For example, the office did not officially state that the recession induced by the Covid-19 pandemic had started in February 2020 until June 2020, two months after its technical end.
Read all of their determinations dating back to 1979.

What exactly are they looking at to decide if there is a recession?

NBER does not say exactly. This is from his website:

There is no set rule about which metrics inform the process or how they are weighted in our decisions.

The organization monitors a range of federal economic data – the same jobs surveys and consumer spending reports that everyone sees – and its general definition of a recession is as follows:

Significant drop in economic activity that extends to the entire economy and lasts more than a few months. The committee is of the opinion that while each of the three criteria – depth, spread and duration – must individually be satisfied to some extent, the extreme conditions revealed by one criterion may partially compensate for the weaker indications of another.

How long do recessions usually last?

Recessions are generally shorter than expansions. There had been more than 10 consecutive years of growth before the Covid-19 pandemic.

There had been six years of growth before the Great Recession hit in 2007. The Great Recession lasted 18 months, according to the NBER.
The average expansions between World War II and the Covid-19 pandemic lasted about 65 months, and the average recessions lasted about 11 months, according to the Congressional Research Service.

The Great Depression, meanwhile, began with a 43-month recession that lasted from August 1929 to March 1933.

What’s the worst case scenario right now?

Former Treasury Secretary Larry Summers, who accurately predicted rising inflation when the Fed was skeptical, now says “stagflation” is a real possibility.

What is stagflation? Imagine rising prices due to inflation combined with a stagnant economy. The worst of both worlds.
“The Fed’s current policy path is likely to lead to stagflation, with average unemployment and inflation averaging more than 5% over the next several years — and ultimately a major recession,” Summers wrote in the Washington Post in March.
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