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Today’s newsletter is from brian sozzia general editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.
So I was lugging my bloated shopping bag up the stairs on Sunday, trying to decompress for at least seven minutes, when suddenly I heard a neighbor yell, “Hey, Sozzi, I saw you on TV again. Has the stock market bottomed out yet?
My first thought: “I just can’t get away from this shit, not even for seven minutes.”
I’m used to getting questions like this from a core group of neighbors (and others). This is in part because this particular person realized, while flipping through Verizon FIOS (where Yahoo Finance lives 24/7 on channel 604), that I was watching live TV from my kitchen (which happens to be above your kitchen) during the COVID-19 pandemic.
I made up a quick answer in my head and then yelled, “I have no idea bro, but I know the stock market will be open Monday morning. Let me know when the cooperative barbecue is held.”
After the trade, I went into my house, unpacked those inflationary groceries (you see the cold meat prices, crazy!) and started writing this beautiful newsletter for the investing masses.
My response to my neighbor was smart in that the hucksters on the street will be out in force trying to bottom out for the bruised and battered stock market, even though people have no idea either as they are looking at the same trends and market data. which you generally have access to.
All of this is to say that you should be very, very careful about bottoming calls, as market conditions will likely remain treacherous until the Fed signals a pause in rate hikes.
In any case, there are two opposing themes in the market today, and it’s up to you to figure out what fits with the analysis you’re doing right now.
Theme One: Valuations are starting to look attractive
The forward price-to-earnings multiple for the S&P 500 is 16.6 times. This is below the five-year average of 18.6 times and the 10-year average of 16.9 times. At first glance, this would mark a good time to start kicking the tires on the stocks of well-managed companies that are growing.
But keep this in mind: Those five- and ten-year averages do not incorporate a major Fed rate-hike cycle like we’re about to witness. So I would say that valuations are not at super attractive levels yet (so we may not be at a market bottom), but it is moving in that direction.
I do find it interesting though that shares of single-growth giant Netflix are trading at 15.2 times future earnings, according to data from Yahoo Finance Plus. That’s a below-market multiple for a FAANG (Facebook, Apple, Amazon, Netflix, Google) stock, which is a rarity.
Curious about what to do if you own a battered tech stock market? Give this a watch.
Theme Two: Capitulation Hasn’t Happened Yet
As I like to think of it, market capitulation is when there is a big move down in a market, one that wipes out all the speculators. It is at that point that a bullish base in a stock or market could begin to rebuild. While we have seen some days of big declines in the markets (and individual stocks, especially in tech like Rivian, Netflix, and Upstart), the professionals I speak to are yet to see capitulation.
“Right now, I think investors are struggling with both the bond market and the stock market. I think a balanced portfolio is getting frustrating this year,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management, on Yahoo Finance Live. “Really what we’re not hearing is so much capitalization on the volatility side. We had an 18-year streak in the stock market.”
Additionally, Miskin mentioned that investors are actually selling their defensive stocks.
“We’re trying to say no, that’s not the answer,” he added. “You want to look at adding defense to the portfolio as we get into a later cycle. We’re not seeing that capitulation yet.”
All in all, my advice to you today is this: consider a second job to pay for your inflationary groceries, be nice to your neighbors, hit the gym, and watch out for stock market bottom calls.
odds and ends
At least Goldman isn’t looking for another drop in growth: Goldman Sachs chief economist Jan Hatzius cut his second-quarter GDP growth forecast from 2.9% to 2.5% (first-quarter GDP fell 1.4%). Hatzius warned that consumer spending is starting to ease under the weight of inflation and rising interest rates. Look for more investment banks to follow Hatzius this week after we get a key reading on retail sales and earnings from Walmart and Target.
The Twitter Saga: Nothing too hectic from Tesla CEO Elon Musk about the Twitter deal over the weekend, just some shots of Musk’s actual plan here. A good note from Jefferies analyst Brent Thill argued that Musk’s lofty growth targets for the platform are unlikely to be met. Separately, Yours sincerely and Julie Hyman had a heated discussion (see here) on Yahoo Finance Live about whether Musk should have given a presentation on Friday about the Twitter deal being put on hold instead of saying so via tweet. Julie says yes at the presentation, I say no. We’re curious to know what you think: send us a tweet @juleshyman Y @BrianSozzi.
Keep an eye out for Walmart and Target: If we do head into a recession later this year, little signs of concern will appear in this week’s first-quarter earnings from Walmart and Target. The first instinct is to think that, in a growth slowdown, consumers shop at discount stores to save money. That is not entirely out of place. But this, given the extreme inflation in food, clothing and other household items, you can choose to do without.
In turn, that would mean slower sales at discount stores like Walmart and Target, even at Dollar General and Dollar Tree dollar stores. When Target and Walmart report this week, the most important analysis you can do is this: Look at first-quarter “comparable sales” growth and compare it to trends over the last five quarters. It will give you a good idea of how the consumer is handling high levels of inflation and how they may handle it differently in the coming months.
what to see today
8:30 a.m. Eastern Time: empire makingMay (15.0 expected, 24.6 during the previous month)
4:00 p.m. Eastern Time: Long-term net ICT outflowsMarch ($141.7 billion over the previous month)
4:00 p.m. Eastern Time: Total net ICT outflowsMarch (162.6 billion during the previous month)
Before the opening of the market:
warby parker (WRBY) is expected to report adjusted earnings of $0.00 per share on revenue of $154.5 million
Weber (WEBR) to report adjusted earnings of $0.19 per share on revenue of $660.25 million
After market close:
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