For Immediate Release
Chicago, IL –September 24, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Credit Suisse (CS - Free Report) , Western Digital (WDC - Free Report) and Keysight Technologies (KEYS - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Is the S&P 500 Valuation Stretched? Global Week Ahead
A valuation top in U.S. stock market indices can be signaled in a variety of subtle ways.
One way a stock market’s broad valuation can come into question? When a frothy Initial Public Offering (IPO) market least expects it.
Case in point: In the last couple of weeks, a major Japanese investor SoftBank has lost faith in CEO Adam Neumann’s ability to lead the U.S. work-sharing office space group called WeWork.
In the Global Week Ahead, traders expect Softbank’s leader to call for a board meeting to demote the CEO of WeWork.
This comes after that trendy loss-making U.S. property group shelved its IPO. Prior to this, the CEO had to cut its IPO valuation steeply, over and over again.
Very secondarily, the WeWork CEO’s volatile behavior and drug use came to light.
Lo and behold: The forward 12-month P/E ratio for the S&P 500 index is a rich 17.0. This P/E ratio is now firmly above its 5-yr average (16.6) and well above its 10-yr average (14.8).
Next, I list Reuters’ five world market themes for this Global Week Ahead. They are kept in order of importance to equity market traders.
Chaos in the Repo Rate
The sudden stress in U.S. dollar funding markets in recent days has spooked people by stirring memories of the 2008 crisis.
A rocketing repo rate — the key measure of liquidity in the global banking system — and a jump in the U.S. Federal Reserve’s target interest rate to levels not seen since 2008, forced the New York Fed to intervene four times to maintain the Fed funds rate in the 1.75%-2.0% range.
It is unclear yet whether the tightness was a one-off, triggered by technical issues such as Treasury maturities and tax payments, or if there’s a systemic issue waiting to roil global markets.
So far there’s no sign of spillover overseas but investors are on the watch for any warning signals, given the dollar’s dominance in cross-border trade and investment. For instance, cross currency euro-dollar swaps, effectively a reflection of dollar funding costs for offshore investors, are nowhere near levels seen even during last October’s selloff, let alone during the 2011 euro debt crisis. This is where non-U.S. banks would go to source dollar liquidity if they find themselves shut out of U.S. money markets.
If the repo chaos continues into coming days, offshore markets are likely to start feeling the heat. Watch this space.
(2) Fed “Dot Plots” Say No More Cuts in 2019. Traders Disagree.
After the U.S. Fed’s second “insurance” rate cut of 2019, officials’ median rate forecasts hint at no more cuts this year.
The shift has come as a shock, given expectations prior to the Fed meeting were for several more cuts to contain the impact of U.S. President Donald Trump’s tariff tussles with China.
· New dot-plot projections show Fed policymakers at the median expect rates to stay within the new 1.75%-2.00% Fed funds range through 2020
· Futures traders, meanwhile, see a better than 50/50 chance that the target rate will be another 25-50 bp lower by the year end
· They will be watching for comments from Fed policymakers due to speak at various events in coming days
The Fed judges the U.S. economy can get on fine without further short-term stimulus. Upcoming data may show us whether that view is accurate or if, in chairman Jerome Powell’s words, “a more extensive sequence of rate cuts could be appropriate.”
August Durable Goods Orders will shed light on whether the trade war is eroding business investment. Orders for goods such as airplanes and toasters are seen having fallen 1% after rising 2% in July.
Of keen interest will be orders for non-defense capital goods, excluding aircraft — a closely watched proxy for business spending plans that increased 0.4% last month, even as shipments posted the biggest drop since October 2016. Core capital goods shipments are used to calculate GDP.
(3) Judgment Day for Boris Johnson’s Suspension of Parliament
Britain’s Supreme Court has concluded hearings on whether Prime Minister Boris Johnson acted unlawfully in suspending parliament for five weeks and a ruling is due in coming days.
A decision against Johnson may force him to recall lawmakers, giving them more time to challenge his plan to take Britain out of the European Union on Oct. 31 — with or without a divorce deal.
In fact, markets’ moods have improved of late, first of all as parliament passed a law to avert a no-deal Brexit by end-October. More recently, comments by EU Commission President Jean-Claude Juncker stirred hopes of a Brexit deal, sending the pound to its highest level since July and putting it on track for its best month this year.
There are positive noises from Ireland too, with Foreign Minister Simon Coveney acknowledging an improvement in “mood music,” though he and Brussels have stopped short of saying a deal is within reach. An EU diplomat in fact described documents submitted by London as a “smokescreen.” So, crashing out of the EU still remains an imminent possibility.
Meanwhile, the government has said it will abide by the Supreme Court’s ruling. If that comes to pass, it could be the catalyst for the next leg of sterling’s recent rally.
(4) A Big Week for Flash Purchasing Manager Indexes (PMIs)
While the Fed has been talking up the state of the U.S. economy, ECB chief Mario Draghi has urged Eurozone governments to step on the fiscal gas pedal if they want to see economic growth speeding up.
Given that background and the Fed’s promise to be “highly data-dependent” while setting interest rates, flash Purchasing Managers’ Index (PMI) readings are likely to be closely scrutinized — a strong number would tip the balance in favor of the hawks on the Fed board.
The ECB, on the other hand, has already pledged indefinite stimulus — and looking at depressed activity across the bloc, that seems justified. Monday’s survey showed German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened and the service sector lost momentum too. Hopes are that this will chivvy tight-fisted Eurozone governments into loosening their purse strings.
(5) An Update on New Zealand Monetary Policy
Australia and New Zealand have been locked in a dance of alternating rate cuts this year as the zest of two of the globe’s better-performing economies stales.
Markets are scrambling to price in extra easing on both sides of the Tasman Sea following a weak reading on Australian joblessness, which the Reserve Bank of Australia (RBA) says is crucial to its outlook. RBA chief Phil Lowe will speak on Tuesday, while the Reserve Bank of New Zealand meets in Wellington on Wednesday.
Markets don’t expect RBNZ chief Adrian Orr to move rates this month. But then, they hadn’t expected his 0.5% cut in August.
The bigger picture though, is that rates are heading downward. New Zealand’s economy is growing at its slowest in six years and Australian growth is at a decade-low.
All of Australia’s big four banks have now brought forward rate-cut expectations. That’s a lot of doves to feed.
Zacks #1 Rank (STRONG BUY) Stocks—
Credit Suisse: The market cap is $32B when shares trade at a paltry $12.80 like they do now. This delivers a good B for Zacks Value, as a result. But I note only a C for Zacks Growth here.
I was surprised to see a major global investment bank on our #1 Strong Buy list this week. Financial sector shares have been so beaten down.
Western Digital: Shares price at nearly a $61 dollar at the moment, allowing the huge computer storage player to mark up a $17.9B market cap. The long-term stock scores are poor, though. There is a C for Zacks Value and an F for Zacks Growth.
It’s all about a positive shift in direction for the chip and memory Info Tech markets down the road. Buy now. Not later.
Keysight Technologies:Shares price at a stiff $99 each, giving the stock a $18.5B market cap. There is a very poor F for Zacks Value, but an A for Zacks Growth, and an A for Zacks Momentum.
The Electronic Measuring Instruments industry has been a hot Tech momentum play for some time. This company is a key part of that. You might want to be careful here. Shorts can pounce at any moment.
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.