The Week Ahead - 1/19/24
A comprehensive look at the upcoming week for US economics, equities and fixed income
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As a reminder, some things I leave in from prior weeks for reference purposes, because it’s in-between updates, I want to be able to reference it in future weeks, etc.. Anything not updated this week is in italics. As always apologize for typos, errors, etc., as there’s a lot here, and I don’t really have time to do a real double-check (and it’s a staff of 1).
Note: I’m finding less and less time to complete this, so it’s probably messier than usual, I apologize. I’m working on ways to make this more efficient.
The Week Ahead
NOTE: I AM TRAVELING TO EUROPE THIS WEEK TO COMPETE IN THE IBJJF EUROPEAN JIU-JITSU CHAMPIONSHIP, SO NO FULL WEEK AHEAD NEXT WEEK, BUT I’LL TRY TO SEND OUT THE CALENDAR PART, AND NO PLANNED DAILY UPDATES UNTIL JAN 28TH, BUT I’LL SEND SOMETHING OUT IF SOMETHING REALLY NOTABLE HAPPENS (MOST LIKELY CATALYST NEXT WEEK IS WITH RESPECT TO THE TRUMP ADMINISTRATION TAKING POWER).
After two weeks heavy on US economic data releases, I had mentioned in a post on X that the upcoming week would be a good one for economists to plan a vacation around, at least as far as the data calendar is concerned (parsing the expected 100+ Trump executive orders is another I suppose). It’s about as light a week as we get on that front. Following the Monday holiday there’s just Dec leading indicators, and weekly jobless claims, mortgage applications, and EIA petroleum inventories before we get to Friday which has most of the week’s reports in Dec existing home sales and Jan flash PMI’s and final UofMich consumer sentiment (which will be interesting to see if the big jump in inflation expectations “sticks”).
In that vein, we’re also in the Fed blackout period, so that won’t be providing any headlines (a January hold is a lock at this point in any event).
And while we will get some non-bill (>1yr) US Treasury auctions, those are on the light side as well with just a 20yr bond reopening and a 10-yr TIPS auction.
4Q earnings will though be heavier, although at 30 SPX components representing 11% of earnings weight it’s just an appetizer to the following week’s 37%. Still there’ll be 15 >$100bn (NFLX, SCHW, PLD, PG, JNJ, ABT, PGR, GEV, ISRG, GE, TXN, UNP, AXP, VZ, NEE).
It’s also the week after Jan options expiration. This was not a particularly large one though, but with gamma “freed” by expiring options it leaves markets more free to move than the week before.
So the most significant event this week will almost unquestionably be what comes out of the White House. As noted, a flurry of Executive Orders on everything from trade and tariffs to immigration to cryptocurrencies to TickTok are expected, but what we actually get is very much up in the air.
From Seeking Alpha (links are to their website, see the full earnings calendar):
Earnings spotlight: Tuesday, January 21 - Netflix, Prologis (PLD), Interactive Brokers Group (IBKR), 3M (MMM), and Capital One Financial (COF).
Earnings spotlight: Wednesday, January 22 - Procter & Gamble, Johnson & Johnson, Abbott Laboratories (ABT), GE Vernova (GEV), Travelers (TRV), and United Airlines Holdings (UAL).
Earnings spotlight: Thursday, January 23 - Intuitive Surgical Group (ISRG), Union Pacific (UNP), Elevance Health (ELV), CSX (CSX), and American Airlines Group (AAL).
Earnings spotlight: Friday, January 24 - American Express, Verizon Communications (VZ), NextEra Energy (NEE), and HCA Healthcare (HCA).
Ex-US, the headline event is the policy decision by the Bank of Japan on Friday. While a month ago chances for a hike were less than 50/50, subsequent comments from Governor’s have brought that up to a 75% chance according to surveyed economists (and markets have it almost fully priced), although that is highly subject to what incoming Pres Trump does/says this week. Before that though, the World Economic Forum in Davos will draw headlines with a number of global leaders in attendance (Pres Trump will make a video appearance Thurs), as will the flash PMI’s (also Friday) in addition to a number of other key economic reports.
Bank of Japan Governor Kazuo Ueda will size up the need to raise interest rates on Friday amid heightened expectations of a hike — and barring a market shock triggered by Donald Trump’s first few days in the White House. Some 90% of economists surveyed by Bloomberg this month said prices and economic conditions warrant an increase in rates from 0.25%. Of the surveyed economists, about three-quarters expect the central bank to move this week. Overnight swaps on Friday briefly showed a January rate hike almost fully priced in among traders. BOJ officials also see a good chance of a rate increase as long as Trump doesn’t trigger too many immediate negative surprises, Bloomberg reported on Thursday, citing people familiar with the matter. A likely upward revision of price forecasts and robust wage growth expectations are among the factors favoring a move, the people said. So what might stop Ueda? Economists flagged the possibility that potential market turbulence sparked by Trump might give the BOJ a reason to wait a little longer. Wide-ranging tariffs are among the key concerns for all major trading partners of the US, including Japan, with the president-elect likely to deliver a barrage of executive orders on day one of his second administration.
Meanwhile, Canadian Prime Minister Justin Trudeau will huddle with his cabinet at a retreat in Quebec during the first two days of Trump’s presidency, allowing them to swiftly respond if Trump carries out his threat of steep tariffs on the country’s goods. Amid the uncertainty, the race to become Canada’s next premier has kicked off, with ex-central banker Mark Carney and former finance minister Chrystia Freeland entering the Liberal leadership contest. Bank of Canada surveys for the fourth quarter and inflation data for December will also be released.
Ahead of the BOJ rate decision on Friday, the nation will release inflation figures likely to show an uptick that further supports the case for a hike. The Monetary Authority of Singapore holds its first meeting of the year the same day, with some economists seeing a risk of an easing move. Earlier, on Wednesday, Malaysia’s central bank is likely to extend its long policy pause and leave its benchmark rate at 3% — a level unchanged since May 2023 — as price pressures remain manageable. New Zealand publishes an all-important inflation report for the December quarter earlier in the day that will feed into its central bank’s decision-making when it meets in February for the first time this year.
Also on Wednesday, investors will get insight into the mood of South Korean households after consumer confidence tumbled last month in the wake of the political turmoil triggered by the brief imposition of martial law that led to President Yoon Suk Yeol’s impeachment. On Thursday, advanced gross domestic product estimates may show South Korea’s economy picked up a tad in the final three months of 2024. The week will also see trade data from the Philippines, Malaysia and Japan, while India and Australia report purchasing manager indexes. Taiwan will release estimates of gross domestic product on Friday.
The Davos gathering will be in the limelight in Europe as global leaders and financial officials mingle with business executives in the Swiss mountain resort. European Central Bank President Christine Lagarde and other Governing Council colleagues will be there, as will Swiss National Bank chief Martin Schlegel. Embattled UK Chancellor Rachel Reeves is another scheduled attendee. Her comments will be closely scrutinized given the market focus on the country’s fiscal challenges. Back in Britain, wage data will be watched in earnest given persistent worries about inflation. An uptick in pay pressures is widely anticipated by economists, though the Bank of England should still be able to proceed with a rate cut next month. Norwegian officials on Thursday are widely tipped to keep borrowing costs at a 16-year high. They may reiterate that their first post-pandemic cut from the current level of 4.5% could arrive in March, along with uncertainty regarding further easing beyond that. Most economists see a total of four quarter-point reductions this year.
Away from Europe, South African data on Wednesday will likely show inflation in December quickened to 3.2% because of higher gasoline prices and a weaker rand. Forward-rate agreements used to speculate on borrowing costs are now pricing in just a single 25-basis-point rate cut in 2025, likely coming on Jan. 30. Turkey’s central bank has cautioned that the 250 basis-point rate cut it delivered in December doesn’t necessarily mean an easing cycle has started. But many economists and traders reckon it has, and expect another move of the same size on Thursday, taking the base rate to 45%.
In Latin America, the region’s two biggest economies report mid-month inflation and both are likely to print lower — but the similarities end there. Economists surveyed by the central bank expect Brazil’s January’s monthly inflation rate near zero before it jumps above 1.3% in February. Mexico’s riding a bumpy but unmistakable bout of disinflation on tight monetary policy and slowing growth, with forecasts from analysts surveyed by Citi implying a slowdown to within the bank’s 2%-to-4% target range. The full-month and mid-month readings in each economy often track quite closely. Argentina posts December trade figures along with its consumer confidence index and monthly wages data. Colombia publishes imports and the trade balance for November. Mexico, Argentina and Colombia publish economic activity data that will close the books on November for Latin America’s big-six economies. Of the group come year-end, Brazil’s economy likely led the pack with growth above 3%, but it will give way to Argentina in 2025, which some analysts expect to expand as much as 5%.
And here’s BoA’s cheat sheets.
And here’s calendars of 2025 major central bank meetings.
Market Drivers
So let’s go through the list of items that I think are most important to the direction of equity markets:
Fed/Bonds
As noted previously this was one of the sections that had grown unwieldy, so I’ve really pared it down. Given I provide daily updates on Fed expectations, Fedspeak, and analyst thoughts on the Fed, it’s duplicative (and time consuming) to gather it all again so, again, I encourage you to look at those (the daily posts) for updates. I will just give more of a quick summary.
I noted four weeks ago,
just a few cuts before a prolonged hold would be consistent with the 90’s “soft landing” experience, and it’s certainly not implausible that inflation gets “stuck” around current levels and growth and labor markets remain in good enough shape keeping the Fed to just one or two (or I guess no) cuts in 2025, but I think it’s also not unlikely that we see continued softening in labor markets and the economy, and with just 18% of investors expecting a recession in 2025, it feels like a growth scare and a quicker path of Fed rate cuts is underpriced.
And last week
the strong NFP print coupled with a jump in inflation expectations (and a drumbeat of hawkish Fed speakers during the week), markets moved to more fully price the “90’s ‘soft landing’ experience” seeing rate cut expectations dialed back to perhaps one cut (with pricing for none shooting higher as did pricing for a possible hike). I continue to think we’re pushing too far in the direction of no cuts, but until inflation shows some signs of resuming its descent or the labor market shows renewed signs of weakening (which at this point would take more than one month’s data) that’s where I think pricing will stick. So the inflation prints this week are important, but will be taken within that context.
And with that background we did see softer inflation prints, which did see some unwinding of the move to no rate cuts and jump in bond yields. We remain a long ways away from where we were a couple of months ago, but seems that we’re moving back towards a more balanced direction. For the time being, though, all we can do is wait and see where the data progresses given the extreme data dependency of the current Fed.
The 2/10 curve hit the steepest since May ‘22 Tues at +0.41% Fri according to the St. Louis Fed, before falling back to +0.34% by Friday. As a reminder, historically when the 2/10 curve uninverts following a long period of inversion the economy is either in a recession or within a few months of one. It uninverted in Sept, so this looks officially like a "this time is different" situation.
I had said 4 weeks ago “this should steepen further following the FOMC meeting I think,” and it had certainly done so, but I still think has a little more to go given the richness in 2yr yields (more below).
The 3mos/10yr yield curve (considered a better recession signal than 2/10’s w/the last four recessions on average coming a few months after the curve uninverted (prior to that it generally uninverted after a recession had already started)) fell back with the rise in 10yr rates from the steepest since Oct ‘22 to 0.27% (-14bps w/w), but still up +1.40% since Sept 11th). It uninverted Dec 12th.
I have been a broken record that the 2yr #UST yield was too high trading above the current Fed Funds effective rate (meaning the 2yr was pricing a higher chance for net rate hikes than cuts over the next 2 years). Since then it has softened so that it’s now below, but at -10bps, not even a full cut, so I think there’s probably more to go unless we see inflation reaccelerate as it did in the past few 1Q’s.
Long term inflation expectations (as measured by the 5-yr, 5-yr forward rate (exp'd inflation starting in 5 yrs over the following 5 yrs), specifically mentioned by Powell at the Nov FOMC press conference (he said the metric was “right where it’s been, consistent with 2% PCE inflation”), fell back this week from the highest since Oct -5bps w/w to 2.30% as of Thursday (just +1bps since the Nov FOMC).
10-yr breakevens also edged lower after hitting the highest since Oct ‘23 on Monday at 2.45%, but just to 2.41%, equal to the highest it hit in all of 2024.
With nominal 10yr Treasury yields falling more than inflation expectations last week, 10yr real rates, after hitting the highest since Oct ‘23 (and before that 2007) on Monday at +2.34%, fell back to +2.19%, -10bps w/w, still though around the highest we saw in 2024 and well above the 2010-2020 peak of 1% (but down slightly from the post-pandemic peak Oct ‘23 of 2.5%).
10yr real rates using 5-yr, 5-yr forward inflation expectations (subtracted from the 10yr nominal yield) similarly hit the highest since Oct ‘23 (and before that 2007)) on Monday at 2.45%, before falling back to 2.28% by Friday, still well above the 2013-2020 average of around 0.5% (but down slightly from the post-pandemic peak of 2.5% in October '23).
And as a reminder according to BoA the importance of real rates on equity returns has seen the largest increase in the factors they track over the past 5 yrs and explains a larger proportion of stock returns (83% correlation) in their data (to 2006), with the dollar close behind the most correlated (76%) since 2015.
Shorter-term real yields (Fed Funds - core PCE) fell following the FOMC rate cut to 1.82%, the least since Sep ‘23 and down from 2.70% in June (which was the highest since 2007), but still well above anytime in the 2010-2020 period. [this will be updated end of Jan w/PCE]
And the real prime rate (using core PCE) continues to edge lower from the 5.9% in June, which was the highest since Sep 2007. Now down -90bps at 5.0%, still though more than double the 10yr pre-pandemic avg. [this will be updated end of Jan w/PCE]
And looking out longer term, one thing to note is the FOMC’s long run projection for the endpoint of the Fed Funds rate (the “neutral rate”) is now the highest since Sep 2018 at 3.0% (and not unlikely to go higher as I said earlier this yr). [This won’t get updated again until March].
The ACM model of the 10yr term premium (which is solely based on interest rates) hit +0.58% as of Friday, the highest on this model since May 2015. It’s now ~+65bps since the FOMC did the 50bps cut in Sept.
I had been a broken record since the Spring that I thought at some point (I thought most likely around the election) the term premium pushing up longer duration yields could resurface as an issue perhaps cause some mild equity indigestion as it did in Oct of last yr, and while the market initially ignored it, it seems to be a factor in the recent weakness over the past month.
https://en.macromicro.me/charts/45452/us-10-treasury-term-premium
FWIW the the St. Louis Fed 10yr term premium estimate (which runs a week behind and is based off the Kim and Wright (2005) model (which differs from other models in that it incorporates non-yield curve factors such as inflation & GDP) shows an even higher term premium as of Jan 10th at +0.80%, up +10bps w/w, the highest since Apr 2011, and up +78bps since Sept.
The extended discussion on term premium (what it is, why it’s important, etc.), can be found in this section in the Feb 4th Week Ahead.
As the MOVE index of expected 30-day bond volatility edged lower w/w, remaining closer to the lows of 2024 than the highs. It mostly ignored the rise in yields since Sept falling until December before edging higher.
With bond volatility remaining contained (at least according to the MOVE index), 30yr mortgage spreads remained near the least since June ‘22 (2.27%) at 2.32%. While spreads are around +60 bps above the 2010-2020 avg level, they are well off the 3.1% peak in June ‘23
Which has kept 30yr mortgage rates from moving much over 7% like they did in Oct ‘23 (when they peaked at 7.8% according to Freddie Mac). Still at 7.04% as of Thursday, rates are the highest since May.
Chicago Fed National Financial Conditions Index and its adjusted counterpart (which attempts to remove the correlation between the various indicators due to broad changes in economic conditions), both of which are very comprehensive each w/105 indicators, in the week through Jan 10th, despite the continued rise in real rates, fell again to the least since Nov 5, 2021 (which happens to be my birthday).
https://www.chicagofed.org/research/data/nfci/current-data
As the Fed continues to drain liquidity from the system via QT, I think it’s important to watch for stresses which give an early warning signal that they are perhaps going to far as they did in 2018 which led to a near bear market. One area I am monitoring is reverse repos (which is an overnight secured place institutions (mostly money markets and banks) can park excess funds to accrue some interest designed by the Fed originally to keep excess liquidity from pulling down rates too much in other short term markets). RRP grew rapidly in 2021 & 2022 as money was pumped into the system but since May ‘23 has been steadily drained down by the Fed’s QT program and higher bond issuance with banks discouraged by regulatory rules from taking up the increased Treasury supply.
In particular, the continued sizeable issuance of T-bills (<1 yr duration) of around $800bn/month (accentuated by the $60bn in balance sheet runoff (meaning the Fed has reduced its buying of maturing Treasuries by that amount which the private market has to fill)) drained ~$1.75 trillion from RRP in the year through March 1st. From then until early July RRP levels had remained relatively stable in the $375-$500bn range, but since early July they resumed their decline (in fits and starts), hitting new lows on Dec 20th at $98bn, the least since Apr ‘21 on the back of the Fed cutting RRP rates to the low end of the Fed Funds band which made parking funds there (versus lending overnight to other institutions or buying T-Bills) less attractive in line with their desire to sop up most of this “excess liquidity” (as they have described it).
RRP on Thursday hit the lowest since Apr ‘21 at just $94bn (-$74bn w/w) consistent with my note last week that “I expect this to continue its decline given the Fed has made parking funds in RRP less favorable (at least until the Treasury hits the debt limit and can no longer issue new bonds (just refinance maturing ones). So for now, it seems there is a cushion to absorb issuance (in addition to the normal buyers).”
That cushion though is just about exhausted, at which point the Fed will have to be very much on their toes watching for stresses in the short-term funding markets which tripped them up in 2018, although BoA continues to expect that not to be a problem until the debt limit is raised as the Treasury draws down the TGA providing liquidity (more below).
As noted previously, despite the drawdown in RRP Dallas Fed Pres Laurie Logan (who is an important voice given her extensive experience in the NY Fed's markets group) has said she believes current liquidity is “more than ample” (and the current NY Fed Pres Williams said something similar two weeks ago) and said she's looking for RRP to fall to "negligible" levels. As I said then “she's the expert so I'll defer to her, but I continue to be on the lookout for funding stresses now that RRP has crossed below $100bn, and I still think at zero RRP the Fed may need to stop QT to avoid another liquidity shortage as they did in late 2018.”
Also, we’ll have to see how the debt ceiling impacts things. With T-Bill issuance likely to be paused sometime in January (Janet Yellen said last week that “extraordinary measures” would start in January), until the debt ceiling is raised the likely consequence is a build in RRP as money markets, etc., need another home for their short-term lending. This was what BoA predicted back in Sept (more below). Their analysis has been pretty accurate (they saw RRP falling to $185bn by YE (about where it is now).
And I noted previously that BoA had pushed pushing back their est for the end of QT to Mar ‘25 (which the noted “could create a funding blind spot for the Fed” in the event the debt limit remains unresolved (you can follow this link and look in this section for more details on that). In summary their thinking was that, similar to 2023, the Treasury’s depletion of its General Account (TGA) when it cannot issue new debt (just refinance existing debt) will offset what would otherwise be a continued drawdown of liquidity. That will keep liquidity stable but will rapidly reverse once the debt limit is ultimately raised (which BoA est’s will again be in July as they assume Congress will take it to the very last second as is their habit), which could lead to a funding squeeze when auctions restart they will need to be resized to “catch up”. That didn’t really cause any issues when it happened May 2023 (the last late debt ceiling extension), but we also had a lot more liquidity in the system (RRP levels were at record highs above $2tn (arrow) but they fell sharply from there, down around -$1.7tn over the next 10 months). We have nothing like that amount of “free liquidity” this time around.
This week BoA pushed the end of QT out again to Sep ‘25 due to “(1) limited volatility in funding markets (2) minimal discussion around balance sheet policy in recent Fed communications, [and] (3) lack of concern around debt limit related dynamics.” Similar to the above discussion, they “think the timing of QT end largely depends on the timing of debt limit resolution and the speed / size of TGA rebuild… We see a summer deal ahead of the August X-date as our base case… Using debt limit assumption of an end-July DL resolution, we assume a QT end date in Sept 2025. It is possible QT ends in July prior to TGA rebuild… We expect the debt limit resolution to trigger a rapid rebuild of the TGA via bill issuance, which will quickly drain ON RRP and eventually reserve balances.”
In terms of their specific forecasts they think once the debt limit is raised we’ll see “$468b in bills issued and $470b in TGA rebuild liquidity drain, over 6x the pace of monthly QT in only 2 months. At this point funding pressure and volatility in funding rates will likely lead the Fed to end QT. The pace and magnitude of the TGA rebuild will be important for funding markets. A slow TGA rebuild & lower terminal TGA value will mean a more gradual liquidity drain and more limited funding pressures. A faster rebuild & higher TGA value will mean more acute funding pressure post debt limit resolution.”
They think that “most of the TGA rebuild will initially pull cash out of ON RRP [which they think will have rebuilt to $350bn] since TGA rebuild will likely see higher bill supply at cheaper front-end rates. Cheaper bill rates will draw MMFs cash out of RRP. Once the RRP reaches $0 the remaining drain will come out of reserves. Once QT ends for USTs, we expect the Fed to continue to roll off prepaid and maturing MBS but reinvest MBS into UST bills”.
BoA FWIW believes “the Fed should have ended QT by end ’24 to prevent an unintended over-draining of system liquidity. We believe a Fed that continues QT into Q3 will see money market volatility + potential bank liquidity concern as TGA is rebuilt. The Fed’s justification for continued QT seems to be a belief that (1) banks demand fewer reserves than we expect ($3-3.25tn) (2) their liquidity adding repo tools are sufficient to keep money market pressures contained. We are skeptical on both. Longer QT risks over-draining & cheaper front-end USTs in Q3 ’25.”
So, in summary, until the debt ceiling is raised, BoA sees liquidity stresses being forestalled, but once it is they think we will quickly see RRP drain to zero necessitating an end to QT.
And the reason monitoring RRP is important is that once it’s gone, it’s up to bank reserves to absorb any extra debt issuance, etc., that is not sold to foreign and domestic buyers. However, banks have been loathe to part with reserves beyond the $3tn level. For now, they remain comfortably above that at $3.34bn, the most since Sept.
I’ve noted previously that it seems that as long as reserves remain above the $3tn level (which is where we saw indigestion in the credit markets in March ‘23 (which contributed to the banking issues (SVB, etc.)), it seems they indicate more than sufficient liquidity in the system.
Overall, bank reserves are just -$20bn below June 1, 2022 levels ($3.36tn), when the Fed started QT, a better result than even the most optimistic estimates at the time.
For background on various estimates of when reserves will be “too low” see the Feb 4th Week Ahead.
Getting back to rates, I said 9 months ago 2-year Treasuries were a good buy at 5%, and as I noted once the Fed started its cutting cycle the ship has likely sailed on seeing those yields anytime soon (meaning years). In terms of 10’s I had advised then grabbing some at 4.7% which I had thought seemed like something we wouldn’t see anytime soon, but as I noted three weeks ago
the Fed saying the ‘recalibration phase has ended’ along with concerns about sticky inflation cropping back up and now questions about the inflationary impact of some of Donald Trump’s policies, has seen rates just about back there. I still am not sure we see 5% absent another ‘something new’ (like the Fed becoming even more aggressive (for example due to Dec’s data coming in hot (payrolls and CPI/PCE prices)).
And I noted last week
we once again did get “something new” in the strong payrolls print (which came along with an unexpected jump in consumer inflation expectations). That has pushed 10-yrs above the 4.7% level, perhaps now on their way to 5%. There are a lot of institutions that have said they’re buyers at that level, so we’ll see what happens if we get there. I certainly will be picking some up. That said, IF the Fed is truly done with the rate cutting cycle (which I don’t expect), then the 10yr yield should really be somewhere in the 5.3-5.5% range.
As noted above, though, with the cool inflation prints, some of the steam was taken out of the bond rally, so for now we can just watch and wait. For now I’m not selling any of the 2 or 10yr exposure I picked up.
In terms of much lower yields, as I said 13 weeks ago, we have probably seen the lows until we get a recession:
“while we didn’t quite see 3.5%, I think 3.6% is close enough, and I think we might have been at or near the lows at this point, particularly as the Fed has been raising their neutral rate estimate. If the endpoint for Fed Funds is around 3% (or higher) then it’s hard to see the 10yr trading much lower absent a recession. Similarly 2yrs at 3.6% seem to be very rich and almost certainly too low absent a recession consistent with my statement last week.” In short I’d expect to see 4% on these before we see 3.2%:
At around 3.6% on both the 2 & 10yrs absent a recession I think there’s not much value in either (I’d rather park my cash in short term Treasuries (0-3mths) or safe dividend paying stocks with a track record of growth (dividend aristocrats, etc.) at these levels.
For all the old “final hike” and “first cut” materials, you can reference the Feb 4th blog post.
BoA updated their FOMC Dove-Hawk Chart. Note it’s missing Hammack in ‘26 (Cleveland and Chicago vote every 2 yrs), but otherwise looks right. Also note that Philadelphia Fed Pres' Harker’s term is up next year (which is why they don’t have a name for Philadelphia), something I didn't realize.
I think this now needs some dramatic changes with Hammack (who dissented voting for no cut in Dec) clearly one of the most hawkish members, Daly at best a Centrist as she sees only 2 cuts in 2025, and perhaps Collins as well. Goolsbee is clearly the most dovish of the members currently.
And I came across one from BBG. I think it’s pretty accurate except Kashkari is definitely not that hawkish (he was calling for a December cut in early November):
And here who is rotating off and on for 2025.
Earnings
As a reminder, I have removed most of the background material, which you can get in the Feb 4th blog post. As you know I’ve moved on to 4Q and beyond. You can reference this post from 12/1/24 for stats on 3Q.
From Factset:
With 9% of SPX earnings in for Q4 (79% beat rate, above the 5-yr avg of 77% and 10-yr avg of 75%, +9.1% above exp’s better than 5-yr avg of 8.5% and 10-yr avg of 6.7%), earnings estimates as compiled by Factset jumped eight tenths w/w to +12.5% (down now just -2.0% since the start of the quarter, less than the 5 & 10yr avgs). This would be the most growth in three years and would mark the 6th consec quarter of earnings growth.
As we’re already starting to see, it’s normal for there to be a “beat” which sees actual earnings surpass estimates as of the end of the quarter (only 3 times in the past 40 quarters has that not happened (Q1 ‘20, Q3 ‘22, Q4 ‘22) according to Factset. The estimate at the start of the quarter was +11.9%. The 10-yr avg has seen a lift of +5.4%, 5-yr is better at +7.1%, but the past 1-yr has only been +2.2%. That would mean even at the low end earnings growth would end up over +14%, at the high end around +19% (!).
In terms of Q4 revenues (67% have beaten below the 5-yr avg of 69% but above 10yr avg of 64%, at +1.3% above est’s), Factset says SPX co’s are expected to see revenue growth of 4.7% y/y (unch w/w), down from +5.2% on Sept 30. It would mark the 17th consecutive quarter of revenue growth for the index.
In terms of profit margins, Factset says SPX co’s are expected to report net profit margin of 12.1% for Q4 (+0.1% w/w), which is below the previous quarter’s net profit margin of 12.2%, but above the year-ago net profit margin of 11.2% and the 5-year average of 11.6%.
2025 quarter-by-quarter earnings expectations on net decreased this week but not uniformly. Q1 ‘25 fell two tenths to +11.6% (-2.5% last 11 wks) but Q2 ‘25 was unch again this week at +11.6% (-1.7% last 11 wks), while Q3 was down a tenth to +15.2%, and Q4 fell five tenths (after increasing six tenths the prior week) to +16.7%.
Despite Q4 earnings expectations increasing, FY ‘24 exp's fell -17 cents to $239.16 (now the lowest since the start of 2024), representing +9.4% growth. Looking further back, though, it remains down just around -2.5% from July 1, 2023, much better than the typical -6% or so drop we historically see.
2025 earnings expectations fell back more -$1.18 to $274.01 (still though +14.8% growth), this week hitting the least since the start of 2024.
FWIW 2026 earnings are exp’d to grow 13.6%.
In terms of the +14.8% earnings growth exp’d for 2025 Factset notes it will be a record at $275.19, although also notes that there is on average over the past 25 yrs a -6.3% deterioration from where it starts the year ($275.05) w/analysts overestimating in 17 of those yrs (which would equate to $257.72). But it should be noted that average includes 4 outlier years (2001, 2008, 2009 & 2020) where the overestimation was b/w 27-43% due to recessions. Excluding those, the difference is just -1.1% (which would equate to $272.02).
Factset also notes that “"analysts believe earnings growth for companies outside the 'Magnificent 7' will improve significantly in 2025. While analysts expect the 'Magnificent 7' companies to report earnings growth of 21% in 2025, they expect the other 493 companies to report earnings growth of 13%...a substantial improvement to ...just over 4% earnings growth for these same companies for CY 2024."
In terms of exp’d 2025 revenues, analysts are looking for 5.9% +0.1% w/w), above the 10-year average of 5.1% (2014 – 2023). Ten of the eleven sectors are projected to report year-over-year growth in revenues, led by the Information Technology sector. The Energy sector is the only sector expected to report a year-over-year decline in revenues.
They also see at a record profit margins at 13%, well above the 10-yr average of 10.8% and the highest since Factset started tracking the metric in 2008 (previous high was 12.6% in 2021).
In terms of how markets are handled earnings beats & misses for 4Q, looking 2 days before to 2 days after an earnings release, Factset sees beats rewarded more than average at +1.7% vs 5yr avg of +1%, and misses punished much more than average (-6.3% vs 5yr avg of -2.3%).
Factset’s analysis of analyst bottom-up SPX price targets for the next 12 months as of Thursday was up +3pts w/w to 6,758 (+13.8%), now up ~1,723 points over the past 42 weeks.
Health Care (+19.2% down from 20.0% last week but up from +13.1% six weeks ago before the “Kennedy” selloff) replaces Materials as the sector with the largest upside seen by analysts, while Consumer Discr remains as the sector expected to see the smallest price increase (+4.2% up though from -3.3% four weeks ago (the first negative in over a year)).
As a reminder the last 20 yrs they have been on avg +6.3% too high, but note they underestimated it five of the past six years (including 2024).
In terms of analyst ratings, buy and hold ratings continue to dominate at 54.6% & 39.7% (from 54.5 & 39.7% respectively last wk (sell ratings edge down a tenth to 5.6%)). That 54.5% in buy ratings is down from 57.5% in Feb ‘22.
Energy (62%), Communication Services (62%), and Information Technology (62%) sectors have the highest percentages of Buy ratings, while Consumer Staples (40%) has the lowest percentage of Buy ratings. Industrials and Utilities have the most sell ratings (8%).
And some other earnings stuff:
Economy
Over the past 2+ years part of my earnings optimism has been due to the economy holding up better than expected. While earnings only track the economy loosely (and markets look forward 6-12 months), there is a clear positive correlation between the economy and earnings (particularly a weak economy and weak earnings), and there is a very strong correlation between earnings and stock prices (although stock prices (being as noted forward looking) generally fall in advance of a recession and bottom 6-9 months before the end of one). So if you can see a recession coming it is quite helpful, although very difficult (especially ahead of the market). You can reference this Week Ahead (see the Economy section) for a lot of material on how every recession is preceded by talk of a “soft landing” as close as a month before the start. That report also has the notes about how small caps have shorter debt maturity profiles and more of it (debt).
As I’ve been stating since I switched to the Week Ahead posts in mid-2022, the indicators to me are consistent with solid (which at times has been robust) economic growth, and I have been a broken record that I “certainly do not think we’re on the verge of a recession (although as noted above every recession starts out looking like just some economic softening).”
This week again the data continued to show signs of some acceleration from the more mixed performance we’d seen in late November/December. While retail sales at the headline level came in below expectations, the control group number (which feeds into GDP) was very strong, industrial production was better than expected as Boeing production bounced back (although y/y it remains little changed), jobless claims remained low, and housing starts and building permits came in stronger than expected. Also helpful was that consumer and producer prices both moderated which reduces the inflation “tax”.
So I don’t really see any changes to my overall takeaway on the economy from 16 weeks ago that “the situation continues to seem like manufacturing is subdued but trying to bottom, housing perhaps has inflected off the bottom [although should remain constrained for now by the resurgence in mortgage rates], labor markets (and the services sector and construction in particular) are solid with very healthy wage growth, and productivity appears to be robust (this can make a big difference in allowing the economy to expand without triggering inflation)…I continue to feel that any softening does not appear to be morphing into a recession.”
And as I said 21 weeks ago:
without question, the evidence is building that the days of >3% real GDP growth are behind us (although we got there in Q3), and we should be happy to settle into something more around trend (1-3% real (infl adjusted) growth). That though is far from a disaster. The important thing will be to see the softening level out (L-shape) rather than continue to fall turning the “soft landing” into a recession.
So far that’s what we’ve seen.
In that regard, the Citi Economic Surprise Index improved for a 3rd week +8.3pts to 22.5, the best in a month, and up now +24.2 pts this year after falling to the least since Sept and into negative territory on Dec 31st. It’s still down -20.5pts from 43.3 six weeks ago, but now much closer to the highs of 2024 (47.2 in Feb) than the lows (-47.5 in July).
https://yardeni.com/charts/citigroup-economic-surprise/
And GDP estimates are for now consistent with a no recession call (again though remembering GsDP going into recessions generally doesn’t look like one is coming (it was up around 2% in Q2 & Q3 2008 well after the recession had started)). After Q3 was revised up to 3.1%, trackers for Q4 are mostly in agreement that we should see around 2-3% (so above trend) GDP growth again (with +3.0% from the Atlanta Fed (who has been pretty accurate, but jumps around a lot) as the highest).
Goldman (who was 3.0% for 3Q vs 2.8% actual 1st est) last I saw had their 4Q GDP estimate at +2.5%.
Atlanta Fed (who was right in line in its 3Q est of #GDP (and just a tenth off for 2Q from the 1st est)), saw its 4Q GDP estimate rise another three tenths to 2.7% as of Friday.
BoA (who as a reminder est’d 3.0% for 3Q vs 2.8% actual), raises their 4Q GDP tracking this week (through Thurs) two tenths to 2.0%, one of the lowest of the trackers I follow, from the least since they started tracking in November. Their “official” house est is 2.0% y/y growth in 4Q.
NY Fed’s 4Q #GDP Nowcast (as a reminder, they had 2.91% for 3Q vs 2.8% 1st est) up two tenths to 2.56%, now up +0.66% from 1.90% two weeks ago, mostly on today’s reports (industrial production (+0.07%) and housing starts (+0.06%)). Retail sales and Philly Fed manufacturing added a few hundredths, NY Fed manufacturing and CPI subtracted a couple of hundredths.
As a reminder, the NY Fed’s model is dynamic and so adjusts in real time as data evolves, and “parameter revisions” subtracted -0.02%.
They raised their Q1 ‘25 GDP forecast even more to +3.0%, up from 2.11% two weeks ago, on the same items (although parameter revisions added +0.03% here).
And the St. Louis Fed GDP tracker, which outside of Q1 ‘24 (where it was right on) has undershot actual real GDP since Q2 ‘22, jumped another +0.48% (up now +1.48% in two weeks) to 2.39% for Q4 the closest it’s been to the other GDP trackers since it initiated its tracking.
The Weekly Econ Index from the @DallasFed (scaled as y/y rise for GDP), which runs a week behind other GDP trackers, in the week through Jan 11th got back some of the prior week’s big drop of -0.74% to 1.96% improving +0.27% to 2.23% leaving it in the middle of its 2024 range (1.49 - 2.66%) that it left only twice.
The 13-wk avg though edged up two tenths to 2.20%, evidencing overall economic momentum above trend.
https://www.dallasfed.org/research/wei
Other economy stuff:
Valuations
Like the other sections, I’ll just post current week items regarding the multiple. For the historical stuff, see the Feb 4th blog post.
With equities up and 2025 earnings expectations down, forward P/E’s were up as well:
-The $SPX forward P/E up five tenths to 21.7 (now just 0.6pts from the highest since mid-'21).
-Mid-caps (S&P 400) up eight tenths to 16.3 (down 0.8pts from the highest since early-’21 (17.1)).
-Small caps (S&P 600) were up six tenths to 15.8 (now down -1.3pts from the highest since early-’21 (17.1)).
-Yardeni's “Megacap-8” (adds NFLX) P/E up three tenths to 29.8, +3.4 pts from the 26.4 it hit 17 weeks ago (which was the least of 2024) a little closer to the 31.5 it hit 23 wks ago (which was the highest since Jan ‘22)).
https://yardeni.com/charts/stock-market-p-e-ratios/
Other valuation stuff:
Breadth
Breadth got back on track after falling to new multi-month lows on longer-term metrics the prior week.
The McClellan Summation Index ("what the avg stock is doing") after turning back down the prior week now up to the best of the year (after hitting the least since Nov ‘23).
% of stocks over 200-DMAs turned back higher after hitting the least since Nov ‘23 on the NYSE and since Sept on the Nasdaq in the prior week, with the former seeing a bigger move now the best in a month.
% of stocks above 50-DMAs, like those over 200-DMAs, saw improvement but more notably on the NYSE. Still a ways away from where we were entering December though.
% of stocks above 20-DMAs though the biggest improvement with the NYSE all the way back to November levels with over 70% of stocks above the 20-DMA and the Nasdaq back to December levels (still under 50% though).
Value/Growth wasn’t able to make much progress remaining not far from the least since Jan ‘22.
The equal-weighted SPX vs cap weighted ratio unlike value/growth was able to make some progress last week at one point hitting a 1-mth high, but overall not far from the all-time lows hit in July.
Like value/growth IWM:SPY (small caps to large caps), not much progress last week remaining not far from the least since July (which was the least since 2000).
Equity sector breadth based on CME Indices was much improved with 9 of 11 sectors green (and if you go by the SPX every sector was in the green) up from 3 and 2 the prev two weeks, and no sector down more than -0.7% (every red sector was down that much the prev week). Non-growth cyclicals led taking 4 of the top 5 spots.
SPX sector flag from Finviz consistent w/lots (and lots) of green outside of just a few stocks mostly in health care but also some big names in Apple, Walmart and Meta.
Other breadth stuff:
Flows/Positioning
Overall global flows from BoA (EPFR data): $13.0bn to stocks, $11.4bn to bonds, $1.3bn to gold, $0.9bn from crypto, $83.5bn from cash; Fed hawkish = end of long-end sell-off.
Here were some more details.
ICI data on money market flows saw a -$54.9bn outflow in the week through Jan 15th, smaller than the -$83.5bn EPFR saw, but still a pretty chunky drop (after ~+$962bn in 2024 and +$1.15tn in 2023) pulling total MMF assets to $6.86tn from a record high. Notably all of the drop was institutional (-$55bn) with retail seeing a small addition (+$60mn). In terms of totals, 60% is institutional, 40% retail.
Looking at CTA (trend follower) equity positioning, BoA says according to their models “trend follower S&P 500 and NASDAQ-100 positioning remains long but at less elevated levels relative to FX and bond positioning…. Our model indicates that that CTAs could be adding to S&P 500 and NASDAQ-100 longs next week.”
So, after adding last week to SPX & NDX positions, it looks like they might continue adding although it looks like they could also pare back as price trend has weakened, so the price pattern matters in the upcoming week. The RUT is a different story with no scope for adding but selling on a bearish price path. The good news is at some point, there’s lots of room for them to add exposure to all of these indices.
Price trend strength remains strongest for the $NDX (51% down from 61%), versus the $SPX (33% down from 43%) and $RUT (now -19% down from 50% three weeks ago). #Japan’s #Nikkei225 also fell back to 29% (from 37%) while the Euro #Stoxx50 remained at 20%, but they see CTAs likely to be rapidly adding to equity longs in Europe, especially in European Banks”.
In terms of gamma positioning, BoA says after gamma fell sharply two weeks ago to just the 9th %ile, “SPX gamma started the week minimal in size (+$0.4bn on Monday) but climbed sharply on Wednesday to +$4.7bn alongside the S&P’s +1.8% rise that day. As of Thursday’s close, SPX gamma was long $4.6bn (37th 1-year %ile) and near-term gamma may continue to be influenced by the direction of equities – rising into a rally & declining in a selloff.”
The above is consistent with what Nomura’s McElligott has seen (a buildup in gamma). As I’ve noted weekly over the past year+, very high levels of gamma acted as a market stabilizer dampening volatility in both directions. When it’s fallen below $2bn or so we saw heightened volatility (which we did again in recent weeks), and while it rarely was negative that was associated with even higher volatility. With gamma currently at the 37th %ile that is an improvement from the prior week, but still not providing a lot of stabilizing force leaving the markets freer to move around (meaning higher volatility).
As BoA notes currently positive moves in markets will build gamma (and stabilize volatility, which will feed further gains, etc.) while negative moves will draw down gamma leading to more volatility. A sharp move below 5750 will see gamma flip negative according to their estimates (although any declines sees it fall quickly).
BoA est's that risk parity strategies were sellers of equities and bonds again last week, but they continue to add to commodities bringing allocations just above equities. Bonds continue to be heavily overweighted but as I suggested 13 wks ago, given the increase in bond volatility, that has been narrowing (which is likely adding to the pressure on bonds). Equity volatility has kept exposure there low for now.
#oott
BoA est’s that volatility targeters (vol control), after having been big sellers three weeks ago which took back most of the increase in positioning since October, consistent with my statement that “with equities remaining relatively volatile, I doubt we’ll see them rebuild much, if any,” were small net sellers last week. While equities moved to the upside this week, it still remained relatively volatile, so I’m not sure we’ll see them rebuild much.
And BoA notes the amount of both S&P 500 and NASDAQ-100 futures that leveraged & inverse ETFs would theoretically need to trade for each 1% move rebounded with spot last week from the least since Nov for the SPX & since Oct for the NDX, but still “has dropped significantly since reaching new highs last month.”
And after buybacks ended 2024 at a record, BoA sees some evidence of them slowing.
And some other notes on positioning:
Sentiment
Sentiment (which I treat separately from positioning) is one of those things that is generally helpful when its above average (“it takes bulls to have a bull market”, etc.) and when it’s at extreme lows. In between it doesn’t really tell you much. Three weeks I had noted “even before the selloff we saw sentiment fading back on some metrics, so I’d imagine when we get the readings this week, people will be much more cautious,” and since then we’ve broadly seen that. Not yet to where I’d say it’s a contrary tailwind, but getting there although it will likely pick back up after last week’s gains.
The 10-DMA of the equity put/call ratio (black/red line) continued its choppy lift from around the lowest since July (which was the least since Apr ‘22) now the highest since mid-Nov indicating investors are becoming a little more interested in downside protection vs capturing upside returns.
When it’s increasing it normally equates to a consolidation in equities and increase in volatility and vice versa.
CNN Fear & Greed Index up +11pts w/w to 38, the joint-highest since Dec 17th, although remaining in “Fear,” but on the edge of “Neutral” still well below the 54 it was at a month ago. It was at 74 (“Extreme Greed”) a year ago.
Looking at the components:
Extreme Greed = None
Greed = junk bond demand; safe haven demand (20-day difference in stock/bond returns) (from Extreme Fear)
Neutral = market volatility (VIX & its 50-DMA)
Fear = 5-day put/call options; market momentum (SPX >125-DMA) (from Extreme Fear)
Extreme Fear = stock price strength (net new 52-week highs); stock price breadth (McClellan Volume Summation Index)
https://www.cnn.com/markets/fear-and-greed
BofA’s Bull & Bear Indicator (a global metric), rose for a 2nd wk (after falling for 12 straight), +0.2pts now 3.8 ("Neutral"), still up just 0.6pts from 3.2 two weeks ago which was nearly a 1-yr low, on “on improving global equity index breadth, strong credit market technicals, and low 3.9% FMS cash levels.”
Helene Meisler's followers turned back to bullish after breaking a 9-wk streak of bullishness (the longest stretch since 2021), with the most bearish read in 7-mths the prev week, with this week 64.3% voting next 100pts up, up from 46.3% the previous week (and not far from the 66.7% seven weeks ago which was the most since Apr ‘21).
As a reminder this group is generally not a contrarian indicator, although they missed the December pullback and then last week missed the rally.
Link to Helene’s always insightful Saturday Chart Fest. FYI this is where I pull Citi’s Panic/Euphoria Index results from (she graciously updates it weekly). It remains around the highest in the past year+.
As a reminder, “[h]istorically...euphoria levels generate a better than 80% of stock probabilities being lower one year later.” In that regard, it first entered euphoria in late March (when the SPX was around 5200) and then reentered in late October (around 5800).
Seasonality
I had said 3 weeks ago, January overall is generally a good month for stocks. In all years the 1st two weeks of January are strong with solid returns and up two-thirds of the time with yr 1 of the Presidential cycle up 58% of the time by an average of 2% (before it gets much weaker in February and March (which also coincides with the fact that year 3 of bull markets are generally weak)). That said, the 1st half of January is generally less strong than the 2nd half (particularly in yr 1 of Pres cycle, which coincides with what we’ve seen), so that gives some hope that we might see a better end to the month before we get to the more challenging Feb/Mar time frame.
But overall as I noted previously “while we continue to have a favorable seasonal backdrop for now as we move through 2025 we’ll be going from very strong seasonality to some of the weakest on the cycle clock. Of course, as always remember that seasonality is like climate. It gives you an idea of what generally happens, but it is not something to base your decision on whether to bring an umbrella (as the Santa Rally showed us).”
And as we consider seasonality, a really nice post from Callie Cox about how you need to take historical analogies w/a grain of salt (unless you've dug into the history). Her chart on Presidential election yr performance w/ & w/o 2008 (when the SPX was -17% in Oct) is a wonderful example.
https://www.optimisticallie.com/p/a-history-lesson
For references to all of the “up YTD through Feb” see the March 3rd post. For all the very positive stats through March (strong 1Q, strong two consec quarters, etc.) see the April 14h post.
For the “as January goes so goes the year”, see the February 4th Week Ahead.
Final Thoughts
I noted two weeks ago,
As we turn the page into the new year, we’re presented with a very different backdrop than what we saw for much of 2024 when the Fed was moving from hiking to cutting, bond yields were falling, seasonality was mostly favorable, systematic positioning was mostly a tailwind, political risk was low, valuations had room to grow, liquidity was very robust, the economy was firing on all cylinders, volatility (until early August) was more subdued, earnings were rebounding, etc. We took a step back with the yen carry trade, etc., issues in August, seemed to get back on track, but since the very strong September employment report (followed by sticky inflation reads) the road has been much tougher. In fact since the Sept employment report (Oct 4th) the SPX is up just 3%.
Now we enter what is historically a more challenging year (1st year of a Presidential term and 3rd year of a bull market) with valuations well above where we started 2024, high expectations (judging from analyst SPX forecasts), likely higher volatility and political risk, no current tailwinds from systematic positioning, weak breadth (although that wasn’t much of a problem in 2024), much higher bond yields (particularly real yields), a Fed talking more about fewer than more cuts and continuing to drain liquidity that is now hitting levels we’ve run into issues in the past, an upcoming buyback blackout window, high earnings expectations, etc.
It doesn’t mean that we can’t have a good or even a great year. Balance sheets remain very solid as does the economy and labor markets (even if slowing), earnings are expected to be very good, buybacks are expected to be a solid tailwind, there’s a lot of scope for the Fed to become less hawkish, the upcoming administration may provide big tailwinds in tax cuts, deregulation, etc., etc. But we need to see all of those come through, and disappointments are not going to be welcomed given the set-up, so my expectation is for choppier markets more like we’ve seen since October than what we saw before.
And as I noted last week January is “chock full of catalysts,” which we’ve seen many of, but we’ve got more, particularly earnings and, probably most importantly, what comes out of the incoming Trump administration. But last week was a good week with inflation cooler than expected and economic data mostly better than expected. That’s a great combination if it continues. The big banks kicked off earnings very strongly, and we also are seeing some better signs in potentially volatility calming down and systematic exposure increasing. Valuations have come down a bit, and breadth improved a bit. Buybacks are on hold for now, but otherwise we have some building tailwinds for the rally to continue at least for this week, all of course subject to what we hear from President Trump.
And as always just remember pullbacks/corrections are just part of the plan.
Portfolio Notes
Sold out of TPR, TD, INTC, trimmed NSANY, ARCC, CQP, BXMT, SLB, RTX, KLG, KSS, AES, WBA, CTRA, JWN, AM, had half of HBAN called away.
Bought SIG, VZR, ADBE, USB, FRT, ARE, ON, RIO, SIRI, PFFD, SHEL, NTR, APA, NKE
Cash = 32% (held mostly in SGOV, MINT & BOXX (BOXX mimics SGOV but no dividend, all capital appreciation so get long term capital gains if you hold for a year) but also some non-TBill (>1yr duration) Treasury ETF’s (if you exclude those longer duration TBill ETF’s, cash is around 11%)).
Positions (after around the top 20 I don’t keep track of their order on a frequent basis as they’re all less than 0.5% of my portfolio).
Core positions (each 5% or more of portfolio (first 2 around 10% each, total around 25%) Note the core of my portfolio is energy infrastructure, specifically petroleum focused pipelines (weighted towards MLP’s due to the tax advantages). If you want to know more about reasons to own pipeline companies here are a couple of starter articles, but I’m happy to answer questions or steer you in the right direction. https://finance.yahoo.com/news/pipeline-stocks-101-investor-guide-000940473.html; https://www.globalxetfs.com/energy-mlp-insights-u-s-midstream-pipelines-are-still-attractive-and-can-benefit-from-global-catalysts/)
EPD, ET, PAA, SHY
Secondary core positions (each at least 2% of portfolio)
ENB
For the rest I’ll split based on how I think about them (these are all less than 2% of the portfolio each)
High quality, high conviction (long term), roughly in order of sizing
ENB, CTRA, GILD, GOOGL, PYPL, SCHW, PFE, ARCC, AM, TRP, T, XOM, SHEL, JWN, CVS, TLH, FSK, TFC, NTR, GSK, EQNR, CMCSA, APA, DVN, OXY, RRC, JWN, RHHBY, E, ING, VZ, VSS, VNOM, SLB, MPLX, BTI, KMI, VOD, CVX, ING, O, KHC, ADNT, STLA, NEM, CCJ, AES, BWA, FRT, BMY, HBAN, VICI, DGS, ADNT, WES, MPLX, CVE, KIM, MTB, BAYRY, SOFI, BEP, BIIB, SAN, TEF, SCHD, KVUE, KT, SQM, ALB, F, MAC, MFC, GPN, CI, LYG, NKE, ORCC, LVMUY, EMN, NVDA, BCE, KEY, OCSL, BAX, SNOW, RTX, PANW, ETSY, BAC, GD, UPS, M, USB, ON, SIG,
High quality, less conviction due to valuation
Higher risk due to business or sector issues; own due to depressed valuation or long term growth potential (secular tailwinds), but at this point I am looking to scale out of these names on strength. These are generally smaller positions.
ILMN, AGNC, FXI, LADR, URNM, URA, STWD, PARA, CFG, YUMC, ORAN, KSS, CHWY, TIGO, TCNNF, TCEHY, JD, WBA, ACCO, KVUE, KLG, CLB, HBI, IBIT, UNG, EEMV, SABR, NSANY, VNQI, ST, SLV, WBD, BNS, EWS, IJS, NOK, SIL, CURLF, WVFC, VTRS, NYCB, ABEV, PEAK, LBTYK, ARE, RBGLY, LAC, CMP, CZR, BBWI, LAC, EWZ, CPER, MBUU, HRTX, MSOS, SIRI, M, CE,
Note: CQP, EPD, ET, MPLX, PAA, WES all issue K-1s (PAGP is the same as PAA but with a 1099).
Reminder: I am generally a long term investor (12+ month horizon) but about 20% of my portfolio is more short term oriented (just looking for a retracement of a big move for example). This is probably a little more given the current environment. I do like to get paid while I wait though so I am a sucker for a good well supported dividend. I also supplement that with selling calls and puts. When I sell a stock, I almost always use a 1-2% trailstop. If you don’t know what that is, you can look it up on investopedia. But that allows me to continue to participate in a move if it just keeps going. Sometimes those don’t sell for days. When I sell calls or puts I go out 30-60 days and look to buy back at half price. Rather than monitor them I just put in a GTC order at the half price mark.
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