We continue to put our idle money to work in our portfolio. For the time being, we’ll be focusing on additions rather than deletions (although that could change based on new info). Once the debt ceiling stuff is resolved, I think the market will be in a nice position to rally for the second half of the year. Hopefully, we’ll have that purely political headache out of the way by next week. Let’s take a look at what’s going on this week….
(Please enjoy this updated version of my weekly commentary originally published May 25th in the POWR Stocks Under $10 newsletter).
Stocks have pulled back a bit and volatility has gone up as we approach the debt ceiling. This is no surprise (both the behavior of the market and the fact that the ceiling has yet to be resolved).
That being said, I still think there’s a less than a 1% chance we actually default on debt. One way or another, something will get worked out.
In the meantime, life goes on. Tech stocks jumped 2.5% on Thursday after great earnings from NVIDIA (NVDA).
Speaking of NVDA, as overvalued as it may be (trading at 218x earnings), the company has posted some very positive news.
The stock is now valued at almost a trillion dollars and it’s the 5th largest component of the S&P 500 (SPY).
The S&P 500 pulled back to its 50-day moving average before the NVDA news sent it back higher. It remains within the 2 standard deviation range that you can see on the chart above. Positive news on a debt ceiling deal could send the index much higher in a hurry.
Of course, as we get closer to the actual debt limit, volatility will go up and stocks will go down. Most people don’t believe an actual default will happen, but the financial markets have no choice but to react as we come down to the wire.
There isn’t a whole lot of meaningful economics news this week, although PCE comes out after this issue is released. The metric (which is an alternative to CPI in terms of looking at inflation) could potentially move the market if the results are a big surprise.
The markets are now at about a 50/50 chance on a rate increase at the next Fed meeting in June.
We have a few more weeks until then, so things can obviously change. PCE results may go some way towards convincing the markets one way or the other what the Fed is going to decide.
Looking at the chart of iShares 20+ Year Treasury Bond ETF (TLT), bond prices have come back down recently.
Keep in mind, bond prices move inverse to bond yields, so this move is likely due to the greater expectations of a rate hike than what we saw a few weeks ago. If there is a rate hike, I strongly suspect it will be the last one of the year.
The VIX (the market volatility index) has climbed a fair amount over the last week as a response to the approaching debt ceiling. Again, this isn’t really a surprise under the circumstances. The index is still under 20, which is about the long-term median level. .
The 18-20 level in the VIX doesn’t tend to be a place the index sits at for very long (as you can see in the chart above). It’s kind of a transition level historically.
Whether market volatility goes higher or lower depends almost entirely on what happens with the debt negotiations. We’ll know a lot more next week.
What To Do Next?
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All the Best!
Jay Soloff
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter
SPY shares were unchanged in after-hours trading Friday. Year-to-date, SPY has gained 10.25%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Jay Soloff
Jay is the lead Options Portfolio Manager at Investors Alley. He is the editor of Options Floor Trader PRO, an investment advisory bringing you professional options trading strategies. Jay was formerly a professional options market maker on the floor of the CBOE and has been trading options for over two decades.
The post Will Resolving the Debt Ceiling Touch Off the Next Market Rally? appeared first on StockNews.com
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The S&P 500 (SPY) seems to be breaking out into bull market territory above 4,200. However, history shows many examples of how this could be nothing more than a Suckers Rally. That’s why you should tune into Steve Reitmeister’s most recent market commentary including a clear trading plan and top picks for this unique market environment. Get the full story below.
Stocks rallied this past week on the news that a debt ceiling showdown is likely to be averted. To that I say a big, hearty…
DUH!
That’s because politicians never leave their finger in this light socket for long. It is always magically resolved in the nick of time.
When the smoke cleared from this rally investors realized they do not have the resolve to truly break into bullish territory above 4,200 for the S&P 500 (SPY). This likely means more limbo and trading range lie ahead as investors await a REAL catalyst to resolve the bull/bear debate once and for all.
Let’s review why this is the case…and what potential catalysts are on the calendar that could produce the next big move for the stock market.
Market Commentary
The short version of my current market outlook was nicely summarized as follows from my previous commentary:
“There has been a tug of war taking place all year between bulls and bears. It would seem that bulls grabbed the early lead given how stocks shot up near 4,200 by early February…but since then stocks have traded in a narrow range where bulls & bears seem fairly balanced.
Bears will say that the storm clouds are still forming for a recession and deeper bear market thanks to a hawkish Fed dead set on creating a recession to put an end to high inflation.
Bulls will say that the long feared recession keeps NOT happening. And maybe never will. Thus, the lows are already in and the new long term bull market has already begun.
Right now, these 2 opposing views are pretty evenly matched creating a narrow trading range and a considerable drop in volatility. That sleepy action will end when the bulls or bears can wave the victory flag. Until then…the sleepy range bound action will continue.”
(Read the full version of the above commentary here: The WORST Stock Market Ever- Part 2)
Even though stocks rallied this week up to 4,200. Truly nothing has changed to convincingly win the bull/bear battle. In fact, most of the substantive recent news has been negative.
Like Retail Sales coming in at only +1.6% year over year. When you remove +4.9% for inflation (CPI) it shows a -3.3% drop for US retail.
This fits in with the general high inflation narrative that consumers become fearful of waiting to purchase products that leads to a seeming boom in GDP in the near term. This is followed by an economic cliff as demand has been pulled forward. Indeed, that precursor to recession may be happening now.
Those looking to the Fed for signs of a pivot to lower rates should be disappointed by what they heard this week.
First was the Dallas Fed President Logan who said current data does not justify pausing rates hikes yet. Next on Friday morning Chairman Powell was giving a speech reemphasizing that inflation is still far too high and that the Fed would stay “steadfast” in their goal to lower prices.
This means that bulls should once again be disappointed to hear the hawkish resolve the Fed is likely to reiterate at the next announcement on June 14th. But even that is not enough to win the day for bears either.
Investors will need to see unequivocal proof of a recession on the way for the bear market to reemerge. This would have stocks breaking below the 200 day moving average at 3,976 and likely retesting the October lows of 3,491…if not lower. (That break below 3,976 should be your trigger to get more bearish).
This has us back on “catalyst watch” for any events that end this bull/bear stand off in convincing fashion. Here is the roll call of the key events on the calendar that could serve as that catalyst:
5/25 Jobless Claims– This will not be strong enough by itself as investors would look for collaboration from the 6/2 Government Employment Situation report. However, if Jobless Claims start to approach 300,000 per week, then historically that has pointed to the time that the unemployment rate is about to rise for quite a while.
5/31 ADP Employment, JOLTs– 2 other jobs reports that often serve as leading indicators of what is in store with monthly Government Employment Situation.
6/1 ISM Manufacturing, Jobless Claims- there have been MANY weak readings for ISM Manufacturing without truly signaling a recession was at hand. However, this is still one of the key monthly reports to monitor on the health of the economy.
6/2 Government Employment Situation- Job adds are expected to keep ebbing lower down to 180,000 this month. Note that population growth demands 150,000 job adds per month to keep the unemployment rate level. So, any movement under that mark could have investors predicting even worse readings ahead. Also, many eyes will be on the Wage Inflation component as that sticky inflation has been clearly bothersome to the Fed.
6/5 ISM Services- Has been in positive territory at 53.4 last month. But if that cracks under 50 into contraction territory it definitely would increase the odds of a recession ahead.
6/14 Fed Meeting- More investors are expecting that they will pause raising rates. But that is quite different than pivoting to lower rates which they still claim is a 2024 event. So, the Powell press conference that follows the rate hike decision will be closely watched for clues of what comes next.
All in all, I still believe we should take the Fed at their word that a recession will take place before inflation is properly tamed. And once that Pandoras Box is opened…then things can get ugly in a hurry with much lower stock prices on the way. That is why I am not tempted to join the bulls even as they are knocking on the door with a potential breakout above 4,200.
Reity, are you saying its not possible to break out above 4,200 now?
I am not saying that because with the stock market anything is possible.
However, looking back at history there have been many false starts to a new bull market that later failed…and failed miserably.
Most notable is the greater than 20% rally from November 2008 through early Jan 2009 that technically marked a new bull market. This sucked in a lot of excited investors only for the bear market to return with a vengeance with lower lows on the way (focus on the arrows in the chart below).
So just breaking above 4,200 for a little while without a clear fundamental catalyst would not entice me to chase stocks because of the great likelihood of it being a “suckers rally”.
Yes, at some point the emergence of the next bull market will make a lot of sense. Right now it simply doesn’t given the still high odds of recession ahead which begets lower corporate earnings and lower share prices (the market has always worked this way…and suspect always will).
So, please continue to stay balanced with in your portfolio which means about 50% long stocks. Then when the CLEAR bull or bear catalyst emerges, then make the rest of your moves to join that bandwagon.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has beaten the S&P 500 by a wide margin in recent months.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused and uncertain.
Yet, given the facts in hand, we are most likely going to see the bear market coming out of hibernation mauling stocks lower once again.
Gladly we can enact strategies to not just survive that downturn…but even thrive. That’s because with 40 years of investing experience this is not my first time to the bear market rodeo.
If you are curious in learning more, and want to see the hand selected trades in my portfolio, then please click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares fell $0.64 (-0.15%) in after-hours trading Friday. Year-to-date, SPY has gained 9.88%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
The post Investors: DON’T Get Fooled by This Suckers Rally appeared first on StockNews.com
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The hype surrounding generative artificial intelligence has been the rising tide that has lifted many boats, including C3.ai (AI), which has waded into a serious controversy and could find itself stranded once the tide goes out. Read on.
The stock of C3.ai, Inc. (AI), which has been riding the hype surrounding generative artificial intelligence after ChatGPT, the artificial intelligence chatbot launched by Open AI late in November 2022, took the world by storm to become the fastest-growing application in history.
That unraveled recently when short-seller Kerrisdale Capital sent a letter to Deloitte & Touche LLP, the auditor of AI, detailing serious accounting irregularities that raise red flags for investors. The company has been accused of numerous dishonest accounting practices, such as inflating gross profit margins by shifting expenses to different categories. Right on cue, the stock crashed 26% on Tuesday.
Moreover, AI’s stock declined 15.5% intraday to close the last trading session at $21.09. Although the stock has gained 56.3% over the past six months, an already ebbing popularity, the stock has lost 26% over the past month. It has a short float of 27.30%.
On January 31, AI announced the launch of its generative AI product suite. Although the business is yet to find its way to profitability, AI seeks to differentiate itself from other vendors that only provide piecemeal solutions by providing an end-to-end platform-as-a-service to develop, deploy, and operate large-scale turnkey industry-specific AI applications.
Regardless of whether there is merit in the recent allegations of accounting irregularities against AI, let’s delve deeper into its fundamentals as currently available in the public domain.
Dip In Financial Performance
For the third quarter of the fiscal year 2023, which ended January 31, 2023, AI’s total revenue declined by 4.4% year-over-year to $66.67 million, while its non-GAAP gross profit declined by 8.6% year-over-year to $50.96 million.
During the same period, AI’s non-GAAP loss from operations came in at $15.03 million, while its non-GAAP net loss amounted to $6.16 million, or $0.06 per share.
AI’s total assets stood at $1.10 billion as of January 31, 2023, compared to $1.17 billion as of April 30, 2022.
Elusive Profitability
Although AI’s trailing-12-month gross profit margin of 70.46% is 39.9% higher than the industry average of 50.35%, the company is yet to operate at a scale and achieve enough penetration in the AI enterprise software market for its gross profits to offset its operating expenses.
AI’s trailing-12-month EBITDA and net income margins of negative 101.14% and 98.35% compare unfavorably to the respective industry averages of 9.78% and 2.71%.
In terms of the trailing-12-month ROCE, ROTC, and ROTA, AI underperforms even the modest industry averages of 2.65%, 2.06%, and 0.67%, respectively.
Stretched Valuation
Despite the recent drawdown in price, AI is still trading at valuations that the company might struggle to justify in the foreseeable future.
In terms of forward EV/Sales, AI is trading at 7.60x, 174.8% higher than the industry average of 2.77x. Also, the stock’s forward Price/Sales multiple of 10.55 compares unfavorably with the industry average of 2.70.
Bleak Outlook
Analysts expect AI’s revenue for the fourth quarter of the fiscal year 2023, ending April 30, to come in at $71.07 million, indicating a 1.7% decline year-over-year. During the same period, the company’s loss per share is expected to come in at $0.18.
Street expects the company to keep reporting net losses until the fiscal year 2025.
POWR Ratings Reflect Weakness
AI’s fundamental weakness is reflected in its overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. AI has grade D for Value and Quality, owing to its stretched valuation and lower profitability relative to its peers.
AI also has a D grade for Stability, consistent with its beta of 1.40 and relatively high spread between its 52-week high and low prices of $34.68 and $10.16, respectively.
Unsurprisingly, AI is ranked penultimate of 23 stocks in the Software – SAAS industry.
Beyond what has been discussed above, additional ratings for Growth, Momentum, and Sentiment of AI can be found here.
Bottom Line
Notwithstanding the recent controversy and in addition to macroeconomic headwinds making near-term prospects for growth businesses such as AI uncertain at best, the company is also in the process of adjusting to strategic changes it has implemented in its pricing model and sales organization.
AI has transitioned from a subscription-based pricing model to a consumption-based pricing model. While the company believes that this shift would increase the number and frequency of small transactions from a broader customer base for long-term revenue growth, potential spending cuts by high-profile clients during a probable economic slowdown might put the short-term effectiveness of the model into question.
Hence in view of the above, we believe it would be wise to avoid fundamentally weak AI until its prospects become clearer.
Stocks to Consider Instead of C3.ai, Inc. (AI)
Unfortunately, the odds of AI outperforming in the weeks and months ahead are greatly compromised. However, there are many stocks in the Software – SAAS industry with impressive POWR Ratings. So, you may consider these three A-rated (Strong Buy) or B-rated (Buy) stocks instead:
Informatica Inc. (INFA)
Park City Group, Inc. (PCYG)
MiX Telematics Limited (MIXT)
What To Do Next?
Get your hands on this special report:
The best part of the recent bear market is that there are thriving companies trading at tremendous discounts to fair value.
This combination of stellar earnings growth and low price provides a great catalyst for investor success.
And this report focuses on the 7 best of these stocks primed to soar in the weeks ahead. Click below to claim your copy now.
AI shares were unchanged in premarket trading Thursday. Year-to-date, AI has gained 88.47%, versus a 6.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
The post Is This the End of the ChatGPT-Inspired Rally in This Stock? appeared first on StockNews.com
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How much would you pay for an in-demand Girl Scout cookie?
That’s the question being asked of consumers on secondary selling websites such as eBay, where a flavor of Girl Scout cookies called “Raspberry Rally,” is seeing a host of listings, according to news reports.
After selling out on official websites, the raspberry-flavor-filled cookie has become a hot secondary market commodity.
A listing on eBay is currently asking $29.99 for one box, which is several times what the typical cookie box costs from the organization (typically about $5) — about a 500% markup. Another Etsy sale posting, which appeared to solicit orders ahead of Girl Scout cookie season for a presale, offered a box of raspberry cookies for $20.98. Insider found a box for $99.99.
(If you’re buying cookies from an official Girl Scout site, in some cases, at least, you have to buy at least four boxes, according to Entrepreneur’s attempt to buy cookies from Troop 4758, which is also sold out of Raspberry Rally.)
“Wow! Our Raspberry Rally was released online today, and boy did she sell out QUICKLY,” the Girl Scouts of the Chesapeake Bay wrote in a Facebook post, as Insider noted.
Girl Scout announced the Raspberry Rally cookies in August 2022, along with the lineup of cookies for its 2023 season, which typically starts in January and runs until April, as CNN noted.
“The thin, crispy cookie is a ‘sister’ cookie to the beloved Thin Mints™, infused with raspberry flavor instead of mint and dipped in the same delicious chocolaty coating,” Girl Scouts wrote in the August press release.
The organization decided to only offer the Raspberry cookie as an online product for local chapters to sell to, “enhancing girls’ e-commerce sales and entrepreneurial skills,” the organization wrote.
Enter: the raspberry ringer. Girl Scouts itself noted the popularity of the cookie. In one email to a troop in New York, it told them that the cookie had “Raspberry Rally cookie sold out in less than a day,” per CNN, which said it reviewed the email.
Online, people are commenting about how difficult the cookies are to get:
guys I’ve been trying to get my hands on the new raspberry rally girl scout cookies for a week now they’re only* available online & sold out & my local fb moms group is tagging people to help me & my mom friends are texting their mom friends & I emailed the girl scouts website
— more waffles please (@am1naaa) March 2, 2023
If anyone has an extra box of the raspberry rally or caramel chocolate chip please lmk ?? They are all sold out and I didn’t get to try them pic.twitter.com/IScDd9BVtj
— Tenny Minassian (@itsme10e) March 2, 2023
Others celebrated getting a box:
Behold the unicorn Girl Scout cookie…the Raspberry Rally! pic.twitter.com/gstqKvapvX
— Dr. Melissa Aho (@melissaaho) February 28, 2023
In an email to CNN, the Girl Scouts expressed disappointment in the secondary-market frenzy.
“When cookies are purchased through a third-party seller, Girl Scout troops are deprived of proceeds that fund critical programming throughout the year,” the company wrote.
“Girl Scouts of the USA, your local Girl Scout council, and our licensed cookie bakers cannot guarantee the freshness or integrity of cookies bought through unauthorized sites,” it added.
Raspberry Rally. Courtesy company.
But, as CNN noted, eBay didn’t say it planned to take down the cookies. “We strongly support the entrepreneurial spirit of hardworking local Girl Scout troops and encourage cookie-seekers to also support their local Girl Scouts… However the sale of Girl Scout cookies does not violate eBay policies,” a rep from eBay told the outlet.
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