By Barron's Staff
Disinflation Is Coming
Paulsen Perspectives
paulsenperspectives.substack.com
Nov. 22: An array of economic policies -- potential tariff hikes, historically high and restrictive real short-term and long-term interest rates, inadequate liquidity growth relative to overall economic activity, and a very strong real U.S. dollar combined with a very weak domestic capacity utilization rate -- seem likely to surprise many and cause the annual CPI inflation rate to moderate below the Fed's 2% target level in 2025. What does another year of solid "disinflation" imply for the stock and bond markets?
Since 1970, the S&P 500 has delivered an average annualized monthly total return nearly 47% higher during disinflationary months compared to inflationary months (i.e., 14.2% vs. 9.7%). Similarly, in the last 54 years, the 10-year bond yield has declined at an average annualized pace of -55 basis points during disinflationary months compared to an annualized rise in bond yields of +33 basis points during inflationary months.
During the past 16 months, the annual inflation rate has moved mostly sideways. While inflation isn't accelerating, disinflation has diminished. From an investment standpoint, the most important development of 2025 may not be earnings, AI, politics, potential legislation, geopolitical conflicts, or bond vigilantes. Rather, 2025 could stand out as the year when the CPI inflation rate finally broke below the Fed's 2% target, once again illustrating the powerful positive influence of disinflation for stock and bond investors.
Jim Paulsen
Europe's Auto Woes
Auto/EV Commentary Navellier
navellier.com
Nov. 22: Europe's largest battery manufacturer, Sweden's Northvolt, filed for bankruptcy on Thursday, demonstrating how difficult it is to compete with China on battery manufacturing. Northvolt has $5.8 billion in debt and only $30 million in cash. Despite some high-profile backers, like VW Group, which will still use Northvolt battery cells, the company was never able to make batteries as efficiently as Chinese battery giants BYD and CATL. The fact that VW Group is planning to sell an electric vehicle made by Xpeng says it all, since legacy auto makers simply cannot compete with China on low-cost EVs.
Meanwhile, pressure on German politicians is brewing since high electricity prices are making its manufacturing sector less competitive. On Tuesday, auto-parts supplier Schaeffler laid off 4,700 across Europe and closed two of its 10 locations in Germany. Schaeffler, which supplies parts to BMW, Mercedes-Benz, and VW Group, said it would cut about 2,800 jobs in Germany.
Louis Navellier
Sticking With Gold
UBS House View - Daily US UBS
ubs.com
Nov. 22: Gold prices are up 5% this week, on track for their best weekly gain in a year and virtually erasing last week's postelection unwind. Spot gold is trading around $2,700 an ounce, or roughly 3% below its late-October highs, amid renewed focus on geopolitics. Russia on Thursday launched an experimental hypersonic missile at central-eastern Ukraine in what Ukraine's President Zelenskiy called a "clear and severe escalation." This follows Ukraine's use of advanced Western missiles on targets in Russia, and Moscow's deployment of North Korean troops into active combat theaters....
We kept our conviction in gold despite the post-U.S. election pressure, and this recent bout of geopolitical tension underscores part of the argument. We continue to see gold as the market's preferred hedge against geopolitical tensions, but also political pressures, including higher government debt levels. We maintain our target of $2,900 an ounce by the end of 2025.
Solita Marcelli and team
The Generous Mag 7
U.S. Sectors
NDR Ned Davis Research
NDR.com
Nov. 21: Greater capital investment hasn't prevented the Magnificent Seven from returning capital to shareholders, underscoring the magnitude of the group's cash flow and strength of its balance sheets. Dividend payouts jumped to almost $52 billion over the past four quarters, as Meta Platforms and Alphabet have recently initiated cash payouts to shareholders. The dividends from the Mag 7 now represent about 8% of the total for the S&P 500 index.
The group's preferred payout method remains share buybacks, with the four-quarter total reaching a record high of $332 billion, just shy of 40% of the total for the S&P 500. While the combination of slowing earnings growth and surging capital expenditure could represent a risk, friendly shareholder policy should remain supportive of the stocks heading into 2025.
Rob Anderson, Thanh Nguyen
Bargains in the Oil Patch
Research & Strategy
BTIG
btig.com
Nov. 20: We would be kicking tires in the energy patch as it's starting to show improvement from a trend perspective. Over the past year, energy is the second-worst performing sector (behind healthcare), up just 12.72%. Since Election Day, however, it is the third-best sector, and over the past eight days, it's the best sector. Anecdotally, we sense very little interest in the sector, with crude oil's -3% year-to-date performance not helping sentiment.
Jonathan Krinsky
U.S. Is Still No. 1
HMR Insights
Hi Mount Research
himountresearch.substack.com
Nov. 17: The number of markets hitting new lows reached its highest level of the year. The late-September spike (when half the world was making new highs) seems like a distant memory at this point. As it stands now, less than a fifth of markets are above their 50-day average and less than half are still above their 200-day average.
Global weakness last week helped confirm one of the most durable trends over the past decade as the U.S. hit a new high versus the rest of the world (again).
Willie Delwiche
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 22, 2024 19:37 ET (00:37 GMT)
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