Jerome Powell's Declaration of Independence

Posted on by George Yacik

Remember back about four or five years ago (was it really that long ago?) we heard a lot about how the Federal Reserve’s sacrosanct independence was being threatened because the incumbent in the White House at that time was trying to influence the Fed’s monetary policy?

We don’t hear that much about it anymore since the Oval Office and Congress switched sides, although the threats against that independence have grown even louder, largely because they don’t get reported on to nearly the same degree.

For example, last fall the chairman of the Senate Banking Committee, Sherrod Brown, and the then chairman of the House Financial Services Committee, Maxine Waters, both sent letters to Fed Chair Jerome Powell decrying his recent policy of raising interest rates by more than 400 basis points since March to combat inflation. “You must not lose sight of your responsibility to ensure that we have full employment,” Brown wrote.

Around the same time Sen. Elizabeth Warren, another Democrat, said Powell “risks pushing our economy off a cliff.” Warren, who loudly voted against Powell’s reappointment as Fed chair, added, “There is a big difference between landing a plane and crashing it.”

I suppose they have a right to criticize Fed policy as much as anyone else, although that right should extend to members of both parties. To his credit, Powell has largely kept silent or muted his comments on these attacks.

But now it appears that Powell believes he is being pushed too far. Criticizing the Fed for the way it conducts monetary policy to maintain stable prices and full employment—its legal mandate from Congress, after all—is one thing.

But to force the Fed to go way beyond its mandate and do something that is the rightful purview of Congress is an entirely different matter. And Powell said he won’t stand for it.

I’m talking about the desire of many progressives and environmentalists to have the Fed impose their views on climate change on the banks the Fed regulates and the customers those banks serve. Continue reading "Jerome Powell's Declaration of Independence" →

Worst Performing ETFs in 2022

Posted on by Matt Thalman

Like the best-performing Exchange Traded Funds of 2022, the worst-performing ETFs of the year were all leveraged.

It is no surprise that leveraged ETFs would be the best and worst-performing ETFs each year. But, interestingly, three of the top first worst performing ETFs were leveraged funds that are bullish big technology stocks, and the other two were ETFs that are short oil & gas companies.

2022 was a year we saw many divergences occur compared to the past almost ten years.

The technology-heavy index, the NASDAQ, was the worst-performing major index, while the slow and sleepy Dow Jones Industrial Average, while still down, was the best performer. The Dow Jones Industrial Average fell 8.8% as the S&P 500 dropped 19.4%, and the NASDAQ sank 33.1%.

Let's look at which ETFs finished in the top five worst performers of 2022.

The worst performing Exchange Traded Fund of 2022 was the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) which ended the year down 88.62%. KOLD provides two times short exposure to an index that tracks natural gas by holding second-month futures contracts.

In 2022 the price of natural gas went through the roof as Russia invaded Ukraine. That invasion led to almost all of Europe imposing a ban on Russian oil and gas, which led to price increases for any other country that also banned the importation of Russian oil and gas.

While KOLD was the worst-performing ETF, the ProShares UltraShort Oil & Gas ETF (DUG) was the fourth worst ETF of 2022 after dropping 72.99%. DUG offers investors two times short exposure to a market-cap-weighted index of large US oil and gas companies.

Since Russia is one of the largest oil and gas producers in the world, the bans on buying their products sent the price of both oil and gas higher in 2022. Thus oil and gas companies based in the United States benefited, and DUG rose substantially.

But, most experts claim the Russian-Ukranie conflict was not the only reason we saw oil and gas prices climb. Some of the increase was likely due to increased demand as most of the world came out of Covid-19 restrictions, and more people felt comfortable traveling. Continue reading "Worst Performing ETFs in 2022" →

2 Retail Names With Higher Prices Ahead

Posted on by Taylor Dart

We’ve seen a better start to the year for the major market averages, with the S&P 500 (SPY) up over 3% year-to-date and the Nasdaq Composite enjoying an even more impressive 4.5% return.

While some of these gains could be whittled away if we see a disappointing CPI report with higher-than-expected inflation, this is certainly a welcome departure from last year’s mess, with both indexes down over 20% for the first time since 2008.

Unfortunately, not all stocks have participated, and one sector that continues to remain in the doghouse from a sentiment standpoint is the Retail Sector.

Within the sector, the restaurant group has outperformed on hopes of peak inflation and improving demand (lower gas prices), but other retail brands like Chico’s FAS (CHS), with the stock being one of the worst performers year-to-date.

While this is partially attributed to the company’s softer holiday sales numbers, the sell-off is starting to look overdone, and a lot looks priced in here, with the stock trading at a mid-single-digit PE ratio.

Meanwhile, within the restaurant space, Wingstop (WING) may be an outperformer but it is positioned to continue its outperformance with aggressive unit growth and deflation in its core commodity (bone-in chicken wings).

This allowed it to price less aggressively than peers and capture market share despite a challenging backdrop where traffic growth has been elusive, especially while gas prices are hovering above $4.00/gallon.

Let’s take a closer look at both names below:

Wingstop (WING)

Wingstop (WING) began as a small buffalo-style chicken wing restaurant in Texas and has since grown to 1,800+ restaurants, with more than 95% of its system being franchised.

Since going public, the company has outperformed nearly all other restaurant stocks with a 640% return in just seven years. Continue reading "2 Retail Names With Higher Prices Ahead" →

Are Stocks Stuck in a Trading Range til February?

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.

Click Here to learn more about Reitmeister Total Return

Stocks are likely going to be stuck in a trading range until the next Fed announcement on Wednesday February 1st.

Why?

Because investors have been burned many times before getting bullish in hopes of a Fed pivot that did not arrive.

So even with signs of moderating inflation providing a modest lift to stocks of late…there is a limit to the upside until investors hear from the Fed again. There is also limit to the downside. And this begets a trading range.

Let’s discuss the shape of the trading range and possible outcomes after the Fed announcement. All that and more is on tap for this week’s Reitmeister Total Return commentary.

Market Commentary

In many ways the trading range has already been in place for the past month flitting between 3,800 and 4,000 for the S&P 500.

And this is likely to stay in place as investors are fearful of reading the Fed tea leaves wrong as they have so many times this year. So even though there were welcome signs of moderating wage inflation (public enemy #1 to the Fed) there are enough whispers from the Fed that their job is far from done.

One such whisper from the Fed recently came from Atlanta Fed President, Ralph Bostic. During his speech he shared that interest rates will get above 5% and hold there for a while. He was then asked for how long would they remain elevated above 5% for which he stated emphatically. “three words: a long time”.

This harkens back to December 14th when the market was on the verge of a breakout above the 200 day moving average before Powell slammed the door on that notion. He too repeated the 3 word mantra (a long time) over and over again when discussing their plans for higher rates. Continue reading "Are Stocks Stuck in a Trading Range til February?" →

Good Defense in a Bear Market

Posted on by The MarketClub Team

The S&P 500 slumped 19% in 2022, registering its biggest decline since 2008. Besides geopolitical turbulence and supply-chain disruptions, the market pullbacks were mostly driven by fears of a looming economic slowdown as an undesirable side-effect of the Federal Reserve’s fight against high inflation with aggressive interest rate hikes.

Since there is still a long way to go before inflation can be reined in to around the desired 2% mark, the central bank, by its own admission, is far from done with interest rate hikes. Hence, the market, subdued by the ever-increasing risk of a recession, is unlikely to stabilize anytime soon.

In fact, bearish sentiments have become so pervasive that the strengthening dollar has also been unable to offset the increasing luster of precious metals, such as gold. Such commodities are gaining popularity among market players as ballast during panic-driven market sell-offs and a time-tested hedge against a potential economic downturn.

Which factor will influence gold prices in 2023 the most?

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The VanEck Vectors Gold Miners ETF (GDX) is expected to offer downside protection. The fund is managed by Van Eck Associates Corporation. It offers exposure to some of the largest gold mining companies in the world.

Since gold mining stocks strongly correlate with prevailing gold prices, the ETF provides indirect exposure to gold prices.

Here are the factors that could influence GDX’s performance in the near term: Continue reading "Good Defense in a Bear Market" →