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No-Brainer Stock For A Hawkish Fed

Posted on November 16, 2022November 16, 2022 by The MarketClub Team

The multi-decade high inflation has kept the stock market under pressure since the beginning of the year. The Federal Reserve has been busy trying to tame persistent inflation through aggressive interest rate hikes.

After raising the benchmark interest rate six times this year, Fed Chairman Jerome Powell has cautioned that the final level of interest rates would be higher than expected.

Despite the overall macroeconomic uncertainty, leading foodservice retailer McDonald's Corporation (MCD) reported impressive financials for the third quarter ended September 30, 2022. The company operates and franchises McDonald’s restaurants with nearly 40,000 locations in over 100 countries.

MCD beat the consensus EPS and revenue estimates in the last reported quarter. Its EPS and revenue were 3.9% and 3% above analyst estimates, respectively. The company’s global comparable sales rose 9.5% year-over-year, while the U.S. comparable sales increased 6.1%. According to Placer.ai., visits to the Chicago-based chain’s U.S. restaurants rose 6.2% in September, compared to the traffic to the quick-service restaurant space rising just 0.8%.

The company’s impressive comparable sales and profit were supported by higher menu prices and increased restaurant traffic. Surging commodity and labor costs led to the company raising the prices of its burgers and fries, but customers flocked to the fast-food chain for its value meals.

MCD Chief Financial Officer Ian Borden said, “We’re gaining share right now among low-income consumers” in the United States. Borden expects the company to ride out the expected recession next year by relying on digital orders and delivery.

MCD’s President and CEO Chris Kempczinski said, “Our third quarter 2022 performance demonstrated broad-based business momentum as global comparable sales increased nearly 10%. I remain confident in our Accelerating the Arches strategy as our teams around the world continue to execute at a high level.”

“As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength. I also want to thank our franchisees, who have done a tremendous job navigating this environment, while providing great value to our customers,” he added.

MCD’s strong fundamentals allowed it to raise dividends for 46 consecutive years. Its dividend payouts have increased at a 6% CAGR over the past three years and an 8% CAGR over the past five years. Its current dividend yield is 2.27%, while its four-year average yield is 2.27%.

The stock has declined 0.1% in price year-to-date, while it has gained 5.9% over the past year to close the last trading session at $267.84. Continue reading "No-Brainer Stock For A Hawkish Fed" →

Is Inflation Truly Whipped?

Posted on November 15, 2022November 14, 2022 by George Yacik

Last week’s consumer price index report showing inflation — at least by some measures — had slowed in October to its lowest level since the beginning of the year set off a massive rally in stocks and bonds.

But is the market overreacting, and does the report necessarily imply that inflation has finally and truly peaked and that the Federal Reserve is just about done tightening? It may be a little too early to declare victory.

The report was at least encouraging, certainly, but whether we’re home free or not remains to be seen. The headline CPI rose 7.7% compared to a year earlier, down from September’s 8.2% pace and the smallest year-on-year increase since January.

The core index — which excludes food and energy prices — rose by 6.3%, down from the prior month’s 6.6% pace. But the monthly increase in headline inflation was 0.4%, unchanged from September.

Did all that justify a 5% jump in the NASDAQ last Thursday and the sharpest one-day drop in bond yields in more than 10 years, with the yield on the benchmark 10-year Treasury note falling to 3.83% from 4.15%? (The bond market was closed Friday for Veterans Day.)

If you believe Wharton professor Jeremy Siegel, who has been saying for months that the Fed is seriously overcounting inflation, then last Thursday’s massive rally was justified.

Not only did he tell CNBC that "inflation is basically over,” but that "we're in negative inflation mode if the Fed uses the right statistics, not the faulty statistics that they've been using."

Siegel specifically cited the cost of housing and rent, which he says are overinflated in the data the Fed uses to set interest rate policy. Once the Fed sees the light, he says, the markets are poised for a “good year-end rally," but if it doesn’t, we could be headed for a rate-driven recession.

There’s certainly reason to doubt the Fed’s competence to measure and assess home price inflation, which it has failed to accomplish the past several years and other times before that.

Despite blatant evidence that the housing market was overheating during and after the pandemic, the Fed continued to suppress interest rates, allowing home prices to skyrocket — and keep homeownership out of reach for more people. Continue reading "Is Inflation Truly Whipped?" →

Can Central Banks See What We Don't?

Posted on November 14, 2022November 14, 2022 by Aibek Burabayev

The gold futures have skyrocketed on better than expected U.S. inflation data last week. The annual inflation rate in the U.S. slowed for a fourth month to 7.7% in October, the lowest reading since the start of a year, and well below forecasts of 8%.

Source: TRADING ECONOMICS

According to logic, the gold price should fall as anti-inflationary tightening measures have shown positive results in cooling price growth. The printing press, represented by the M2 money supply indicator (black dotted) in the chart above, has stopped and the reading is declining as well.

Let us check the chart below to look for an answer in the fundamental data of world gold demand.

Courtesy of World Gold Council

The graph above shows the quarterly data of demand statistics in the period from Q3 2021 to Q3 2022. According to the data, the most stable demand source comes from a technology side (wine-colored). The jewelry demand (dark purple) is price sensitive: it shrinks on the rising price and expands during price falls. The investment demand (dark green) is cooling down amid the tightening as per the logic I explained above. Continue reading "Can Central Banks See What We Don't?" →

3 Stocks To Benefit from the Recent Rate Hike

Posted on November 13, 2022November 11, 2022 by The MarketClub Team

High inflation has been a problem for the economy this year. Although the consumer price index (CPI) eased slightly in October, it remains way above the Fed’s 2% long-term target.

The Federal Reserve has been trying to combat runaway inflation by draining liquidity from the financial system by hiking the benchmark interest rates and selling off a significant part of its bond portfolio.

The Fed has raised the benchmark interest rate six times this year, with the fourth consecutive 75 basis point rate hike taking the target range to 3.75%-4%.

Bankrate’s chief financial analyst Greg McBride said, “A fourth consecutive rate hike of 0.75 percent – after going 28 years without one that large – speaks to the urgency of the Fed’s task.” “They’re still playing catch-up against inflation that continues to run near 40-year highs,” he added.

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Concerns over rising borrowing costs have led to volatility in the stock market. However, not all sectors suffer from rising interest rates. Financial institutions, including banks, usually benefit from rising interest rates as it helps them expand their interest income.

Therefore, it could be wise to make the most of the strong uptrend in bank stocks JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), and The Goldman Sachs Group, Inc. (GS). Continue reading "3 Stocks To Benefit from the Recent Rate Hike" →

1 Retail Stock To Avoid This Holiday Season

Posted on November 12, 2022November 11, 2022 by The MarketClub Team

Shares of sporting goods retailer DICK’S Sporting Goods, Inc. (DKS) have declined 24.4% over the past year and 11.2% year-to-date. However, it has gained 4.2% over the past three months to close the last trading session at $102.17.

Source: MarketClub

Recently DKS announced the launch of DSG Ventures, a $50 million in-house fund to invest in innovative sports-related companies like itself.

Ed Stack, DKS’ Executive Chairman, said, “DSG Ventures will enable us to give back and help support entrepreneurs achieve their dreams through our connections, experience, and support. We know that DSG Ventures (and our partners) will bring innovative products, services, and experiences to athletes worldwide.”

However, the macroeconomic headwinds could mar DKS’ business growth. Amid the sky-high inflation and rising recession possibilities, consumers are hesitant to spend on discretionary items even before the holiday season.

Leo Feler, the chief economist at market researcher Numerator, said, “It's food, it's medical care, it's housing and shelter costs. It's essential services such as veterinary care, and child care. All of these things come first before consumers buy holiday gifts."

Furthermore, U.S. holiday sales are expected to rise at a slower pace this year. The National Retail Federation (NRF) forecast holiday sales, including e-commerce, to rise between 6% and 8% compared to a 13.5% jump last year and a 9.3% increase in 2020 when supply chain issues and pandemic-related uncertainties weighed on.

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