The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
The world belongs to human beings.
The countless examples of human prowess provide a natural segue to the conclusion that humans are nature’s most successful beings, but that depends on the definition of success — and we might not be by a long shot in multiple categories. From an evolutionary standpoint, human beings have existed for only 300,000 years, encompassing just 0.0086% of the time life has existed.
Some say that the reality is the world is dominated by microbes. The oldest living thing is cyanobacteria, a creature whose 3.5 billion-years of existence makes the human’s 300,000 sound pretty small in evolutionary time.
The COVID-19 pandemic proved a potent challenge to homo sapiens and reinstated the need for safety measures against the possible rulers of the world. Applied UV Inc. (NASDAQ: AUVI), a company with a focus on the development and acquisition of technologies that address infection prevention, says it was ahead of the curve in realizing the world’s need for its services.nasdaq pandemic covid-19
Weekly investment update – The soft underbelly of hard inflation data
Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets…
Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets pushing up producer and consumer prices amid creeping signs of softening growth. This has put global monetary policy, and markets in risky assets, in a bind.
The Dow Jones Industrial Average fell for the seventh consecutive week last week, while the benchmark US Treasury 10-year yield hovered around 3.0% (almost double the 1.6% of a year ago). Commodity prices came under selling pressure as risk aversion among investors mounted. Safe-haven flows pushed up the US dollar, driving its trade-weighted index to near two-decade highs (see Exhibit 1).
China fanned market worries early last week, with Premier Li Keqiang warning that the domestic jobs situation was getting ‘complicated and grave’. The country’s zero-Covid policy is taking a heavy toll on the local economy with negative spillover effects globally. While Shanghai’s lockdown may be wound down soon, other major cities (including Beijing) are facing renewed restrictions.
US Federal Reserve Chair Jerome Powell issued a warning mid-week: The Fed could not guarantee a ‘soft landing’ as it looked to get runaway inflation back to its 2% target amid a tight US labour market. The US Senate nonetheless overwhelmingly confirmed Powell for a second term, signalling monetary policy continuity.
Earlier in the week, former Fed Chair Ben Bernanke warned about the risk of stagflation in an interview with The New York Times.
Aggravated by hard inflation data…
US consumer price inflation was 8.3% YoY in April, down slightly from 8.5% in March. However, core inflation (which excludes food and energy prices), rose on the month from 0.3% to 0.6%, a level still too high for the Fed’s comfort.
Services inflation was particularly strong, rising by 0.7% MoM in April, marking the biggest monthly gain since August 1990. Underscoring continued robust consumer demand, retail sales rose by 0.9% vs the prior month, though this marks the third month in a row that the growth rate has decelerated.
The prospects for inflation to fall back to the Fed’s 2% target anytime soon may not be good: High wage growth – hourly earnings rose at around 5% YoY – could continue to fuel inflation in the near term. We note that services inflation tends to be much stickier than other index components.
From the Fed’s perspective, these price pressures could in turn drive inflation expectations higher.
The market perceives the latest inflation report as sealing a 50bp rate rise at the June and July meetings of Fed policymakers. It also boosts the chances of the Fed persisting in its aggressive tightening stance at later meetings. A key question is the extent to which – and when – higher interest rates will hit real incomes and crimp demand growth, slowing the economy overall.
The high services inflation data also suggests labour market tightness would have to ease significantly to bring wage growth back to levels that are acceptable to the Fed. We believe something will have to give. If not, the Fed may have to tap harder on the brakes down the line.
The ECB continues to move closer towards a hawkish policy, with the market now expecting its asset purchasing programme (APP) to end in July, to be followed by a 25bp rate rise soon after. Underpinning the ECB’s policy tightening stance is strong inflation, which rose by 7.4% YoY in April (same as in March), and falling unemployment (the jobless rate hit a record low of 6.8% in March).
The war in Ukraine has added to the upside risks to inflation via food and energy price increases and supply bottlenecks. In addition to higher inflation, the ECB also appears to be concerned about the spillover effects from wage increases. An increasing number of policymakers has spoken out recently in favour of an initial rate rise as soon as July.
And creeping signs of slower growth
Indications of weakening growth momentum have appeared, most noticeably in the UK where GDP growth contracted unexpectedly by 0.1% MoM in March.
In the eurozone, industrial production shrank by 1.8% MoM in March and manufacturing output was down by 1.6%. The main culprit was disruption caused by the war in Ukraine. The weakness was concentrated in Germany, whose supply chains are more integrated with eastern Europe. Its car sector is missing components produced in Ukraine.
Even in the US, recent data showed signs of slowing growth. Jobless claims filings showed an increase in initial claims; the May Senior Loan Officer Opinion survey recorded a drop in demand for mortgages; the University of Michigan consumer sentiment May index hit its lowest level since the start of the pandemic; and the May Empire State Manufacturing survey plunged.
China also released weak data, with industrial output, fixed-asset investment and retail sales all showing year-on-year declines. The property market’s woes deepened, with new home sales and starts falling precipitously.
Mr. Bernanke’s warning of stagflation underscores the dilemma facing policymakers and financial markets: Inflation and growth data are sending conflicting signals. Parts of the US yield curve are inverted, pointing to some risk of an economic recession.
The slowdown concerns are linked to inflation forcing the Fed to tighten policy into restrictive territory and turning weaker growth into a contraction.
The situation is similar in the eurozone: inflation is at its highest ever and could lead the ECB to take stronger measures, exacerbating headwinds from weak Chinese activity and a Russia-induced energy supply shock.
Against the backdrop of the continuing Ukrainian conflict and prolonged supply-chain disruptions, we do not favour sovereign bonds and European equities at this point. We prefer commodities, Japanese and emerging market equities, including Chinese stocks.
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Writen by Chi Lo. The post Weekly investment update – The soft underbelly of hard inflation data appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.recession unemployment consumer sentiment pandemic bonds yield curve dow jones emerging markets equities stocks monetary policy fed federal reserve us treasury home sales us dollar senate lockdown gdp interest rates commodities european europe uk germany russia ukraine china
The retailers that should weather the coming economic storm
Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates. These…
Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates. These impacts will crimp the discretionary spending power of many people. The one exception could be the under 25-year-old Gen Z demographic, who have fewer non-discretionary costs than other age groups. The retailers who sell to them could fare better than most.
Over the last six months, discretionary retail stocks have been among the worst performers on the ASX, with the S&P/ASX 300 Retailers Accumulation Index underperforming the broader market index by 13 per cent over that period. Admittedly, this recent under performance merely unwinds the 20 per cent out performance of this index in the preceding 18 month period which coincided with the recovery in the market from the pandemic lows.
Over the last six months, only 1 of the 17 stocks in this index has managed to perform better than the broader market, JB HiFi, while four generated losses of over 50 per cent. Notably these stocks, Red Bubble, Kogan, City Chic and Temple & Webster, are all online retailers, and performed very strongly over the first year of the pandemic as they were perceived to be COVID winners.
Figure 1: Total return of retailing stocks between 16 Nov 2021 and 16 May 2022
The market is concerned that the combination of falling incomes – as households face rising inflation on a broad basis eating into real spending power, and rising interest rates – will reduce discretionary spending power. However, it is not as simple as this.
While these factors are likely to lead to pressure on overall discretionary consumption, these factors do not affect all segments of the economy equally.
CBA’s economic team has released data for household income and spending growth for the March quarter of 2022. This data is broken down by age demographic.
In looking at the potential impact of spending from cycling the impact of large stimulus payments that were received by households in the prior year, CBA’s data suggests that the percentage of Millennials receiving some sort of government payment has fallen the most relative to the December quarter of 2021 followed by Generation X. Gen Z and Baby Boomers have experienced less of a reduction.
Offsetting the reduction in government benefits is an increase in the percentage of people receiving a salary. This is likely as a result of people returning to work post the pandemic and the current strong labour market.
This then feeds into the impact on each demographic’s growth in overall income over the last 12 months. This shows that Gen Z has benefited the most from the current strong employment market with increased employment and strong wage growth while the percentage receiving government benefits remains higher than other demographics and above pre-pandemic levels.
Not surprisingly, it is also Gen Z that has shown the strongest spending growth in the March quarter. For the other generations, spending growth has exceeded income growth, implying that their savings rates have declined to fund that growth in spending.
But savings are still well above 2019 levels for all generations and still rising. This will provide a buffer against cost increases and slowing growth in the medium term as inflation and higher interest rates bite. Gen Z has the biggest savings buffer.
Not surprisingly, overall household wealth is considerably higher than at the end of 2019, primarily as a result of rocketing residential property prices on the back of emergency monetary policy settings. The wealth effect of housing prices is an important driver of discretionary spending in Australia and has benefited retailers over the last two years.
Figure 5: Household wealth – average per household
Of course, what interest rates can give, they can also take away. With variable mortgage rates likely to increase 1-2 percentage points over the next year, residential property prices are expected to fall, reversing some of this wealth effect.
There is no doubt that conditions are set to tighten for retailers over the coming year. However, reversing wealth effects from falling property prices and falling discretionary income levels will primarily impact those generations that own most of the housing stock, namely the Baby Boomers, Gen X and to a lesser extent the Millennials. Baby Boomers are more likely to be impacted by falls in house prices while Millennials will be more impacted by the need to allocate more of their income toward mortgage repayments.
For those that rent rather than own their home, rents are also likely to rise, as property owners try to pass on rising mortgage, utility and maintenance costs to tenants.
Those with families will be more impacted by rising prices of non-discretionary goods and services like food and utilities. This impact will be concentrated on Millennials and Gen X.
While not immune, the younger Gen Z demographic is likely to fare better than other generations given it faces fewer non-discretionary costs, and is not as exposed to property and wealth effects. At the same time, it is experiencing the strongest income growth and has had the most significant increase in its savings over the last two years.
Hence, we prefer retailers that cater to this younger demographic in the discretionary segment such and Universal Store and Accent Group.
The Montgomery Funds owns shares in City Chic, Universal Store and Accent Group. This article was prepared 18 May 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Goodman Group you should seek financial advice.stimulus pandemic stocks monetary policy mortgage rates recovery interest rates stimulus
What Is the VIX Volatility Index? Why Is It Important?
What Is the VIX and How Does It Measure Volatility?In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index…
What Is the VIX and How Does It Measure Volatility?
In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index measures S&P 500 index options and is used as an overall benchmark for volatility in the stock market. The higher the index level, the choppier the trading environment, which makes its other nickname pretty apt: the fear index.
It’s important to point out that the VIX measures implied, or theoretical, volatility. It measures the expectation of future volatility based on a snapshot of the previous 30 days’ worth of trading activity.
What Do the VIX Numbers Mean?
- A VIX level above 20 is typically considered “high.”
- A VIX below 12 is typically considered “low.”
- Anything in between 12 and 20 is considered “normal.”
When there is increased activity on put options, which means that investors are selling more puts, the VIX registers a high number. Investing in a put option is like betting that the price of a stock will go down before the put contract expires because puts give investors the right to sell shares of a stock on a specific date at a specific price.
These are bearish investments, ones that can take advantage of emotions like fear. There is a saying on Wall Street that does “When the VIX is high, it’s time to buy” because the general belief is that volatility may have reached a peak, or a turning point.
When the VIX falls, that means that investors are buying more call options. Investing in a call is like betting that the price of a stock will go up before the call contract expires. In other words, a falling reading on the VIX indicates that the overall sentiment in the stock market is more optimistic, or bullish.Although the VIX isn't expressed as a percentage, it should be understood as one. A VIX of 22 translates to implied volatility of 22% on the SPX. This means that the index has a 66.7% probability (that being one standard deviation, statistically speaking) of trading within a range 22% higher than—or lower than—its current level within the next 12 months.
How Is the VIX Calculated? What Is the VIX Formula?
In a nutshell, the VIX is calculated by the Chicago Board of Options Exchange using market prices of S&P 500 put and call options with an average expiration of 30 days. It uses standard weekly SPX options and those with Friday expirations, but unlike the S&P 500 index, which contains specific stocks, the VIX is made up of a constantly changing portfolio of SPX options. The Chicago Board of Options website goes into more detail about its methodology and selection criteria.
How Do I Interpret the VIX?
There are many ways to interpret the VIX, but it’s important to note that it’s a theoretical measure and not a crystal ball. Even the sentiment it tracks, fear, is not itself measured by hard data, such as the latest Consumer Price Index. Rather, the VIX uses options prices to estimate how the market will act over a future timeframe.
It's also important to understand how much emotion can drive the stock market. For example, during earnings season, a company’s stock may report solid growth yet see shares plummet, because the company did not meet analyst expectations. So much of what goes on in the market can be summed up by feelings, like greed, as investors spot appreciation potential and place buy orders, which drive prices higher overall. Fear is evidenced when investors try to protect their investments by selling their shares, driving prices lower.
At its worst, fear-driven selling can send the market into a tailspin and lead to emotions like panic, which can result in capitulation.
But the VIX is not designed to cause panic. It is simply a gauge of volatility. In fact, some investors, especially traders, view the increased turbulence as a signal to buy, so that they make a profit either through speculation or hedging and thus capitalize on the situation.
Can the VIX Go Above 100?
Theoretically speaking, the VIX can top 100, although it has never reached that point since data collection began in 1990.
The two highest points the VIX has ever reached were the following:
- On October 24, 2008, at the height of the Financial Crisis, which stemmed from the global implosion of mortgage-backed securities, the VIX reached 89.53.
- On March 16, 2020, during the beginning of the COVID-19 pandemic, the VIX recorded a high of 82.69.
Analysts also believe that had data collection begun in the 1980s, the VIX would have topped 100 during the Black Stock Market Crash, on Monday, October 19, 1987.
This chart from FRED, the Federal Reserve’s data center, details the VIX from 1990 to 2022. Shaded areas illustrate periods of recession:
How Do I Trade the VIX? Can You Buy Options on the VIX?
Investors can’t invest directly in the VIX, but they can invest in derivatives that track the VIX, such as VIX-based exchange-traded funds (ETFs), such as ProShares VIX Mid-Term Futures ETF (VIXM), and exchange-traded notes, like the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ).
What Is the VIX at Today?
To view the VIX’s current reading, visit the webpage maintained by the Chicago Board of Options Exchange; it is updated daily.
What Are the VIX’s Current Volatility Predictions?
The stock market has been in choppy waters for most of 2022. Tech stocks, the Nasdaq, and stocks with high P/E ratios have taken a beating as investors worry about continued inflation, the Russia/Ukraine war’s effect on energy prices, the aggressive pace of interest rate hikes from the Federal Reserve, and China’s extreme “zero-COVID” policies. All of these things are causing the storm clouds to gather around the possibility of recession.recession pandemic covid-19 sp 500 nasdaq stocks federal reserve etf russia ukraine china
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