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S&P 500 Turnaround: 3 Charts You Need To Watch
Last week wasn’t the most optimistic on Wall Street. Even though the US economy is growing, Federal Reserve Chairman Jerome Powell’s comments after the…
Last week wasn't the most optimistic on Wall Street. Even though the US economy is growing, Federal Reserve Chairman Jerome Powell's comments after the Fed meeting weren't what investors wanted to hear.
The Federal Reserve's decision to keep interest rates steady at 5.25–5.50% wasn't a surprise, but the possibility of higher rates for longer than expected could have caused the sell-off in the stock market following Chairman Powell's comments. The broader equity indexes ended lower for the week, with the Nasdaq Composite ($COMPQ) hit the hardest—down 3.6%.
Based on Powell's comments, we can expect one more rate hike in 2023 and maybe only two rate cuts in 2024. In other words, it'll take longer to lower rates, given that the GDP is projected to grow and the labor market remains tight. The lower-than-expected jobless claims number last week supports the possibility of inflation continuing for longer.
Higher Interest Rates
Higher interest rates aren't great for growth stocks. If Treasury yields continue to rise or remain high, future earnings of companies that tend to borrow money become less attractive. Higher borrowing costs hurt future cash flows, which could result in lower stock prices.
It's worth watching the chart of the 10-Year Treasury Yield Index ($TNX). The chart below shows that yields have been on a relatively steep ascent and are continuing to move higher. The 10-year Treasury yield is above 4.5%, a level not seen since 2007. If yields continue to move higher, stocks could fall even further, especially the large-cap growth stocks.
If you look at the weekly chart of the Nasdaq Composite with the $TNX overlay, it's interesting to see that from March 2020 to November 2021, the index was moving higher with the $TNX. In November 2021, a few months before the Fed started raising interest rates, the two started diverging. The Nasdaq Composite has dropped below its 100-day moving average. If it breaks below this support and takes out the August low of 13,162, the September pullback could become a reality.
The good news? It could present a buying opportunity. In a recent StockCharts TV episode of Charting Forward, three well-known technical analysts expressed their thoughts on how Q4 would unfold. All three agreed that the fourth quarter tends to be strong, with some sectors, such as Consumer Discretionary, Communication Services, Technology, Industrials, and Financials, likely to outperform. Commodities may also be coming off their base.
If you look at the markets now, your first thought might be it doesn't seem like that's likely to happen after a week. But it's the stock market and it can turn on a dime. And given that this type of price action is typical in September, there's a chance that the stock market could take off. All the more reason to watch the charts.
Charting Your Course With 3 Charts
Turning to the S&P 500, the weekly chart below displays that the index is at a critical support level at the 61.8% Fibonacci retracement level (using the January 2022 high and October 2022 low) and struggling to stay there. The 50% retracement level is an interesting one since it closely aligns with the support of the 100- and 50-week moving average.
If the S&P 500 breaks below the 61.8% Fib retracement level, the index could likely hit that 50% level of 4160. A reversal from either of these Fibonacci levels could present buying opportunities.
Another chart to pay attention to is the S&P 500 Equal Weighted Index ($SPXEW). The index has been trending lower since the end of July. The chart below of $SPXEW is overlaid with the Invesco S&P 500 Top 50 ETF (XLG), a fund with pretty strong exposure to the Magnificent Seven stocks. The chart gives you a pretty good idea of how much the two diverge. You can see that the two sometimes move closely, but other times, there's a significant gap between the two. A reversal in $SPXEW or a narrowing of the gap between the two would be encouraging as we head into the end of September.
It's worth viewing the market breadth indicators such as the Advance-Decline Line, the percentage of stocks trading above their 200-day moving average, and the Bullish Percent Index. The chart below displays that market breadth indicators are trending to the downside, meaning market breadth is narrowing.
Final Thoughts
Let's hope the stock market turns around in October and ends strongly in Q4. According to the Stock Trader's Almanac 2023, October is a "jinx" month, but overall, especially in a pre-election year, October tends to start reversing after a terrible September and can be a great time to buy. The potential headwinds the stock market could face are rising interest rates, rising oil prices, and a possible government shutdown.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
sp 500 nasdaq stocks fed federal reserve etf gdp interest rates commodities oilUncategorized
One city held a mass passport-getting event
A New Orleans congressman organized a way for people to apply for their passports en masse.
While the number of Americans who do not have a passport has dropped steadily from more than 80% in 1990 to just over 50% now, a lack of knowledge around passport requirements still keeps a significant portion of the population away from international travel.
Over the four years that passed since the start of covid-19, passport offices have also been dealing with significant backlog due to the high numbers of people who were looking to get a passport post-pandemic.
Related: Here is why it is (still) taking forever to get a passport
To deal with these concurrent issues, the U.S. State Department recently held a mass passport-getting event in the city of New Orleans. Called the "Passport Acceptance Event," the gathering was held at a local auditorium and invited residents of Louisiana’s 2nd Congressional District to complete a passport application on-site with the help of staff and government workers.
'Come apply for your passport, no appointment is required'
"Hey #LA02," Rep. Troy A. Carter Sr. (D-LA), whose office co-hosted the event alongside the city of New Orleans, wrote to his followers on Instagram (META) . "My office is providing passport services at our #PassportAcceptance event. Come apply for your passport, no appointment is required."
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The event was held on March 14 from 10 a.m. to 1 p.m. While it was designed for those who are already eligible for U.S. citizenship rather than as a way to help non-citizens with immigration questions, it helped those completing the application for the first time fill out forms and make sure they have the photographs and identity documents they need. The passport offices in New Orleans where one would normally have to bring already-completed forms have also been dealing with lines and would require one to book spots weeks in advance.
These are the countries with the highest-ranking passports in 2024
According to Carter Sr.'s communications team, those who submitted their passport application at the event also received expedited processing of two to three weeks (according to the State Department's website, times for regular processing are currently six to eight weeks).
While Carter Sr.'s office has not released the numbers of people who applied for a passport on March 14, photos from the event show that many took advantage of the opportunity to apply for a passport in a group setting and get expedited processing.
Every couple of months, a new ranking agency puts together a list of the most and least powerful passports in the world based on factors such as visa-free travel and opportunities for cross-border business.
In January, global citizenship and financial advisory firm Arton Capital identified United Arab Emirates as having the most powerful passport in 2024. While the United States topped the list of one such ranking in 2014, worsening relations with a number of countries as well as stricter immigration rules even as other countries have taken strides to create opportunities for investors and digital nomads caused the American passport to slip in recent years.
A UAE passport grants holders visa-free or visa-on-arrival access to 180 of the world’s 198 countries (this calculation includes disputed territories such as Kosovo and Western Sahara) while Americans currently have the same access to 151 countries.
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Fast-food chain closes restaurants after Chapter 11 bankruptcy
Several major fast-food chains recently have struggled to keep restaurants open.
Competition in the fast-food space has been brutal as operators deal with inflation, consumers who are worried about the economy and their jobs and, in recent months, the falling cost of eating at home.
Add in that many fast-food chains took on more debt during the covid pandemic and that labor costs are rising, and you have a perfect storm of problems.
It's a situation where Restaurant Brands International (QSR) has suffered as much as any company.
Related: Wendy's menu drops a fan favorite item, adds something new
Three major Burger King franchise operators filed for bankruptcy in 2023, and the chain saw hundreds of stores close. It also saw multiple Popeyes franchisees move into bankruptcy, with dozens of locations closing.
RBI also stepped in and purchased one of its key franchisees.
"Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023," RBI said in a news release. Carrols also owns and operates 60 Popeyes restaurants in six states."
The multichain company made the move after two of its large franchisees, Premier Kings and Meridian, saw multiple locations not purchased when they reached auction after Chapter 11 bankruptcy filings. In that case, RBI bought select locations but allowed others to close.
Another fast-food chain faces bankruptcy problems
Bojangles may not be as big a name as Burger King or Popeye's, but it's a popular chain with more than 800 restaurants in eight states.
"Bojangles is a Carolina-born restaurant chain specializing in craveable Southern chicken, biscuits and tea made fresh daily from real recipes, and with a friendly smile," the chain says on its website. "Founded in 1977 as a single location in Charlotte, our beloved brand continues to grow nationwide."
Like RBI, Bojangles uses a franchise model, which makes it dependent on the financial health of its operators. The company ultimately saw all its Maryland locations close due to the financial situation of one of its franchisees.
Unlike. RBI, Bojangles is not public — it was taken private by Durational Capital Management LP and Jordan Co. in 2018 — which means the company does not disclose its financial information to the public.
That makes it hard to know whether overall softness for the brand contributed to the chain seeing its five Maryland locations after a Chapter 11 bankruptcy filing.
Bojangles has a messy bankruptcy situation
Even though the locations still appear on the Bojangles website, they have been shuttered since late 2023. The locations were operated by Salim Kakakhail and Yavir Akbar Durranni. The partners operated under a variety of LLCs, including ABS Network, according to local news channel WUSA9.
The station reported that the owners face a state investigation over complaints of wage theft and fraudulent W2s. In November Durranni and ABS Network filed for bankruptcy in New Jersey, WUSA9 reported.
"Not only do former employees say these men owe them money, WUSA9 learned the former owners owe the state, too, and have over $69,000 in back property taxes."
Former employees also say that the restaurant would regularly purchase fried chicken from Popeyes and Safeway when it ran out in their stores, the station reported.
Bojangles sent the station a comment on the situation.
"The franchisee is no longer in the Bojangles system," the company said. "However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities."
Kakakhail and Durranni did not respond to multiple requests for comment from WUSA9.
bankruptcy pandemicUncategorized
Industrial Production Increased 0.1% in February
From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.Click on graph for larger image.
emphasis added
This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).
Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022. This was below consensus expectations.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.
Industrial production increased to 102.3. This is above the pre-pandemic level.
Industrial production was above consensus expectations.
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