Is There Another Jumbo Fed Rate Hike Coming This Week?

Life is starting to get difficult for Powell You are receiving this message because you have visited Daily Picks 365 and requested to receive daily market updates, If you no longer wish to be contacted, please click the removal link [here](. [Another Jumbo Rate Hike is Expected This Week- Then Life Starts to get Difficult for Powell]( [Click here to read full article.]( First the easy part. Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%. “The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS. The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee. What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught. The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December. The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023. The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming. A Wall Street Journal story last weekreported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets. “No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday. There was a clear slowdown in private-sector wage growth, Tilley said. But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing. Another worry for Powell is that future data might not cooperate. There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14. So Powell might have to reverse course. “If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%. While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises. In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation. Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes. [Continue reading article here.]( [3 Ultra-Popular Stocks that are more Trick than Treat]( KEY POINTS - Bear market declines are an ideal opportunity for investors to put their money to work. - However, not every perceived-to-be “cheap” stock is going to be a winner. - These popular stocks are rife with red flags. These widely held stocks could become houses of horror for their shareholders. For some, Halloween provides a way to let their imagination become reality — at least for a day. For others, it’s a day of ghouls, goblins, and ghosts, with the intent of putting a little scare in those seeking candy. But for the stock market, Halloween represents just another day in 2022 of scaring the daylights out of investors. Since the year began, the timeless Dow Jones Industrial Average, broad-based S&P 500, and widely followed Nasdaq Composite, have all plummeted into a bear market. The Nasdaq has been the biggest loser, with a peak-to-trough decline (since its November 2021 high) of 38%. On one hand, history conclusively shows that putting your money to work in high-quality stocks during bear markets is a genius move. Eventually, every stock market correction and crash throughout history has been fully recouped (and some) by a bull market rally. On the other hand, not every stock is going to be a winner — even at a perceived-to-be “discounted” price. Halloween serves as a needed reminder that some ultra-popular stocks are more trick than treat. Here are three perfect examples. Tesla There’s arguably not a more-loved electric-vehicle (EV) manufacturer on the planet than Tesla (TSLA 1.52%). The EV giant, whose market cap dwarfs all other automakers, is the EV market share leader in North America, and looks to be on pace to easily eclipse 1 million deliveries in 2022. But not even turning the corner to recurring profitability is enough to make Tesla an attractive investment at its current valuation. Although Tesla has successfully driven its first-mover EV advantages to big gains, holding its market share should prove virtually impossible given how much money legacy automakers and newer players are throwing at EV, autonomous vehicle (AV), and battery research. General Motors and Ford Motor Company are, respectively, earmarking an aggregate of $35 billion and $50 billion for EV, AV, and battery research. To build on this point, we’re already seeing instances of Tesla vehicles being out-innovated. Relatively new entrant Nio, an EV maker based in China, debuted two sedans this year (ET7 and ET5) that can achieve a 621-mile range with the top-tier battery upgrade. That’s hundreds of miles of range above the Tesla Model 3. Optimists will often point to Tesla being more than just a car company as added justification for its premium valuation. But a deeper dive into its income statements show that Tesla’s solar business has been a drag since it was acquired. Though Tesla’s energy ambitions may eventually pay off, its ancillary operations are a hindrance, not a help, at the moment. But the biggest reason Tesla stock is more trick than treat is CEO Elon Musk. While he’s viewed as a visionary by many, it’s hard to overlook a growing list of innovations/product promises from Musk that have failed to materialize. Everything from 1 million robotaxi’s being on the road by 2020 to level 5 full self-driving being perpetually “one year away” has proved false. Musk’s empty promises are a big red flag for a company whose valuation is built on those promises. Bed Bath & Beyond A second ultra-popular stock that’s undoubtedly more trick than treat is specialty home products retailer Bed Bath & Beyond (BBBY -7.83%). Although Bed Bath & Beyond has been at the center of a few meteoric short squeezes over the past two years, a mountain of warning signs suggest investors should keep their distance. Two years ago, even I was still somewhat of a believer that the company could complete a Best Buy-like turnaround. In October 2020, Bed Bath & Beyond unveiled a multipoint plan to invest $250 million to modernize its supply chain, aggressively transform its online sales experience, and “[curate] a differentiated product assortment to capture market share,” according to the company. Unfortunately, the company’s turnaround strategy has failed to materialize. In addition to contending with the foot traffic challenges presented by the COVID-19 pandemic, Bed Bath & Beyond’s product lineup has never been differentiated enough to make it a go-to source for home goods. Having a brick-and-mortar-focused sales setup has also made it very difficult for the company to compete against a myriad of online retailers that can undercut its prices. Not surprisingly, comparable-store sales plunged 26% in the most-recent quarter for the company. But maybe the biggest blunder of all has been Bed Bath & Beyond’s ongoing shareholder buybacks that have strapped the company for cash. Virtually all of the company’s buybacks have occurred at a considerably higher share price, leading to no value creation for its shareholders. If you need additional proof of how much trouble Bed Bath & Beyond is in, take a closer look at its bonds. A $300 million bond issued in July 2014, which is due in August of 2024, is currently trading at 81% below par ($0.1852). Bonds that carry 180% yields to maturity are a massive red flag that the bond market doesn’t believe the common equity (i.e., Bed Bath & Beyond’s common stock) has any value. SNDL The third ultra-popular stock that’s proved to be more trick than treat is Canadian marijuana stock SNDL (SNDL 2.23%). If the name doesn’t ring a bell, it could be because the company recently changed its name to SNDL from Sundial Growers. There are three reasons investors have flocked to SNDL over the past couple of years: 1) The expected growth of the Canadian pot industry, 2) SNDL’s large cash position, and 3) SNDL’s relatively high short interest, which has made it a popular short-squeeze candidate. However, none of these factors overshadow the company’s poor operating performance or its questionable management team. 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