Is Economy Too Hot for Stocks to Keep Rallying?

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The reality hit Wall Street yesterday after Fed Chair Jerome Powell gave his strong intention not to cut rates in March during his CBS’s 60 Minutes interview and after witnessing multiple strong economic data that point to “higher for longer” rates. As a result, the yield on the 10-year Treasury note jumped by more than 13 basis points to 4.166%. The odds of a rate cut in March plunged to 16.5%, according to CME Group’s FedWatch Tool. - “It’s a recalibration of expectations around how soon the Fed will pivot,” said Keith Lerner, Truist’s co-chief investment officer. - “The pivot trade is being unwound to a certain extent. The tension between a strong economy and what that means for the Fed is likely to continue to create these kind of reset days.” Keith Lerner, Truist’s co-chief investment officer (Photo: CNBC) Now, some Wall Street analysts are questioning whether the economy is growing too fast for the disinflationary to continue. That was also the concern of the central bank. Powell said while the six-month inflation rate looks good, there’s no guarantee that the next six months will see the same positive trend. For example, the GDP soared at an annualized rate of 4.1% in the 2nd half of last year, and nonfarm payrolls grew by 353,000, smashing the estimates of just 185,000. Goldman Sachs said these numbers are “well above” the bank’s estimate of long-term sustainable trends. - “Our most out-of-consensus global view over the past 18 months has been that U.S. growth would remain solid alongside declining inflation. Recently, however, some key indicators have been more than just solid,” Goldman Sachs analyst Jan Hatzius wrote in a Monday notes. - “This raises the question whether the U.S. economy is now growing too quickly to sustain the disinflationary trend.” Yesterday, the Institute for Supply Management released its services gauge which hit a four-month high. Prices paid for materials also jumped. McDonald’s stock also fell by 3.7% after reporting mixed results, raising the alarm about the health of corporate earnings outside Big Tech. Tyson Foods, however, beat quarterly earnings easily. Snap announced another layoff that will affect about 10% of its workforce. What’s next? More companies will keep reporting earnings. Fed’s Loretta Mester and Patrick Harker will speak today. US wholesale inventories and initial jobless claims will be out on Thursday. And lastly, CPI revisions will be announced on Friday. Need a bona-fide dividend stock? Look no further than this Today’s Stock Pick: Verizon ([VZ]( Looking for the potentially safest ~7% dividend yield you can find in the stock market? Verizon is known as the #1 wireless network in quality. It has the best coverage and speed across America. And of course, smartphones are perhaps the most indispensable technology for almost every American. What’s more, the barrier to entry is enormous. You need billions of dollars to build out the infrastructure. The government also restricts the number of frequencies in the air, so you will need to bid to be able to offer wireless services. And guess what? The company is now offering a dividend yield of 8.21%! Verizon didn’t cut dividends during the 2007-09 financial crisis and the pandemic lockdown and raised dividends for 16 consecutive years. In other words, you can be assured to lock into 8% for many years to come. And that yield is very likely to rise as the company continues to raise dividends. Verizon CEO emphasized the company’s commitment to return cash to shareholders: - “We believe that we will become increasingly efficient with our capital, using less capital to generate every dollar of revenue for years to come. That will enable us to produce expanding cash flow that we can both reinvest in our business and return to our shareholders,” said Verizon CEO Hans Vestberg. By the way, Verizon made a huge capital spending to build out the 5G infrastructure. The company is now winding down its capital spending budget, reducing it from $23.1 billion in 2022 to under $19 billion at the midpoint of its guidance range this year. That is a reduction of 20% year over year. The CEO expects the CapEx to keep falling to around $17 billion in 2024. - “In 2024, we expect our CapEx to be around $17 billion, which we expect to represent the lowest capital intensity in over a decade and among the lowest in the industry. We expect we will deliver a best-in-class network experience while reducing our 2022 CapEx levels by more than $5 billion over the next couple of years.” That is more than $5 billion in savings over the next two years! (Source: Verizon) A dividend king: Don’t expect Verizon to grow like a software stock. The company grew its revenue by 2% to 3.5%, but it is very efficient. Its ROE has never fallen below 20% since 2014. It means Verizon can earn 20%+ from every dollar invested in the business. (Source: MacroTrends) What does it mean? LOTS of cash returned to shareholders. The yield can rise as Verizon winds down its CapEx spending. By then, Wall Street will notice this stock and drive up the stock. Bottom line: Verizon is a perfect stock to own right now. Interest rates are extremely high, so it will be a gravity to asset prices, making it hard for prices to rise. So, it is critical to own stocks with high dividend yields like Verizon. What if rates fall? That’s fine. Asset prices typically rise, as well. You would already lock into Verizon’s ~7% dividend yield while enjoying any appreciation in the stock price. That’s a win-win scenario.   [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](     © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](