Home About Archives RSS Feed

@theMarket: Corporate Guidance Sends Stocks Lower

By Bill SchmickiBerkshires columnist
Across several industries, corporate executives are guiding investor's expectations lower during this fourth-quarter 2021 earnings season. To me, it is just added another nail in the coffin of bullish sentiment.
 
Pick your poison. The money center banks earnings beat on the bottom line, but it was the commentary and nuanced forward guidance that dismayed investors. Airlines did OK, but also warned of tough times ahead due to higher fuel costs, and the Omicron variant. Companies in other sectors (such as Netflix) warned of thinner profit margins ahead due to higher costs, less demand and/or supply chain issues.
 
None of this should come as a surprise to my readers. I expected a mounting chorus of woeful predictions (real and imagined) by executives, who are eager to cover their butts in the event things don't go their way over the next quarter or two. Lower guidance is one, but not the only reason, I am expecting further downside in the markets ahead.
 
The U.S. 10-year Treasury bond yield is another reason. This week, the bond yield hit 1.86 percent, which was a 40 percent increase since the beginning of December 2021. I expect the yield to hit 2 percent, which is another 7 percent gain from here. Is it any wonder, given that fixed income analysts are outdoing themselves (like lemmings) in predicting more rate hikes this year and sooner? "Four or more," says one analyst from a big brokerage house. "I'll see you four and raise you eight," says another.
 
Bottom line — a 7 percent inflation rate is a real problem. Even President Biden, in his televised two-hour press conference this week, had to remind all of us that "it is the Fed's job to fight inflation."  Anyone (and there are many) who may have been hoping that a stock market decline would cause President Biden to pressure the Fed into backing off from raising interest rates has been put on notice — there is no longer a Fed put under the stock market. It would take a 20 percent decline or more, I believe, before the Fed might have change of heart, if then.
 
Another of my forecasts slower growth is starting to unfold. The economy is beginning to feel the back up in interest rates. Take the housing sector, for example. A 30-year conventional fixed rate mortgage traded at 3 percent a few short weeks ago. Today, that rate is 3.7 percent on average.
 
Since mortgage rates are super sensitive to even a small rise in interest, I would expect existing home sales to begin to falter. And as mortgage rates climb higher, less people may be willing to stand in line and pay up for that house. The housing sector is a huge segment of U.S. GDP. But it won't collapse. I'm not expecting the housing market to do more than slow a tad, but that is enough to scare investors. The good news, I suppose, is that over time prices will come down. That should help reduce the overall inflation pressure. But the key word here is time.
 
Unfortunately, markets aren't about to wait for this kind of scenario to unfold. About the longest investors can wait in today's markets is until the next Fed meeting, which just happens to be next week. On Wednesday, Jan. 26, 2022, traders are expecting an announcement from the Fed spokesmen that there could be as many as four interest rate hikes (of 25 basis points each) in 2022.
 
That won't exactly be good news, but at least it is expected, or at least I hope so. Anything more, and I would say "look out below." A hawkish comment or two from Federal Reserve Bank Chairman, Jerome Powell, could easily swing the market up or down 75 to 100 points on the S&P 500 Index.
 
We have already passed the start date (Jan. 15, 2022) of the correction I predicted several weeks ago. I have been warning readers of a 10-20 percent decline between that date and the end of February. So far, the NASDAQ has fallen more than 10 percent, the consumer discretionary sector is down 8 percent, healthcare down 6.5 percent, real estate down 8.6 percent, and materials down 5 percent.   The S&P 500 Index is only down 7 percent while the Dow has done the best only falling 5 percent.
 
I was hoping that readers took advantage of the few rally attempts we had this past week to reduce positions further and get more conservative. I advise you to do the same in the coming week, if we get another bounce or two. It is not the time to "buy the dips", but rather my advice is to sell the rips.  Once the S&P 500 Index has hit my 10 percent target, we will reassess for further downside.
 
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Crosby/Conte Statement of Interest Gets OK From Council
WCMA: 'Cracking the Code on Numerology'
BCC Wins Grant for New Automatic External Defibrillator
Clark Art Screens 'Adaptation'
Drury High School to Host End-of-Year Showcase
Clarksburg Gets 3 Years of Free Cash Certified
Pittsfield CPA Committee Funds Half of FY24 Requests
MCLA Men's Lacrosse Falls in League Opener
Letter: Vote for Someone Other Than Trump
Berkshire Art Center's Dance Party Returns
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (2)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Currency Rally Debt Federal Reserve Crisis Banking Bailout Taxes Selloff Election Japan Fiscal Cliff Stock Market Oil Greece Recession Economy Stocks Europe Jobs Interest Rates Retirement Banks Employment Debt Ceiling Stimulus Energy Congress Pullback Europe Euro Markets Commodities Deficit Metals
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum