This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
The Fed Won’t Hike Again
THINK Economic and Financial Analysis
ING
Aug. 4: On balance, the July employment report doesn’t suggest any need for renewed impetus for the Federal Reserve hiking interest rates in September. The Fed has signaled a desire to tighten policy more slowly, and the report appears consistent with the gradual cooling of the labor market. All eyes will now switch to CPI and PPI….
Also, the move higher in Treasury yields and the dollar in the wake of the Fitch downgrade and the U.S. Treasury funding announcement only adds to our conviction that the Fed won’t need to hike rates further. These market moves in combination with higher volatility are tightening monetary conditions and will also put up mortgage rates and corporate borrowing costs.
With the Fed Senior Loan Officer Opinion survey showing a further tightening of lending conditions, with the prospect of more to come in the third quarter, lending growth looks set to turn negative. This combination of higher borrowing costs and reduced credit availability is going to be a major headwind for economic activity that will help to get inflation down to 2% next year and keep it there.
James Knightley
Higher Prices, Fewer Shaves
The Week in 60 Seconds
Wells Fargo
Aug. 4: Some consumer-staples firms reported acute volume declines after two-plus years of raising prices.
Kraft-Heinz’s
second-quarter volume was down 7% year over year, with pricing up 11% Y/Y (two-year price hike: +25%).
Kellogg’s
second-quarter volume was down ~8% Y/Y, with pricing up ~15% Y/Y (two-year pricing: +30%). Schick razor-maker
Edgewell
said fiscal fourth-quarter volumes fell 1.5% on +6% pricing as customers likely are shaving less often and/or replacing blades less frequently.
Christopher P. Harvey, Gary S. Liebowitz, Anna Han
Bullish Gold Trade
Momentum Strategies Report
Clif Droke Market Analysis
Aug. 3: My favorite gold-tracking exchange-traded fund has technically confirmed an immediate-term bottom by closing more than twice above the 15-day moving average. Gold’s currency component, moreover, has improved in the face of the dollar’s drastic weakness. Accordingly, traders recently purchased a conservative position in the
GraniteShares Gold Trust
(BAR), using a level slightly under $19 as the initial stop-loss on an intraday basis.
Clif Droke
Don’t Forget Dividend Stocks
Market Commentary
Cresset
Aug. 2: While we’re not endorsing a wholesale shift from stocks into bonds, it should be noted that intermediate, investment-grade bonds offer, at long last, a compelling alternative to equities at current levels. While U.S. large-caps are garnering the attention, dividend-oriented stocks haven’t rallied to the same degree as their growthier counterparts, leaving them more favorably priced.
For more than a decade, dividends served as useful bond substitutes while interest rates were held down by policy makers. The capital shift into bonds this year was largely at the expense of dividend equities. Quality companies with persistent and growing dividends offer a favorable blend of valuation with the potential to grow their yields in excess of future inflation.
Jack Ablin
A Message From Fitch
Rating Action Commentary
FitchRatings
Aug. 1: Fitch Ratings has downgraded the United States of America’s Long-Term Foreign-Currency Issuer Default Rating, or IDR, to AA+ from AAA. The Rating Watch Negative was removed and a Stable Outlook assigned. The Country Ceiling has been affirmed at AAA….
We expect the general government, or GG, deficit to rise to 6.3% of gross domestic product in 2023 from 3.7% in 2022, reflecting cyclically weaker federal revenue, new spending initiatives, and a higher interest burden. Additionally, state and local governments are expected to run an overall deficit of 0.6% of GDP this year after running a small surplus of 0.2% of GDP in 2022.
Cuts to nondefense discretionary spending (15% of total federal spending) as agreed in the Fiscal Responsibility Act offer only a modest improvement to the medium-term fiscal outlook, with cumulative savings of $1.5 trillion (3.9% of GDP) by 2033, according to the Congressional Budget Office. The near-term impact of the Act is estimated at $70 billion (0.3% of GDP) in 2024 and $112 billion (0.4% of GDP) in 2025. Fitch does not expect any further substantive fiscal consolidation measures ahead of the November 2024 elections.
How to Invest in AI Now
Baron Insight
Baron Capital
July 2023: We are in the very early innings of generative artificial intelligence. While some observers may liken it to the advent of the internet or the smartphone, where a slew of new entrants sought to take advantage of the technology, it isn’t precisely analogous, as there are quite a few established and already highly successful companies that are well positioned to benefit from growth in generative AI, in addition to newer players in the space.
While we continue to conduct research into the most promising investment opportunities, we have already identified a number of these companies, many of which we have invested in and/or followed for years. Some of these names include:
• Semiconductor companies:
Nvidia,
Advanced Micro Devices,
indie Semiconductor
• Investors in generative AI/cloud:
Microsoft,
Meta Platforms,
Amazon.com
• Autonomous-driving companies:
Tesla,
GM Cruise Holding (private), Mobileye Global
• Systems software vendors:
Snowflake,
CrowdStrike,
Cloudflare,
Datadog
• Business applications software vendors:
ServiceNow,
Workday
Michael Lippert
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