Cover:
-Long-term care insurance is facing a dilemma for people who bought it decades ago, as insurers try to curb benefits and stabilize the product. Genworth is asking regulators to approve a 143% hike in premiums, which would take the Penmans' annual cost to $25,800. If the Penmans, retired schoolteachers, don't pay up, the couple could keep the insurance without owing more premiums but the benefits would be capped at far lower levels, not even covering a year in a long-term care facility. The country's patchwork system of eldercare isn't equipped to meet the needs of older adults, as Medicare doesn't cover routine help and most families don't have nearly enough saved to cover it. Private insurance was supposed to be an answer to the country's inadequate system, but Americans who bought coverage decades ago now face soaring premiums as insurers try to curb benefits and stabilize a product that was riddled with faulty actuarial assumptions when it was first sold.
Interview:
-Christine Benz, a financial-planning and retirement expert, has over 30 years of experience at Morningstar. She began her career as a copy editor and later became a mutual fund analyst before focusing on personal finance and retirement issues. Benz, now Morningstar's director of personal finance and retirement planning, has become an expert in financial literacy. She discovered that many people find dissolving savings even more challenging. Her third book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retiree, explores retirement-related issues. Benz's book is timely as the U.S. population hits "peak 65" this year, with a record number of Americans turning 65. Retirement planning has evolved over her career, with new ideas shaped by academic research. Barron's spoke with Benz about changes in retirement planning, investing in an aging bull market, and playing catch-up if you're late to saving and planning.
Tech Trader:
-Over the past 24 months, Meta Platforms, the parent company of Facebook, has seen a 348% increase in shares, surpassing the gains of its FAANG peers. Meta lags behind only Nvidia in its 1,052% run. The company faced challenges in 2022, including a revenue decline due to its change from Facebook to TikTok and a new privacy feature from Apple. Meta's virtual-reality and augmented-reality efforts were driving losses in its Reality Labs segment. The stock bottomed on Nov. 4, 2022, at an intraday low of $88.09. Since then, Meta shares have risen more than 560% to a recent $582.01, driven by cost cutting and renewed growth. Meta's disruptive moves in artificial intelligence have also contributed to its recent success. CEO Mark Zuckerberg launched 2023 as the company's "Year of Efficiency," but expenses increased only 1% in 2023, and capital expenditures fell by 13%. Meta laid off thousands of workers and pulled down thousands of job openings.
The Trader:
-Investors were disappointed by a mixed week for the stock market, with the S&P 500 index dropping 0.4% and the Dow Jones Industrial Average dipping 2.3%. The Nasdaq Composite, however, has risen 0.9%, extending its winning streak to seven weeks. Economically sensitive stocks, including retail, banking, and industrial stocks, suffered the worst hit. The rise in bond yields is likely a reflection of the Federal Reserve's decision to cut interest rates fewer times than investors had thought after September's Federal Open Market Committee meeting. This is due to inflation being above its target and a faster-growing job market. Donald Trump's chances of winning the presidential election have also risen in recent months, with policies like fiscal spending and tariffs creating inflation and reducing the Fed's rate cuts.
-Bond market volatility has returned, with a few stocks being particularly susceptible to its gyrations. The two-year note yield peaked at 5% in April and dropped to a 2024 low of 3.5% in September. Since then, the yield has risen to just over 4%. The bond market is aware of the stronger economy and inflation than expected, which means the Fed may not cut interest rates as much as originally planned. The likelihood of Trump winning the presidential election has risen in the past few months, further juicing expectations for inflation. Bond volatility has a way of rattling the stock market, especially problematic for companies with large amounts of variable-rate debt. Only a tenth of all debt for large-cap companies is variable, so many of the impacted companies are small-caps. Examples include aerospace and defense software and systems provider Mercury Systems, manufacturing component-maker MKS Instruments, internet and software company IAC, and Topgolf Callaway Brands. The S&P 500 has risen 1% during the same period.
Features:
-Israel launched an attack on Iran in retaliation for Iran's recent attacks, with several explosions heard in Tehran and Syrian state media reporting explosions near Damascus. Analysts have warned of the risk of a widespread regional conflict since Hamas' terrorist attack on Israel on October 7, 2023. The market consequences of Middle East violence have been relatively limited, but could change if attacks disrupt the physical production and distribution of energy supplies. Iran fired 200 missiles at Israel on October 1, which was defeated with the support of the U.S. military. The extent of damage in Iran or Syria is not immediately clear. The U.S. Oil Fund rose 1.2% in after-hours trading, and the price of oil has risen 9% since September 10 as traders adjust for global political risk.
-McDonald's stock has fallen further as E. Coli cases linked to eating McDonald's Quarter Pounders have grown to 75 people. The illnesses began in late September and were first announced by the Centers for Disease Control and Prevention. The exact source of the outbreak has not been determined, and an investigation by the Food and Drug Administration is ongoing. Taylor Farms, the California-based supplier of the slivered onions used on the burgers, confirmed Friday that it has initiated a voluntary recall of yellow onions from its Colorado facility. As of October 24, 75 people were confirmed to have been sickened in 13 states, up from the initial 49 people in 10 states reported earlier in the week. Twenty-two people have been hospitalized and one has died. Two other people have developed hemolytic uremic syndrome, which can cause kidney failure. Colorado has the most cases, with 26, followed by 13 in Montana and 11 in Nebraska. The burger chain said earlier this week that it was "temporarily removing" the Quarter Pounder from restaurants in Colorado, Kansas, Utah, and Wyoming, as well as portions of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, and Oklahoma.
European Trader:
-The European Central Bank has cut its key deposit rate by 0.25% to 3.25%, marking a soft landing for Europe. The ECB is easing the brakes on an already growing economy, with the 20 euro-using nations showing aggregate growth for three consecutive quarters. Deutsche Bank predicts that real wages will expand by more than 3% next year, and even German industrial production is expected to rebound after a 2.5% contraction in 2024. The iShares MSCI Eurozone exchange-traded fund has climbed over 20% over the past year, with the market writ large being 3% undervalued compared to 3% overvaluation for US equities. However, this could mask richer opportunities in selected pockets, such as builders, where Deutsche Bank expects double-digit earnings growth for the sector next year. Shares in Vinci, the Paris-based euro zone construction giant, have crept up 4% over the past 12 months, a significant underperformance. European consumers are locked and loaded to spend as the upturn in real wages meets savings rates near a 20-year high, with French households socking away 18% of their disposable income compared to 5% in the USA.
Emerging Markets:
-No updates
Commodities:
-The US Dollar, the lifeblood of the global financial system, is facing challenges among developing economies. Since World War II, the dollar has been the world's reserve currency, accounting for almost 60% of central bank reserves and affecting oil, gold, and 80% of international contracts. This has led to high demand for US government bonds, allowing the US to borrow more cheaply. The BRICS countries, including Brazil, Russia, India, and China, have been working on de-dollarizing the global economy through alternative payments systems and creating a new digital asset based on emerging market currencies like China's renminbi and India's rupee. However, these efforts are unlikely to yield results due to the high level of coordination required between countries. The BRICS group's commitment to making the international monetary and financial system more equitable and fair is a stark contrast to the challenge of creating an alternative currency like the euro, which took decades of wrangling to become a reality.
Streetwise:
-Peter Bates, manager of the Global Select Equity Strategy at T. Rowe Price, is not concerned about the high valuations of the US stock market in the next decade. He believes that the US economy is likely to outpace inflation by a couple of percentage points a year, aided by population growth, including through immigration. Bates views Japan and Europe's economies as likely to produce zero or negative growth after inflation. He also rejects the argument that a pricey US market makes today a good time to favor value stocks. Instead, he recommends companies with high gross margins, high cash generation relative to sales, strong competitive advantages, and long growth runways. Bates' favorite US stocks are Corebridge Financial, Steel Dynamics, and PG&E, while in Europe, he likes Germany's Sartorius. Corebridge, a life insurer and annuity seller spun off from American International Group, has opportunities to cut costs and earn attractive returns on its investment portfolio without much credit risk.