>>>> Barron's Weekend Summary

Barron's Weekend Summary:

Cover:

-Kevin Warsh testified before the Senate Banking Committee on April 21, asserting that the Federal Reserve is in need of reform and presenting himself as the solution. Nominated by President Trump to succeed Jerome Powell as chair, Warsh advocates for more aggressive monetary policy, including lower interest rates and a reduction in the Fed's $6.7T balance sheet. The conclusion of a criminal investigation into Powell's conduct has removed a key obstacle to Warsh's confirmation. While he has support among business and political circles, his proposed changes may face challenges amid persistent inflation and geopolitical tensions, particularly in relation to Iran. Current expectations suggest the Fed will maintain its interest rate range at 3.50% to 3.75% into 2027.

Interview:

-Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, shares insights on the Federal Reserve, bond-market prospects, and investment strategies in fixed income during an interview with Barron's Ben Levisohn and Lauren R. Rublin. Rieder, who oversees approximately $2.7T in assets and manages the iShares Flexible Income Active ETF (BINC), highlights current market conditions and potential investment opportunities. With a notable history in finance, including roles such as President of R3 Capital Partners and Vice Chairman for the U.S. Treasury, Rieder's extensive experience includes serving on various advisory committees, including those for Alphabet/Google and UBS. His notable accolades include being recognized by Morningstar for outstanding portfolio management and having multiple funds achieve Gold Medals for excellence in fixed income management.

Tech Trader:

-As Tim Cook steps down as CEO, Apple retains its status as the leading consumer electronics company, with 2.5B devices in use and a robust services business generating $109B in sales for fiscal 2025. However, under Cook's leadership, Apple has strayed from its core focus on user experience, a principle championed by Steve Jobs. Notably, newer interface changes and advertising in Maps have diluted this approach. John Ternus, the newly appointed CEO and a veteran of Apple's hardware design, is expected to realign the company with a strong emphasis on user experience. Cook transitions to executive chairman, allowing Ternus to focus on the essential integration of Apple's products and services while navigating global leadership challenges.

The Trader:

-Eli Lilly recently acquired Kelonia Therapeutics for $3.25B, with the deal potentially worth $7B contingent on milestones. Kelonia specializes in "In vivo CAR-T therapy," which offers an efficient method to treat cancer and is exploring applications for autoimmune diseases. While Eli Lilly’s stock initially dipped following the announcement, it has since rebounded slightly, although it is down 17% from a record high in November. Analysts have raised their sales and earnings forecasts, positioning the stock favorably at a multiple of 25 times expected earnings compared to the S&P 500’s 21 times. This acquisition further solidifies Lilly's presence in oncology, following its recent purchase of other companies in the same sector. Analysts express optimism, noting that this strategic move enhances Lilly's capability in cancer treatment.-Demand for retail goods remains strong despite geopolitical concerns and rising oil prices, with apparel stocks particularly appealing. EY-Parthenon's chief economist Gregory Daco notes that consumer spending continues to be resilient, even as sentiment readings appear bleak. Retail sales in March increased by 4% year over year, marking the fastest growth since November. A UBS survey reveals that U.S. consumers plan to spend 4.4% more on apparel and footwear in the next three months compared to last year. UBS analyst Jay Sole indicates that, despite the impact of Middle East conflicts and rising gas prices on consumer perceptions, the data suggests potential for increased spending. The retail sector's fundamentals are considered solid, and stocks are undervalued, trading at about 16 times expected earnings as opposed to the S&P 500's 21 times. This discrepancy could lead to higher stock prices if sales and earnings perform better than expected. Sole recommends several companies, including On Holding, Gildan Activewear, Burlington Stores, TJX Cos., Levi Strauss, and Signet Jewelers, as strong investment opportunities.

Features:

-Markets are displaying optimism despite the ongoing Iran conflict, with over 54% of participants in Barron's latest Big Money poll maintaining a bullish outlook for the next 12 months, an increase from 47% in the October survey. Bearish sentiment has decreased to 17%, and neutral responses dropped to 29%. Many investors perceive the market as fairly valued or undervalued, identifying opportunities in small-caps, international stocks, and notably, the energy sector. Conducted between March 25 and April 10, the poll garnered 105 responses from portfolio managers and strategists nationwide. However, concerns persist regarding geopolitical tensions, stagflation, and rising energy prices, with 59% noting these as primary worries. The average year-end target for the S&P 500 index was set at 7059, which is below Wall Street's consensus of 7460. -Investors are turning to trades like plumbing for job security amid AI disruption, while others can consider purchasing shares of Ferguson Enterprises, a leading plumbing distributor projected to increase by 25% over the next 12 to 18 months as it implements its growth strategy and expands market share. With over 35,000 employees and 1,700 locations, Ferguson serves a wide range of customers including contractors and DIYers through its online platform. Following its listing eligibility for the S&P 500 in August 2024, the company is generating substantial sales and is viewed as undervalued despite a recent earnings multiple increase to 23 times. Parnassus Investments, which owns a notable stake in Ferguson, praises the company’s disciplined management and capital allocation approach.

Europe:

-Amid global oil and natural gas price spikes due to war-related shortages, Texas is experiencing negative natural gas prices, particularly at the Waha pipeline intersection, where it trades at negative $7.05 per million BTUs. This situation arises from an oversupply of natural gas and insufficient pipeline capacity to transport it to demand areas like Asia and Europe. Although U.S. natural gas production is high, averaging 110 billion cubic feet daily, producers are cutting back output due to the inability to scale transportation quickly. Companies like EQT have begun to reduce production tactically, while others, such as Expand Energy, are facing declines. This paradox of demand and negative pricing underscores a significant challenge in the current energy landscape.

Emerging Markets:

-USA Rare Earth is rapidly establishing a complete rare earth supply chain, recently announcing a $2.8b acquisition of the Brazilian mining company Serra Verde Group, which controls the Pela Ema deposit of key magnetic rare earth elements. CEO Barbara Humpton emphasized the transformative nature of the deal, enhancing the company's goal of becoming a leading global producer in rare earth materials. In addition to this acquisition, USA Rare Earth is developing a mine in West Texas and has recently commissioned a magnet-making facility in Oklahoma, aiming to challenge China's dominance in rare earth processing, which currently controls 85% of global capacity. The acquisition involves a payment of $300M in cash and shares of common stock.

Commodities:

-The closing of the Strait of Hormuz during the Iran war has highlighted the vulnerability of the global supply chain, particularly concerning a worldwide sulfur shortage. Sulfur, a byproduct of oil and gas production, has seen curtailed shipments due to the conflict, leading to significant price increases—up 40% to approximately $600 per metric ton since mid-February. Economists Paul Bloxham and Jamie Culling emphasized that sulfur is vital for food production and metals mining. As a response to the shortage, countries like China are planning to limit sulfuric acid exports, exacerbating the situation. The impact extends to various sectors, including fertilizers and copper production, where a rise in sulfur prices is estimated to increase operating costs significantly.

Streetwise: