Barron’s Weekend Summary: The 7.9% surge in total consumer prices last month from a year earlier marked a new 40-year high at a time when inflation-adjusted household incomes are falling at the fastest pace since the government began the data series in 1959.
Cover Story:
-The 7.9% surge in total consumer prices last month from a year earlier marked a new 40-year high at a time when inflation-adjusted household incomes are falling at the fastest pace since the government began the data series in 1959. But the reality is much worse, and it is probably going to worsen still as the economic effects of Russia’s invasion of Ukraine play out. When you strip out everything but essentials—which is the opposite of what economists and policy makers do when they exclude food and energy prices to calculate so-called core inflation—the average change in those basic items rose more than 16% last month from a year earlier.
Interview:
Barron’s interviews Louis-Vincent Gave, co-founder of Gavekal Research. Gave has been warning investors about a paradigm shift in the world order. Specifically, Gave says the assumptions underpinning financial assets need to be rethought due to a move toward a multipolar world and away from one dominated by the U.S. and the dollar. His message seems especially germane now, given Russia’s invasion of Ukraine, the West’s dramatic sanctions, and China’s attempts to support Russia without jeopardizing its economic ties with the West. His seventh book, Avoiding the Punch: Investing in Uncertain Times, published last year, provides a framework for helping investors to navigate a period of geopolitical competition, high stock market valuations, and low interest rates.
Tech Trader:
Since a disappointing earnings report in February, Meta’s stock has fallen 33%. Investors continue to debate whether the bad news is priced in. But no one really knows—these are foundational issues for Facebook. Investors are better off looking for a different way to play Meta. Shares of rival Twitter could be the answer. Meta’s biggest near-term issues stem from Apple’s new privacy policies, which restrict app tracking on iPhones and iPads. Meta said in February that it expected a $10 billion hit to 2022 revenue because of how those changes are hampering its direct response advertising business.
The Trader:
-Nike is expected to report a fiscal third-quarter profit of 71 cents a share after Monday’s close, down from 90 cents the previous year, on sales of $10.6 billion, up from $10.4 billion. The real problems could start with the fourth quarter, with some analysts—even the bullish ones—worrying that revenue estimates look high and expecting tepid 2023 guidance. They’ve been cutting their estimates and lowering their price targets, from $184.93 at the end of January to a current average of $168.55.
-These days, bad situations not getting worse count as good news. The Federal Reserve raised interest rates by a quarter of a percentage point, but at least it wasn’t a half-point hike, and the Fed didn’t start winding down its balance sheet, either. Russia’s invasion of Ukraine slogged on, but the fact that the two adversaries were talking seemed to lift investor spirits. Even China recognized that the panic in Chinese stocks was getting out of hand. On the Bright Side, Alibaba Group Holding, Baidu (BIDU), and JD.com soared 25%, 25%, and 36%, respectively, this past week, after losing more than a quarter of their values this year through March 14.
- With oil prices rising and falling dramatically, it can be hard to get a handle on oil stocks. Oil stocks have a lot to gain if crude prices can bounce back, and a lot to lose if they keep dropping. One strategy: Buy only the most and least volatile ones. That might seem like a strange way to bet on a very volatile energy market. Oil prices surged 45%, to $130/barrel, on March 6 from $89 on Feb. 10, the day before U.S. National Security Advisor Jake Sullivan said Russia would attack Ukraine—but they tumbled 27%, to $95, before jumping back to $103.
Features:
-Sanctions on Russia are upending global energy markets, pushing up crude oil above $100 a barrel and sending U.S. gasoline prices to an average $4.30 a gallon, up nearly 50% in the last year. It has also turned the energy sector into a superstar this year. Of the 11 sectors in the S&P 500, energy has been a standout, blowing past the rest of the market with a 32% gain, against a 7% decline in the S&P 500.
-Economists have long found what is known as the “motherhood penalty” for women who leave jobs, or cut back on work, to care for children. Besides losing pay while away from work or reducing hours, there can be substantial long-term financial sacrifices: lost opportunities for advancement, raises stunted because they build on low early-career salaries, and compromises in retirement since lower pay reduces Social Security, pensions, and the ability to save in 401(k)s and individual retirement accounts.
European Trader:
-As war rages on in Eastern Europe and stock markets swing with the latest developments, investors have to work harder to find buying opportunities. The European real estate sector could be one such place to look. The FTSE EPRA Nareit Developed Europe index, which tracks the performance of commercial real estate companies and real estate investment trusts (REITs) in Europe, has fallen 6.4% year to date compared with an 11% decline for the broader Stoxx 600 index. Shares of Capital & Counties Properties, a British REIT that owns prime real estate in central London’s Covent Garden, remain 9% below their January high, and analysts have an average price target of 1.95 pounds sterling ($2.55), implying a 16% upside from Thursday’s closing price.
Emerging Markets:
-Indian stocks got a boost after Narendra Modi’s party won a key state election March 10, setting up the modernizing prime minister for a third term, starting in 2024. The iShares MSCI India exchange-traded fund (ticker: INDA) has climbed 4%, while world markets gyrated on news out of Ukraine and China. Investors are cautious nevertheless. Indian stocks are still expensive despite a 13% correction from their peak last November. Surging prices for commodities imports may cut a full percentage point from economic growth this year. “The election was a welcome surprise,” says Nuno Fernandes, co-manager of the emerging wealth strategy at GW&K Investment Management. “We’ve still reduced some positions in India since starting last year at double weight.”
-Headwinds had battered Chinese markets for months—Covid-19 outbreaks, US delisting concerns, crackdowns on a range of domestic firms, an imploding property market, and the ongoing invasion of Ukraine by Beijing’s ally Russia. Chinese authorities had enough. On Wednesday, they convened their top economic policy group, the Financial Stability and Development Committee, overseen by China’s cabinet, the State Council. What emerged were broad-stroke promises of support for China’s faltering economy.
Commodities:
-Commodity prices have pulled back recently. They look like they’re just taking a pause—and are likely to resume rising soon. The Bloomberg Commodity Index (BCOM), home to oil, gas, industrial metals such as copper and aluminum, and grains such as soybeans and wheat, fell as much as 9% from a multiyear high of $132.63 hit on March 8. Driving the drawdown has been optimism that a peace deal between Russia and Ukraine could be reached soon, which would reduce the likelihood of more restrictions on Russian commodities, freeing up the global supply.
Streetwise:
Jack Hough ponders on the war in Ukraine and the higher cybersecurity demand that the conflict has generated. As the Russian economy crumbles, state-linked hackers are likely to shift from ransomware crimes to attacks meant to maximize destruction and societal upheaval, the CEO of a top cybersecurity company tells me. Yes, that’s a bit like an umbrella salesman saying it’s getting cloudy. But in this case, the clouds really are dark gray rumblers, and more to the point for investors, umbrella sales are shooting higher.