Barron’s Weekend Summary: Recent stock market returns did not make it easy to assemble Barron’s 17th annual list of top-performing CEOs
Cover Story:
Recent stock market returns did not make it easy to assemble Barron’s 17th annual list of top-performing CEOs. Still, a process was used that started with stripping last year’s list of names to none—similar to what the cost-cutters call zero-based budgeting. The Barron’s ‘judges’ then screened the market for signs of financial strength and improvement, but only lightly, in order to quickly turn the matter over to our panel of editors and beat reporters. Stages of their work included nominee selection, initial debate, further research, gradual compromise, advanced wrangling, and final agreement.
Interview:
This week Barron’s interviews Henry McVey, CEO of KKR. McVey is fond of saying that KKR “eats its own cooking” when it comes to investing. As a partner, chief investment officer of the investment firm’s $27.4B balance sheet, and head of its global macro and asset allocation strategy, McVey is responsible for forming a view on global macroeconomic trends that move asset prices. In addition, he allocates the firm’s own portfolio, using a balance sheet that allows KKR to invest alongside its clients across more than 30 investment strategies.
Tech Trader:
-There are six trends affecting tech stocks – and negatively. Analysts are rushing to cut estimates for tech stocks of every variety, cognizant that consensus forecasts don’t reflect the blizzard of recent ugly financial and geopolitical developments. You are going to hear talk in coming weeks that second-quarter results—and what will undoubtedly be soft guidance for the rest of the year—could serve as a “clearing event” and set the stage for improved market performance later. But keep in mind that there are many shoes left to drop, and more losses to absorb.
The Trader:
Why has the market reacted so enthusiastically to the week’s news? Investors entered the week hoping, if not for a recession, then for at least some signs that the economy is slowing enough to keep the Federal Reserve from aggressively raising interest rates further. But the ISM Non-Manufacturing Index came in stronger than expected, as did durable-goods orders and the Jolts job openings report. The June payrolls data, the highlight of the economic reports, looked particularly strong: The economy added 372,000 jobs last month, nearly 100,000 more than economists had predicted—and that initially caused the stock market to sell off.
-Top-performing shares, aka momentum stocks, typically stay hot because investors are naturally attracted to what’s been doing well. It’s a circular idea, but there’s usually no arguing with the results. That’s not the case right now. The iShares MSCI USA Momentum Factor ETF has dropped 24% in 2022, worse than the S&P 500SPX –0.08%’s 18% decline. Momentum is among the worst-performing factors this year, trailing only growth. But even growth stocks have rallied in July—the Invesco S&P 500 Pure Growth ETF has climbed 5.1%—while the Momentum ETF is up just 1%. So, chasing winners has been a losing strategy.
Features:
-On June 30, Manhattan federal Magistrate Judge Sarah Cave recommended class-action status for an antitrust case in which a trio of pension funds allege that the big brokers ran a cartel that extracts unfair profits from stock lending. Stock loans are a key part of short sales and options trades carried out by hedge funds, as well as a source of profit for pension and mutual funds.
-If Elon Musk succeeds in ending his deal to buy Twitter, it could be a positive for Tesla shareholders. The potential purchase of the social media platform has been an overhang for Tesla investors for weeks and Tesla stock has been underperforming the market. Musk said he would terminate the deal to buy the social media company, claiming it had breached the terms of agreement by refusing to provide detailed information about fake accounts on the site.
European Trader:
-Investors considering drinks maker Diageo have to ask themselves one question. “Do Americans feel the same way about tequila that Winston Churchill felt about Champagne?”
Britain’s World War II prime minister clarified his affection for Champagne in both good times and bad thus: “In victory I deserve it. In defeat I need it.”
Diageo, the world’s largest spirits maker and the owner of more than 200 brands including Smirnoff vodka, Johnnie Walker whisky, and Tanqueray gin, has made a big marketing bet on tequila and the U.S. market.
Emerging Markets:
-Brazil is back to being the market of the future, again. The iShares MSCI BrazilEWZ ETF enjoyed a brief turn as a world beater early this year, climbing 40% during the first quarter. It has cratered by 30% since then. Equities have overshot the swing in Brazil’s key export commodities. Iron ore prices have plunged since April 1, but oil and soybeans are about even. So, stocks look cheap, in theory. In practice, investors are crouched against more volatility. “It’s not a great setup from a top-down perspective,” says Verena Wachnitz, a portfolio manager for Latin American equities at T. Rowe Price. “We need to get past the election, and start to talk about rates coming down.”
Commodities:
Energy stocks are on sale, after a sharp selloff since oil and natural-gas prices peaked in early June. Oil is down 18% from its high, to $102 a barrel, while gas has fallen by a third, to about $6 per million British thermal units.
The Energy Select Sector SPDRXLE –ETF, dominated by Exxon Mobil and Chevron, has dropped 23%, to $71, and the more volatile SPDR S&P Oil & Gas Exploration & Production ETF is off 30%, to $119.
Streetwise:
-Beans and corn have caught Jack Hough’s attention, and not just because ShopRite put summer succotash on sale. Prices for America’s two biggest cash crops are well off recent highs. Corn is down 12% just since late June. Soybean oil has slipped 25% since mid-May. Meanwhile, shares of ingredient makers Archer-Daniels-Midland, Bunge, and Darling Ingredients have been falling much faster than the market.