Barron’s Weekend Summary: In the weeks ahead, the Dollar is likely to weigh on earnings for big US multinationals.
Cover Story:
-In the weeks ahead, the Dollar is likely to weigh on earnings for big US multinationals. In the years ahead, it could hold back gains for S&P 500 fund holders, judging by one recent analysis of the link between currency strength and returns. On the other hand, that means there is a double discount available now to US shoppers in battered stock markets overseas. Japan looks particularly attractive.
Interview:
-Europe has had a punishing year. The fallout from the war in Ukraine has caused food and fuel costs to spike, forcing central bankers to move aggressively to curb inflation. Given the crises Europe has weathered this year, Katrina Dudley, manager of the Franklin Mutual European fund, is less worried today than she was a year ago. What’s more, she sees glimpses of blue sky behind the clouds, in part because so much bad news is already baked in and some European companies are well positioned for longer-term trends.
Tech Trader:
-For years, Adobe bears have said that the leading software provider for creative professionals risked getting disrupted by web-based start-ups. While Adobe has adapted to cloud-based subscriptions, much of its products remain rooted in the traditional desktop-software model and lack the collaboration architecture of the latest players. Figma, without legacy roots, has been more successful with the web model, which likely explains why Adobe is making such an expensive run at it.
The Trader:
-Barron’s urges readers to start thinking about tax-loss selling. That’s the term for selling a stock at a loss and using that to offset gains elsewhere in one’s portfolio. It can be hard to do in up markets, when so many stocks have risen on the year. For instance, in 2021, just 69 stocks finished the year lower. Some 416 stocks have dropped so far in 2022, though, making it more likely than not that investors have something to sell.
-Banks have been a lousy investment this year, just as so much else has. The SPDR S&P Bank ETF has dropped 16.5% in 2022, faring only slightly better than the S&P 500, which has fallen 23.6%. But the near symmetry in performance is even more shocking given the expectations heading into 2022. Consumers and businesses were expected to resume borrowing after more than a year of pandemic stimulus buoyed their cash piles. Banks were expected to earn more on those loans as the Fed lifted interest rates five times this year from a range of near-zero to 3.25%.
Features:
-On Friday evening, Rivian sent a notice to its customers indicating that a recall notice would be posted shortly with the National Highway Traffic Safety Administration, or NHTSA. The company reached out just before the notice was posted on the government website so customers didn’t miss it. The recall is for a fastener connecting the front upper control arm and steering knuckle. If there’s a problem with the connection, Rivian vehicles could have a problem with steering.
-The ‘Best Airport’ in the World, as Voted by Condé Nast Traveler Readers is Istanbul Airport. A fleet of robots directs passengers to their departure gates in the newly built facility. The 818M ft2 hub has won architectural accolades and awards for reducing energy. Known as IST, the Istanbul airport opened in 2018. IST services 90 flights per hour and more than 200 airlines.
European Trader:
UK house prices have quintupled since 1992. That’s significantly more than in the US, where prices have quadrupled over the past 30 years. The strong growth shows the power of demand for homes in Britain, especially when so much of the country’s housing stock consists of small, damp Victorian dwellings. Nevertheless, some of the country’s biggest builders— Persimmon, Barratt Developments, and Taylor Wimpey—have been among the FTSE 100’s worst performers in 2022, all down about 50%. Tack on the British Pound’s steep depreciation against the Dollar this year, and the declines look even worse.
Emerging Markets:
A Lula victory in Brazil could be a win for amazon rainforest. Amazon deforestation accelerated by some 75% during President Jair Bolsonaro’s first four years in power as he ridiculed conservation and slashed enforcement budgets. Challenger Luiz Inácio Lula da Silva cut deforestation by two-thirds during his 2003-11 presidency, and promised “net zero” deforestation during the current campaign. He won 48.4% of the first-round vote to Bolsonaro’s 43.2%. “Lula was able to show we could protect the Amazon and still have a vibrant Brazil,” says Patricia Pinho, deputy science director at the Amazon Environmental Research Institute.
Commodities:
-OPEC’s latest controversial decision to cut production signals that the cartel has a new price floor for crude—one that might upset the US government but should be very lucrative for oil producers. Brent crude, the international benchmark, briefly fell below $85 last month, but is now firmly above $90. Raad Alkadiri, an energy expert at Eurasia Group, said OPEC is signaling that a “healthy” oil price is considerably higher than it used to be. “Their idea of market balance is at $90 to $100,” he said. “They are willing to take proactive measures at a higher price than might have been seen in the past.”
Darwei Kung, head of commodities at asset manager DWS, said that $90 is increasingly looking like a “soft floor” for OPEC.
Streetwise:
-This week, Jack Hough considers vehicle prices. He thinks that even if inventories are growing, you should not expect a discount on your next new car or truck. Indeed, among drivers who financed new cars and light trucks last quarter, a record 14% agreed to monthly payments over $1,000, up from 8% a year ago. Buyers are overpaying. Separately, BofA Securities reports that vehicle inventories rose to 33 days’ worth of supply in September, from 29 in August and closer to 20 a year ago. And an index of used-vehicle prices came in 3% lower for September than August.