๐ The Investing Week Ahead: 6/12/23
The largest drawdown in commercial bank deposits since 2001...
Happy Monday.
Below are two perspectives in the โstate of the marketโ debate:
๐ป Bear Case: โMore are declaring the bear market officially over; we respectfully disagree due to our 2023 earnings forecast.โ
Above is what Michael Wilson of Morgan Stanley had to say about the state of the markets. Last week, the S&P 500 entered a technical bull market after gaining +20% from its October lows.
Wilson ranked #1 in last yearโs Institutional Investor survey after correctly predicting the selloff in stocks โ but his outlook for further declines in 2023 has been incorrect so far.
๐ Bull Case: โPrior episodes of sharply narrowing breadth have been followed by a catch-up from a broader valuation re-rating.โ
David Kostin of Goldman Sachs is more willing to take on risk โ suggesting that the S&P 500 will be able to keep climbing. He points to the fact that since 1980 โ the S&P 500 has seen nine episodes like the one he laid out in the quote above.
Each of them were followed by gains in other stocks that ultimately benefited the index. He has a price target of 4,500 on the S&P 500 for the end of 2023.
You can read more here.
Key Earnings Announcements:
Adobe and Kroger are in focus.
Monday (6/12): Ecarx Holdings, Oracle
Tuesday (6/13): Iteris
Wednesday (6/14): Anterix, Aurora Cannabis, Lennar
Thursday (6/15): Adobe, Cognyte, Jabil, Kroger, Wiley
Friday (6/16): N/A
What Weโre Watching:
Adobe (ADBE)
Adobeโs most recent earnings report highlighted $1.69 billion in Cash Flows from Operations, 5.0 million Shares Repurchased, and a whopping $15.21 billion of Remaining Performance Obligations (RPOs) that were exiting last quarter.
Weโre interested to see if the growth of Adobe Creative Cloud and Adobe Document Cloud has remained steady.
Analysts expect $3.79 EPS on Revenue of $4.8 billion.
You can explore the most recent ADBE investor presentation here.
Kroger (KR)
Krogerโs most recent earnings report spotlighted significant Sales Growth, >$1.2 billion in Net Operating Profit, $1 billion of Cost Savings Annually, and expanded product offerings through 1,344 new items from Kroger-owned brands.
Weโre eager to hear if Krogerโs digital offerings are improving โ as they have called out that they havenโt been as successful as originally anticipated.
Analysts expect $1.45 EPS on Revenue of $45.3 billion.
You can explore the most recent KR investor presentation here.
Investor Events / Global Affairs:
The Fedโs well-loved loan mechanism (by banks at least) and the biggest drawdown in deposits since 2001.
Fedโs Emergency Loan Facility Keeps Soaring
The Fedโs new emergency loan facility โ which quietly lets banks receive par value for their devalued assets โ recently hit $100 billion in usage. The Bank Term Funding Program (BTFP) was established in response to the Silicon Valley Bank implosion and you can read more here.
On as recently as April 20th, the amount of demand from the the BTFP was at $74 billion. With the โemergency conditionsโ that came from worries across the sector โ banks have shifted the composition of their borrowing from FDIC loans and the discount window into the BTDP because itโs hidden.
Long story short โ banks can be borrowing money to recover from devalued assets, and others typically donโt even know about it.
โThe biggest draw of this facility is that banks can borrow funds equal to the par value of the collateral they pledge, according to the Fed's announcement. This means that the Fed wonโt look to the market value of the collateral, which in many cases reflect big unrealized losses due to the jump in interest rates.
That is a boon for banks, who were sitting on some $620 billion in unrealized losses on securities at the end of last year, according to the Federal Deposit Insurance Corpโฆ
And if banks canโt repay all the advances in a yearโs time? The Treasury Department is providing $25 billion of credit protection to the Fed just in case. โThe Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds,โ the Fed said in its announcement Sunday night.โ โ WSJ
Biggest Bank Deposit Drawdown Since 2001
Keeping this one short โ we are currently experiencing the largest drawdown in commercial bank deposits since 2001.
Itโs also worth mentioning that there were issues around 9/11 due to infrastructure damage. So if you take out the time around 9/11 โ this is the largest deposit drawdown in nearly five decades. Credit to Bianco Research for another remarkable callout.
Major Economic Events:
The Fed has ~75% chance of a rate hike pause and updated inflation statistics across the board.
Monday (6/12): Federal Budget
Tuesday (6/13): Consumer Price Index (CPI), NFIB Optimism Index
Wednesday (6/14): Fed Meeting (Rate Hike Decision), Press Conference by Fed Chair Powell, Producer Price Index
Thursday (6/15): Business Inventories, Capacity Utilization, Empire State Manufacturing Survey, Import Price Index, Philadelphia Manufacturing Survey, Retail Sales
Friday (6/16): Consumer Sentiment, Speech by Fed Gov. Waller
What Weโre Watching:
Fed Rate Decision
โDiscord on the FOMC is mounting. Those who prefer to skip a hike in June want to wait and see โ given the long and variable lags of monetary policy โ how 500 basis points of rate hikes to date are cooling the economy. More hawkish members are convinced rates arenโt yet restrictive enough, and the Fed shouldnโt risk falling behind the curve. We see a โhawkish skipโ as a way to maintain unanimity on the committee.โ โ Bloomberg Economists
Inflation for Consumers (CPI)
Last reading: +4.9% YoY
Analyst Estimate: +4.0 YoY
Note: โThe decline in the headline rate is expected to have been driven by weaker energy prices, Bank of America analysts argued, citing data from the American Automobile Association.
This shows that average regular petrol prices declined 2.1% MoM. Core CPI, which strips out the volatile food and energy sectors, is expected to come in at 5.2% YoY, down slightly from the previous monthโs rate of 5.5%. The BofA analysts argued that core prices will have been kept high by used-car prices." โ Financial Times
Inflation for Producers (PPI)
Last reading: +2.3% YoY
Analyst Estimate: +1.5 YoY
Note: โThe inflation pipeline is clearing as supply chains for the most part have returned to normal and commodity prices have eased significantly in response to slowing global conditions. Investors should expect to see further easing in prices throughout the balance of 2023.โ โ Jeffrey Roach, Chief Economist at LPL Financial (stated after most recent PPI release)
Events-Driven Winners:
Which stocks moved the most last week.
Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.
One thing they called out immediately in their News Room was the shifting of GameStop leadership. The company fired Matthew Furlong, their current CEO, and hired appointed Ryan Cohen as Executive Chairman of GameStop. The market didnโt love the reaction as much as you may have thought. You may want to checkout this interesting open letter calling out Cohenโs past amidst the chaos.
If youโre starting your investing journey or are interested in buying T-bills yielding 5% or more, consider visiting Public.com.
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.