WALL STREET: Asian Shares Edge Higher, Tracking Wall Street Rally
TOKYO, Japan — Asian stocks rose Friday, tracking a Wall Street rally fueled by reports that the economy and corporate profits may be doing better than expected.
In Tokyo, the core consumer price index rose 4.3%, slightly higher than the 4.2% expected and higher than the Bank of Japan’s 2% target.
“This seeks to challenge the central bank’s eventual policy shift, though the government’s energy subsidies next month could be used to delay any changes for the time being,” said Yeap Jun Rong, a market analyst at I.G., in a commentary.
The Nikkei 225 index in Japan rose nearly 0.1% in morning trading to 27,380.11. The S&P/ASX 200 index in Australia rose 0.5% to 7,503.50. The Kospi in South Korea rose 1.2% to 2,497.05. The Hang Seng Index in Hong Kong was unchanged at 22,571.58.
Shanghai’s markets remained closed for the Lunar New Year holiday.
Wall Street stocks went up to their highest level in almost eight weeks after the Commerce Department said that the U.S. economy grew at a 2.9% annual rate in the fourth quarter. This suggests that the economy will still be growing at the end of 2022, even though interest rates are going up and many people are worried about a recession. This exceeded economists’ expectations of a 2.3% increase.
Wall Street Getting A lot Of Earnings And Economic Reports
The S&P 500 rose 1.1% to 4,060.43, its highest finish since December 2. The Dow rose 0.6% to 33,949.41, while the Nasdaq rose 1.8% to 11,512.41.
Wall Street is getting a lot of earnings and economic reports, which could lead to more volatility. Markets have recently swung up and down as fears of a severe recession and a drop in profits compete with hopes that the economy can manage a soft landing and that the Federal Reserve will lower interest rates.
Other information On Thursday, factory orders for durable goods went up more than expected in December, and less people than expected applied for unemployment benefits the week before.
Strong data show that the economy can handle the Fed’s avalanche of rate hikes last year and at least one more expected next week without crashing into a deep recession. Higher interest rates are designed to slow the economy by making it more expensive to borrow money to buy a house, a car, or anything else on credit. They also cause stock and other investment prices to fall.
But if the economy is stronger than expected, especially in the job market, the Fed may have to keep rates high for longer to make sure inflation is really crushed. The Fed has repeatedly stated that it intends to do so until the end of the year, though many investors do not appear to believe it.
The Report Shows Good News
The 10-year Treasury yield, which helps set rates for mortgages and other important loans for the economy, increased to 3.49% from 3.45% late Wednesday. The two-year yield, which tends to track expectations for Fed interest rate actions more closely, increased to 4.18% from 4.13%.
At first glance, Thursday’s economic report seemed to be good news. However, it also showed some worrying signs of a slowdown. According to Megan Horneman, chief investment officer at Verdence Capital Advisors, it is also backward-looking.
“The first half of this year is going to be tough,” she predicted, citing recent weakness in the economy’s manufacturing and services sectors.
On the earnings front, news from some big tech companies gave people more reason to be optimistic a day after Microsoft’s forecasts made people worry.
Tesla went up 11% after the company that makes electric cars said that its profit for the last quarter was higher than expected. Seagate Technology rose 10.9% after reporting higher-than-expected revenue and earnings.
Steelmaker Nucor was also among the top-performing stocks in the S&P 500, rising 8.4% after exceeding profit and revenue forecasts by Wall Street.
Sherwin Williams Was On The Wrong Side Of Wall Street
Chevron rose 4.9% after raising its dividend and approving a stock repurchase program worth up to $75 billion. Both moves put money directly into shareholders’ pockets, which drew criticism from Washington. Instead, according to White House spokesman Abdullah Hasan, oil companies should “use their record profits to increase supply.”
Sherwin Williams was on the wrong side of Wall Street. It fell 8.9% after reporting lower-than-expected revenue for the most recent quarter. It also provided a profit forecast for the coming year that fell far short of analysts‘ expectations, as a weak housing market weighs on demand for paint.
Despite reporting profit and revenue that met Wall Street’s expectations, IBM fell 4.5%. Analysts pointed to some lower-than-expected numbers in terms of cash generation.
Southwest Airlines lost more money than expected in its most recent quarter, which was hurt by the fact that more than 16,700 flights had to be canceled last month. It also stated that it expects to lose money in the first three months of 2023.
On the New York Mercantile Exchange, benchmark U.S. crude rose 21 cents to $81.22 per barrel in electronic trading. On Thursday, it fell 14 cents to $81.01.
Brent crude, the international benchmark, rose 17 cents to $87.64 per barrel in London.
The U.S. dollar fell to 129.83 Japanese yen from 130.23 yen in currency trading. The euro is now worth $1.0877, down from $1.0890.
SOURCE – (AP)
BANK 2023: Class Action Suit Filed Against Silicon Valley Bank Parent
A class action lawsuit is being brought against the parent company of Silicon Valley Bank, its CEO, and its CFO on the grounds that they didn’t tell the public about the risks that rising interest rates would pose to their business.
A lawsuit was brought against SVB Financial Group, CEO Greg Becker, and CFO Daniel Beck in the Northern District of California. It requests that investors in SVB, between June 16, 2021, and March 10, 2023, get specific damages.
The Federal Reserve’s warnings about interest rate hikes needed to be adequately taken into account in some of SVB’s quarterly and yearly financial reports, according to the complaint brought by shareholders led by Chandra Vanipenta.
In particular, the lawsuit argued that annual reports for 2020 through 2022 “understated the dangers posed to the company by not reporting that likely interest rate hikes, as detailed by the Fed, had the potential to create permanent damage to the company,” the lawsuit stated.
Just as the tech sector began to expand, venture investors opened accounts at Silicon Valley Bank.
Additionally, it asserts that the business “failed to disclose that it was particularly susceptible to a bank run if its investments were adversely affected by rising interest rates.”
Small businesses and people who had deposits at the financial institution are concerned after Silicon Valley Bank’s collapse, which has shaken the technology sector. Some people are relieved by the Biden administration’s decision to guarantee all Silicon Valley Bank deposits over the insured maximum of $250,000 per account.
Silicon Valley swiftly became known as the “go-to” location for venture capitalists seeking financial partners more receptive to novel business ideas than its larger, more established competitors who were still lagging in terms of technology.
Just as the tech sector began to expand, venture investors opened accounts at Silicon Valley Bank and recommended the entrepreneurs they were funding do the same.
Their friendly relationship ended when the bank revealed a $1.8 billion loss on low-yielding bonds bought before interest rates spiked last year. This alarming news sparked a disastrous run on deposits among its tech-savvy customer base.
SOURCE – (AP)
Buffett Touts Benefits Of Buybacks In His Shareholder Letter
OMAHA, Nebraska — Stock buyback critics, according to billionaire Warren Buffett, are “either an economic illiterate or a silver-tongued demagogue” or both, and all investors benefit from them as long as they are done at the right prices.
Buffett used a portion of his annual letter to Berkshire Hathaway shareholders on Saturday to tout the benefits of share repurchases, which have riled up Wall Street critics like Sens. Elizabeth Warren and Bernie Sanders as many other Democrats. The federal government even imposed a 1% tax on buybacks this year after they surpassed $1 trillion in 2022.
“When you are told that all share repurchases are harmful to shareholders or the country, or especially beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett, a long-time Democrat, wrote.
According to investor Cole Smead, Washington D.C. should take note of Buffett’s position on stock buybacks.
“Any politician, regardless of party affiliation, should stand up and take notice of a statement like that,” said Smead of Seattle-based Smead Capital Management.
Buffett, in typical self-deprecating fashion,
Buffett, in typical self-deprecating fashion, claimed that Berkshire’s remarkable record of doubling the returns of the S&P 500 over the last 58 years with him at the helm is the result of “about a dozen truly good decisions – that would be about one every five years.”
He mentioned a few in his letter, but he kept his message — which has long been one of the most widely read business documents — remarkably brief this year, at just over eight pages. He also dedicated an entire page to a tribute to his 99-year-old business partner Charlie Munger.
“I think investors, whether Berkshire investors or just Berkshire students, look to him for more, and I think they may come away wanting more,” CFRA Research analyst Cathy Seifert said.
Buffett emphasized how much Berkshire benefits from dividends from large investments in its portfolio, such as Coca-Cola and American Express, even though he refuses to pay a dividend at the Omaha, Nebraska-based conglomerate he leads because he believes he can generate a higher return for shareholders by investing that cash. Last year, Coke paid Berkshire $704 million in dividends, and American Express paid $302 million, helping to increase the value of those stakes to $25 billion for Coke and $22 billion for American Express. In the 1990s, Berkshire paid $1.3 billion for each investment.
Buffett said the key lesson for investors is that “it takes just a few winners to work wonders. And, yes, starting early and living into your 90s helps.”
Berkshire Hathaway reported a sharp drop in fourth-quarter profit to $18.2 billion from $39.6 billion a year earlier as the paper value of its investments fell.
Berkshire Hathaway reported a sharp drop in fourth-quarter profit
As a result, the value of Berkshire’s sizable stock portfolio distorted those bottom-line figures once more. Because operating earnings exclude derivatives and investments, Buffett believes they are a better measure of Berkshire’s performance. However, Berkshire’s operating earnings fell to $6.7 billion, or $4,584.46 per Class A share, from $7.3 billion, or $4,904.23 per Class A share, the previous year.
This is significantly lower than what Wall Street predicted. FactSet polled three analysts, who predicted Berkshire would report operating earnings per Class A share of $5,305.83 on average.
Analysts said the results were still strong overall, but higher claims costs continued to hurt Geico’s results, while BNSF’s railroad traffic slowed and rising interest rates hurt several of Berkshire’s housing-related businesses, such as its nationwide network of Realtors and its Clayton Homes manufacturing housing unit.
Berkshire’s performance tends to track the performance of the U.S. economy because so many of its dozens of manufacturing, utility, and retail businesses do. The conglomerate is a barometer of the economy in many ways.
Berkshire continues to invest in whole companies and stocks whenever Buffett sees an opportunity. According to Edward Jones analyst Jim Shanahan, he was particularly aggressive last year, making a net investment of approximately $53 billion. Much of that was invested in Occidental Petroleum and Chevron stock and Alleghany Corp. insurance, which was purchased for $11.6 billion last fall.
Despite all of that spending, Berkshire Hathaway’s cash reserves increased to $128.6 billion at the end of the year, up from $109 billion at the end of the third quarter. Berkshire Hathaway’s businesses generate so much cash that it accumulates faster than Buffett can invest.
Berkshire increased its stake in the Pilot Flying J network of 750 truck stops to 80% at the start of this year, up from 38.6% in 2017, which will help this year’s earnings.
SOURCE – (AP)
2023: Wall Street Slumps As Higher Rates Keep Tightening Squeeze
NEW YORK – Stocks are falling on Wall Street on Tuesday due to concerns about upcoming corporate profits and the tightening squeeze of higher interest rates.
The S&P 500 fell 1.3% on the first trading day of the week following Monday’s holiday. As of 10:15 a.m. Eastern time, the Dow Jones Industrial Average was down 489 points, or 1.4%, to 33,337, while the Nasdaq composite was down 1.7%.
Despite reporting a higher-than-expected profit for the last three months of 2022, Home Depot suffered one of the S&P 500′s largest losses. It fell 5.6% on concerns about upcoming earnings after the company issued forecasts that fell short of Wall Street’s expectations.
The retailer said it would spend $1 billion to raise hourly wages in the United States and Canada. This fed broader market concerns that rising company costs were eating into profits, one of the main levers that set stock prices.
Stocks Are Dropping On Wall Street
The other major lever is in jeopardy as interest rates continue to rise. When safe bonds pay higher interest rates, stocks and other investments are more expensive. Rates have risen to the point where Morgan Stanley strategists believe US stocks are more expensive than ever since 2007.
The 10-year Treasury yield, which helps set mortgage and other important loan rates, increased to 3.93% from 3.82% late Friday. The two-year yield, more sensitive to Fed expectations, increased to 4.71% from 4.62%.
Yields have risen this month as Wall Street raises its expectations for how high the Federal Reserve will raise short-term interest rates to reduce high inflation. The Federal Reserve raised its key overnight rate from 4.50% to 4.75%, up from near zero a year ago.
Several economic reports have recently come in that were stronger than expected. On the plus side for markets, they helped allay fears that the economy would soon enter a slump. On the negative side, they give the Fed more reason to stick to its “higher for longer” campaign of raising interest rates to suffocate inflation.
A strong economy could keep inflation under control.
The most recent evidence came from a preliminary report released Tuesday, indicating that business activity is picking up. S&P Global said the services industry likely resumed growth last month and reached an eight-month high. Meanwhile, manufacturing is still contracting, but the reading has reached a four-month high.
Higher interest rates, in addition to dragging down investment prices
Higher interest rates, in addition to dragging down investment prices, slow the economy by making borrowing more expensive and increases the risk of a future recession. As a result, Wall Street’s more pessimistic investors have maintained their recession forecasts but shifted the timing to later in the year.
The Fed stated in December that its typical policymaker expects short-term interest rates to rise to 5.1% by the end of this year, with the first-rate cut occurring in 2024. After previously believing that the Fed would eventually ease up on interest rates, Wall Street has largely agreed with the Fed’s assessment.
The concern is that the Fed will raise its rate forecasts even higher next month when it releases its latest economic projections. Aside from showing that the job market and retail sales have been stronger than expected, recent economic reports have also indicated that inflation is not cooling as quickly and smoothly as hoped.
These concerns have stopped Wall Street’s strong start to the year. After rising as much as 8.9%, the S& P 500 is now only up 4.9% for the year.
International stock markets were mostly down after manufacturing indicators in Europe and Asia painted a mixed picture, and Russian President Vladimir Putin accused Western countries of threatening Russia.
SOURCE – (AP)
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