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👉 The Investing Week Ahead: 6/12/23

👉 The Investing Week Ahead: 6/12/23

The largest drawdown in commercial bank deposits since 2001...

12 Jun

Happy Monday.

Below are two perspectives in the ‘state of the market’ debate:

US Stock Bear Market May Not Be Over Yet | S&P 500 is following 1945-1949 `boom/bust' pattern, MS says

🐻 Bear Case: “More are declaring the bear market officially over; we respectfully disagree due to our 2023 earnings forecast.”

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 year’s Institutional Investor survey after correctly predicting the selloff in stocks — but his outlook for further declines in 2023 has been incorrect so far.

Earnings Estimates Climb in US, Europe | Strategists warn recession will weigh on profits

🐂 Bull Case: “Prior episodes of sharply narrowing breadth have been followed by a catch-up from a broader valuation re-rating.”

David Kostin of Goldman Sachs is more willing to take on risk — suggesting that the S&P 500 will be able to keep climbing. He points to the fact that since 1980 — 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 We’re Watching:

Adobe’s 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.

We’re interested to see if the growth of Adobe Creative Cloud and Adobe Document Cloud has remained steady.

Kroger’s 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.

We’re eager to hear if Kroger’s digital offerings are improving — as they have called out that they haven’t been as successful as originally anticipated.

Investor Events / Global Affairs:

The Fed’s well-loved loan mechanism (by banks at least) and the biggest drawdown in deposits since 2001.

Fed’s Emergency Loan Facility Keeps Soaring

The Fed’s new emergency loan facility — which quietly lets banks receive par value for their devalued assets — 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 ‘emergency conditions’ that came from worries across the sector — banks have shifted the composition of their borrowing from FDIC loans and the discount window into the BTDP because it’s hidden.

Long story short — banks can be borrowing money to recover from devalued assets, and others typically don’t even know about it.

“The 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 won’t 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 Corp…

And if banks can’t repay all the advances in a year’s time? The Treasury Department is providing $25 billion of credit protection to the Fed just in case. “The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds,” the Fed said in its announcement Sunday night.” — WSJ

Biggest Bank Deposit Drawdown Since 2001

Keeping this one short — we are currently experiencing the largest drawdown in commercial bank deposits since 2001.

It’s also worth mentioning that there were issues around 9/11 due to infrastructure damage. So if you take out the time around 9/11 — 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 We’re Watching:

“Discord on the FOMC is mounting. Those who prefer to skip a hike in June want to wait and see — given the long and variable lags of monetary policy — how 500 basis points of rate hikes to date are cooling the economy. More hawkish members are convinced rates aren’t yet restrictive enough, and the Fed shouldn’t risk falling behind the curve. We see a ‘hawkish skip’ as a way to maintain unanimity on the committee.” — Bloomberg Economists

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 didn’t love the reaction as much as you may have thought. You may want to checkout this interesting open letter calling out Cohen’s past amidst the chaos.

If you’re 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.

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