Thanksgiving Week
Memorial Day reminds me to thank donators to Edge and Odds, something I too often neglect to do, buried in my rather busy schedule, which includes self-imposed leisure time away from the laptop to keep some level of sanity.
I am embarrassed to say that this neglect seems to go back to the spring of 2022. Sincere apologies. Time does fly, even more than we think. My late mother-in-law used to say “the slower I get, the faster time goes by”. So true.
I know I will not be able to find time to personally thank all of you, so here’s my public thank you to (in no particular order):
Hopefully, I did not forget anybody for whom I have the basic info. Others I will need to contact directly (or you send me your full names to edgeandodds [at] gmail.com).
*****
Donations are truly appreciated given inflation is hitting the blog from everywhere.
I intend the blog to remain free and open to everybody, devoid of annoying ads and popups. There is no plan to create a premium subscription. You are all premium subscribers and readers to me.
But I’m very grateful to everyone who has kindly supported me, thereby helping everybody else.
There is no donation too small. Many opt for a monthly $5 or $10 donation, a feature Stripe conveniently offers.
Sincere thanks.
Denis
Home Buyers Are on the Move in Big Chinese Cities After Policy Easing
Large Chinese cities, such as Beijing, Shanghai, Guangzhou, and Shenzhen, are seeing signs of increasing interest in buying property, especially pre-owned homes, after the latest policy adjustment 10 days ago.
The number of visits to view second-hand housing in Shenzhen more than doubled to the highest level since 2018 during the weekend ended May 19 from the average of weekends this year, according to statistics from Leyoujia, a major real estate agency in the first-tier city. On May 19, more pre-owned homes exchanged hands than on any other single day since February 2021.
On May 17, the People’s Bank of China announced several new property policies. The minimum down payment ratio was lowered to 15 percent, the floor rate for commercial mortgages was abolished, and that of the housing provident fund, a housing savings plan for workers, was cut by 25 bips. Moreover, the central bank set up a CNY300 billion (USD41.4 billion) relending facility to encourage state-owned enterprises to purchase unsold new homes to offer affordable housing.
After the policy move, 2,000 pre-owned homes were sold in Beijing the following weekend, the highest level since Chinese New Year, celebrated in February.
A source in charge of distribution at a real estate project in Beijing said that more contracts are signed online and customer confidence is getting stronger after the implementation of new policies.
The effect can be seen up north and down south as in Guangzhou, sales of new homes jumped by 17 percent in the week ended May 19 from a month earlier, according to data from Hope China Research.
Central China’s Wuhan saw almost 1,800 housing transactions in the seven days ended May 22, per the China Index Academy. The daily average was 254 homes, up 53 percent from April.
A real estate agent in Xi’an told Yicai that there have been subtle changes in the second-hand housing market. “There are more customers. They used to hesitate after visiting the houses, but now they make a decision quicker.” However, there is no upward momentum in pricing, the agent said, adding that each neighborhood has owners who are willing to lower their prices to sell quicker so buyers should take their time to observe the latest trends.
Property agents in Hefei and Chongqing also said that transactions have rebounded and more people are visiting houses.
EARNINGS WATCH
480 companies in the S&P 500 Index have reported earnings for Q1 2024. Of these companies, 77.9% reported earnings above analyst expectations and 16.0% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 79% of companies beat the estimates and 17% missed estimates.
In aggregate, companies are reporting earnings that are 8.1% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.2% and the average surprise factor over the prior four quarters of 7.0%.
Of these companies, 61.5% reported revenue above analyst expectations and 38.5% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 65% of companies beat the estimates and 35% missed estimates.
In aggregate, companies are reporting revenues that are 1.1% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.5%.
The estimated earnings growth rate for the S&P 500 for 24Q1 is 8.0%. If the energy sector is excluded, the growth rate improves to 11.1%.
The estimated earnings growth rate for the S&P 500 for 24Q2 is 10.9%. If the energy sector is excluded, the growth rate declines to 10.6%.
The estimated revenue growth rate for the S&P 500 for 24Q1 is 3.8%. If the energy sector is excluded, the growth rate improves to 4.5%.
Trailing EPS are now $226.50, up 2.9& YoY. Full year 2024: $244.26e. Forward EPS: $252.61e, up 12.5% YoY.
From Factset which has somewhat different numbers than LSEG:
NVIDIA is also the largest contributor to earnings growth for the entire S&P 500. If this company were excluded, the blended earnings growth rate for the index would fall to 3.3% from 6.0%.
The blended net profit margin for the S&P 500 for Q1 2024 is 11.8%, which is above the previous quarter’s net profit margin of 11.2%, above the 5-year average of 11.5%, and above the year-ago net profit margin of 11.6%.
At the sector level, eight sectors are reporting (or have reported) a year-over-year increase in their net profit margins in Q1 2024 compared to Q1 2023, led by the Utilities (14.9% vs. 10.3%), Information Technology (26.0% vs. 22.4%), and Communication Services (13.5% vs. 10.9%) sectors. On the other hand, three sectors are reporting (or have reported) a year-over-year decrease in their net profit margins in Q1 2024 compared to Q1 2023: Energy (9.6% vs. 12.5%), Health Care (6.5% vs. 9.3%), and Materials (9.4% vs. 11.2%).
Eight sectors are reporting (or have reported) net profit margins in Q1 2024 that are above their 5-year averages, led by the Information Technology (26.0% vs. 23.4%) and Communication Services (13.5% vs. 11.5%) sectors. On the other hand, three sectors are reporting (or have reported) net profit margins in Q1 2024 that are below their 5-year averages, led by the Health Care (6.5% vs. 10.0%) and Materials (9.4% vs. 10.9%) sectors.
So, a huge jump in profit margins in Q1. Per LSEG numbers, non-Energy S&P 500 companies’ profit growth (+11.1% in Q1) was 2.5 times revenue growth (+4.5%) on a YoY basis. Analysts expect this to continue during the next 4 quarters with revenues growing 5.1% on average and profits jumping 12.9%.
Jay Powell:
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In March 2023: “What we’re seeing in the economy is pretty much about shortages … supply chain blockages,” Powell said. “As the supply chains get fixed and shortages are alleviated, you will see … inflation, coming down, you’ll see margins coming down.” (Reuters)
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In May 2023: “So higher profits and higher margins are what happens when you have an imbalance between supply and demand: too much demand, not enough supply. And we’ve been in a situation in many parts of the economy where, where supply has been fixed or, or not flexible enough. And so, you know, the way the market clears is through higher prices. So to get, I, I think—as goods pipelines have, have gotten, you know, back to normal so that we don’t have the long waits and the shortages and that kind of thing—I think you will see inflation come down. And you’ll see—you’ll see corporate margins coming down as a result of return of full competition, where there’s enough supply to meet demand. And then it’s—then it’s, then you’re really back to full competition. That’s—that would be the dynamic I would expect.” (post FOMC presser)
Bullish Investors Are Piling Into Stock and Bond Funds The flows mark a break from risk aversion and an embrace of the narrative that a strong U.S. economy will support financial markets.
U.S.-based mutual and exchange-traded funds have drawn a net $172 billion of inflows so far this year, a marked turnaround after they collectively bled assets in each of the past two years.
(…) Assets in money-market funds and other cash-like products that investors favored last year have plateaued. Investors are putting their money to work in stocks and bonds instead. (…)
Flows to U.S. stock and bond funds this year are the strongest since 2021 when interest rates were near zero. Globally, the net $468 billion invested in ETFs through April is the highest on record, according to ETFGI data.
The soft-landing trade appears fully back in vogue after several months of hot inflation data rattled investor confidence. The most recent consumer-price data was lower than forecast, and first-quarter earnings results showed booming corporate profits. The S&P 500 is up 11% in 2024, trading just below its record. (…)
Investors look anything but defensive. Of the 10 ETFs that have taken in the most money this year, just one is a bond fund. Two track the price of bitcoin.
The leader, the Vanguard S&P 500 ETF, is on pace for a banner year. Investors have added a net $37 billion in less than five months; the annual record for any ETF inflow is $50 billion.
The risk-taking extends into fixed-income markets, where some of the most popular funds over the past month hold riskier corporate bonds and loans that pay higher yields. (…)
Fund managers are optimistic, too. Bank of America’s most recent survey of fund managers showed the most bullish sentiment since 2021. The survey found cash levels at multiyear lows and stock allocations at multiyear highs. (…) There are more than three bulls for every bear in the investor surveys.
What stands out this year is the breadth of funds taking in money. Investors aren’t just putting all their money into the booming technology sector. (…)
That strength extends overseas. After trailing U.S. performance for years, international stock benchmarks in Europe and Japan have notched records in 2024. Investors’ money has followed.
“This year will be the record for global ETF inflows unless something unforeseen happens,” said Deborah Fuhr, founder of ETFGI. “We’re seeing a lot of tailwinds.”
- Via Callum Thomas:
Source: @ramit
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Via IsabelNet:
Market Gradually Removing Central Bank Rate Cuts
At the beginning of the year, the market was pricing six Fed cuts this year, six ECB cuts, and five BoE cuts, see chart below.
Today, the market is pricing two-and-a-half cuts by the ECB and the BoC, one-and-a-half cuts by the Fed and the BoE, and only half a cut by the RBA. (Torsten Sløk)
INFLATION WATCH
- UMich LT #Inflation Expectations increasingly suggest the #Fed is too lenient. Mean expectation now highest in 30 years relative to Median indicating expectations rapidly skewing upward not downward. (@RBAdvisors)
- Biden to End Tariff Exclusions on Hundreds of Chinese Products It’s part of a broader plan to increase duties in strategic sectors and protect American manufacturing.
The US will allow tariff exclusions to expire on about half of 400 products that had been spared, USTR said on Friday. It added that 164 exclusions would be extended through May of next year. All of the exemptions, which are set to expire at the end of this month, will be extended through June 14 to allow for a transition period for those that aren’t being renewed. (…)
The Wealth Defect:
- And as more folk invest in the market, more millionaires are being produced — wealth effect in action here with a new all-time high count of 401(k) millionaires in the USA.
Source: @SamRo TKer by Sam Ro