Boyar's Research Digest #42
May 12th, 2024
A very happy day to all of the Mothers reading!
Interesting Fact:
Fully 70% of American companies surveyed earlier this year by ManpowerGroup, a staffing firm, said they were having difficulty filling roles. That is down from 75% last year, but up from 40% a decade ago.
The S&P 500 advanced for the third straight weekly gaining 1.85% and is now less than 1% from its March 2024 record close. As CNBC’s Michael Santoli points out, the last time the S&P 500 was at today’s level the 12-month forward P/E multiple was 21, now it is at 20.4 due to better than expected earnings.
Interestingly the S&P 500 equal weighted index outperformed the traditional S&P 500 for the week as big cap technology lagged (signaling market breadth which is a bullish indicator). The best performing sectors were Utilities, Financials, and Materials up 4.03%, 3.07%, and 2.58% respectively. Information Technology, Energy, and Consumer Discretionary were the laggards advancing 1.41%, 1.36% and 0.16% each.
Reasons for Optimism:
Q1 earnings continue to outpace estimates with (according to FactSet) blended earnings growth above 5% versus the 3.4% analysts were expecting.
Stock buybacks have reached a six-year peak according to Money.com, with more than $383 billion in authorized share repurchases being announced over the past 13 weeks (the most since July 2018).
Volatility (as measured by the VIX) has declined for a third consecutive week.
Reasons for Caution:
Inflation and future rate hikes continue to remain a wild card. Future indications of sticky inflation could negatively impact market sentiment.
Consumer sentiment is declining and higher near- and medium-term inflation is expected.
Mideast tensions and concerns over the upcoming U.S. presidential election could continue to weigh on markets.
The Week Ahead
Next week could be an important test for markets as, on Wednesday, April’s consumer price index is released. If the reading shows that inflation continues to be sticky investors could panic as worries the Fed will keep rates elevated (or raise them further) could negatively influence markets.
Notable Reads (and Listens):
Classic Deal: Burger King
https://www.capitalallocators.com/podcast/classic-deal-burger-king/
I enjoyed listening to Ted Seides podcast featuring 3G Capital’s Alex Behring and Daniel Schwartz where they discuss how and why they initially took Burger King private and later purchased Tim Hortons and Popeyes.
In terms of financial performance, the original Burger King transaction may have been one of the most successful private equity deals of the past 20 years. Interestingly the current public company iteration of the original Burger King transaction (now called Restaurant Brands International) was featured in a recent Boyar’s Opportunity Report.
The Fed Is in a Holding Pattern. That Could Be Good for Stocks.
https://www.barrons.com/articles/fed-rate-cuts-2024-stock-market-0bad4f78
[The above] goes against the conventional wisdom that the market yearns for lower borrowing costs, rather than rates remaining at an elevated level for an extended period. But Buchbinder [chief equity strategist of LPL] argues, as many others are currently doing, that the Fed doesn’t need to be in a rush to ease given how low the unemployment rate is.
“It’s when the Fed is forced to cut because of economic weakness that stocks tend to sell off—not in the environment we’re in today,” he said.
This article is a reassuring read (assuming history repeats itself!) for those who are worried that if the Federal Reserve waits too long to lower interest rates it could be negative for stocks.
The article notes that the S&P 500 has advanced 13% since the Fed’s last rate increase on July 26th, 2023 (a 288 day pause as of the article’s publication date). It also cites data from LPL Financial showing that long pauses have been positive for stocks and points out the last 6 Fed pauses have lasted 240 days on average and have produced an average gain of 13% for the S&P 500 with interest rate sensitive sectors performing the best during those periods.
The Dow Is a Terrible Index. But It Is Telling Us Something Important
https://www.wsj.com/finance/stocks/dow-jones-stock-market-index-economy-a2a611ed
Clinically, the Dow is a badly designed index that gives outsize weight to certain stocks based on the share price, rather than the market value used by almost all other large indexes. That frequently leads to bizarre outcomes.
Currently, the biggest weights in the 30-company Dow are given to UnitedHealth Group, which is the 15th-largest listed company, and Goldman Sachs, the 63rd-biggest. Together they are valued at about half a trillion dollars, but they move the Dow more than their fellow constituents Microsoft , Apple and Amazon combined, even though the three are valued at more than $7.5 trillion combined. The Dow is simply a bad measure, which ought to be retired.
I never understood why so many investors pay attention to the Dow Jones Industrial Average. The article gives some good reasons why investors for the most part would be better off ignoring it (or in some instances using it as a contraindicator).
Jim Simons, billionaire quantitative investing pioneer who generated eye-popping returns, dies at 86
https://www.cnbc.com/2024/05/10/jim-simons-billionaire-quantitative-investing-pioneer-who-generated-eye-popping-returns-dies-at-86.html
On Friday legendary investor Jim Simmons who founded quantitative investment firm Renaissance Technologies passed away. Renaissance is one of the most successful investment firms of all time with its Medallion Fund generating eye popping returns since its inception. To find out more about this investment legend, I would recommend reading Gregory Zuckerman’s The Man Who Solved The Market.
Why Warren Buffett Hates Bonds
https://www.barrons.com/articles/warren-buffett-hates-bonds-b3eaa07b
Interesting article that appeared in Barron’s written by Associate Editor Andrew Bary.
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Important Information: Performance Information. Past performance does not guarantee future results. The reports in this sample are for informational purposes only and the performance of the stocks selected is not indicative of the performance of all the stocks profiled in Boyar Research. The performance of the stocks selected and the performance of the stocks in Boyar Research may in fact diverge materially. Additional information regarding the performance of other companies featured in Boyar Research is available from Boyar Research upon request. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Clients of an affiliate of Boyar Research and employees of Boyar Research own shares in Restaurant Brands International.