Headline CPI has come in just a bit hotter than expected for Thursday, while core prices were bang on expectations. As investors chew over this data, stocks have opened a touch lower after futures gave up early gains.
Our call of the day comes from Jim Bianco, president of Bianco Research, who says the stock market is finding a lot of competition these days as investors seek out better alternatives, and that could be holding the market back.
The comments came via an interview with Bianco by Hedgeye Risk Management’s CEO Keith McCullough at the Hedgeye Investing Summit on Tuesday.
First, Bianco points to a study from the University of Chicago’s Center for Research in Security Prices that showed how over many, many years, the stock market will return 9% for investors.
“Okay, I can get 5.5% [return] without taking any without taking any risks by putting it in a money market or buying a six-month T-bill. That’s over half of the gain…or maybe approaching two-thirds of the game that I would get over a long term in the stock market without any risks. Is that incremental extra 1/3 worth all the risk that I need to take? A lot of people say ‘no,’ and that’s why you see massive inflows into money-market funds,” says Bianco.
He says things are different now and it’s not like 2019, when the big argument was TINA — or there is no alternative to the stock market.
The strategists pointed to other cards stacked against stocks, such as the lopsidedness caused by the seven Magnificent Seven tech darlings — Apple
and Meta Platforms
“Why is everything but seven stocks struggling? Because everybody’s sitting there looking at a 5.5% [return] with no risk and they are saying, ‘You know, call me when there is going to be a better opportunity in the market because right now I’m just happy taking my 5.5% an sleeping well,’” says Bianco.
Bianco says in recent years some of the investing population have avoided cryptos and other “sugar highs” — he has referred to the stock market as being diabetic thanks to years of Fed stimulus and zero interest rates. Many of those are retirees who waited 15 years to get a decent return out of income investments.
“So that crowd is coming back, and I think it’s bringing more of a balance in the market,” he says.
And that brings him to his next point that investors are just too demanding these days, wanting the stock market to make them wealthy, offer morality through ESGs, fund their retirement and even entertain them. That’s also a dangerous path for the market, he said.
“For a moment there, from 2015 to 2019, it looked like it might be able to be all of those things at the same time, but that’s because we were in a sugar rush,” of Fed stimulus he said.
So investors are facing a time soon when they need to decide what they want from stocks. “And we’re going to have to make some hard choices and I think that’s part of this transition.”
Even the Fed, Bianco says, wants the stock market to work for it as a policy tool — dropping when it wants the economy to slow down, and rising when it wants the economy to speed back up. “So we’ve got all these competing forces that are trying to make the stock market do too many things all at once,” he said.
One fading breed out there? Those hoping for a stock crash so that they can go on a buying spree until the Fed starts printing money and pushing the market higher, says Bianco.
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September CPI rose 0.4% for the month versus forecasts of a 0.3% gain, and 3.7% year over year, versus 3.6% expectations. Core CPI — minus food and energy — is rise 0.3% and 4.1% as expected. Weekly jobless claims were flat at 209,000.
A handful of companies are reporting this morning. Delta
stock is up after the airline’s profit beat forecasts, pizza giant Domino’s
is sliding after revenue was shy of estimates, and Walgreens Boots Alliance
is taking a hit from disappointing results. Construction hardware maker Fastenal
is rising on an earnings beat.
Superstar Taylor Swift opened her Eras Tour documentary flick a day early — Thursday — in North America due to demand. Shares of distributor AMC
edged higher with the film breaking records for single-day advance sales. That’s as some economists note increasingly weak movie attendance by consumers.
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