The Buzz on Business for May 9th 2024

We read an interesting paper with an interesting premise on Tuesday. Entitled “Either Stocks or Bonds Are Wrong”—we’ll put a link below—the article makes the case that there is a relationship between real yields, that is, interest rates minus inflation, and the price of stocks. In the world of finance, this is axiomatically true, and the main reason Wall Street is clamoring for rate cuts.

As real rates fall, the Net Present Value of future earnings increases, stocks can, therefore, justify higher prices. Easy. Squeezy.

But the article goes on to claim that this relationship has broken down and that either rates are too high or, and this is the principal claim, stock prices are way too high. There’s a graph that claims to show the correlation between the two for the last six or seven years and how these data have diverged in the last six months. And the future is pretty grim, yadda, yadda, yadda.

Seven years on an Excel chart is not a correlation. And six months, in the face of hundreds of years of market data and investment theory does not a divergence make.

Could stocks crash from here. Maybe. Sure. Wouldn’t surprise us a bit. Conversely could rates fall? Absolutely, and that seems the most likely scenario to us. But who knows? Nobody. Especially not this guy working out of some basement office in lower Manhattan. Or maybe it’s his mother’s basement.

Reports like these are absurd. I get it. I get it! Content needs to be generated. The beast must be fed. But dire predictions—and I’ve been listening to this kind of nonsense for over forty years—dire predictions, based upon six months of cherry-picked data fill the intellectual space between random noise and a fussy infant on a five-hour flight.

Ignore these people. You should set your personal investment policy based upon your objectives and your risk tolerance and ignore anyone who attempts to get your business based upon financial pornography.

Stock Market Report

Yesterday, we reported that the NASDAQ Composite registered a Bearish Reversal pattern, which suggests a change in trend and falling prices.

We were right! Maybe!!

• • The Dow Jones Industrials managed a pretty good day on an otherwise down day. It was up 172 points, or four-tenths of one percent and closed back above 39,000 for the first time in over a month at 39,056.

• • The S&P 500 was unchanged on the day. You don’t see that very often! It closed at 5,188.

• • The NASDAQ followed through on its reversal pattern but not by much. It was down 30 points, two-tenths of one percent and closed at 16,303.

• • The Russell 2000 fell ten points on the session, that one half of one percent and it starts the day today at 2,055.

Bond Market Report

Bonds traded in a narrow range before closing lower on Wednesday.

• • The yield on the 2-year treasury closed at 4.841%, that’s up less than one basis point.

• • The 20-year was up four ticks and closed at 4.739%.

Oil, Gold, and Bitcoin

• • Oil was up $0.87, and a barrel will now set you back $79.18.

• • Gold was off $7.00 and closed at $2,316.10.

• • Bitcoin was also down. It closed at $62,166.99, off $906.78.

Uber Misses Huge

Uber shocked the Street when it reported a $0.32 per share loss. Traders expected at $0.22 per share profit. The loss was mostly due to a write down of assets on the firms balance sheet rather than a weakness in its operations and Uber did exceed its revenue target. Still the stock got hammered on a huge spike in volume.

Otherwise, mostly green numbers on the Giant Quote Machine. Airbnb had a blowout quarter.

Not much expected on the earnings front today. Just the unemployment report on the Economic Calendar.

We’ve given everyone here at the Ministry of Truth the day off. Who knows what trouble they’ll be getting into. If you want to stay out of trouble—and you do—you’d better keep it right here on The Buzz.

Referenced Article