Some exchange-traded funds rallied Wednesday even as stocks and bonds broadly fell, as hot inflation data stoked fears that interest rates will stay elevated for longer than anticipated.
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A competitor gave a positive update on end market conditions.
Shares in Johnson Controls (JCI 1.25%), a building products and heating, ventilation, air conditioning, and refrigeration (HVAC) company, rose 10.2% in March, according to data provided by S&P Global Market Intelligence. The move comes after two pieces of newsflow, which could be construed as plusses for the company.
A competitor updates
Siemens Smart Infrastructure, part of Siemens AG, is named a large competitor of Johnson Controls in the latter’s Securities and Exchange Commission (SEC) filings. As such, it’s always interesting when its management comments on trading conditions, as it did in March during the Bank of America Industrials Conference.
Siemens CFO Ralf Thomas noted weakness in its automation business. Still, he said that the smart infrastructure business was tracking toward the high end of management’s expectations in the quarter — a good indication for Johnson Controls’ end market prospects.
Restructuring Johnson Controls
According to Reuters, the company is working with advisors over a potential sale of some of its residential and light commercial HVAC businesses, with Robert Bosch, Samsung, and Lennox International discussed as possible suitors for assets worth more than $6 billion.
Such a deal would see Johnson Controls refocusing on its core commercial HVAC and fire and security products.
Image source: Getty Images.
Why a sale would make sense
Investors would welcome a sale because the main attraction of buying the stock is its exposure to the theme of commercial building owners retrofitting their HVAC and building systems to improve efficiency and meet their net-zero emissions targets. The company’s suite of artificial intelligence (AI)-driven digital applications on its OpenBlue platform can significantly improve building efficiency and save costs.
Given that the residential and light commercial HVAC businesses only contributed 10% of sales in 2023, and are not a core part of the long-term growth drivers discussed, a deal would make sense and enhance the stock’s investment proposition.
Turning to more immediate matters, Johnson Controls is evaluating the impact of a cyber attack on its operations that restricted its growth in the first quarter of 2024. In addition, its global product sales are going through a weak patch as dealers work through inventory built up during the supply chain crisis. For reference, dealers rushed to build inventory as lead times (the time it takes an order to be delivered) were extended, and they wanted to ensure they had products available for customers.
Now that lead times have normalized, dealers are running down inventory, meaning Johnson Controls is temporarily weak. Management believes its sales growth will notably increase in its financial second half — something to look out for when the company releases its second-quarter earnings results.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Shares in industrial giant 3M (MMM 1.82%) increased by almost 10% in the week to Friday morning, according to data provided by S&P Global Market Intelligence. The move comes down to a combination of a well-received presentation at the J.P. Morgan Industrials Conference on Wednesday and an update on the CEO succession on Tuesday.
3M changes its CEO
Given that 3M’s share price is down almost 48% since Mike Roman took over as CEO in July 2018 it’s fair to say his tenure hasn’t been a success. However, with former L3Harris Technologies chairman William Brown taking over on May 1, investors have a reason for optimism that a change in strategy could be imminent. That said, Roman will take over as executive chairman at that time, and 3M has waived the mandatory retirement age of 65 years for both men in their 60s.
3M’s presentation at the J.P. Morgan Conference
The headline from the presentation is that Roman raised the company’s first-quarter earnings-per-share guidance from between $2 and $2.15 to a new range of $2.05 to $2.20. However, the $0.05 only comes from “the interest on the Solventum debt raise,” according to Roman. As a reminder, Solventum is the healthcare business 3M is set to spin off on April 1.
On a more positive note, CFO Monish Patolawala told investors 3M’s annualized stranded costs (due to the Solventum spinoff) would be in the $150 million to $175 million range compared to an initial estimate of $350 million to $500 million. That could lead to analysts upgrading their models for ongoing profitability at 3M.
Image source: Getty Images.
3M definitely has attractions as a value play; however, suppose you are considering buying 3M for its 5.9% yield. In that case, it pays to listen to what Roman said in response to a question on the dividend. He once again fell short of definitively affirming it would be maintained at the current level. According to Roman, 3M prioritizes investing in the business before returning capital to investors, including “an attractive dividend.”
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
The historic stock-market rally has shown few signs of stopping since October — with the S&P 500 advancing in 16 of the last 18 weeks for the first time since 1971.
There have been only two other scenarios when U.S. stocks climbed this fast over any four-month period since World War II, and the recent rally has “strong parallels” to both, according to a Deutsche Bank analyst.
The first scenario was when the economy was emerging from recession, such as after the COVID-19 pandemic or the 2007-2008 global financial crisis, while the second was during the dot-com bubble era in the late 1990s, when stocks saw rapid gains that proved unsustainable, said Henry Allen, macro strategist at Deutsche Bank.
Post-recession periods
“The last time we saw the S&P 500 advance this rapidly over four months was up to July 2020,” when equities staged a “sharp recovery” after slumping on growing instability due to the onset of the COVID pandemic earlier that year, Allen said in a Monday client note.
The mid-2020 rally was supported by massive amounts of monetary and fiscal stimulus, with the S&P 500
SPX
rising 26.6% between April and July, almost taking the index back to its pre-COVID peak, according to FactSet data.
Looking further back, U.S. stocks also rallied after the S&P 500 fell to fresh lows in 2008 following the global financial crisis — with the index gaining more than 25% over the four months that ended in June 2009 once “the most acute phase” of the crisis had passed, according to data compiled by Deutsche Bank.
“Unsurprisingly, recessions normally lead to significant equity selloffs, then when the economy begins to improve again, there’s usually a fast recovery for the stock market,” Allen said.
SOURCE: BLOOMBERG FINANCE LP, DEUTSCHE BANK
See: Nasdaq-100 rose 3% for the first time since the dot-com bubble era. Why it brings up old memories of this ‘scary’ period.
The dot-com bubble era
Allen said the seemingly relentless equity rally also brings to mind the dot-com bubble from over two decades ago, which saw the S&P 500 rise by 26% over the four months that ended in July 1997.
The rally later was followed by a bursting of the bubble, with stocks falling for three years in a row from 2000 to 2002.
See: S&P 500’s breadth ‘still narrow’ after record peak — with these four stocks driving February gains
The large-cap benchmark S&P 500 has risen 21.5% since it bottomed in October 2023, spurred on by growing hopes for a soft landing for the U.S. economy, expectations that the Federal Reserve will soon start cutting interest rates and investor enthusiasm for artificial intelligence.
“It’s rare to see a rally this fast, and when they happen it’s usually because the economy is emerging from recession and the stock market has just been through a slump,” Allen said on Monday, adding that the only time in the post-World War II period that this wasn’t the case was during the dot-com bubble era.
Their rarity may raise fears that the recent stock-market rally is also a bubble, Allen noted.
Indeed, market participants have been debating whether the rush over the past year into the so-called Magnificent Seven stocks — a group that includes chip maker Nvidia Corp.
NVDA,
and other megacap technology companies — resembles the dot-com bubble era, a period when equities also rode a wave of tech hype only to come crashing down, triggering a mild recession.
While the Deutsche Bank analyst didn’t draw a direct parallel between the recent stock rally and any of the two prior scenarios of rapid gains, Allen admitted this rally has similarities to them. The U.S. economy also has remained surprising resilient during this cycle, even with the Fed’s policy rate steady at a 22-year high since July.
The three major U.S. stock indexes finished lower on Monday afternoon, with the S&P 500 and the Nasdaq Composite
COMP
retreating from their record highs to start the week, down by 0.1% and 0.4%, respectively. The Dow Jones Industrial Average
DJIA
dropped 0.3%, according to FactSet data.
In a year that defied most economists’ expectations, retirement savers reaped the benefits.
Retirement account balances, which took a sharp nosedive in 2022 due to market volatility, have now started to bounce back, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans. The financial services firm handles more than 45 million retirement accounts total.
The average 401(k) balance ended 2023 up 14% from a year earlier to $118,600, Fidelity found.
The average individual retirement account balance also gained 12% year over year to $116,600 in the fourth quarter of 2023.
“This past year ended on a high note for retirement savers,” said Sharon Brovelli, president of workplace investing at Fidelity Investments.
Positive savings behaviors were key to realizing better outcomes, added Mike Shamrell, Fidelity’s vice president of thought leadership.
A great year for the major indexes also helped. The Nasdaq soared 43% in 2023, while the S&P 500 notched a 24% annual gain and the Dow Jones Industrial Average rose more than 13%.
Number of 401(k) millionaires jumps 11.5%
At the end of 2023, signs that inflation was cooling were not only good news for the economy, but they were also good news for stocks. After the S&P 500 closed out 2023 with a nine-week win streak, the number of Fidelity 401(k) plans with a balance of $1 million or more increased 20% from the third quarter.
Year over year, the number of 401(k) millionaires rose 11.5%.
“These are the poster children of staying the course and taking a long-term approach,” Shamrell said.
Overall, more than one-third of retirement savers increased their retirement savings contributions, Fidelity found. The average 401(k) contribution rate, including employer and employee contributions, now stands at 13.9%, just below Fidelity’s suggested savings rate of 15%.
More retirement savers are borrowing from their 401(k)
Federal law allows workers to borrow up to 50% of their account balance, or $50,000, whichever is less. However many financial experts similarly advise against tapping a 401(k) before exhausting all other alternatives since you’ll also be forfeiting the power of compound interest.
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At the same time, many households are also leaning heavily on credit cards to make ends meet, other research shows.
Across all ages and income levels, more than one-third of adults have more credit card debt than emergency savings, according to a recent report by Bankrate.
“At a time of record-high credit card rates, we see a record-high number of Americans carrying credit card debt that exceeds their emergency savings,” said Greg McBride, chief financial analyst at Bankrate.
During times of financial stress, it may make sense to borrow from a retirement account, rather than rely on such high-interest debt, according to Fidelity’s Shamrell.
“If you have been in a financial bind and the choice is a high-interest credit card or a loan from your 401(k), sometimes the loan is your optimal choice,” he said.
“But that’s in a time of real financial need,” he added, “not going to your college roommate’s wedding in Napa.”
Unlike credit card and other debt, savers who borrow from their 401(k) pay themselves back with interest. Interest rates are also generally much lower than those of credit cards, which are currently at a record high over 21%.
Don’t miss these stories from CNBC PRO:
The “Golden Bachelor” finally gave away the inaugural golden rose.
(Warning, spoilers ahead.)
Gerry Turner, the 72-year-old first “golden bachelor” in the reality-TV dating franchise, picked the person he “can’t live without” during Thursday’s finale. It was down to two contestants: Theresa Nist and Leslie Fhima.
He ultimately proposed to Nist, a 70-year-old financial services professional who had been married to her late husband, Billy, for more than 40 years, beginning when she was 18 years old.
Turner said during the episode he asked his late wife, Toni, if this was the right thing to do, and he felt confident it would be OK. He and Toni were married for 43 years, before she unexpectedly died from an infection a month after they closed on their “dream” retirement home.
Nist said during the episode she thinks Toni and Billy would be happy for them. “I know how sometimes it feels like the whole world thinks that love is only for the young and, quite honestly, at the age of 70, I was beginning to feel that myself,” she told him before the proposal. “After Billy died, I was at the point where I thought I’m going to live the rest of my life alone, until I met you.”
The show had a live component to it, with past contestants and fans watching along. Host Jesse Palmer interviewed Fhima mid-episode about her experience during the finale, shortly after the episode showed Turner tell her the night before the rose ceremony that he had fallen in love with Nist. “I had this whole life planned for us,” Fhima told Palmer. She later said she had picked out her dress and written her vows.
During the live conversation between Fhima and Turner, she echoed what other contestants have said in the past: that she didn’t know she could love again, and this experience had shown her otherwise. Some of the previous contestants had been married multiple times, and others were in decades-long marriages that ended when their spouses died.
See: ‘The Golden Bachelor’ premieres: ‘How lucky would I be to find a second true love in my lifetime?’
During the live conversation, Palmer also asked Nist and Turner what they had to say to viewers who thought there might be an age limit on love. “If you’re 40, 50, 60 or 90, even if you have one day left to live, if you have love to give, do it.”
Turner was the center of attention on Wednesday, after an exclusive article by the Hollywood Reporter said Turner lied on the show about his dating history. According to the report, he dated numerous women since his wife’s death, and dated one woman for at least three years.
An “Entertainment Tonight” report following up on the bombshell said Turner was open about his dating past with the contestants, citing an unnamed source.
The pair are set to wed on Jan. 4 during a live ceremony on ABC.
The latest drama to unfold in the closely watched artificial intelligence (AI) space has apparently concluded. In what can be seen as a collective sigh of relief, numerous companies involved in the technology saw price bumps in their stocks Wednesday.
Among these was C3.ai (AI 1.02%), which rose for the second day in a row. Its share price crept up by 1%, a rate high enough to beat the S&P 500 index’s 0.4% gain.
Altman fired, then hired, and hired again
That drama, as most people even vaguely aware of the AI industry know by now, was the dismissal and very quick rehiring of OpenAI CEO Sam Altman. Last Friday he was effectively fired by the company’s board of directors and replaced in quick succession by two individuals. On Monday, Microsoft (MSFT 1.28%) hired him to lead a new AI unit at the big company, and the following day he was reinstated as OpenAI CEO.
So Altman’s journey ended up being a circular one, leading to questions as to whether all the smoke and noise really achieved much of anything (save for a reconstituted OpenAI board with two new members).
We’re sure to find out more about what occurred behind the scenes in this rather odd leadership tussle. For now it seems like it’ll be business as usual at OpenAI.
Microsoft versus the minnows
For a minute it appeared the towering Microsoft, with its near-bottomless resources, was suddenly positioned to become an AI powerhouse, too; this is apparently not the case (although the tech giant has invested heavily in OpenAI). After the company announced Altman’s hiring, some market players surely worried that smaller AI fish like C3.ai would be hard-pressed to compete against the giant.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
It’s a bit premature to say that we’ve reached the tail end of 2023, seeing as how we still have a quarter of the year and change to go. In spite of that, many people are starting to get focused on 2024.
Employers are making plans to roll out benefits packages. Employees are making year-end tax-planning lists. And some people are already halfway through their holiday shopping.
Image source: Getty Images.
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What happened
Shares of Credo Technology (CRDO 5.17%) beat the market this week, rising 6% through Thursday trading. That’s as compared to a flat overall market, according to data provided by S&P Global Market Intelligence. The rally added to modest gains for the high-speed data solutions specialist so far in 2023. The stock is up 12%, trailing the S&P 500 index’s rally by just a few percentage points. Yet Credo Technology had been down by as much as 50% earlier in the year.
This week’s rally was sparked by positive news on the earnings front, along with bullish comments from Credo’s management team about demand trends for the rest of its fiscal year.
So what
Management said on Thursday that Q1 sales landed at $35 million for the period that ran through late July. That result translated into a 9% increase year over year and marked a sharp improvement over the prior quarter, when sales were down 15%. Management credited the company’s unique market position, plus increasing demand for high-speed connectivity solutions, for lifting its results.
Results were more mixed around profitability. Credo maintained gross profit margins at 58% of sales, yet its expenses were also elevated. As a result, net losses improved only slightly, shrinking to $12 million in Q1 from $15 million in the prior quarter. Credo’s cash position brightened as well, with cash on the books ticking up to $240 million from $220 million.
Now what
Investors are hopeful that rising demand for generative AI products will lift demand for the types of high-speed, energy-efficient connectivity solutions that Credo provides. The company is also aiming to diversify its business as it grows so that it isn’t too dependent on a small set of customers or product niches.
But the path toward sustainable growth will be a rocky one. Credo projected that sales next quarter will fall to between $42 million and $44 million from $51 million a year ago. Investors can expect continued volatility in this stock while growth rates stabilize. A more sustainable rally in the stock, meanwhile, will also require concrete evidence that Credo is moving toward profitability. Those key ingredients are still missing, and that’s likely a key reason the tech stock is still underperforming the market this year.
Bankrupt crypto lender Celsius is battling a Chapter 11 bankruptcy with billions of dollars in claims made by various parties. A new estimate by the Bank of the Future suggests that the troubled crypto lender could likely repay the claims if the price of Bitcoin (BTC) and Ether (ETH) — two assets held by the firm — doubled their current market prices.
Simon Dixon, the founder of Bank of the Future — a crypto-centered investment firm — tweeted the estimated price BTC and ETH would need to reach for Celsius to repay all its claims and keep all other assets.
Based on the final deal with the Fahrenheit consortium, which won the bid to acquire the assets of Celsius in May, if the BTC price touches $54,879 and the ETH price reaches $3,750, Celsius could repay all claims from the price appreciation of both assets. In June, Celsius appealed in court to convert all its altcoins into Bitcoin and Ether to maximize the value of assets.
Dixon noted that these estimates are based on “imperfect knowledge made by the BF [Bank of the Future] internal investment banking team with no access to privileged information.” The new restructuring plan under Fahrenheit includes mining, institutional loans, investments valued at approximately $1.4 billion and $450 million in liquid crypto.
The firm also shared a comparison between Fahrenheit’s recovery plans and the Blockchain Recovery Investment Consortium (BRIC) — a holding company affiliated with the Winklevoss-owned Gemini Trust — wind-down plans. The total recovery under the orderly wind-down comes to $3.519 billion, which exceeds the total assets available at $3.417 billion. This discrepancy is accounted for by the variable cost.
The return to retail borrowers is approximately $339 million. Bank of the Future estimates suggests the recovery is about 65% for both options, which could increase to about 75%, assuming 10% of claims are unclaimed. 41.4% of recovery under the Fahrenheit plan is in equity, with the remaining 58.6% in liquid crypto. Only 12.4% of recovery under BRIC orderly wind down is in equity, with the remaining 87.6% in liquid crypto.
Related: Celsius adds over 428K stETH to Lido’s lengthening withdrawal queue
Dixon said creditors should fight to get out of the bankruptcy proceedings before the end of 2023, or before the price of BTC and ETH hit the estimated mark. He added that to avoid “another rug pull, we will need to fight hard against it if it comes up.“
It is very important that we get out of Chapter 11 before #Bitcoin & $ETH approach these numbers to avoid another rug pull that we will need to fight hard against if it comes up.
Estimation of the price of #BTC and $ETH (50/50 basis) at which claims may be paid in full: $BTC… pic.twitter.com/PITQV3pIGM
— Simon Dixon (@SimonDixonTwitt) July 19, 2023
Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.
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