Zacks Industry Outlook Highlights: Ericsson, Nokia, Aviat Networks, QUALCOMM, Juniper Networks and Motorola Solutions


Yahoo Finance 25 June, 2021 - 05:40am 21 views

What time does Jerome Powell speak today?

Chairman of the Federal Reserve Jerome Powell. Fed chair Jerome Powell speaks to the Congressional Select Subcommittee on the Coronavirus Crisis today at 2 p.m. Barron'sFed Chair Jerome Powell Is Testifying Before Congress. What It Means for the Stock Market.

The Zacks Wireless Equipment industry appears to be mired in uncertainties amid continued chip shortage, with large-scale investments to support the transition to 5G, high R&D and raw material costs compounding woes and further eroding margins. In addition, tense bilateral trade relations between the United States and China have rendered a relatively grim picture for the near future.

Nevertheless, EricssonNokia Corp. and Aviat Networks are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products and services with wide proliferation of IoT driven by faster pace of 5G deployment.

The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing and end-to-end enterprise mobility solutions.

The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.

Chip Shortage Eclipsing Digital Sustainability: The coronavirus pandemic has forced the larger American population to seek refuge in the safety of their homes. With the exponential growth of mobile broadband traffic, digital sustainability has become the norm of the day and user demand for coverage speed and quality has increased manifold.

This has resulted in huge demand for advanced networking architecture, in turn, leading service providers to spend more on routers and switches as carriers aim to upgrade their networks to support the surge in home data traffic. Further, to maintain superior performance standards, there is a continuous need for network tuning and optimization, creating demand for state-of-the-art wireless products and services.

However, uncertainty regarding the continued chip shortage and supply chain disruptions extending beyond semiconductors have crippled operations of most firms. This, in turn, has led to acute demand-supply imbalance, as the industry faces essential fiber materials and labor shortage, shipping delays and shortages of containers and other raw materials, affecting the expansion and rollout of new broadband networks.

Extended lead times for basic components have negatively impacted the delivery schedule, prompting several industry groups to urge the government to take immediate corrective actions.

Near-Term Profitability Compromised: The continued deployment of 5G technology across the globe is likely to propel the industry to newer heights. Moreover, 5G is expected to augment the scalability, security and universal mobility of the telecommunications industry, which is expected to propel the wide proliferation of IoT.

The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.

Although these investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by high cost levels associated with the first generation 5G products, profitability challenges in China and pricing pressure in early 5G deals.

Tense Geo-Political Environment: Majority of the industry participants offers mission-critical communication infrastructure, devices, accessories, software and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion as well as additional services to maintain, monitor and manage these complex networks and solutions.

The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. However, paucity of demand due to geopolitical uncertainties and a challenging macroeconomic environment have dented the margins of most industry participants. Intense price wars due to rising costs of raw materials and stiff competition have added to the woes.

High technological obsolescence of most products has also escalated operating costs with continuous investments in R&D. Trade hostilities related to various restrictions by two of the most powerful economic powerhouses of the world have dented the profitability of the industry, and shrouded it in uncertainty. The Biden administration is ratcheting up pressure on China with the FCC giving the final touches to a plan to ban telecommunications products from the communist nation.

The FCC is also likely to revoke its earlier authorization for the use of such equipment on perceived security threats, forcing most schools and local government facilities to replace them. The Congress is further mulling to introduce a bill to prohibit the FCC from reviewing or issuing new equipment licenses to companies on the agency's blacklist, providing an added security layer to foil alleged data intrusion efforts by China-based firms.

The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #186, which places it at the bottom 26% of more than 250 Zacks industries. Some notable firms within the industry are QUALCOMMJuniper Networks and Motorola Solutions.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate.

Before we present a few wireless equipment stocks that are well positioned to outperform the market based on a strong earnings outlook, let's take a look at the industry's recent stock-market performance and valuation picture.

The Zacks Wireless Equipment industry has surpassed the S&P 500 composite over the past year but lagged the broader Zacks Computer and Technology sector.

The industry has gained 43.4% over this period compared with the S&P 500 and sector's rally of 39.6% and 48.1%, respectively.

On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 12.61X compared with the S&P 500's 17.42X. It is also below the sector's trailing-12-month EV/EBITDA of 16.66X.

Over the past five years, the industry has traded as high as 29.98X and as low as 11.6X and at the median of 18.13X.

Ericsson: Founded in 1876 and headquartered in Stockholm, Sweden, Ericsson is a leading provider of communication networks, telecom services and support solutions. This Zacks Rank #3 (Hold) stock has gained 30.6% in the past year compared with the industry's growth of 44.2%. The Zacks Consensus Estimate for the current and next fiscal year earnings has been revised 18.2% and 27.9% upward, respectively, over the past year.

The stock has long-term earnings growth expectation of 9% and delivered an earnings surprise of 22.2%, on average, in the trailing four quarters. To date, Ericsson has secured 139 commercial 5G agreements with unique communication service providers, of which 81 are live networks.

The company is increasingly focusing on 5G system development to capitalize on the upcoming market opportunities. The company believes standardization of 5G is the cornerstone for digitization of industries and broadband. Moreover, Ericsson foresees mainstream 4G offerings to give way to 5G technology in the future.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Nokia Corp.: Headquartered in Espoo, Finland, Nokia is a premier provider of mobile and fixed network solutions worldwide. This Zacks Rank #2 (Buy) stock has gained 13.5% in the past year. The Zacks Consensus Estimate for the current and next fiscal year earnings has been revised 31.8% and 11.1% upward, respectively, since January-end.

The stock has delivered a stellar earnings surprise of 215.2%, on average, in the trailing four quarters.  Nokia is driving the transition of global enterprises into smart virtual networks by creating a single network for all services, converging mobile and fixed broadband, IP routing and optical networks with software and services to manage them.

Nokia facilitates its customers to move away from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency. The company seeks to expand its business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.

It has inked more than 165 commercial 5G contracts across the globe. Accelerated strategy execution, sharpened customer focus and reduced long-term costs are expected to position the company as a global leader in the delivery of end-to-end 5G solutions.

Aviat Networks: Headquartered in Austin, TX, Aviat is a leading provider of communication networks, telecom services and support solutions. This Zacks Rank #2 stock has gained a solid 297.8% in the trailing 12 months. The Zacks Consensus Estimate for current-year earnings has been revised 196.3% upward since June 2020.

The stock has delivered an earnings surprise of 57.3%, on average, in the trailing four quarters. The company is witnessing healthy momentum in its business, courtesy of a multi-million rural broadband contract from Nextlink Internet, one of several top RDOF award recipients, as well as a significant deal in mobile 5G with a U.S.-based Tier 1 operator for microwave transport. In addition, with the replacement of Huawei gear, Aviat has reportedly emerged as the only U.S.-based supplier of microwave transport infrastructure.

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.

Nokia American depositary receipts have been far underperforming those of Ericsson, but Nokia could be set to rebound.

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Investors can no longer take low interest rates for granted

The Economist 25 June, 2021 - 07:00pm

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The Fed’s future interest-rate decisions can suddenly be counted among the many unknowns hanging over the economy as it recovers from the pandemic. Already on the list were the impact of new variants of the virus, the fate of President Joe Biden’s infrastructure plan, the pace at which consumers will spend the savings they have accumulated during the crisis, and the persistence of the bottlenecks that are disrupting supply chains and labour markets. When Fed policy seemed to be set in stone, investors’ evolving views on these puzzles were straightforwardly reflected in their expectations for growth and inflation. Now they must also weigh the possibility that the Fed may step in to forestall overheating by raising rates sooner.

The Fed’s shift appears to have been prompted by the realisation that inflation next year will be higher than it had expected. In the three months to May core consumer prices, which exclude food and energy, rose at an annualised rate of 8.3%, the highest since Paul Volcker was waging war on inflation in the early 1980s. The central bank expects price pressures to subside rapidly. They will leave a mark on future monetary policy even so.

The Fed targets inflation that averages 2% over the whole economic cycle, and higher inflation today is already offsetting the slump in prices in the depths of the crisis. The central bank expects its preferred measure of prices to be 3.4% higher at the end of 2021 than a year earlier—or 0.6% higher than it would have been had inflation been on target since the end of 2019. Count from August 2020, when average-inflation targeting was introduced, and the price overshoot will be 1.2%.

The Fed’s change of tune is therefore welcome. Because inflation expectations can be self-fulfilling, a public reminder that the Fed does not want the price surge to get out of hand reduces the chance that it will. A gradual adjustment today also reduces the probability of a panicky spike in bond yields tomorrow, helping avoid a “taper tantrum” like the one in 2013 after the Fed said it would buy fewer bonds.

Jerome Powell, the Fed’s chairman, is striking the right balance between avoiding such a mistake and recognising that the central bank’s job is to hit its economic targets, not to guarantee the tranquillity of financial markets. He could do better still by making the Fed’s frustratingly vague average-inflation target clearer.

More disturbing is the poor quality of the central bank’s forecasts. The Fed has dropped clangers for two straight years, underestimating the jobs rebound in 2020 and being caught out by inflation now. Further surprises are likely. The risk of higher inflation looms particularly large. True, the prices of some commodities, such as copper, have fallen from the peaks seen in May—and they have fallen further since the Fed meeting. But uncertainty in bond markets has risen, oil prices are still going up and many forecasters, including Fed officials, worry that higher inflation may persist into 2022.

It has become clearer that monetary policy will respond to higher inflation, as it should. But that means interest rates—and therefore asset prices—will reflect more of the uncertainty that bedevils the economic outlook.

This article appeared in the Leaders section of the print edition under the headline "New horizons"

Top Federal Reserve officials ADMIT that inflation surge may last longer than anticipated

Daily Mail 25 June, 2021 - 02:11pm

By Keith Griffith For

A period of high inflation in the United States may last longer than anticipated, two U.S. Federal Reserve officials admitted on Wednesday, just a day after Fed Chair Jerome Powell continued to play down soaring prices.

The admissions follow data showing inflation hit 5 percent in May, the highest annual rate since 2008, putting pressure on the Fed to raise interest rates and stop flooding the economy with money through bond purchases. 

From the cereal maker General Mills to Chipotle Mexican Grill and paint maker Sherwin-Williams, a range of companies have been jacking up prices, in some cases to make up for higher wages that they're now paying to keep or attract workers.  

Atlanta Fed President Raphael Bostic said with growth surging to an estimated 7 percent this year and inflation well above the Fed's 2 percent target, he now expects near-zero interest rates will need to rise in late 2022.

Fed Chair Jerome Powell continued to play down soaring prices, but other officials say that the inflation trend could persist

'Given the upside surprise in recent data points I pulled forward my projection,' Bostic said, placing him among seven Fed policymakers who at the central bank's meeting last week projected the overnight policy rate may need to lift from the current near zero level sometime next year.

That marked a decisive shift from the end of 2020, when 12 Fed policymakers felt that crisis levels of interest rates would need to remain in place into 2024.

Both Bostic and Fed Governor Michelle Bowman on Wednesday said that while they largely agree recent price increases will prove temporary, they also feel it may take longer than anticipated for them to fade.

'Temporary is going to be a little longer than we expected initially ... Rather than it being two to three months it may be six to nine months,' Bostic said in an interview on National Public Radio's 'Morning Edition.' 

Prices for goods like lumber and used cars have pushed some measures of inflation to multi-year highs, with the consumer price index showing a 5 percent annualized increase in May, the fastest since 2008. 

Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman on Wednesday said that it may take longer than anticipated for high inflation to fade

Republican Rep. Steve Scalise grills Powell on inflation at a hearing earlier this week

'The inflation pressure we're seeing is significant,' General Mills CEO Jeff Harmening said at a recent investor conference. 'It's probably higher than we've seen in the last decade.'

The company, which makes such cereals as Honey Nut Cheerios, Lucky Charms, and Trix, has said it's considering raising prices on its products because grain, sugar and other ingredients have become costlier. 

Hormel Foods has already increased prices for Skippy peanut butter. Coca-Cola has said it expects to raise prices to offset higher costs.

Kimberly-Clark, which makes Kleenex and Scott toilet paper, said it will be raising prices on about 60 percent of its products. Proctor & Gamble has said it will raise prices for its baby, feminine and adult care products.

Chipotle Mexican Grill announced this month it was boosting menu prices by roughly 4 percent to cover the cost of raising its workers´ wages to an average of $15 an hour.  

Though some prices have begun to ease already, the higher prices have registered among elected officials, and forced the Fed to begin thinking about how to ensure prices do not spiral too high or too fast.

Bowman in remarks to a Cleveland Federal Reserve bank conference said she agrees prices are being driven by clogged supply chains and surging demand as the economy reopens, factors that should ease.

But she put no time frame around when that might happen, saying that 'it could take some time,' and would need to be closely watched as the Fed sets policy.

Powell and other policymakers have staked their current outlook on a presumption that the surge in prices seen as the economy reopened would ease on its own, allowing the Fed to hit its 2 percent inflation target on average over time.

Shown are meat products at a grocery store in Roslyn, Pennsylvania earlier this month. Consumers are facing higher prices and fear that inflation will continue to rise

Gas prices are displayed at a Chevron station on June 14 in Los Angeles. Gas prices are up 56% from a year ago in another worrying signal for consumers

Powell told a U.S. congressional committee on Tuesday that recent high inflation readings resulted from a 'perfect storm' of circumstances related to the reopening, and would abate.

How quickly that happens, however, may influence the Fed's upcoming decisions about when to begin reducing its $120 billion in monthly bond purchases, and eventually raise interest rates.

Boston Fed President Eric Rosengren said on Wednesday that he expects inflation to come down and be slightly above 2% going into next year.

Bostic said that 'three or four months' of continued job gains should yield enough progress in the recovery of employment to consider pulling back on the bond purchases, a precursor in his view to raising rates.

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Is the Fed Getting Burned Again? | by John B. Taylor - Project Syndicate

Project Syndicate 25 June, 2021 - 02:11pm

STANFORD – Fifty years ago, on June 22, 1971, US Federal Reserve Chair Arthur Burns wrote a memorandum to President Richard Nixon that will long live in infamy. Inflation was picking up, and Burns wanted the White House to understand that the price surge was not due to monetary policy or to any action that the Fed had taken under his leadership. The issue, rather, was that “the structure of the economy [had] changed profoundly.” Accordingly, Burns was writing to recommend “a strong wage and price policy”:

Perhaps owing to Burns’s reputation as a renowned scholar (he was Milton Friedman’s teacher) and his long experience as a policymaker, the memo convinced Nixon to proceed with a wage and price freeze, and to follow that up with a policy of wage and price controls and guidelines for the entire economy. For a time after the freeze was implemented, the controls and guidelines seemed to be working. They were even politically popular for a brief period. Inflation inched down, and the freeze was followed by more compulsory controls requiring firms to get permission from a commission to change wages and prices.

But the intrusive nature of the system began to wear on people and the economy because every price increase had to be approved by a federal government bureaucracy. Moreover, it soon became obvious that the government controls and interventions were making matters worse.

Ignoring its responsibility to keep inflation low, the Fed had started letting the money supply increase faster, with the annual growth rate of M2 (a measure of cash, deposits, and highly liquid assets) averaging 10% in the 1970s, up from 7% in the 1960s. This compounded the impact of the decade’s oil shocks on the price level, and the inflation rate shot into double digits – rising above 12% three times (first in 1974 and then again in 1979 and 1980) – while the unemployment rate rose from 5.9% in June 1971 to 9% in 1975.

As we know now, the US economy’s performance in the 1970s was very poor owing at least partly to that era’s monetary policies. This was when the word “stagflation” was coined to describe a strange mix of rising inflation and stagnant economic growth. As James A. Dorn of the Cato Institute recently recounted, Nixon’s “price controls went on to distort market prices” and are rightly remembered as a cautionary tale. “We should not forget that the loss of economic freedom is a high price to pay for a false promise to end inflation by suppressing market forces” (emphasis mine).

As it happens, Choose Economic Freedomis the title of a book that I published last year with George P. Shultz, who passed away in February at the age of 100. Schultz had gained decades of wisdom and experience as both a diplomat and economic policymaker, serving as the Nixon administration’s budget director when Burns wrote his audacious memo. In an appendix to our book, we included the full text of that document, because it had only recently been discovered in the Hoover Institution archives. It should now be recognized as required reading for anyone seeking to understand the recent history of US economic policymaking.

The Burns memo is a perfect example of how bad ideas lead to bad policies, which in turn lead to bad economic outcomes. Despite Burns’s extraordinary reputation, his memo conveyed a set of terrible policy recommendations. By blaming everything on putative structural defects supposedly afflicting the entire economy, the memo’s worst effect was to shun the Fed’s responsibility for controlling inflation, even though it was clearly responsible for the rising price level.

By the same token, good ideas lead to good policy and good economic performance. As Schultz and I showed, this was certainly the case in the 1980s. The Fed reasserted itself as part of a broader economic reform, and the economy duly boomed.

The message from this historical experience – and many other examples in the United States and elsewhere – should be abundantly clear. And while history never repeats itself, it often rhymes, so consider where we are midway through 2021: inflation is picking up, and the Fed is once again claiming that it is not responsible for that development. Instead, Fed officials argue that today’s surge in prices merely reflects the bounce back from the low inflation of the last year.

Worse, the Fed’s policy is even more interventionist now than it was in Burns’s day. Its balance sheet has exploded from massive purchases of Treasury bonds and mortgage-backed securities, and the growth rate of M2 has risen sharply over the past year. The federal funds interest rate is now lower than virtually any tested monetary policy rule or strategy suggests it should be, including those listed on page 48 of the Fed’s own February 2021 Monetary Policy Report.

It is not too late to learn from past mistakes and turn monetary policy into the handmaiden of a sustained recovery from the pandemic. But time is running out.

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The Fed's Commentary Is Moving the Market -- How Investors Should Respond

Rapid City Journal 25 June, 2021 - 02:11pm

The stock market got a bit choppy after the Federal Reserve's press conference on June 16. The VIX jumped up while major stock indexes dropped following the central bank's commentary. This big market move comes without any major company-specific news or new economic indicators. For the time being, the No. 1 force impacting your equity portfolio is monetary policy.

We know for certain that investors are closely watching the Fed. As talk ramps up about inflation, recovery, tapering, and rate hikes, you should take the necessary steps to ensure that your portfolio can thrive no matter what happens.

The Fed changed its tune slightly in June, which caught the market's attention in a big way. The central bank raised its previous forecasts for both economic growth and inflation for the remainder of 2021. Even more importantly, Chairman Powell indicated that they were pulling forward their timeline for raising interest rates. The Fed previously stated that rate hikes wouldn't be discussed until 2024. Now they are prepared to take action a full year earlier, if necessary.

This is welcome language for investors who are worried about price inflation and charging asset prices. It was the central bank's strongest recognition of inflationary pressures since the pandemic started. Still, the Fed's Open Market Committee (FOMC) release confirmed that monetary policy and implementation wouldn't change for now. They were also very clear to point out that they expect inflation to fall next year, and that certain industries and demographic groups remain deeply impacted by the pandemic.

While the recovery is well under way, it's not complete. There's still uncertainty as we normalize and rebuild. The Fed is leaving its options open as it monitors progress.

It might seem odd that investors were influenced so acutely by an announcement that the Fed might make slow, modest adjustments to policy in two years rather than three. It's hard to say that any meaningful changes have been made to the revenue and profit outlook for stocks you own. It might seem odd, but the fuss is really about where capital will flow when a rate hike occurs.

Rising interest rates will have two immediate impacts. First, Treasuries and other low-risk bonds will have higher yields. Investors will jump at the new opportunity to get improved returns without the risks posed by equities. Some capital will flow away from the stock market as a result. Second, businesses will no longer receive the same direct support from monetary policy. This might not actually impact the majority of companies, which should be able to survive on a fundamentally strong economy. However, it will still plant a seed of concern in some investors, again causing less capital to flow into the stock market.

Those dynamics should cause a modest, temporary downward adjustment in stock prices. However, investors are aware of this ahead of time, so many will try to adjust their portfolios in anticipation of the market's reaction. Don't want to be caught holding high-valuation growth stocks when a mini bear market starts? The obvious solution for active traders is to sell them to move into cash and less volatile stocks. They can then purchase bonds at higher interest rates or get back into stocks after their prices drop.

This knock-on effect of rate tightening just exaggerates the situation. The Fed raising rates should be a signal that the economy is strong. Gradually rising interest rates shouldn't hurt businesses in any meaningful way. The whole disturbance is a short-term reaction in capital markets, with traders looking to capitalize on those adjustments. That's important to recognize if you're a long-term, fundamental investor.

So how do we build an investment strategy that's set up to handle all of this disturbance from monetary policy?

The first step is to prepare yourself for inevitable volatility (and the probable market dip). If the Fed gets its way, then they'll be able to raise rates without much impact on stock prices. They'll hope that good economic news and corporate financial results will be so strong that higher interest rates won't matter. Stock indexes are at all-time highs thanks to charging valuations. We're almost definitely counting down to a small market downturn, and last week's reaction to the Fed announcement is evidence of that. Make sure that you're emotionally prepared for a dip, and don't make any panicked decisions when that day comes. Be ready to ride this out for the long term, because this interference will be temporary.

It's also a great time to review your allocation. If your whole portfolio is composed of growth stocks, then congratulations on the great returns you've enjoyed over the past 15 months. It might be a good time to take some of those gains and redeploy them into stable value stocks or Dividend Aristocrats. If you have a short investment time horizon, make sure your portfolio has the right allocation of bonds. That refers specifically to retirees and people approaching retirement. Don't expose yourself to too much volatility.

This isn't to say that you should get away from growth stocks entirely. It might take more than a year for the next "taper tantrum" to occur. It might not even be a large drop, depending on how things shake out. That's why it's safe to cover all your bases. If you're a long-term investor who prioritizes growth, you might not need any adjustments at all. Just be ready to ride out the storm.

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Lack of follow-up questions, serious economic analysis missing by national media

Norfolk Daily News 25 June, 2021 - 02:11pm

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Earlier this week, Federal Reserve Chairman Jerome Powell responded to concerns from Republican lawmakers about spiking inflation by reiterating his view that current price increases will likely prove temporary.

Consumer prices jumped 5% in May compared with a year earlier, the largest increase in 13 years. The Associated Press, ABC and other news outlets framed the increase as Republican congressmen are trying to blame higher inflation on President Joe Biden’s $1.9 trillion economic relief package.

Do these reporters think that it is possible — just maybe — that the biggest economic stimulus in history of $1.9 trillion might cause inflation? Might this be an actual observation by Republicans and not twisted to try to make it look like it is a political ploy to discredit the president? This is all new money getting pumped into an economy without production. Much of the money has been transfers to people not working. That results in increased demand without increased production. Most entry-level economic classes teach that increased demand of goods without increased supply of goods causes inflation in a capitalist society.

Lumber, steel, new and used cars and pickups, new and existing houses and many food items are some of the items at record high prices in 2021. Gasoline prices have soared, which is felt through all levels of the economy and acts as another amplifier of prices. Remember the gas shortages of the 1970s and early 1980s and how that added to inflation?

And some products, such as chicken and chicken wings, have been in such short supply or unavailable that restaurants have had to close.

Moreover, the federal government spending may not be finished. President Joe Biden has proposed $5 trillion in new federal spending over the next decade as part of his fiscal year 2022 budget request. The new spending would include a bigger social safety net for lower incomes and modernizing America’s “infrastructure,” although there seems to be some new definitions of what infrastructure includes.

The bottom line is no reporters seem to be asking the hard questions, including how can there be not just record setting — but off-the-charts spending — without any matches of increased production to stem inflation?

This is basic economics. It is like trying to have increased profits without increased production. Someone is going to get squeezed when dollars lose value.

Yet so many reporters in the national media seem to be more interested in protecting the president rather than asking hard questions to find truth. Don’t be surprised when inflation soars past the 2.5 percent predicted for this year, even though few media outlets are willing to report it is likely to happen or provide any common sense analysis.

MADISON — Oh happy day! “Juneteenth,” our new federal holiday!

Once dismissed as a conspiracy theory, the idea that the COVID-19 virus escaped from a Chinese lab is gaining high-profile attention — including from President Joe Biden, who has called for an investigation into the origins of the virus.

Joe Biden was elected president and soon enough reversed Donald Trump’s reduction of illegal southern border crossings to the point that we now have the highest influx in 20 years. The human suffering has been excruciating, the publicity has been poisonous and so Biden walked away from the p…

Earlier this week, Federal Reserve Chairman Jerome Powell responded to concerns from Republican lawmakers about spiking inflation by reiterating his view that current price increases will likely prove temporary.

CLARKSON — I would like to thank the Norfolk Rotary Club and all the supporting businesses and individuals who started out the Music in the Park series with the 34th Army Band. It was my first time coming to your music series and I enjoyed it greatly.

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It’s probably safe to say that, for the longest time, “wokeness” wasn’t a word that many Northeast and North Central Nebraskans used in conversation. Certainly not on a daily basis.

Market Pulse: On inflation and the market

Tahoe Daily Tribune 25 June, 2021 - 06:58am

The focus these past two weeks has been on Jerome Powell’s comments about inflation prospects and future rates. In short, the Fed sees more inflation than earlier thought and it sees rates rising sooner.

The Fed will give the market a heads-up well ahead of any change in asset purchases (the so-called tapering) or a boost in rates. Powell and the Fed now expect two rate increases late in 2023, a bit sooner than earlier forecast. There were seven members of the Open Market Committee who expect the first rate boost next year due to rising inflation.

The Fed is either making a policy mistake of historic proportions or years of modest inflation will prove Powell right in keeping rates low and buying Treasurys. This could go either way. For now I’ll assume Powell will be right about inflation being a temporary affair.

The Fed’s credibility is at stake. Today’s monetary and fiscal policies are appropriate for a recession. Expand the money supply and run deficits in the trillions. But we are not in a recession. On the contrary, GDP has grown. The fly in this ointment is called inflation.

Visit the supermarket, pharmacy, car dealerships and stores of all kinds and you’ll see rising prices. They are also rising for services. No one should be surprised. The Treasury and Fed have been pumping trillions into the system to boost demand while supply is being inhibited by supply chain issues and shipping bottlenecks. Too much money chasing too few goods defines inflation (thank you Milton Friedman).

Investors seem unconcerned about inflation. The 10-year Treasury, a good proxy for inflation expectations, yields 1.48%. Junk-bond yields hit a record low this week as investors are taking more and more risk to nail down lower and lower yields. Stock indexes are near their all-time highs.

The market’s best values continue to be among energy (like Kinder Morgan), financial and materials stocks. I also like some healthcare stocks, especially those with good yields and dividend growth (Merck, Amgen and Pfizer, for example). For growth investors, I like Zoom Video Communications (ZM).

Thanks to the vaccines we came out of the recession sooner than most expected and earnings growth will be almost without precedent this year. Stocks will set new highs in zig-zag fashion with modest swoons from time to time.

The catalyst for higher prices will be the one I mentioned last year and often before. Money has to go somewhere, and for the foreseeable future by far the most attractive asset class will be stocks. Nothing Mr. Powell and the Fed can do will change that anytime soon.

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Asian shares up as U.S. infrastructure bill lifts S&P to a record

Reuters 24 June, 2021 - 09:41pm

Investors have been looking to an infrastructure agreement to extend the recovery in the world's largest economy after massive fiscal stimulus helped the U.S. economy grow at a 6.4% annualized rate in the first quarter. read more

In morning trade, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) climbed 0.58%.

"The positive market tone recognizes the potential growth benefits of the compromise, but with the smaller size tempering some of the tax implications to pay for it," said Kerry Craig, global market strategist at J.P. Morgan Asset Management.

Securing bipartisan agreement on the deal required Biden to sacrifice some of his original ambitions on schools, climate change mitigation, and support for parents and caregivers, as well as tax increases on the rich and corporations. read more

"We continue to expect progress on further fiscal stimulus in the months to come and the larger size of those packages will likely necessitate rising taxes, especially if they come via the U.S. Congressional budget reconciliation process rather than partisan support," said Craig.

Chinese blue-chips (.CSI300) rose 0.43%, Hong Kong's Hang Seng (.HSI) added 0.61%, Seoul's Kospi (.KS11) was up 0.79% and Australian shares (.AXJO) climbed 0.22%. Japan's Nikkei (.N225) rose 0.59%.

Asian stocks rebounded after falling earlier in the week amid concerns of earlier-than-expected policy tightening by the U.S. Federal Reserve, after it signalled higher rates in 2023 last week.

"The reality remains that the timing of any tapering scare, or indeed tapering, is most likely to be driven by market-driven inflation expectations. And the pressure on this front has eased of late," Christopher Wood, global head of equity strategy at Jefferies, said in a note.

Overnight, the S&P 500 (.SPX) gained 0.58% and the Nasdaq Composite (.IXIC) added 0.69%, lifting both indexes to record high closes. The Dow Jones Industrial Average (.DJI) rose 0.95%.

In the currency market, the dollar index was down about 0.1% at 91.762 as investors continued to mull over the likelihood of Fed tightening in the face of persistent inflation.

The Japanese yen was slightly weaker at 110.90 and the euro edged up 0.08% to $1.1940.

Benchmark 10-year U.S. Treasuries , which saw yields dip after Biden's announcement of an infrastructure bill were last at 1.497%, up from a close of 1.487% on Thursday.

Yields on the 30-year bond rose to 2.1062% from 2.095% on Thursday.

Oil prices climbed to near three-year highs, supported by drawdowns in U.S. inventories and accelerating German economic activity, with U.S. West Texas Intermediate crude rising 0.29% to $73.51 per barrel and global benchmark Brent crude at $75.77, up 0.28% on the day.

Spot gold was up 0.11% at $1,777.07 an ounce.

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Thousands of workers in Iran's energy sector have held protests for better wages and working conditions in southern gas fields and some refineries in big cities, according to Iranian news agencies and social media postings.

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Powell Didn&rsquo;t Come To Gold&rsquo;s Rescue: What Now? | 24 June, 2021 - 04:18pm

Fed Chair Jerome Powell’s testimony to Congress failed in generating a rebound in gold prices; thus, the bearish trend could continue.

On Tuesday (June 22), Powell testified before the Select Subcommittee on the Coronavirus Crisis, U.S. House of Representatives. Before Powell’s appearance in Congress, there were some hopes that he would soften the Fed’s hawkish signals from the previous week. However, these hopes only partially materialized.

This is because Powell’s testimony was basically a confirmation of the last FOMC meeting. In particular, he reiterated the view that higher inflation would be transitory, as “a substantial part or perhaps all of the overshoot in inflation are from categories directly affected by reopening.”

Actually, some of his remarks were quite hawkish, as he said that the price pressures “don't speak to a broadly tight economy, but these effects have been larger and may persist longer than expected.” The admission that strong inflationary pressure could last longer than expected suggests that Powell is more worried about inflation than several months ago. He even explicitly admitted that “5% inflation is not acceptable.”

Luckily for the gold bulls, there were also some dovish comments. In particular, Powell said that the Fed wouldn’t hike the federal funds rates too quickly based only on inflationary worries:

Of course, it doesn’t make any sense, as actual inflation is already 5%, more than twice the target, and the Fed hasn’t reacted. The U.S. central bank remains passive because it believes that inflation will prove to be transitory. However, it means that it actually acts based on expectations, not the current data, contrary to what the Fed is saying when justifying its ultra-dovish stance.

And Atlanta Fed President Raphael Bostic also sent some dovish signals in an interview with National Public Radio’s Morning Edition he gave the next day after Powell’s testimony. He adhered to the view about temporary inflation, but he explained that the time horizon of this temporariness would be longer than previously thought:

However, Bostic didn’t mention the necessity to hike in the face of prolonged high inflation. On the contrary, he pointed out that the Fed shouldn’t announce the victory in the jobs battle too quickly: “We have to make sure our policies don't pivot in ways that make it look like we are declaring victory prematurely.”

What does all this mean for the yellow metal? Well, theoretically, more lasting high inflation with unchanged dovish stance of the US central bank should be positive for gold prices, as an unresponsive Fed implies lower real interest rates, which usually support the yellow metal.

However, gold hardly reacted to either Powell’s or Bostic’s comments. As the chart below shows, contrary to some hopes, Powell’s testimony failed in sending strong dovish signals that would be able to overwrite the hawkish turmoil triggered by the recent dot plot. So, there was no rebound in gold prices. Instead, the price of the yellow metal merely stabilized at about $1,775.

The lack of any rebound is a bad sign, indicating gold’s weakness (especially given that some other assets rebounded a bit this week after the post-FOMC turmoil). This suggests that gold prices have room for further declines. It seems that gold would need a very dovish surprise from the Fed to go the other way, which is not likely without some kind of economic crisis or at least an influx of significantly negative economic data.

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