Research Reports

Economy Chugging but Possibly Slowing as Earnings Season Approaches

The MOVE Index, which is a gauge of fear in the bond market, has jumped to decade highs in the past two weeks, this as U.S. banks have failed, bank rescues around the globe have materialized, and questions about the future abound. The MOVE Index is also known as the Merrill Lynch Option Volatility Index. It is a yield-curve weighted index of the normalized implied volatility on one-month Treasury options that are weighted on the two-, five-, 10-, and 30-year contracts over the next 30 days. Over the past 10 years, the average reading of the MOVE Index has been about 70. Two weeks ago, as SVB Financial was failing, the index jumped to 180. It "settled" last week at 174. Meanwhile, the 10-year Treasury bond yield has fallen from 4.07% at the beginning of the month to 3.38%. The high reading on the MOVE Index signals that investors are unclear about the next direction for the 10-year yield. In the equity markets, the VIX Volatility Index also is elevated compared to the pre-pandemic period, but this index has fallen -- indicating that investors have grown more confident over the past two weeks. Even so, the current VIX reading of 21.7 is well above the 11-12 level that prevailed in the prior decade. Investors have numerous issue about which to worry, ranging from the war in Europe, to stubborn inflation, to higher interest rates, and to uncertainty about the Federal Reserve's next steps. Given the widespread risks in the marketplace, we think investors should focus on well-managed companies with clear growth objectives and clean balance sheets.

The stock market held up again last week, despite additional bearish news about the global banking system. This time, Europe imploded (after already having booked a nasty decline). Indeed, once contagion starts, it generally does not stop on a dime -- but rather continues down an increasingly negative path.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

Stocks are rebounding Tuesday morning with fears over a contagion in the banking sector subsiding and investors now preparing for another rate hike again as inflation remains above long-term averages. The February Consumer Price Index (CPI) showed overall prices rising 0.4% last month, meeting expectations and down slightly from the 0.5% rise in January. Core consumer prices (excluding food and energy) increased 0.5% which was higher than the expected repeat of a 0.4% jump. The S&P 500 is up 1.9%, the Dow is up 1.4%, the Nasdaq is up 2%, and the Russell 2000 is up 3%. Crude oil traded near $74 per barrel, while gold fell $6 to $1910 per ounce.

Stocks were lower Monday morning but retraced their losses by midday. Investors are bracing for consumer and producer inflation readings due Tuesday and Wednesday, respectively while navigating contagion fears. Notably, First Republic Bank (FRC) plunged 67.65% and was halted due to the fallout of Silicon Valley Bank as investors fear contagion to regional banks despite regulators stepping in. The Dow rose 0.8%, the S&P 0.8%, and the Nasdaq 1.4%. Crude oil fell 0.8% to $76 per barrel, while gold rose $49 to $1916 per ounce.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Stocks fell sharply on Tuesday morning after Fed Chair Jerome Powell, testifying before Congress, said that interest rates were likely to rise more than previously expected. Mr. Powell said that the process of lowering inflation still had 'a long way to go' to reach the Fed's target rate of 2% and that it was likely to be 'bumpy.' The Dow fell 1.2%, the S&P 1.1%, and the Nasdaq 0.8%. Crude oil fell nearly 3% to $78 per barrel, while gold dropped $31 to trade near $1824 per ounce.

Stocks rose on Thursday afternoon, recovering from early losses despite more hot inflation data. In Europe, the EU statistics agency said that Eurozone consumer prices rose at an 8.5% annualized rate in February, down slightly from January but above the consensus forecast of 8.2% growth. Core inflation, excluding food and energy prices, also rose from the prior month. The report set the stage for further aggressive rate hikes from the ECB, including a likely 50-basis-point hike on March 16. In the U.S., weekly jobless claims were lower than expected, and remained below 200,000 for the seventh straight week. The Labor Department also said that 4Q unit labor costs rose at a 3.2% rate from the prior quarter, up from its initial estimate of 1.1% growth. On the earnings front, Salesforce was a bright spot. Salesforce shares jumped more than 11% after the company reported better-than-expected fiscal 4Q23 results and issued strong guidance for FY24. The Dow rose 1.05%, the S&P 0.76%, and the Nasdaq 0.73%. Crude oil traded near $78 per barrel, while gold rose slightly to $1842 per ounce.

The stock market has pretty much been dancing to the bond market's tune in 2023. Bond yields decline, and stocks rise as they did in January. Bond yields rise, and stocks fall as they have done in February. Investors may be 'getting used to' higher rates, because stocks have held a portion of their January gains even with the return of interest rates to the beginning-of-year-levels.