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This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Powell the Volckerizer?
Intraday Strategy Edge
July 22: In a recent note, we pointed out that bear-market rallies end suddenly and without catalyst. And the higher stocks move, the less favorable risk/reward becomes. However, given the depth of the peak-to-trough selloff year to date, -24.5%, we see further upside to this rally consistent with past historical “reflex moves”, particularly in growth stocks.
But key to the durability of the advance will be how asset prices react to the FOMC next Wednesday. And only [Federal Reserve Chair] Jay Powell knows (and we suspect that even he doesn’t yet know) which Fed Chair will dominate the mic—a Volckerizer, a Previously Pivoted Powell, or, unlikely, but given the shadow of the global slowdown that has echoes of 1974, it can’t be ruled out, a Blundering Burns.
Julian Emanuel, Michael Chu, Barak Hurvitz
P/Es Below 10-Year Average
Investment Comments
Investor Advisory Service
July 22: With the stock market’s decline, the forward P/E ratio of the
S&P 500
is 16.3, below the five-year average of 18.6 and 10-year average of 17.0. As noted, consensus earnings growth estimates look optimistic, but several high-quality growth stocks, particularly in the technology and consumer discretionary sectors, have fallen by 40% or more.
Doug Gerlach
Small Banks, Big Problem
CSC Strategy Letter
Cove Street Capital
July 21: Roughly 15% of the U.S. economy is in some way tied to residential housing. Interest rates are up and housing affordability has taken another whack. That just won’t be good for GDP. The top 25 banks have roughly a 70% of shareholders’ equity exposed to commercial real estate. They have diversified business models, fee income, and on net benefit from reasonable interest-rate increases.
The next 500 banks by size have roughly 245% of their shareholders’ equity in commercial real estate. Walk into an office building near you and tell me what you see. Now tell me what a commercial real-estate loan up 300 basis points looks like on that math on a refinancing. That is the answer to why we don’t think smaller banks are buyable here en-masse at 1.5 times book value.
Jeffrey Bronchik
Sizing Up the CHIPS Act
UBS House View
UBS
July 21: The U.S. Senate voted 64-34 in favor of advancing the CHIPS Act. This modified bill is aimed at increasing U.S. domestic semiconductor production. This key step will open up a vote for the Senate to pass the CHIPS Act early next week. If passed, it will go to the House of Representatives and then the President for approval. The bill would provide about $52 billion in subsidies and tax credits to bolster U.S. production.
Intel
has lobbied heavily for the passage of the bill following plans for a new $20 billion factory in Ohio.
Taiwan Semiconductor Manufacturing
and
Samsung
,
both of which are building new plants, also have been lobbying Congress to pass the CHIPS Act.
Increased emphasis on domestic semiconductor production is set to continue amid increasing demand and ongoing geopolitical tensions between China and Taiwan, the global leader in semiconductor production. The US CHIPS Act follows a global trend of supporting domestic chip production. The European Commission passed the European Chips Act in May, directing billions of dollars in funding to support local chip production. Chipmakers STMicroelectronics and
GlobalFoundries
have announced plans to build a plant in France and Intel has plans for an $88 billion investment across Europe. Increased chip foundry…
Read More: It’s a Bear-Market Rally. Whether it Lasts Depends on the Fed.