There’s a mystery developing in markets.
The technology-heavy Nasdaq Composite has typically underperformed as interest rate expectations have risen over the past year or so. Not anymore, it seems.
The Nasdaq continues to outperform, and is now 15% up in 2023, despite an almost daily delivery of data suggesting the Federal Reserve’s work is far from done.
Retail sales Wednesday, which jumped 3%, were the latest example, adding to January’s blowout jobs report and a smaller-than-expected fall in inflation.
There’s a chance the market is simply ignoring the data and thinks the Fed will, too. But the bond market is pricing in further hikes, suggesting the market is taking the economic reports seriously. The yield on the 10-year Treasury ended at 3.8% Wednesday—its highest close of the year—while two-year yields are up at 4.6%, from 4.1% at the start of February.
Is the bond market seeing things differently from the stock market, or is there something else going on?
Maybe it’s a risky asset thing. It’s a similar story for cryptocurrencies—which have also typically fallen amid the prospect of higher rates. The price of Bitcoin is up close to 50% so far this year, nearing $25,000 late Wednesday, admittedly from a low base.
That’s in spite of a series of negative headlines surrounding the sector, perhaps even more so than usual. Berkshire Hathaway’s Charlie Munger gave crypto another severe dressing down and the Securities and Exchange Commission is showing its teeth.
After a dismal 2022 for tech stocks and cryptos, maybe there’s an element of relief in the diminishing chances of a recession, and a desire to believe that this year will be better.
But there’s still a real conundrum.
*** Join Financial News crypto-fintech correspondent Alex Daniel today at noon when he talks with LMAX Group boss David Mercer about the prospects for crypto at this pivotal point in its evolution. The trading firm launched its institutional crypto offering, LMAX Digital, in 2018. Will the crypto crash prove to be terminal, or do digital assets have a future as part of the broader financial ecosystem? Sign up here.
Try your hand at this morning’s Barron’s crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.
Cisco Earnings a Ray of Sunshine Amid Bleak Tech Winter
beat expectations for its fiscal second quarter and provided an upbeat outlook, making it an exception in a sector that has been battered by inflation. The strong report and surprising forecast should boost sentiment on the outlook for enterprise technology spending for 2023. Shares jumped 6% after hours.
- Revenue rose 7% from one year earlier, in line with expectations but higher than Cisco’s own guidance. Adjusted profit of 88 cents beat expectations, and adjusted gross margin of 63.9% was at the top end of the company’s range.
- For the fiscal third quarter, Cisco projects revenue growth of 11% to 13%, well above the Wall Street forecast and accelerating from the second quarter. Adjusted per-share profit is forecast for 96 cents to 98 cents. The company expects GAAP profit of 74 cents to 79 cents a share.
- Cisco’s product revenue rose 9% in the fiscal second quarter, while service revenue rose 2%. It saw particularly strong growth in its core networking business, rising 14% from a year ago. Customers are still spending on cloud, artificial intelligence and hybrid work tools, it said.
- Cisco raised its regular quarterly dividend by a penny a share to 39 cents. The company bought back $1.3 billion of common stock in the quarter.
What’s Next: Supply-chain constraints are easing. For the fiscal year ending in July, Cisco sees revenue increasing between 9% and 10.5%, more than earlier guidance. It raised its forecast for full-year adjusted profit to $3.73 to $3.78 a share.
—Eric J. Savitz and Liz Moyer
Berkshire Hathaway’s Charlie Munger Calls Stock ‘Damn Good Bet’
Vice Chairman and former
chairman Charlie Munger said at the publishing and technology company’s annual meeting that Berkshire stock is a “pretty damn good bet, and he wouldn’t count on a break up of Warren Buffett’s conglomerate soon.
- Munger said: “I don’t think it’s at all likely that it will be broken up for a long, long time.” Buffett opposed breaking up Berkshire. Barron’s recently wrote that shareholders could benefit because the sum of Berkshire’s parts could be worth more than the stock price.
Munger, a longtime
director, praised Berkshire’s competitive advantage but acknowledged its high valuation. The stock trades for 40 times trailing earnings in its fiscal year that ended in August 2022.
- A longtime cryptocurrency critic, Munger said China’s President Xi Jinping was right to ban digital currencies. As for the U.S., “so many people believe in this crap, and the government allows it.” He called those advocating for cryptocurrencies “idiots.”
- On longevity, Munger, who is 99, said he doesn’t exercise “on purpose,” saying the only time he did was when he was forced to do so in the Army. “This is the key to longevity,” Munger said, munching on See’s Candies peanut brittle. The company is owned by Berkshire.
- Munger also said artificial intelligence is “not going to cure cancer,” and he called California unfriendly to business because of high state and local income taxes. He opposes President Joe Biden’s proposal to raise the tax on stock buybacks to 4% from the current 1%, adding that he’s a Republican.
What’s Next: Investors will be able to assess Berkshire’s benefits for themselves on Feb. 25, when the company releases Warren Buffett’s shareholder letter, which shows the top 15 equity positions and their cost basis.
—Andrew Bary and Janet H. Cho
Boeing Under Pressure as Rival Airbus Boosts Popular Models
Airbus is ramping up production of two of its more popular airplane models, putting pressure on U.S. rival Boeing as international air travel continues to recover from the Covid-19 pandemic.
- Airbus said it would be making nine of its wide-body A350 model airplanes a month by 2025, up from six currently. It will start making four of its smaller A330neo jets each month starting in 2024, up from three now.
- Airbus also reported a 1% increase in earnings and said it would raise its dividend by 20%. Its shares were rising in early Paris trading.
- Both Airbus and Boeing got a boost this week as Air India announced a deal to buy 470 jets, a record commercial order from any single airline. The provisional agreements are for 220 planes from Boeing and 250 from Airbus over the coming years.
What’s Next: For this year, Airbus is sticking to its goal to deliver 720 aircraft, the same as last year when it only managed 661.Both Airbus and Boeing failed to hit production targets in 2022 amid supply-chain troubles.
CBO Projects Debt Ceiling Crunch Time Hits By July
The government has until July before it exhausts options to pay its debts and obligations on time unless Congress raises the debt limit from the $31.4 trillion it hit in January, the nonpartisan Congressional Budget Office said. That appears to give lawmakers slightly more time to fight it out.
- Treasury Secretary Janet Yellen has already warned Congress that it could run out of time by early June. But the CBO estimates that will happen somewhere between July and September, depending on factors including tax revenue and spending.
- Separately, the CBO estimates the federal government will add $19 trillion in debt over the next decade, with an average of $2 trillion in annual deficits to 2033. Republicans want spending cuts to raise the debt limit, while Democrats want a “clean” passage with no such strings attached.
- President Joe Biden will propose his budget for the coming fiscal year in early March. The CBO projects the federal budget deficit will be $1.4 trillion in 2023, or 5.3% of gross domestic product. That should rise to 6.9% by 2033.
- The cumulative deficit from 2023 through 2032 is $3 trillion larger than CBO’s projections last May because of newly enacted legislation and changes to the economic forecast that raise interest costs and spending on mandatory programs, CBO Director Phillip Swagel said.
What’s Next: Speaker Kevin McCarthy (R., Calif.) repeated his calls to negotiate a debt-limit increase in a tweet on Wednesday, saying reckless spending is plunging the country deeper into debt. Social Security outlays are expected to rise 10% in 2023, the CBO said, citing January’s 8.7% cost-of-living adjustment.
Biden’s EV Network Plans Include 7,500 Tesla Chargers
The White House announced new steps to improve the nation’s electric-vehicle charging network, including EV-charging standards, and another $2.5 billion in discretionary grants to build charging infrastructure after the $7.5 billion in last year’s Inflation Reduction Act.
is also stepping in.
- President Joe Biden eventually wants 500,000 chargers along roads and highways to encourage EV sales, and half of all new car sales to be all-electric by 2030. After years of administration snubs and barbs, Tesla is opening up at least 7,500 of its fast-charging units for other EV owners.
- Fast chargers, like the kind Tesla operates, use direct current and can get 200 to 300 miles of range in an EV in about 15 minutes. The move qualifies Tesla for a share of billions of federal dollars on offer to build a national network.
- Tesla plans to open at least 3,500 new and existing 250-kilowatt chargers to drivers of all kinds of EVs by the end of next year, the White House said. Tesla has a U.S. network of more than 17,700 fast chargers but until now they weren’t available to other types of vehicles.
also are building a network of fast chargers.
and Warren Buffett’s Pilot J rest stop operator will put 2,000 fast chargers at 500 locations.
Electrify America, and auto makers
were also included in Wednesday’s announcement.
What’s Next: Opening up its network will earn Tesla a little extra money while building goodwill with the administration and making the sector more attractive. Tesla owns the largest charging network in America and has more than 40,000 worldwide. Its stock closed up 2.4% on Wednesday.
—Al Root and Janet H. Cho
Mortgage lenders went through a serious downturn last year, and many companies were forced to lay off staff in an effort to remain in business as interest rates jumped and buyers fled. Now the players are back and ready to fight for market share, trying out new promotions designed to attract home buyers.
Will these tactics work in boosting business? “If the economic backdrop is not favorable, we’ll see lower mortgage rates—but that may not be enough to spur lending activity,” Greg McBride, chief financial analyst at Bankrate, said.
Read more here.
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner