{"id":55279,"date":"2023-08-31T09:55:52","date_gmt":"2023-08-31T13:55:52","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/these-stocks-the-beating-heart-of-the-economy-are-in-trouble-says-strategist\/"},"modified":"2023-08-31T09:55:55","modified_gmt":"2023-08-31T13:55:55","slug":"these-stocks-the-beating-heart-of-the-economy-are-in-trouble-says-strategist","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=55279","title":{"rendered":"These stocks \u2014 the \u2018beating heart\u2019 of the economy \u2014 are in trouble, says strategist"},"content":{"rendered":"
At last, it\u2019s time to send August packing \u2014 take your heat waves and miserable summer weather and begone. <\/p>\n
As for stocks, a recent string of wins has whittled the S&P 500\u2019s \n SPX \n monthly loss to 1.6%, though it\u2019s still shaping up the worst since February, with a stormy September looming. <\/p>\n
But spare a thought for the Russell 2000 \n RUT \n small-cap index, set to lose nearly 5%. While up 8% on the year, the interest-rate sensitive group of stocks has battled for returns this year:<\/p>\n
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That brings us to our call of the day<\/strong> from Soci\u00e9t\u00e9 G\u00e9n\u00e9rale\u2019s poke-the-bear strategist Albert Edwards, who updated his \u201cmaddest macro chart\u201d showing why U.S. corporate profits have held up so well during rate hikes.<\/p>\n
As he explained in July, those profits have delayed a U.S. recession because companies have largely been net beneficiary of higher rates. Corporates borrowed long-term at 2020 and 2021\u2019s low rates, then lent money back via Treasury bills and other vehicles at higher short-term rates. <\/p>\n
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However, in his note to clients on Wednesday, Edwards declares that \u201cbeneath the megacaps, the vast bulk of companies are in big trouble.\u201d Yes, he\u2019s talking about smaller companies. <\/p>\n
The strategist who has devoted time to talking about corporate greedflation this year, spent much of his August break picking the brains of colleagues like the bank\u2019s head of quant equity research, Andrew Lapthorne. He says a big fall in aggregate corporate interest payments \u201cmasks a big divergence in fortunes,\u201d as shown in his chart: <\/p>\n
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\u201cIt stands to reason that smaller quoted companies in the Russell 2000 index, as well as unquoted companies, don\u2019t have as much access to corporate bond issuance so have been unable to lock into the near-zero long-dated fixed borrowings that the larger companies have,\u201d writes Edwards.<\/p>\n
With that, he walks back his July conclusion that the U.S. is \u201cpractically immune from rising rates. Large and megacaps might be immune, but the explosion higher in corporate bankruptcies is sending a clear message,\u201d he says. <\/p>\n
He points to S&P data showing 402 corporate bankruptcies so far this year, nearly equal to 407 seen in 2020 and only higher during the global financial crisis. Look out for August data from the American Bankruptcy Institute, he advises. And citing the Fed senior loan officer opinion survey, Edwards says a willingness by U.S. banks to lend to small and large companies is now at recessionary levels. <\/p>\n
But the real issue is that smaller companies remain the lifeblood of the U.S. economy, providing a chunk of jobs, he says. That\u2019s as the megacaps may be the \u201cvampires sucking the lifeblood\u201d out of those corporates and others. <\/p>\n
Edwards concludes. \u201cIt seems the lights are going out all over the U.S. smaller-cap corporate sector. They weren\u2019t able to lock into long-term loans at almost zero interest rates and pile it high in the money markets at variable rates.\u201d Ultimately that pain may trigger a recession, and maybe even the bigger companies will start to wobble. <\/p>\n
The markets<\/h2>\n
Stocks \n DJIA<\/p>\n
SPX<\/p>\n
COMP \n have opened slightly higher, post data. The 10-year Treasury yield \n BX:TMUBMUSD10Y \n is steady at 4.108%. China stocks \n XX:000300 \n slipped on data showing another contraction in manufacturing activity. <\/p>\n
For more market updates plus actionable trade ideas for stocks, options and crypto,\u00a0subscribe to\u00a0MarketDiem by Investor\u2019s Business Daily.<\/strong><\/p>\n
The buzz<\/h2>\n
Weekly jobless claims fell to the lowest level in four weeks, while the Fed\u2019s favorite inflation gauge, the personal-consumption expenditures price index, ticked higher. Consumer spending rose 0.8% thanks to Taylor Swift, \u201cBarbenheimer\u201d and Amazon\u2019s mega Prime Day. And on Friday we\u2019ll get the August jobs report.<\/p>\n
Dollar General \n DG, \n -16.65%<\/bg-quote> \n stock is tumbling after the discount retailer missed on earnings and cut guidance. Campbell Soup stock \n CPB, \n +0.86%<\/bg-quote> \n is up slightly as results matched forecasts and Hormel Foods \n HRL, \n -2.34%<\/bg-quote> \n is headed for a 3-month low after a profit and sales miss. Broadcom \n AVGO, \n +1.84%<\/bg-quote> \n due to report after the close.<\/p>\n
Salesforce shares \n CRM, \n +5.46%<\/bg-quote> \n are up over 5% after the software giant delivered a strong outlook and improved margins. Okta \n OKTA, \n +14.13%<\/bg-quote> \n is up more than 10% after the ID-management software group lifted its annual earnings outlook. Five Below \n FIVE, \n -4.57%<\/bg-quote> \n stock is off nearly 7% after the retailer said it would tweak guidance to account for bigger-than-expected \u201cshrink.\u201d<\/p>\n
Shopify shares \n SHOP, \n +7.67%<\/bg-quote> \n gained 5% after Amazon \n AMZN, \n +1.79%<\/bg-quote> \n announced an enhanced collaboration with the e-commerce platform.<\/p>\n
China search engine and AI group Baidu \n BIDU, \n -1.76%<\/bg-quote> \n released its AI chatbot to the public and shares are up 3%.<\/p>\n
UBS \n UBS, \n +5.50%<\/bg-quote> \n is up over 4% after the Swiss bank reported a record $28.88 billion net profit, out-earning Apple and Walmart combined.<\/p>\n
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Top tickers<\/h2>\n
These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:<\/p>\n
Cornhuskers volleyball players lay claim to world attendance record for a women\u2019s sport. <\/p>\n
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Need to Know starts early and is updated until the opening bell, but\u00a0sign up here\u00a0to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.<\/strong><\/p>\n
Listen to the\u00a0Best New Ideas in Money podcast\u00a0with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.<\/strong><\/p>\n<\/p><\/div>\n