AlphaBetaStock’s Report (Premium Edition) 02-22-2022

Key Drivers & Actionable Takeaways 2-22

TIP – This is a brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Ukraine Conflict
  • Rising Inflation & Recession Fears
  • Fed Hikes & Fed Talk
  • Thursday February 24 – GDP (QoQ) (Q4)
  • Friday February 25 – Core Durable Goods Orders (MoM) (January)

A potential conflict with Russia over Ukraine is shaking up the markets. Last night Putin sent “peacekeepers” to Ukraine. According to some observers, this is believed to be Putin’s first step towards a larger war in Ukraine. The US and Europeans responded by imposing targeted sanctions on Russian oligarchs, politicians, and other figures. The situation is still fluid and rapidly changing. (See included special report below)

Inflation figures have retriggered market panic, and the peak is yet to come. Volatility is being created by uncertainty regarding the length of this inflation surge and uncertainty surrounding central bank policy. This is an excellent opportunity for long-term investors to build up well-priced positions while others will wait for a drop.

Financial advisors and investors should take note that the US 10YR yield went over 2% which is over the average S&P 500 dividend. Bonds are getting crushed, but we think investors will start moving out of equities into higher-paying conservative investments such as CDs.

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We are bullish that Gold and Bitcoin. Due to higher inflation, they should be doing better, but both face different pressures. Bitcoin prices seem to be consolidating and seem to be oversold. Gold hasn’t made the jump up which I think is due to the US Dollar increasing value. In past high inflation environments, energy, consumer staples, commodities, and real estate performed better.

More aggressive investors may want to buy at the dip or sell longer puts on growth tech stocks such as Netflix that have rocketed up due to Covid.

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment.ts.

All stock/ETF picks are updated as of January 1st and are now on one page. Click here to view them.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. 
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. 
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. 
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. 
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. 
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. 
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. 

Market Trends

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) and long-term (1.5-5 years) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

S&P 500 Sector Trends

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

UKRAINE – PUTIN SENTS “PEACEKEEPERS” TO UKRAINE

Russian President Putin presented his reasons for sending “peacekeeping forces” to Ukraine to his nation and his national security Council in an hour-long speech. Putin recognized the independence of the Luhansk People’s Republics and Donetsk People’s Republics, including territory they don’t control.

According to some observers, this is believed to be Putin’s first step towards a larger war in Ukraine. The US and Europeans responded by imposing targeted sanctions on Russian oligarchs, politicians, and other figures.

The situation is still fluid and rapidly changing. The possibility of large-scale combat operations is increased by the possible contact between so-called peacekeepers and Ukrainian military forces. Putin’s long-held goal of unifying the former Soviet Republics through force or diplomatic means is fulfilled by the decision to “defend” and recognize the separatists.

Europe is preparing for conflict in Ukraine, following President Putin’s address. The Russian government has been trying to undermine social cohesion and institutional faith and exploit the psychological vulnerability for many years. It can also carry out persistent and potentially damaging cyber operations against governments and businesses at all levels. The US cybersecurity agencies have repeatedly warned of the dangers of disruptions to everyday life.

We expect to see increased cyber intrusions and disruptions over the next few days, weeks, and months. Although a kinetic attack on the US home is unlikely at this time, there are some considerations due to Russia’s potential impact. A few events are becoming more likely in the event of a cyberattack, “maskirovka,” campaign against US banks systems, utilities, or other critical infrastructure.

Natural gas, electricity, internet connectivity, water access, and natural gas disruptions are possible. Each situation is different, but it’s essential to understand where your utilities are coming from and the risks they pose for their continued operation. Russia will likely increase its information operations. Double-check any information that is purportedly coming from your providers.

Previous crises, such as the Colonial Pipeline and Texas’ blizzard, were littered with state-backed disinformation. As well-meaning reporters and users may not verify information shared, misinformation about access and shortages is possible. This was evident during the Colonial Pipeline shut down when millions of accounts shared footage of long gas lines, theft, or improper storage (plastic bag).

If the US and allies impose severe sanctions on Russia, expect disruptions, as we mentioned above. Energy, specifically oil, is likely to surge even more. Precious metals such as GOLD are already climbing. Tech and growth stocks will likely continue to fall. Investors could buy puts or buy dips of quality consumer staple stocks.

Weekly Report – Death Cross, Ukraine, Inflation & Fed

Volatility continues to exist and the uncertainty that exists on the market. It has been influenced by every new development concerning the Russian soldiers at Ukraine’s border. We are cautious about the possible consequences of a conflict in this area.

Good earnings releases are being ignored by traders, who refocus their attention on the macro-economy. This is especially true since inflation remains very high.

The S&P 500 market has definitely turned BEARISH. We are now looking a potential DEATH CROSS which could cause a major drop in the markets as a whole.

Markets are correcting naturally, which is relatively healthy given the rapid increase in prices for 2020-2021. The bearish sentiment along with consumer pessimism has been growing in popularity. Be careful not to confuse a genuine correction with a bearish market. The underlying trend is still bullish long-term but could change soon.

The bad news is that statistics released last week will not ease inflation fears. The US saw January producer prices rise twice as fast as expected, and the US’s consumption remains in the black. Prices rose 5.4% in the UK year-on-year. All signs point to a strong monetary response via rate hikes, which is not surprising for financiers who want cheap money.

Bonds

This week saw a decline in sovereign debt yields, particularly on the US 10-year, which is now back at 1.94%. Financial intermediaries predict that March will see a double-digit rate hike by the Fed. The German Bund stands at 0.2%, while the Swiss Bund flirts at 0.22%. At 0.69%, the French OAT is stable.

This is a significant move that will likely cause investors to shift funds away from equities (S&P 500’s dividend rate is 1.27%) and to higher-paying income investment.

Crypto

Bitcoin and its peers are testing Crypto-investors. Although the crypto currency’s price seemed to be on a bullish trend in recent days, it has lost almost 10% of its value in the past 48 hours and is now close to the $38,000 threshold. A tight geopolitical environment could restrain investors’ desire to invest in risky assets.

OIL

The Ukrainian risk continues to be a concern for oil markets, which remain tight and sensitive. Washington and Moscow are sending mixed signals. This week, prices have slowed slightly, ending their eight-week streak of consecutive increases.

While traders closely keep an eye on developments in Ukraine, they also watch the Iranian nuclear talks, which seem to be moving positively. Iran has stated that a deal was close, and it is raising hopes that Iranian oil can soon return to global markets. Brent crude oil is currently trading at USD 91.50 per barrel instead of USD 90.3 in the U.S. benchmark.

Precious Metals

Geopolitical tensions impact precious and industrial metals, just like oil. The safe-haven status of gold is bringing gold back into the spotlight. The price of gold has risen to 1900 USD, and silver is still trading at USD 24 an ounce, while platinum and palladium trade at USD 1088 and 2320, respectively.

Industrial metals prices are still strong, and they are benefiting from weaker greenbacks. Nickel broke the USD 24,000 mark while aluminum stabilized at USD 3,300 per metric tonne.

AG

A few words on agricultural commodities. The corn prices in Chicago have remained flat for the past five days and currently trade at 647 and 799 Cents per bushel, respectively. However, we expect them to rise in the future.

The surge in lumber prices has been noted, with more than 20% gained in five sessions. Supply disruptions are making lumber prices volatile, and they are particularly affecting Canadian production sites, which are having trouble getting their product to the United States.

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