- This weeks jobs report offered up mixed results, with new payrolls of 311,000 beating expectations, at the same time as unemployment rose and wages stayed broadly flat
- Fed Chairman Jerome Powell also made comments on Tuesday that suggest interest could go higher than initially expected, and then stay high for longer
- With small banks in trouble this week, stocks for most major banks have been hit, offering potential opportunities for investors
- Top weekly and monthly trades
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Major events that could affect your portfolio
Well, if the market was hoping for some clear direction from Friday’s Jobs Report, they may be a little disappointed. On one hand, nonfarm payrolls were up by 311,000. It’s not the blowout result from January, but it’s still a sizable margin above the 223,000 forecast from Wall Street.
On the other hand, unemployment rose to 3.6%, which was higher than the 3.4% that had been projected. As well as that, average hourly earnings were broadly flat, notching an increase of just 0.2%, equating to an 8 cents an hour more for the average worker.
The data isn’t likely to change the trajectory of the Fed’s rate rises. At the moment the market is pricing in a 0.25 percentage point increase at the next Federal Open Market Committee (FOMC) meeting on the 21st and 22nd March, but the likelihood of this being 0.50 percentage points has been increasing.
These latest jobs figures are fairly strong, but given that unemployment is up and wage growth has slowed, the Fed isn’t likely to look at this data as a clear signal that they need to hike half a point.
S&P 500 futures were up slightly in premarket hours on Friday, supporting the view that the Fed may not need to get more aggressive with their rate policy. It is likely to be particularly well received, given comments made by Jay Powell on Tuesday, stating that interest rates may need to go higher, and stay there for longer, than originally expected.
Challenger banks have had a rough week.
SVB Financial Group, parent company of Silicon Valley Bank has been the biggest hit, with the stock halted on Friday after falling 62% in premarket trading. That fall brings the total drop to around 80% at the time of writing, and the stock is experiencing incredibly high levels of volatility.
The crash has come off SVB’s announcement that they needed to raise $2.25 billion in stock, after they had been forced to liquidate $1.8 billion in assets to cover the balance sheet.
Problems have been exacerbated by the collapse of Silvergate, a challenger bank focusing on the crypto sector. VC’s had apparently required their portfolio companies to move funds to more established banks, causing a significant uptick in withdrawals from SVB.
Other small banks have been hit, too, some for no apparent reason other than negative sentiment off the back of SVB. First Republic Bank was halted after dropping 21%, and is down around 15% on Friday morning. Another crypto-focused bank — Signature Direct — is down almost 27% over the past five days.
Challenger banks like these are at greater risk of liquidity issues, simply due to the size of their balance sheet. High interest rates have significantly dampened the demand for credit, which is a bank’s main source of revenue. This isn’t usually an issue for large banks like JPMorgan Chase or Bank of America, but smaller banks can find it more difficult to weather the storm.
It’s the type of trend that’s very important for investors to watch when it comes to their own portfolio.
This week’s top theme from Q.ai
Despite the fact that major banks are likely to avoid any lasting damage from these sustained high interest rates, many of their stock prices are being dragged down with the general sentiment against financials right now.
Goldman Sachs is down almost 7% over the past 5 days, JPMorgan Chase is -8%, Bank of America -12%, Citi -8% and Wells Fargo -12% over the same period.
Going after companies in a spot like this is known as value investing. It’s the old Warren Buffet playbook, where investors look to buy companies with great cash flow, predictable revenue and established business models, at prices that don’t reflect their true value.
In fact, Bank of America is the second largest holding in the Berkshire Hathaway portfolio, making up almost 10% of the total allocation.
Q.ai’s Value Vault Kit uses AI to seek out value stocks that have the potential to outperform the wider market. It analyzes huge swathes of data to find companies that have:
-Low relative valuations to both earnings and cash flow
-High returns on invested capital
-Mature, predictable business models
While the AI looks for securities that have good return potential, it also takes into account the expected volatility. Once these predictions are made, the Kit automatically rebalances in line with them, every single week.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
EW Scripps (SSP) – The broadcasting company is one of our Top Buys for next week with an B rating in our Quality Value factor. Revenue was up 7.4% in 2022.
Daktronics (DAKT) – The digital display solutions provider is our Top Short for next week with our AI rating them an F in Quality Value. Earnings per share were -$0.35 in the 12 months to January 2023.
Titan International (TWI) – The wheel and tire manufacturer is our Top Buy for next month with an A rating in Quality Value and Technicals. Earnings per share are up 250.6% in 2022.
Advance Auto Parts (AAP) – The automotive parts (clue is in the name) company is our Top Short for next month with our AI rating them an F in Technicals and Quality Value. Earnings per share were down 13.4% in 2022.
Our AI’s Top ETF trades for the next month are to invest in fintech, cutting edge tech and microchips, and to short bonds. Top Buys are the ARK Fintech Innovation ETF, the ARK Next Generation Internet ETF and the VanEck Semiconductor ETF, and Top Shorts are the iShares 7-10 Year Treasury Bond ETF and the iShares 20+ Year Treasury Bond ETF.
Recently published Qbits
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