The Resilient Economy – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

A Bullish Slant On The Markets… is unfolding. As Wall Street analysts continue to revise upward their forecasts for 2022 and 2023 corporate earnings, war broke out in Ukraine, and geopolitical risks escalated, sending the S&P 500 to a dramatic low on February 24. Meanwhile, inflation continued to confirm prices were rising at a troubling rate, which alarmed Federal Reserve Chairman Jerome Powell, and his colleagues, to take a stronger stance in tightening monetary policy. All along, analysts continued to revise their forecasts for higher earnings: according to FactSet, analysts expected the S&P 500 to earn a surprising $227.80 per share in 2022. The estimate is 2% higher than the $223.43 expected as of December 31, 2021. The upward revision is modest in a very positive direction. “A significant portion of the upgrade comes from the energy sector, while companies that are impacted by higher energy costs and those exposed to Europe have been minor ‘drags,’ ” Binky Chadha, chief U.S. strategist at Deutsche Bank, wrote on Tuesday. “Excluding the impact of these effects, full-year estimates are still up +0.8%.” The economy continues to be in great shape, supported by ‘massive tail-winds.’ Businesses continue to invest aggressively in their operations. Consumers, despite having ‘gripes’ about inflation, continue to spend on goods and services, and now travel. A surprisingly healthy economy hasn’t budged, resisting the geopolitical and inflationary effects.

Stocks End Down For The Week; Bonds Fall…Uncertainty about the Federal Reserve Policy and the nasty war in Ukraine, pushed the indices to weekly losses, with government bonds weakening in a selloff. The ‘broad stock market gauge’ (S&P 500) lost 11.83 points Friday to 4488. The tech-heavy Nasdaq Composite declined 186 points or 1.3% to 13711. The blue-chip Dow Jones Industrial Average reversed early losses to close up 137 points, or 0.4% to 34721. For the week, all three indices closed the week with losses. Some investors have said that stocks remain attractive even though Treasury yields have jumped. “If you want to grow your buying power over the next 10-years, I can’t think of a better place to do it than equities,” said Dev Kantesaria, founder of Valley Forge Capital, still very optimistic on value stocks.

Cocoa Prices (future) soar on Dry Weather in Africa…Dry weather in Western Africa has spiked cocoa futures. The commodity which has seen prices fall in 2021, is now soaring upward, with supply-chain difficulties. The Ivory Coast senior vices which are the world’s largest exporter of cocoa-beans, is experiencing a prolonged dry season, according to traders. November to March is the normal dry season. Most actively traded cocoa futures have risen 9.4% this year, and near 8% in both February and March, closing last week at $2,620 a metric ton, which represents the highest monthly closing level since November 2020. Analysts warn that a continued lack of rainfall could hurt the crop that is set to be harvested in late April and May of 2022. “You see cocoa futures going up and your chocolate bar is going to be more expensive,” said Peter Moore, a trader at RJO Futures, “If we see hot temperatures with no rain, this trend of (prices) moving higher is really going to continue,” said Hershey Company, famous for Reese’s Chocolates and Hershey’s kisses among other products. The company said it ran low on Valentine’s Day candy this year. Even with more production lines and more workers, it would not keep up with demand. Chocolate is…King.

Bacardi Ltd., Remy Cointreau SA and Davide Campari-Milano NV have rolled out a growing array of pricey, “cask-aged rums with ‘sophisticated tasting notes” meant to be sniffed, swirled, and sipped. They hope to benefit from drinkers’ willingness to pay for pricer booze, which accelerated during the pandemic and boosted sales with scotch, bourbon and tequila. A recent rise in demand for rum has sparked more expansion into higher-end rum. Previous efforts to nudge the drink upward have fallen flat. Rum makers will have to overcome the liquor’s image as an occasional cheap vacation drink as well as concerns about sugar. Ned Duggan, global senior vice president with Bicardi Rum, said he sees younger drinkers starting to enjoy rum in ready-to-drink cocktails and eventually gravitate to more expensive varieties. “People have given rum a second look,” he said. “We’re seeing that change now.” Ready for an 18- year- old version of rum at $210 a fifth? Johnny Walker Blue has some new company.


Jamie Dimon, CEO, JPMorgan Chase, in his annual letter, Barron’s “If the Fed gets this right, we can have years of growth, and inflation will eventually start to recede. In any event, the process will cause alot of consternation and very volatile markets.”

Bryn Torkelson, Matisse Capital, Barron’s “Ninety-nine percent of individual investors think rates are going higher. But a lot of that is already priced into the markets.”

Rebecca Patterson, Bridgewater Associates, Barron’s “It makes a lot of sense to have a more inflation–balanced portfolio than investors have had over the past four decades. It’s a new world.”

Christopher Harvey, Wells Fargo’s head of equity strategy, in commenting on the upswing of stock splits. Barron’s “By itself, a stock split should neither create nor destroy any value,” says Mr. Harvey. “The stocks that split typically have positive price momentum, generally good things are happening at the company, and fundamentals are improving. That’s what the market is focused on, and a stock split is just something you do when that’s happening.” (Since 1980, S&P 500 stocks that have announced splits have beaten the index by 16 percentage points, on average, over the following 12 months, according to BofA Securities researchers)

THE NUMBERS – Barron’s

13% – The increase in global food prices in March, a record. Food has risen some 50% since mid-2020

$14M – Median pay for S&P 500 CEOs in 2021, up from 2020 $13.4M

61% – Rise in the Turkish consumer price index in the past year, the highest in 20 years

9.3% – Percentage of Manhattan apartment sales that closed above the asking price in the first quarter, versus 3.1% in 2001