This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors responded with great enthusiasm on Wednesday when Federal Reserve Chair Jerome Powell offered his latest comments on the current status of U.S. monetary policy. In particular, Powell's assertion that the Fed could choose as soon as its December meeting to slow down the pace at which it has increased interest rates so far in 2022 came as welcome news for those who had feared that the central bank was determined to tighten too far. 

Even though stock markets soared in the hours following Powell's comments, the true impact of a slower pace of tightening is far less certain. Determining the optimal course of monetary policy to balance price stability and economic growth is nearly impossible to accomplish. It's entirely possible that slowing the pace of rate increases in the near future could achieve the best long-term results, but investors shouldn't rule out the possibility that prematurely backing off of its aggressive stance toward policy tightening could make inflation more persistent.

For long-term investors, preventing entrenched inflation is arguably the most important goal for the central bank. Therefore, that's the perspective from which market participants should evaluate any policy move from the Fed.

The impact on bond investors

Fed policy has a direct impact on borrowing costs, which in turn moves bond prices. However, the Fed's influence affects one portion of the bond market much more than the other, and the results of successful Fed policy can look very different, particularly in the short term.

The Federal Reserve sets monetary policy primarily by establishing a target range for the federal funds rate, which is an overnight interest rate between financial institutions. Short-term fixed-income investments like Treasury bills typically move in line with the fed funds rate. The rates that consumers pay on credit card finance charges also often rise and fall along with the Fed's actions.

A slowing pace of Fed rate hikes will keep any further increases in borrowing costs for these borrowers somewhat in check, but it won't stop those increases entirely. Moreover, short-term bond investors could see rates continue to rise, boosting their potential investment income.

Yet longer-term bonds are already seeing steep declines in light of the Fed's apparent plans to slow the pace of short-term rate increases, with 10-year Treasury note yields having fallen from 4.25% in early November to below 3.6%. That indicates investor confidence that the Fed's moves could control inflation while allowing for a faster return to less restrictive monetary policy.

However, the drop in longer-term rates will have immediate impacts, including boosting total returns for bondholders and reducing borrowing costs in areas like mortgage lending, where loan rates are typically tied to longer-term bond benchmarks.

The impact on stock markets

Monetary policy's impact on stocks is even less direct than on bond markets. Investors often consider short-term impacts while neglecting longer-term effects. The bear market in 2022 has largely centered on the idea that rising rates will create recessionary conditions, which will be detrimental for consumers and cause financial stress for the businesses that serve consumers. Conversely, if the Fed doesn't raise rates as much, it arguably preserves a stronger economy.

Just about every argument favoring higher stock prices, however, has an also-compelling counterargument for lower stock prices. Signs that the Fed will defeat inflationary pressures could drive valuation levels higher once again, particularly for growth stocks, where prospects for profits lie well in the future. Yet the Fed also sees excessive speculation as potentially dangerous to financial markets, so its commitment to keep policy restrictive for an extended period could keep stocks from rebounding as quickly as they otherwise might.

If the Fed gets inflation moving lower again, stock investors can expect rate increases to slow and eventually stop. Yet some are hoping for a quick return to much lower rates, and that seems less likely to happen.

Be ready for anything

Of course, the best predictions of what the Fed will do are always subject to surprise events. An end to the Russian invasion of Ukraine or COVID-19-related lockdowns in China could have dramatic positive impacts on world markets, while new unforeseen threats could hurt investor sentiment.

Absent those outlier events, however, investors should keep their eyes on the Fed and the state of the global economy to see if central bank policy is working the way everyone wants. Success or failure on that front will be the primary mover for financial markets in 2023. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post What investors can expect as fed rate hikes slow appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stock market participants had been looking forward to Wednesday for quite a while, as they anticipated getting valuable insight when Federal Reserve chair Jerome Powell gave a speech about his views on monetary policy. As it turned out, Powell's comments were well-received by investors, and that resulted in solid gains of more than 2% for the Dow Jones Industrial Average (DJINDICES: ^DJI) and even bigger advances for the Nasdaq Composite (NASDAQINDEX: ^IXIC) and S&P 500 (SNPINDEX: ^GSPC).

Data source: Yahoo! Finance.

Until Powell began speaking in the afternoon, major market indexes were flat to slightly lower on the day. Yet even though what Powell said didn't really come as any big surprise to those who followed the relevant financial markets, it nevertheless seemed to give investors more confidence that their reading on the situation facing stock markets was correct.

That doesn't necessarily mean that the immediate future won't remain volatile, but it nevertheless led some to conclude that eventual victory over inflation and recessionary pressures was inevitable.

What Powell said

Powell continued to emphasize that there are two key components to Federal Reserve policy that some will find contradictory but that nevertheless apply. First and most important, the Fed is still concerned about the uncomfortably high level of inflation in the market.

That came at the beginning of Powell's speech, and the Fed chair emphasized that higher prices are causing substantial hardship for tens of millions of people across the nation. Such levels of price instability are fundamentally incompatible with a working economy, and current estimates of inflation, as measured by the Fed's preferred personal consumption expenditure metric, is coming in at 6%.

That left Powell to conclude that there's still a lot of work to do before inflation comes under control, let alone before it gets back to the 2% long-term target that the Fed prefers to see. Indeed, Powell warned that he believes the eventual level at which interest rates will rise sufficiently to get inflation under control will likely be higher than he thought at the time of the Federal Open Market Committee's meeting in September.

Yet at the same time, Powell acknowledged that using interest-rate increases to moderate inflationary pressures is an imprecise science. He also said there are definite lags between the time the central bank boosts rates and when the effects of tighter monetary policy actually show up in economic data, particularly concerning inflation.

Therefore, Powell said, "It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down." In addressing the timing of such moderation, the Fed chair said that a slowing of rate increases could come as soon as its December meeting.

Market watchers immediately took that comment to mean that the Fed would likely raise interest rates by just half a percentage point in December, slowing from the 0.75 percentage-point boosts that the central bank has made at its last four consecutive meetings. That, in turn, ignited the massive stock market rally, and longer-term interest rates also moved lower on the news, as bond investors foresaw a shorter period of time to fight inflation.

Not a shocker

Those watching the credit markets shouldn't have been surprised by what Powell said because it was already largely reflected in certain securities prices. As early as four weeks ago, federal funds rate futures showed that investors thought it more likely than not that the Fed would do a December increase of only half a percentage point.

Moreover, the short-term jump in stocks seemingly ignored the rest of Powell's monetary-policy comments. The chair repeated that restrictively high interest rates could be necessary for a significant period of time, and the central bank remains extremely wary of being premature in reversing course. Indeed, Powell pointed to several data points that remain worrisome, including above-normal wage growth, rising prices for housing services, and continued disruptions in labor markets that began with the COVID-19 pandemic.  

Of course, it's possible that stock markets have overreacted in falling so far from their record levels in late 2021, so a reversal -- in light of things going mostly as expected -- is actually warranted. Regardless, investors need to be prepared for it to take more time than they might think for the Fed's inflation-fighting saga to play out to the bitter end. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Was Wednesday's US stock market surge premature? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

U.S. stocks showed signs of a potential bounce on Tuesday morning, albeit a modest one. Stock index futures were up as much as a third of a percent shortly before the regular trading session began on Wall Street.

One factor that has weighed on investor sentiment recently has been the ongoing battle that the Chinese government has waged against the COVID-19 pandemic. China has been a lot more stringent with its lockdown measures to stem the potential spread of the disease, and that has raised concerns about how much downward pressure the government's actions could have on economic activity. With Chinese citizens now starting to protest lockdowns and other restrictions, the prospects for eliminating the zero-COVID policy in favor of a more lenient alternative are giving many well-known stocks in China a boost on Tuesday morning.

What China could do

Investors in Chinese companies got more comfortable after hearing comments from China's National Health Commission (NHC). The governmental body said that it would make a greater effort to provide COVID-19 vaccinations for its elderly population, aiming to protect those over 80 and making booster shots available sooner after primary vaccinations. The NHC is also looking to launch a campaign to convince those who are reluctant to get vaccinated that the benefits of COVID-19 vaccines outweigh any perceived downsides.

Interestingly, the reaction to recent protests in China has been mixed. At first, investors feared that the Chinese government would crack down on protestors with COVID-19-related measures that could be stricter than current guidelines. However, more market participants seem to view the protests as potentially having a positive influence in persuading government officials to loosen their zero-COVID policy.

That's a big part of why some major Chinese stocks moved higher in premarket trading Tuesday morning. Alibaba Group Holding rose 5%, matching gains from electric vehicle companies Li Auto and XPeng. Baidu climbed 6%, while JD.com moved 7% higher.

Solid earnings from Bilibili

Also boosting sentiment on Chinese stocks, Bilibili (NASDAQ: BILI) released its latest quarterly results on Tuesday, and the stock climbed 10% in response. The online gaming and digital media company reported solid gains in the third quarter, including an 11% rise in revenue year over year to $814.5 million. Net losses narrowed by 36% from year-ago levels to $241 million as Bilibili reported a 25% rise in daily active users to 90.3 million. Almost 333 million people now use the service on a monthly basis, and while less than 10% of those users actually pay for a premium subscription, Bilibili reported high levels of engagement.

Shareholders were pleased to see Bilibili responding proactively to macroeconomic threats. Already, Bilibili's numbers are reflecting more efficient operations, as gross margin improved and expenses for sales and marketing fell as a percentage of total revenue. The company anticipates continuing to control its costs strictly, with an eye toward unlocking even more savings as it aims to become consistently profitable as soon as it can.

More hurdles ahead

COVID-19 is only one of the factors that have weighed on Chinese stocks in recent years. Turbulent foreign relations between China and the U.S. have led to volatility, while structural aspects of the Chinese economy have introduced systemic risks for investors to consider. Talk of potentially delisting Chinese stocks has quieted in Washington, but it could come back in 2023 and beyond.

Nevertheless, progress toward moving beyond the zero-COVID policy seems to be giving investors more comfort in investing in Chinese stocks. Those who are comfortable with the risks could find interesting opportunities in China. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Chinese stocks are soaring. Here's why appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Baidu and JD.com. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Bilibili. The Motley Fool Australia has recommended JD.com. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Even well into his 90s, Warren Buffett still commands the respect of the investing community. Many investors watch the Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) leader's every move when it comes to stock market decisions, and Buffett is never shy about making aggressive moves when it suits him.

The most recent disclosures from Berkshire regarding its stock portfolio included a new position in a tech stock, Taiwan Semiconductor Manufacturing (NYSE: TSM). Over the years, Buffett has at times expressed a reluctance to invest in tech stocks, considering the industry to be outside his circle of maximum competence as an investor.

Nevertheless, Taiwan Semi isn't the first tech stock to make Berkshire's portfolio, and it's clear from his past choices that there are certain attributes Buffett seeks out in adding technology-focused companies to the list. Those same things can help you when you're looking to invest in unfamiliar waters, whether it's in technology or other types of stocks.

1. Industry leadership

Buffett has typically chosen tech stocks that have already become leaders in their respective industries. The most obvious example is Apple (NASDAQ: AAPL), which remains the dominant company in electronic devices of many different sorts. From iPhones and Apple Watches to Mac computers and various tablets, Apple is a favorite among its customers and always has people watching for its latest product releases.

This trait is evident in other companies in the Berkshire portfolio. HP (NYSE: HPQ) has long been the industry leader in computer printers, while Activision Blizzard (NASDAQ: ATVI) is one of a handful of top players in the video game industry.

Taiwan Semi meets that bill as well, with a commanding market share over 50% in the semiconductor foundry market. The vast majority of cutting-edge chips get made by Taiwan Semi, and that trend appears likely to continue as chip designers more frequently turn to the foundry specialist for production rather than making costly provisions to make chips in-house.

2. Good value

Buffett is the quintessential value investor, sticking to his guns even when the style goes out of favor. With a current valuation of around 15 times trailing earnings, Taiwan Semi fits the mold of Buffett-held tech stocks.

Apple's valuation has expanded dramatically since Buffett's initial purchases, but when he started his position, the tech leader traded at much lower earnings multiples. Meanwhile, HP also trades at rock-bottom levels by traditional valuation metrics, as investors anticipate a drop in earnings following pandemic-spurred purchases of printers and other equipment. Activision is somewhat of a special case, given its pending potential acquisition by Microsoft (NASDAQ: MSFT), but that still makes it a value play of sorts.

3. Growth prospects

Despite looking for value, Buffett also wants companies that have growth potential. Taiwan Semi looks prepared to keep extending its competitive advantages and serving an even wider array of semiconductor clients. Apple has also managed to keep growing with innovative new offerings and updated product lines on existing favorites.

Of course, sometimes Buffett gets things wrong. His past ownership of IBM (NYSE: IBM) hinged on the pioneering computer company's ability to use its strong brand and financial resources to find new niches for leadership, but IBM largely failed to restore its business to its former glory. That eventually led many to see Buffett's purchase of Big Blue as a big mistake.

Expanding your horizons

When you consider looking beyond your core area of expertise for investing ideas, it doesn't hurt to look for these three favorable characteristics. Regardless of whether you're talking about tech or a completely different sector, looking for an attractive combination of current value and future growth always makes sense, and you'll often find the most stable and secure businesses among the current leaders of a promising industry. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post What Warren Buffett wants from tech stocks appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has positions in Apple, Berkshire Hathaway (B shares), and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard, Apple, Berkshire Hathaway (B shares), HP, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Activision Blizzard, Apple, and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market is posting solid gains on Tuesday, with those portions of the market that got hit the hardest seeing some of the biggest gains in response. The Nasdaq Composite (NASDAQINDEX: ^IXIC) gained more than 2% near midday, while gains of closer to 1% for the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 (SNPINDEX: ^GSPC) showed broad-based support.

The catalyst for Tuesday's rise was a report that signaled that inflationary pressures just might be subsiding. Most of the time, investors don't pay a lot of attention to the Producer Price Index (PPI) report, favoring its consumer-oriented counterpart instead. However, because the PPI offers a different look at pricing pressures, it's particularly useful as market participants try to anticipate whether and when inflation might finally come under control.  

What is the Producer Price Index?

Most people are familiar with the Consumer Price Index because it matches their own experience as consumers. However, the Producer Price Index looks at the wholesale prices that companies pay for the inputs they need to provide the goods they make and the services they offer.

The PPI report actually includes several different measures of inflation. Final demand figures look at the prices that manufacturers charge retailers for finished goods that are ready for consumer purchase. Intermediate demand measures, however, look at input costs further down the supply chain, with four separate stages reflecting different points in the production process. Taken together, the PPI numbers offer a sense of where in the pipeline cost pressures might be strongest and where they might be easing.

October's PPI figures showed prices for final demand goods and services rose 0.2% for the month. That brought the year-over-year gain in the index to 8%. Breaking down the numbers, goods saw a 0.6% rise, but services prices were actually down 0.1% from the previous month. Most of the rise in goods came from a 2.7% jump in energy prices. Declines in service prices came from lower trade, transportation, and warehousing costs. Removing food, energy, and trade costs, the final demand PPI was 5.4% higher than it was 12 months ago.

The biggest cooling, though, was in intermediate figures. Processed goods for intermediate demand saw prices drop 0.2% from the previous month, while unprocessed goods plunged 11.7%. Energy was the primary driver on the unprocessed goods side, but for both measures, year-over-year gains slowed to about 10% -- down from growth rates of 25% to 50% or more at times in the past 12 months.

Working through the system

When companies price their goods, they tend to use the cost structure that was in place when they were purchasing required inputs to make those goods. As a result, it can take time for lower costs at an earlier stage of production to filter through and remove cost pressures on finished goods.

However, investors are increasingly optimistic that the conditions are ripe for future price increases to slow. Indeed, if outright price declines become more prevalent early in the manufacturing process, then it could lead to a relatively quick slowing of year-over-year price increases at the consumer level. That in turn could take away some of the urgency at the Federal Reserve to boost short-term interest rates at the breakneck pace they've followed over the past six months.

Many market participants have seen the pullback in stocks, particularly in high-growth companies with most of their profit potential far in the future, as driven in large part by the interest rate environment. If inflation does indeed prove fleeting after all, then it could lead to at least some recovery from the bear market over time. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why this obscure inflation gauge has US stock markets soaring appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market built up some positive momentum last week, but it's unclear whether the good times will last. At the market open on Monday morning, the Dow Jones Industrial Average (DJINDICES: ^DJI) had given back a tiny portion of its substantial recent gains, trading down about 0.25%.

Even though this earnings season is starting to wind down, some key components of the Dow Jones Industrials are set to report their latest results in the coming week. What Walmart (NYSE: WMT), Home Depot (NYSE: HD), and Cisco Systems (NASDAQ: CSCO) say about the conditions of their respective businesses will play a key role in determining whether last week's rally continues through this one, or whether the bear will growl once again.

Getting ready for retail

Tuesday morning will bring two key reports from the retail sector. Department store giant Walmart is set to release its results at around 7 a.m. ET, while Home Depot has historically gotten a slightly earlier start, having published its press release last quarter at 6 a.m. ET.

Walmart's numbers for its fiscal 2023 second quarter, which ended July 31, showed considerable strength amid a tough economic environment. Revenue rose 8.4% to $152.9 billion, and although operating income sagged 7% year over year due to higher costs, its net income of $5.15 billion was up 20% from year-earlier levels. However, the retailer warned at the time that conditions could continue to worsen for the rest of the fiscal year. Management projected that its fiscal 2023 sales would rise by about 4.5%, but forecast that adjusted earnings per share would fall by between 9% and 11% 

Home improvement specialist Home Depot also held up well in its fiscal 2022 second quarter, posting revenue of $43.8 billion for the period that ended July 31. That top-line figure was up 6.5% year over year. Earnings of $5.05 per share compared favorably to year-earlier profits of $4.53 per share, and Home Depot was able to confirm that it still sees its fiscal year sales climbing 3% on mid-single-digit percentage gains in earnings per share.  

Investors will be watching closely to see if ongoing macroeconomic pressures start to have bigger impacts on these companies' financials. Most analysts following Walmart's stock expect the company to post a year-over-year decline in earnings, albeit with continuing revenue growth. Meanwhile, Home Depot is expected to keep boosting its bottom line. Any disappointments on those fronts could put the Dow stocks' prices back on a downward slope, although investors will hope for better news to support the recent positive momentum.

Cisco looks to keep inching ahead

Meanwhile, Cisco Systems is set to announce its financial results after the closing bell on Thursday. Investors are hopeful that the networking giant will be able to keep bouncing back during what has been a tough year for tech stocks generally.

In Cisco's fiscal fourth quarter, which ended July 30, showed the pressures hitting the company. Revenue was down 0.2% year over year to $13.1 billion, with declines in internet-related revenue offsetting gains in the security and application optimization areas. Adjusted earnings dropped by 1% to $0.83 per share. However, annualized recurring revenue rose 8% to $22.9 billion, and Cisco continued to make headway in its transition toward getting more of its overall sales from subscription-based sources.

Investors are hopeful that its fiscal 2023 first-quarter report will show modest strength. Those following the networking giant anticipate sales growth of around 3% and a similarly small rise in earnings.

It's easy to overlook Cisco within the crowd of disruptive companies competing against it. However, the tech giant has a long legacy of success, and whatever it says Thursday has the  potential to ripple across the entire technology sector. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post These 3 Dow stocks will make or break the market this week appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cisco Systems, Home Depot, and Walmart Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.                    

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market has gotten hit hard throughout 2022, and inflation has played a big role in the bear market. The Nasdaq Composite (NASDAQINDEX: ^IXIC) has been hit the hardest out of major market benchmarks, and many high-growth stocks have lost huge portions of their value over the course of the year.

Yet all that seemed to be a thing of the past on Thursday, as the Nasdaq jumped more than 6% at midday. The move higher came after the latest reading on the Consumer Price Index (CPI) indicated a slowdown in price increases over the past year. Yet when you look more closely at the actual inflation numbers, it's far from clear that investors should consider the problem solved.

What investors focused on

The CPI report released this morning showed that the index rose 0.4% on a seasonally adjusted basis during the month of October compared to September's level. With that move, the CPI has risen 7.7% over the past 12 months. As high as that is, it marks the lowest year-over-year increase since January 2022, and it was lower than the 7.9% year-over-year figure that most economists had expected to see.

As we've seen numerous times before, food and energy prices were volatile and contributed to inflationary pressures. Energy in particular reversed its recent losses, rising 1.8% on a nearly 20% jump in the cost of heating oil and a 4% rise in gasoline prices. Food prices rose 0.6% on a 0.9% rise in costs for food away from the home.    

Excluding those food and energy numbers, core inflation rose 0.3% for the month and 6.3% year over year. Used vehicles and apparel costs continued their monthly decline, and healthcare costs also fell. Continued increases in shelter costs and transportation services kept the inflation rate higher than investors had wanted to see.

Do these numbers warrant a Fed pivot?

It was far from clear in light of the CPI report whether investors would see it as a reason for the Federal Reserve to pivot from its current policy trajectory with respect to interest rates. Admittedly, 7.7% is down from peak year-over-year figures above 9% from earlier this year. However, it remains stubbornly far above the 2% target that the central bank has historically maintained.

Yet market participants seemed to use comments from a pair of Federal Reserve officials as an excuse to start a massive stock rally. Philadelphia Fed President Patrick Harker expressed his view that the central bank would likely slow the pace of further increases in interest rates once they become adequately restrictive on economic growth. Similarly, Dallas Fed President Lorie Logan expressed relief at the downward move in the year-over-year CPI, but indicated that there was still a long path ahead for inflation to weaken further before central bankers can treat price pressures as having been defeated.

Moreover, investors recognized that the Fed will actually get another data point on inflation before it has to make its next decision on interest rates. Because Fed meetings come at roughly six-week intervals, the CPI figures for November will be available before the next potential hike. If next month's CPI confirms what this month's figures said, then it would be more powerful evidence for the central bank at least to consider making smaller increases in interest rates than the three-quarter-percentage-point hikes it has used four times in a row now.

Hope for the best

The extent of the move higher in the Nasdaq shows just how worried investors have been about inflationary pressures. A one-day pop in stocks, though, won't in itself be a victory over inflation. Future data will have to support a positive trend in order for the markets to build on Thursday's gains. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why the Nasdaq is soaring even as inflation remains high appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Despite posting solid advances on Friday, stock markets were down last week, and all the same worries investors have had are still largely present. Midterm elections on Tuesday will draw attention, but the focus seems to remain on the Federal Reserve and broader macroeconomic pressures. In premarket trading, futures contracts on the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) were slightly higher, as investors seem to hope that things will turn out favorably.

Making news over the weekend was Warren Buffett, whose Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) reported its third-quarter financial results on Saturday morning. As was widely expected, the Oracle of Omaha did prove vulnerable to the bear market. However, its stock was up in premarket trading on Monday, and a closer look at the underlying businesses held within the insurance-focused conglomerate could leave you with a good feeling about Berkshire's prospects.

Losses for Berkshire -- with a caveat

It's easy for those who aren't familiar with Berkshire Hathaway's accounting requirements to draw the wrong conclusion from a quick glance at the insurance giant's headline numbers. Berkshire posted a net loss of $2.69 billion during the third quarter, bringing its year-to-date losses to a staggering $40.98 billion.

Yet Berkshire is required to mark its investments and derivatives to market on a quarterly basis. This has the impact of adding huge gains during bull markets, but when the value of those investments goes down -- as has happened in 2022 -- it results in massive charges against earnings. Indeed, those investments and derivatives cost Berkshire $10.45 billion in the third quarter and a whopping $65.07 billion in the first nine months of the year.  

Buffett would probably suggest that looking at realized gains and losses would make more sense. Berkshire didn't have a perfect track record there, with net realized losses of $378 million in the third quarter and $946 million in the first nine months of 2022. However, that at least reflects investment decisions that Buffett and his team made rather than the simple day-to-day fluctuations of share prices.

The rest of the story

To understand Berkshire fully, the best place to start is with the operating earnings of its subsidiaries and major ownership holdings. There, you can get a better picture of the forces affecting the company's overall fundamental performance. Doing that yields some interesting insights:

• Berkshire's insurance units posted a $962 million underwriting loss for the period. That was worse than in the year-earlier quarter, showing the impact of higher catastrophic losses that other insurers have also seen.
• At the same time, though, rising interest rates played a part in boosting the amount of investment income Berkshire's insurance-related assets generated. The 21% year-over-year rise to $1.41 billion was enough to offset higher underwriting losses.
• Berkshire's major cyclical subsidiaries had mixed performance. The BNSF railroad unit saw operating earnings ease lower by roughly 6% to $1.41 billion, but the utility and energy businesses saw a similar-sized rise year over year to $1.59 billion. The performances of the two areas basically canceled each other out.
• The strongest absolute gains came from Berkshire's other controlled businesses, with operating earnings there climbing by more than half a billion dollars to $3.25 billion.

In addition, Berkshire noted that its use of foreign currency-denominated debt yielded gains due to the strong U.S. dollar, adding $679 million to operating earnings for the quarter.

Overall, operating earnings rose 20% in the quarter to $7.76 billion, and year-to-date figures have seen almost exactly the same growth rate. That suggests that Berkshire Hathaway's core businesses are still as healthy as ever and well positioned to deal with the unique challenges of this particular bear market. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Berkshire, Buffett feel the bear's bite appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• With no savings at 50, I'd follow Warren Buffett's approach to build wealth

Dan Caplinger has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors have watched the Federal Reserve closely for signs of just how aggressive it will be in tightening its monetary policy to fight inflation. After initially seeing at least a glimmer of hope that the Fed might not move at breakneck speed with ongoing interest rate increases, the news conference that Fed Chair Jerome Powell gave put to rest any ideas of a near-term tempering of the central bank's resolve. The Nasdaq Composite (NASDAQINDEX: ^IXIC) fell sharply after the announcement, falling more than 1% Thursday morning when regular trading opened.

Electric vehicle (EV) pioneer Tesla (NASDAQ: TSLA) has been a big detractor from the market's performance over the past couple of months, finally succumbing to investor fears about the impact of a global economic downturn on the auto manufacturer. Yet while Tesla's declines Thursday morning were relatively mild, Roku (NASDAQ: ROKU) delivered a financial report that investors found more troubling, and that sent its stock sharply lower in premarket trading.

Tesla reports on China

Shares of Tesla moved lower between 1% and 2% in premarket trading on Thursday morning, adding to a nearly 6% decline on Wednesday. The EV company reported monthly sales figures in the key Chinese market, and even though the numbers were impressive, they failed to live up to the lofty expectations that many shareholders have for Tesla.

The latest figures from the China Passenger Car Association showed that Tesla delivered just over 71,700 electric vehicles manufactured at its Chinese Gigafactory facility in Shanghai during October. That was a healthy number, but it was down by 14% from the more than 83,100 EVs that Tesla delivered in September, which set a record for the company.

Tesla investors also have to take into account some other trends that could affect its competitive stance in the world's most populous nation. Despite the encouraging adoption of Tesla vehicles by Chinese consumers, the U.S. automaker still ranks far behind the EV delivery volume of China's BYD, which came in at more than 217,500 cars. Moreover, with factors like China's zero-COVID policy and a general economic slowdown taking shape, Tesla has had to resort to cutting its prices for its mass-market Model 3 and Model Y vehicles. That flies in the face of increases in costs that threaten Tesla's bottom-line growth.

China is an essential market for Tesla to tap, even though it comes with considerable obstacles. Any further pressure in China could make it hard for the stock to recover from its recent declines.

Roku runs into the ad downturn

Shares of Roku fell much more sharply, dropping 15% early Thursday. The streaming TV specialist said its business could take a double hit for the rest of the year, making investors more nervous about its longer-term prospects.

Roku's third-quarter financial report included numbers that indicated ongoing growth in some areas. Revenue was up 12% year over year to $761 million, with streaming hours climbing 21% to 21.9 billion. Roku reported 65.4 million active accounts at the end of September, up by 9 million accounts in the past 12 months. Average revenue per user posted a 10% jump to $44.25.

However, Roku noted that advertising spending on its platform grew at a slower rate than it had expected at the beginning of 2022, citing weakness across the industry. Moreover, with strains on consumer budgets, Roku sees sales of its hardware also coming under pressure. Investors were surprised to see Roku predicting a possible year-over-year sales drop in the fourth quarter.

Investors weren't prepared for that much bad news, explaining the big share-price drop. Yet such moves have been par for the course this earnings season, as shareholders demand near-term profit potential and resiliency against deteriorating macroeconomic conditions.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla sees a China slowdown, but this Nasdaq stock is faring much worse appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These are the 10 richest people in the world in September
• ASX shares investors are getting younger and trading more often: CBA report

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Roku and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

All good things must come to an end, and the winning streak that the Dow Jones Industrial Average Index (DJX: .DJI), Nasdaq Composite (NASDAQ: .IXIC), and S&P 500 Index (SP: .INX) managed to put together on Monday and Tuesday wasn't able to last for a third straight day.

Rising bond yields raised new concerns about macroeconomic impacts, sending major market benchmarks downward to give back a portion of their gains from earlier in the week.

Data source: Yahoo! Finance.

Earnings season continued to feature new financial reports from key companies across the stock market, and many businesses had better performance than some had feared.

Late Wednesday afternoon, all eyes were on Tesla (NASDAQ: TSLA) and whether the electric vehicle (EV) pioneer would be able to live up to high expectations.

Even though the financial numbers were strong, shares eased lower, showing just how difficult it has been for high-growth stocks to make gains lately.

The latest from Tesla

As of around 8:00 p.m. ET today, shares of Tesla were down more than 6% in after-hours trading. That wasn't as steep a decline as the EV maker's stock had experienced immediately after its release of third-quarter financial results, but it still marked a disappointing performance given the strong fundamental performance of Tesla's underlying business.

Many of the numbers were extraordinary. Total revenue jumped 56% from the year-ago quarter to $21.45 billion, on a 55% rise in automotive revenue.

Net income doubled year-over-year before adjusting for extraordinary items, and even after doing so, earnings of $1.05 per share were up 69% from where they were 12 months previously.

Free cash flow soared nearly 150% to $3.3 billion, helping to boost Tesla's amount of cash and marketable securities on its balance sheet to $21.1 billion.

Tesla cited several factors that influenced its results. On the sales side, larger delivery volume and higher average selling prices both boosted its top line, as did growth from non-automotive areas of the business.

The strong US dollar weighed on revenue to some extent, but didn't hold back Tesla from record performance.

Meanwhile, earnings benefited from the same factors, but higher costs for raw materials and logistics combined with foreign-exchange impacts and the costs of ramping up production at its new Gigafactories in Texas and Germany weighed on profits.

Beyond EV manufacturing, Tesla's results were interesting. Solar capacity deployed was fairly tepid at 94 megawatts, up 13% year-over-year but down more than 10% from where it was three months ago.

However, energy-storage capacity deployed rocketed higher to 2.1 gigawatts, up from 1.3 gigawatts a year ago and 1.13 gigawatts in the second quarter of 2022.

Tesla continued to build out its network of support services, adding 41 store and service locations and 79 mobile service units to its fleet over the past three months. The company now has almost 4,300 Supercharger stations with nearly 38,900 connectors available as it aims to serve its growing customer base with the resources they need to stay on the road.

What else could Tesla do?

In light of those solid numbers, it's a little surprising to see Tesla's shares fall in price. Yet there were a few areas in which the company arguably could have provided more to investors.

Perhaps most noteworthy was the bare-bones description of Tesla's immediate outlook. The company repeated its long-held stance that it will try to boost manufacturing capacity consistently to achieve 50% average annual growth in deliveries.

Yet even though the latest report said once again that the automaker will look for ways to smooth out its production and delivery process to avoid end-of-quarter bottlenecks like the one that occurred at the end of September, it didn't go into any real detail about exactly how that will work.

Moreover, Tesla identified battery supply-chain issues as the key limiting factor to market growth. The company has done what it can to secure supplies of materials needed to produce batteries, but as competitors start fighting more aggressively for the same materials, Tesla could see cost pressures.

In the long run, the automaker's future relies not only on achieving dominance of the EV market but also on finding adjacent opportunities where it can profit from its expertise as well.

It'll take years for that thesis to play out, and in the meantime, Tesla shareholders need to be prepared for share-price volatility in both directions -- even when it doesn't seem to make sense.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why is Tesla stock falling if its business is stronger than ever? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These are the 10 richest people in the world in September
• ASX shares investors are getting younger and trading more often: CBA report

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stocks jumped out to a strong start to the new week as investors took some solace from measures taken internationally to calm bond markets in Europe and elsewhere. As of 10 am ET Monday, the Nasdaq Composite (NASDAQINDEX: ^IXIC) was leading the way higher, climbing by more than 3%.

Adding to the already considerable volatility that investors have become accustomed to lately, third-quarter earnings season is ramping up, and some much-watched companies are on tap to reveal their latest financial results this week.

Reports from Tesla (NASDAQ: TSLA) always draw attention not just from stock market aficionados but also from the general car-buying public, while tens of millions of Americans watch streaming video on Netflix (NASDAQ: NFLX) daily. What these two companies say in their reports could help determine whether the Nasdaq hangs onto its early gains or moves downward to new lows for the year.

Netflix starts things off

Netflix will be the first of these two stocks to report, with the streaming video pioneer scheduled to release its Q3 numbers after the end of regular trading on Tuesday. The stock is up more than 5% Monday morning, but shareholders are watching Netflix try to navigate a particularly challenging time in its history.

After a period of spectacular growth that only accelerated during the early years of the COVID-19 pandemic, Netflix has more or less plateaued. The company anticipates that its sequential revenue will actually decrease from where it was three months ago, with year-over-year gains falling to less than 5%. After two straight quarters during which its global paid membership numbers fell, Netflix is hopeful that it will be able to return to growth, but management's forecast for the addition of one million new memberships in Q3 is hardly the pace of expansion that Netflix shareholders have come to expect.

One big question will be how the introduction of a new ad-supported tier will affect viewer numbers. That won't show up in the third-quarter results, as the company isn't rolling out the offering to prospective subscribers until early November. Bullish investors are optimistic that the "basic with ads" service at less than half the price of its standard subscription will be appealing, but it could also remove one of the key features that distinguishes Netflix from many of its chief rivals.

Netflix stock is down by two-thirds from its peak, but it has also bounced back by more than 50% from its lowest level of the year. That makes now a critical time for shareholders, and the company will have to build up more confidence among its investor base to keep the stock in recovery mode.

Tesla looks to move forward

Tesla is scheduled to report its third-quarter financial results on Wednesday afternoon. The stock was up nearly 6% early Monday amid a broader Nasdaq rally, and shareholders hope that the EV pioneer can keep rebounding from its pullback of more than 30% in the past four weeks.

Investors already know some of the automaker's key Q3 figures because it releases each quarter's production and delivery numbers in the opening days of the next one. Tesla's report on those figures in early October spooked many of its shareholders, as there was a roughly 22,000 gap between the number of electric vehicles it produced and the smaller number it delivered to customers. The automaker put the blame for that big disparity on logistical challenges and assured investors that those deliveries would get completed early in the fourth quarter. But that wasn't enough to assuage the market's broader concerns.

Tesla hasn't been immune to supply chain disruptions and cost pressures, but the one thing that investors have counted on is strong demand for its EVs. If Tesla's Q3 financials and explanations make it clear that people are still as interested in buying those vehicles as they have been in the past, then the stock could rise further after the report. However, if the report suggests that macroeconomic pressures are leading some prospective Tesla customers to reconsider their planned purchases, that would pose a new problem for the company to overcome.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla and Netflix will make or break the Nasdaq this week appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These are the 10 richest people in the world in September
• ASX shares investors are getting younger and trading more often: CBA report

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market initially reacted as one might have expected after the Consumer Price Index rose more than projected in September, with market benchmarks opening sharply lower. However, investors somehow found a silver lining in the numbers, and by the end of the day, the S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) were up between 2.5% and 3%, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) settled for a slightly smaller rise.

Data source: Yahoo! Finance.

The turnaround came as a surprise to many investors, who figured that news that inflation was stronger and more persistent than originally believed might lead to further losses. A closer look at the inflation report seems to confirm the potential negative effects on the broader economy, but that still leaves the simple fact that one-day moves in the market are highly unpredictable. Below, you can learn more about the factors affecting the financial markets on Thursday and what they mean going forward.

Inflation stays high

The Consumer Price Index rose 0.4% in September, bringing its year-over-year rise to 8.2%. The monthly number was higher than expected, although the year-over-year figure was down slightly from where it was as of August.

Although the 0.4% rise was less than the CPI has experienced in several months earlier this year, many market participants were surprised because the number included a sizable downward effect from falling energy prices. The CPI's energy subindex fell 2.1%, with even larger drops in gasoline prices getting offset in part by more expensive natural gas and electricity costs.

The main problem came from other key items. The food index, which is also volatile, continued its recent ascent, climbing 0.8% from August to September. That brought year-over-year food price increases to 11.2%, with food for home use seeing an even steeper 13% rise in prices.

Meanwhile, the core CPI, which excludes both food and energy, was up 0.6% for the month and 6.6% from where it was a year ago. Sizable gains in costs of transportation and medical care services were most notable, as was the 0.7% rise in shelter costs. Used car prices declined, but new vehicle prices kept rising to move up 9.4% from where they were 12 months ago.

A counterintuitive rise

Given ongoing inflationary pressures, it'd be natural to expect the stock market to keep dropping. But in evaluating a one-day move, it's important to understand that there are always multiple factors in play that can lead to counterintuitive results.

One thing to remember is that stock markets had already seen huge declines over the past month and a half, which arguably indicates that investors were prepared for inflation not to calm down the way some had hoped. After a beginning-of-month rally that tried to regain some lost ground from a terrible September, the S&P 500 finished Wednesday slightly below where it had started the month. Coming on the heels of a more than 9% drop the previous month, a daily rise of nearly 3% still means that the large-cap index is down more than 7% from where it finished the month of August.

In addition, stocks have tracked bond market movements fairly closely, and bond investors seemed more comfortable with the high inflation report than one would have expected. After spiking above 4%, the 10-year Treasury finished the day yielding less than 3.95%, up just four-hundredths of a percentage point.

Today's big jump doesn't mean that the bear market is guaranteed to be over, and short-term movements could carry stocks lower in the days and weeks to come. Yet it does serve as a key reminder that markets won't behave the way you necessarily expect in the short run, and you can often find yourself drawing the wrong conclusion even when news events work out the way you expect. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How the US stock market shrugged off high inflation — For now appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Investors have finally seen the stock market behave better over the past couple of days. After having to deal with a horrible September that sent the Dow Jones Industrial Average (DJINDICES: ^DJI) into bear-market territory along with the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC), the first two trading sessions of October have been remarkable.

Yet as Wednesday morning dawned, investors appeared likely to have to prepare for a pause in the fourth-quarter celebration. With contracts on stock index futures down around 1%, it's clear that long-term investors will have to have patience in order to benefit from the recovery when it comes. Moreover, the next several weeks will likely bring a lot more uncertainty into the mix, making it more important than ever to have conviction in your views of the companies in which you've invested. 

Hope springs eternal

Investors have had to deal with a lot over the past several years. The economic disruptions from a global pandemic forced central banks and national governments to take unprecedented actions. Changes in behavior made businesses pivot sharply, both to keep themselves in operation and to respond to the changing needs of their customers. Even as the influence of the pandemic waned and people strived to return to their former lives, the pace of recovery in various places was out of alignment with others, causing more disruptions that kept businesses from reaching optimal efficiency and capacity.

Central banks always intended the emergency measures they took to be temporary, but market participants had learned to look at such comments with a cynical eye. Even after the financial crisis of 2008 and 2009 gave way to a decade-long expansion, for instance, Federal Reserve officials were reluctant to reverse the flow of liquidity they had added to the financial system in the wake of the Great Recession.

In that context, the current Fed's insistence on raising interest rates sharply to prevent inflationary pressures from becoming entrenched in the U.S. economy stood out as a different sort of response from the central bank. In large part, the current bear market stems from investors' disbelief that the Fed would hold the line even in the face of heavy criticism not just from financial markets but also from politicians and the public at large.

Will the Fed flinch?

Movements in the broader financial markets reflected the new belief that the Fed will indeed have to reverse the sharp course of its monetary tightening moves. The abrupt reversal of government policy in the U.K. showed that foreign countries were still paying close attention to what market participants had to say about their actions. The most obvious sign that investors hoped the same would happen in the U.S. came from the big decline in bond yields, which in some ways was even more remarkable than the two-day stock market rally investors have seen.

Yet it's far from clear that the Fed will reverse course. Having staked its credibility on fighting inflation until the bitter end, even a conciliatory slowdown in its future course of interest rate increases could damage its reputation.

Meanwhile, markets will get huge amounts of information in the coming weeks about what's happening in the economy. Hundreds of companies will release their third-quarter financial reports, with many of them probably emphasizing the impacts of inflation, a strong U.S. dollar, higher interest rates, and ongoing business disruptions as factors that have held back short-term growth. Yet what investors will likely focus on is whether those companies see better times ahead.

Similarly, economic data will shed light on how entrenched inflation has already become. If falling gasoline prices send costs of other goods and services down along with them, then the Fed might not need to be as aggressive.

Investors need to prepare for continued volatility. Even if the market is beginning a longer-term recovery, it won't be obvious immediately -- and you shouldn't expect to see the market keep soaring day after day.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why a 2-day stock market rally hasn't killed the bear yet appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The bear market in stocks has made portfolio values drop sharply so far in 2022. But for many investors, the bigger surprise this year has come from the terrible performance of the bond market, which has seen its worst losses in decades. Many had turned to bonds as a more conservative investment than stocks, and so the steep declines even in what are considered to be ultra-safe Treasury bonds have been especially painful.

Inflation has prompted the Federal Reserve to boost short-term interest rates aggressively, and that has had an impact on many longer-term bonds as well. On Wednesday morning, the yield on the 10-year Treasury briefly moved above 4% for the first time since 2008. That has significant implications for both stocks and bonds that investors need to consider in making investment decisions.

The big rise in Treasury rates

The most difficult aspect of what's happened in the bond market is that the rise in rates has come so fast. Near the beginning of the COVID-19 pandemic in early 2020, the Fed sharply cut interest rates, sending 10-year Treasury yields down to around 0.5%. Even as the economy started to rebound, yields remained below 2% for a prolonged period of time. Just a year ago, the yield was at 1.5%.

^TNX data by YCharts. NOTE WELL: Index values represent the yield in percentage points multiplied by 10.

It was only once inflation reared up in early 2022 that bond investors started to lose their nerve, and the brief move above 4% represented yields that were 2.5 times where they started the year.

Rising yields mean falling prices for bonds, and the damage has been severe. Even ordinary bond index ETFs have seen massive losses, with the popular iShares Core U.S. Aggregate Bond (NYSEMKT: AGG) and Vanguard Total Bond Market (NASDAQ: BND) both down 15% year to date. Bond funds with a bias toward longer-maturity bonds have seen even bigger declines, with iShares 20+ Year Treasury (NASDAQ: TLT) down nearly 30%. Even bonds that were supposed to protect against inflationary pressures have seen price declines, with iShares TIPS Bond (NYSEMKT: TIP) down 18% from where it started 2022.

What consumers and investors should expect

Already, the impact of higher Treasury yields is working its way through the broader economy. Mortgage rates tend to correlate with 10-year yields, so rates on 30-year mortgages have also hit new highs above 6.5% recently. That is making homes less affordable for would-be homebuyers, as monthly payments on new mortgages for a given amount of debt are far higher than they were earlier this year.

Nor can stock investors entirely ignore the impact of yield increases. Many companies raised their debt levels when interest rates were lower, taking advantage of cheap financing to bolster their growth efforts. Those companies that can pay back that debt as it matures should be in good shape, but those that had hoped to refinance their debt to delay having to pay it back face the prospect of sharply higher interest payments in the future. Given that the companies most likely to want to refinance are also often the ones that are least able to afford higher financing costs, investors need to watch closely to ensure that the companies whose stocks they own aren't facing potential problems.

Higher rates do have a silver lining, though. For those with cash who want to lock in a certain return, buying individual Treasury bonds now will give them interest payments at a level they haven't been able to get in years. Admittedly, 4% isn't enough to make a wholesale shift out of stocks. But for those who have found that the stock market volatility of the past year has made them uncomfortable with their asset allocation strategy, higher yields make now a better opportunity to invest in bonds than investors have seen in a long time.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The 10-year treasury yield just topped 4%: what it means for you appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard Total Bond Market ETF. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market suffered a setback on Tuesday, giving back gains from Monday's session amid renewed fears about what the Federal Reserve might do when it concludes its two-day monetary policy meeting on Wednesday. Losses for the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) amounted to roughly 1%, with small-cap stocks taking relatively larger hits than their large-cap counterparts.

Data source: Yahoo! Finance.

As the stock market becomes more volatile, investors are increasingly appreciating companies that reward them with predictable and growing streams of dividend income. Today, Microsoft (NASDAQ: MSFT) announced that it would boost its quarterly payout to shareholders. The tech giant pays a relatively modest yield, but some other dividend-stock stalwarts are also in line to pay more to their investors in the near future. Read on to learn more about Microsoft as well as three other companies that could give similar rewards to shareholders soon.

A higher payout for Microsoft

Microsoft stock didn't do all that well on Tuesday, losing almost 1% in the regular trading session. However, long-term investors will get a little bit more from  the software giant in the form of higher dividend checks.

Microsoft's board of directors declared a quarterly dividend of $0.68 per share. Shareholders of record as of Nov. 17 will receive the higher payout, which will show up in investors' accounts on Dec. 8. The payout is $0.06 higher than the previous $0.62 per-share quarterly dividend.

With a dividend yield of only about 1%, most investors don't think much about Microsoft as a dividend stock. Yet the company has developed a solid track record of boosting dividend payouts over time, with the latest move making 2022 the 20th straight year in which Microsoft has paid more in annual dividends than in the previous year.

These companies could be next

Many companies have even longer track records than Microsoft in paying higher dividends. For instance, the following three companies typically announce their dividend increases around this time of year:

• Emerson Electric (NYSE: EMR) has an impressive 65-year track record of paying higher dividends to its shareholders. The company's most recent increase came last November when it announced a 2% boost to $0.515 per share on a quarterly basis.
• Fast-food giant McDonald's (NYSE: MCD) made a larger payout boost late last year, increasing quarterly dividends by $0.09 to $1.38 per share. The Golden Arches chain has a 47-year streak of paying higher dividends for long-term shareholders.
• ExxonMobil (NYSE: XOM) has a 40-year dividend-increase streak on the line as it enters the final months of the year. Last year's most recent payout boost added just a single penny to the quarterly payout, with shareholders receiving $0.88 per share each quarter.

There's no guarantee that these companies will follow through with dividend increases. Every year, there are often at least a few long-paying dividend stocks that have to make payout cuts or even suspend their payouts temporarily.

However, all three of these blue chip stocks have strong businesses underlying them, and they've had the ability to weather difficult economic times in the past and still give their shareholders higher payouts over time. At a time when many investors are feeling increasingly uncomfortable with how much the prices of their stocks have fallen, the extra confidence of knowing that they can receive a quarterly check from these companies is especially valuable.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Microsoft just hiked its dividend. Who's next? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Should I buy the iShares Global 100 ETF (IOO) now?
• This ASX stock could be a surprise winner of the AI boom
• These are the 10 richest people in the world in September
• Want to invest in AI shares? Here's how to do it on the ASX

Dan Caplinger has positions in Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stock market investors have had a tough time so far this year. Major market benchmarks are sharply lower from where they started the year, and every time Wall Street seems to have regained its footing, some new concern sends stocks reeling once again.

For those with money to invest, falling markets pose a conundrum. On one hand, share prices for thousands of stocks are much more attractive than they were a year ago, so if you still believe that a company's business will succeed in the long run, getting to invest in more shares at lower prices is a bargain opportunity. On the other hand, nobody wants to buy a stock only to see it continue to lose ground.

So should you buy stocks now, or wait for some future sign? To get some insight on that question, it's helpful to turn to the words of legendary investor Warren Buffett. The Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO has been through plenty of bear markets in his long investing career, and his long-term investing approach has paid off with market-crushing returns through thick and thin. Here's what Buffett has given as advice to those trying to decide whether to invest or wait in tough times.

Buffett's advice for active investors

Buffett has a couple of ideas for active investors that at first seem to be in conflict. When you think about it, though, the net takeaway is to be aggressive but selective in choosing stocks to buy during difficult market conditions.

Buffett's aggressive nature shines through in several statements. In the shareholder letter that came out in 2010, the Berkshire CEO wrote: "Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble." That approach in the aftermath of the financial crisis proved to be quite timely, as the ensuing bull market lasted throughout the 2010s and was one of the most prosperous periods in stock market history. It also underscores his much more commonly cited aphorism, "Be greedy when markets are fearful."

Yet Buffett's success has largely come from being selective with his investments. Fortunately, tough times offer great opportunities to see the truth about companies. As he noted in the shareholder letter that came out in 2002, "You only find out who is swimming naked when the tide goes out." Even poorly run companies can do well in bull markets, but bear markets separate the wheat from the chaff.

Moreover, Buffett isn't hesitant to hold off on investments he's not completely confident about making. As he was quoted at the 1999 Berkshire shareholder meeting as saying: "The stock market is a no-called-strike game. You don't have to swing at everything. You can wait for your pitch." 

Buffett's advice to less-active investors

Not everyone wants to spend a lot of time figuring out which companies are most likely to outperform their peers. For those less-active investors, Buffett also has some simple advice: Dollar-cost average using index funds.

Here's specifically what Buffett told investors at Berkshire's 2004 annual shareholders' meeting: "If you accumulate a low-cost index fund over 10 years with fairly regular sums, I think you will probably do better than 90% of the people around you that take up investing at a similar time."

Fortunately, there are plenty of such investing vehicles available for those who don't want to dive into individual stocks. Tracking popular indexes like the S&P 500 or even the entire universe of stocks is possible through mutual funds and exchange-traded funds, many of which charge 0.1% or less in annual expenses to investors.

The right answer for you

The most important attribute successful investors share is having an investing strategy. What that strategy looks like, though, can differ among investors without sacrificing the potential for success. Buffett clearly understands this, and it's why he acknowledges that different strategies will work better for different people.

In general, though, Buffett's a big believer in bucking market trends, taking advantage of bargain opportunities, and beating back your emotions. The times when you're likely most scared to invest have historically been the best times to get your money working the markets, and so even if you don't dive in right now, you won't want to wait too long before getting a solid investing plan in place.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you buy stocks now or wait? Here's Warren Buffett's advice appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• With no savings at 50, I'd follow Warren Buffett's approach to build wealth

Dan Caplinger has positions in Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tuesday was a painful day for stock market investors, with the Dow Jones Industrial Average (DJINDICES: ^DJI) falling more than 1,275 points and the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) dropping 4% to 5%. Market participants often hope for at least a modest bounce after a tough day, but Wednesday morning didn't suggest any such relief was forthcoming. Futures contracts on all three stock indexes were down slightly as of 8:15 a.m. ET.

Some investors in cryptocurrencies have believed that digital assets would be able to provide some valuable diversification in the event of a stock market decline. Unfortunately, that hasn't been the case over the past couple of years, as the prices of Bitcoin (CRYPTO: BTC) and other popular cryptocurrencies have tended to track closely in line with the Nasdaq. Now, though, some digital investors are asking whether Bitcoin and its peers can regain the positive momentum that took them to all-time highs last year even if stocks stay mired in a bear market.

Crypto winter continues

Cryptocurrencies certainly haven't escaped the rout that started on Tuesday. Bitcoin has fallen 11% in the past 24 hours and now stands just above the $20,000 mark. Ethereum (CRYPTO: ETH) is down almost 9% since this time Tuesday, falling back below $1,600 even as proponents of the smart-contract network point to the coming Merge event as a landmark moment for the digital asset.

Given the immediate cause of the sell-off across several asset classes, it's not terribly surprising to see Bitcoin, Ethereum, and their crypto peers losing significant ground. August's inflation reading of 0.1% didn't seem like all that big a deal, but given that it came in the face of plunging gasoline prices, many were surprised not to see a modest drop. Moreover, as signs of more entrenched inflationary pressures appeared in different categories of goods and services, market participants believed the odds were better that the Federal Reserve would raise interest rates even higher to protect the economy from allowing inflation to become a long-term problem.

Bitcoin has at times hailed itself as a hedge against inflation, given the fixed supply of the digital asset. However, now that a large financial market has emerged surrounding Bitcoin and other cryptocurrencies, the dynamics that affect institutional investors now play a key role in price movements. In particular, when interest rates rise, those investors who rely on borrowed money in order to make leveraged investments in cryptocurrencies often have to pull back from their positions.

Can crypto break off from the stock market?

In that light, cryptocurrencies have in some ways suffered from their success in becoming mainstream assets. As regular investors become involved in the crypto markets, their behavior influences prices in the same way it influences stock prices.

However, it's unfair to paint all cryptocurrencies with the same broad brushstroke. For Bitcoin and Ethereum, their notoriety and popularity make them more susceptible to broader financial market influences. But for smaller digital asset projects that are just getting started, fundamental aspects of whether newer cryptocurrencies can add value and provide useful applications for potential users can outweigh the influence of broad market trends.

Both Bitcoin and Ethereum would need to triple in price from current levels in order to set new all-time highs. Those abrupt upward cycles have happened numerous times in the past, so counting the pair of digital asset leaders out is ill advised. In order to break its connection to the stock market, though, the cryptocurrency world will once again have to persuade investors broadly that its vision of the future can overcome traditional macroeconomic challenges. That's a tall order, but those who've bet against digital asset innovators in the past haven't fared well over the long haul.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post As stocks swoon, can crypto get its mojo back? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Why did the Bitcoin price just plunge 6%?
• Bitcoin is back below US$77,000. Is this an opportunity for ASX investors?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has positions in and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors lost confidence in the stock market on Tuesday, responding negatively to inflation readings for August that were higher than most had expected. By the end of the day, the Dow Jones Industrial Average (DJINDICES: ^DJI) had registered one of its largest daily point drops in its history, and the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) were down even more sharply on a percentage basis.

Data source: Yahoo! Finance.

All 30 Dow stocks were down, and just five stocks out of the S&P 500 managed to eke out gains on the day. Yet there were a couple of companies whose shares not only managed to move higher but also set new all-time highs. Below, you'll learn more about why Albemarle Corporation (NYSE: ALB) and Catalyst Pharmaceuticals, Inc. (NASDAQ: CPRX) bucked the big downward move on Wall Street and moved further into record territory.

Albemarle keeps charging up

Albemarle ended the day up just a fraction of a percent after having climbed as much as 3.5% above its closing level on Monday. Fundamentally, though, the specialty chemical company continued to benefit from high demand for some of its most important material products.

Historically, Albemarle has played a key role in the energy and industrial sectors. Its bromine-related products are used in applications ranging from oilfield drilling to food safety and water treatment. Its catalysts business helps refining and petrochemical companies process heavy oil and produce cleaner fuels, while also serving customers in the electronics and pharmaceutical markets.

Lately, though, investors know Albemarle best for its exposure to the lithium market. In the second quarter of 2022, Albemarle saw revenue nearly double from year-ago levels, with earnings coming close to quadrupling year over year. Although strong conditions in the bromine business provided a boost, lithium was the biggest factor, driven by high demand from the electric vehicle sector.

The trend toward EV adoption looks like it'll take years to play out, and as long as battery technology relies on lithium, Albemarle can expect demand to remain high. That should play to Albemarle's strengths and keep shares strong over the long run.

A big winner for Catalyst

Catalyst Pharmaceuticals climbed about 1% on Tuesday, although it had been up more than 13% earlier in the day. The company's primary treatment has done well, and Catalyst got a vote of confidence from index managers at S&P Dow Jones Indices.

Catalyst's stock has been on the rise as sales of its Firdapse drug for treating the rare disease Lambert-Eaton myasthenic syndrome have climbed sharply. That has put Catalyst in the enviable position of having positive cash flow, which is a rare thing for a small biopharmaceutical company and makes it possible for the company to fund development of new pipeline treatments without resorting to expensive capital-raising activities.

S&P Dow Jones Indices announced late Monday that Catalyst would become a member of the S&P SmallCap 600 index effective before the market opens on Thursday, Sept. 15. The company replaces ManTech International, which is set to go private in an acquisition that should close in the near future.

Becoming a part of a stock index doesn't have any impact on Catalyst's fundamental business, but it does raise awareness of the drugmaker and its prospects for further growth. Shareholders now hope that Catalyst can keep executing well and make the most of its opportunity in Firdapse while also adding more approved drugs to its product lineup in the years to come.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post As US markets plunged, these 2 stocks hit all-time highs appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

A big drop sent the Dow down more than a thousand points

Market participants have been concerned for weeks about what Federal Reserve Chair Jerome Powell might say at the central bank's annual symposium in Jackson Hole. Apparently, they were quite discouraged by what they heard, as Powell restated the Fed's determination to push interest rates as high as they needed to go in order to ensure that inflationary pressures don't become permanently entrenched in the US economy. For those who had hoped for a more dovish response, that was bad news, and the Dow Jones Industrial Average (DJX: .DJI -3.03%) ended the day down more than a thousand points. Percentage drops for the S&P 500 (SP: .INX) and Nasdaq Composite (NASDAQ: .IXIC) were also in the 3% to 4% range.

Data source: Yahoo! Finance

Among large-cap stocks, there were only a handful of gainers as most share prices followed the broader market lower. Some now fear that the rebound that the market saw from mid-June to about a week ago may well prove to have been only a bear market rally, with today's downward move reestablishing a bearish trend that could take market indexes far lower.

There's no way to predict short-term price movements in the stock market. However, efforts to fight inflation, if successful, should result in better long-term results for investors than if the Fed simply backed off and allowed higher price trends to become a permanent feature of the US economy.

Stubborn inflation

The big question still facing investors is whether inflation has peaked. Many of those watching economic data were pleased to see the upward moves in the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE) start to moderate recently. However, just because inflation has stopped accelerating doesn't mean that it's under control.

The latest numbers from the Bureau of Economic Analysis on the PCE tell the story well. The headline number that most people emphasised was that the price index fell 0.1% in July, with goods prices falling 0.4%.

However, looking more closely at what goes into the PCE price index gives a more complete picture. Much of the downward pressure on the index came from a 7.7% drop in the sub-index for gasoline and other energy goods. That by itself was enough to send nondurable goods prices down half a percent, even as food and beverage prices jumped 1.3% month over month.

Some other key components showed continued rises. Housing and utility costs were up 0.6% for the month, extending their gain over the past 12 months to 7%.

Perhaps most importantly, even larger declines in a single month wouldn't by themselves reverse adverse trends. Energy costs are still more than 45% higher than they were this time last year. Food and beverages are up nearly 12% year over year, and even when you exclude food and energy, core PCE prices are up 4.6% since July 2021 — more than double the 2% target that the Fed pursues.

Is a recession worth long-term prosperity?

Investors worry that a prolonged set of interest-rate increases from the Fed will push the economy into recession and restrain business activity. If that view from the Fed was unexpectedly hawkish, then it could leave stock market participants facing downward revisions on earnings estimates that could send stock prices lower once again.

In the long run, though, the impact of inflation on stock prices historically has been more difficult to overcome than short-term business cycle fluctuations. When you look back at recent bouts of inflation in the 1970s and early 1980s, for instance, you'll notice significant volatility in stock markets that led to subpar returns. Only when inflationary pressures were resolved did solid bull markets result, and the long bull markets of the 1990s, mid-2000s, and 2010s all came in economic environments with little or no inflation.

It's indeed possible that a central bank with tight monetary policy might bring short-term pain to the stock market and an end to what might materialise as a bear market rally. However, I believe investors will be happier with this outcome in the long run than they would be with sustained inflation and the complications that come with it.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Did the Fed just kill the bear market rally? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) has been stuck in a bear market for quite a while now, and some investors are getting impatient for a recovery. Yet even as some other major market benchmarks have managed to move closer to their former high-water marks, the Nasdaq is still more than 22% below its record high from late 2021.

The key to the Nasdaq returning to all-time highs will be for the fast-growing companies that sent the index to record levels to regain their former momentum. Unfortunately, although some businesses have rebounded, others are still seeing ongoing challenges. That's what investors are seeing from the latest financial results from Autodesk (NASDAQ: ADSK) and Splunk (NASDAQ: SPLK) on Thursday morning, and the wide disparities in how shareholders are responding to those reports suggest that new all-time highs could still be a long way away.

Autodesk paints a pretty picture

Shares of Autodesk were up almost 9% near the open on Thursday morning. The company behind the popular AutoCAD software package for design use saw solid gains in its fiscal second-quarter report.

Autodesk's key performance metrics were encouraging. Revenue and billings for the quarter ended July 31 were both up 17% from year-earlier levels. Autodesk reported significant improvement in operating margin, with gains of 5 to 6 percentage points from where they were 12 months ago. Net revenue retention rates remained between 100% and 110%, and adjusted earnings of $1.65 per share jumped 36% year over year.

Revenue gains were consistent across geographies and product offerings. Interestingly, the AutoCAD segment saw the weakest change in year-over-year sales, but even there, a 13% rise showed the overall strength of demand for Autodesk's software.

Autodesk is upbeat about its future prospects, projecting total revenue of $4.985 billion to $5.035 billion for the current fiscal year. Adjusted earnings of $6.52 to $6.71 per share would also make shareholders happy, and with more than $2 billion in free cash flow anticipated for fiscal 2023, Autodesk is in a strong position to keep making smart moves to bolster its growth and find new pathways for success.

Splunk stock goes thunk

However, shareholders in Splunk weren't as fortunate. The stock fell 11% in early morning trading Thursday even after the data platform provider announced solid revenue gains in its fiscal second quarter.

Splunk's backward-looking numbers for the quarter ending July 31 were strong. Total revenue amounted to nearly $800 million, up 32% year over year and supported by a 59% jump in cloud-based sales. Splunk's cloud dollar-based net retention rate weighed in at 129%, showing solid loyalty from existing customers. The company now boasts 723 customers producing $1 million or more in annual recurring revenue, up 24% from where the number was 12 months ago.

However, Splunk's guidance for the near future didn't live up to high expectations. The company sees revenue of $835 million to $855 million in the third quarter, which would indicate an ongoing slowing in sequential sales gains. Even though Splunk boosted its full-year sales guidance to a new range of $3.35 billion to $3.4 billion, investors seemed disappointed by the implied annual revenue growth to roughly 26%.

The key to success for Splunk and most of its Nasdaq peers is whether they can keep drawing in new business for the products and services they provide. With so much uncertainty on the macroeconomic front, any sign that a company might not be able to sustain past growth rates results in the stock of that company getting punished. As long as investors have that attitude, it's going to be hard for the Nasdaq to work its way out of its current bear market.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here's why the Nasdaq might not hit new highs soon appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Treasury Wine Estates vs Temple & Webster: Which beaten down ASX stock is better value?
• 4 ASX shares that pay a dividend yield of 8% (or more)
• 2 ASX blue chip shares that won't be hit by $100 oil
• Lovisa vs Universal Store shares: Which ASX retail stock is the better buy today?

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Autodesk. The Motley Fool Australia has recommended Autodesk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.