Author Archives: Michael Murphy

Dear New World Investor: None of our stocks reported earnings this week and there hasn’t been a lot of news, so I thought I’d have a discussion with you about the direction I’d like to take New World Investor. I still think we are entering a 15-year upcycle that will transform our country and the world, with many opportunities to invest and build wealth. I spent much of the holiday weekend thinking about how my investment career and skill set should match that opportunity. First, let’s talk about biotech. I’ve been studying biotechnology for over 25 years and, until recently,...

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Dear New World Investor: Sometimes it’s more important to figure out where you are than try to forecast what’s going to happen. This is one of those times. Here are eight things you should be looking at. 1. Let’s start with inflation. As you know, the April Consumer Price Index was reported at +8.3% year-over-year. But the increase from March was at a +4.1% annual rate – down sharply from March’s over-15% from February. It is not enough to just have sustained high prices to have inflation. In order to have sustained inflation, prices have to keep rising at a...

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Dear New World Investor: Well, I know this feels bad. But for the second time in a week, the S&P 500 touched the bear market trigger (3855 – down 20% from its all-time high) and bounced. Yet sentiment is extremely negative. Nearly $81 billion exited stock and bond funds in April – the largest move since March 2020, during the height of pandemic fear. When investors redeem $1.00 from a Nasdaq 100 (QQQ) fund, they are selling 13 cents of Apple, 11 cents of Microsoft, 8 cents of Google, 6 cents of Amazon, and 4 cents of Tesla. That’s 42...

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Dear New World Investor: This is a difficult, miserable market with only a few bright spots. First, virtually everyone is bearish – “investor sentiment is so bearish, it’s bullish.” When everyone who is going to sell has sold, stocks go up. Second, this drop – painful as it is – happens almost every year. The S&P 500 has returned 10% annualized since 1928 with an average intra-year drawdown of -16.3% (we’re at -17.5% this year). There’s no upside without downside, no reward without risk. Click for larger graphic Third, we can see what the sparks might be to turn the...

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Dear New World Investor: Powell giveth and the markets taketh away. Yesterday, the Fed increased the Fed funds rate by 50 basis points – ½ of 1%. It was the first 50 basis rate hike in 22 years but exactly as expected and the market yawned. Then, in his press conference about 45 minutes later, Chairman Powell said 75 basis point hikes are off the table and all heck broke loose. The S&P 500 jumped 124.69 points or 3.0% and the Dow Jones Industrial Average tacked on 932 points – their best one-day percentage gains since 2000. The Nasdaq Composite...

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Dear New World Investor: Earnings season is underway. There are always high-profile misses – looking at you, Netflix – but the key is that overall estimates keep on being revised up. Since the beginning of this earnings season, March quarter S&P 500 earnings have been revised up 2.1% to $52.29 (+6% year-over-year) and full-year 2022 earnings have been revised up 0.3% to $227.98 (+10% year-over-year). The consensus for 2023 is even higher. Click for larger graphic In spite of today’s broad rally, the S&P 500 lost 2.4% since last Thursday and is down 10% year-to-date in correction territory. A 10%...

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Dear New World Investor: March quarter earnings reports so far are pretty good, with the notable exception of Netflix. Our stocks start reporting next week with the big guys – Apple, Corning, Gilead, and Meta – going first, as usual. May 9 is the major Russian holiday marking their defeat of Nazi Germany in 1945, at the end of WW2. It would be a good day for President Putin to declare victory in Ukraine, and announce a cease-fire with a pulling back of Russian troops to Crimea and Donbas. Ukraine President Zelenskyy then could declare victory and announce a cease-fire...

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Dear New World Investor: The headline March Consumer Price Index hit a 40-year high of +8.5%, yet yields fell on Treasury paper because the core CPI excluding food and energy was up “only” 0.3% from February, compared to the 0.5% expected. The core numbers will slow quickly and the Fed’s preferred measure, the cost of Personal Consumer Expenditures, will follow. That will slow the pace of Fed rate hikes. Click for larger graphic The headline year-over-year number should start falling as the base effect (lowish numbers last year) disappears. However, natural gas, oil, gasoline, and food prices are going to...

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Dear New World Investor: Soon to be Fed Vice Chairman Lael Brainard kneecapped the rally by saying the Fed will run down their balance sheet aggressively, perhaps at $95 billion every month, beginning as soon as next month. The 10-year Treasury note closed today with a 2.652% yield while the 2-year closed at 2.468%, so the yield curve is very flat but not inverted. Markets now expect half-point (50 basis points) Fed fund rate increases in May, June, and July to bring the rate to 2.5% to 2.75% by the end of this year. That is now priced in to...

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Dear New World Investor: Yield curve inversions, where shorter-dated Treasury notes yield more than longer-dated notes or bonds, are both feared and poorly understood by investors. In the past, whenever the yield on the 2-year note has risen above the yield on the 10-year note, there’s been a recession within 12 to 18 months. An inverted yield curve not only predicts but directly contributes to sharp economic slowdowns. As refinancing credit short-term becomes prohibitively expensive while markets already price in poor expectations for long-term growth, the economic engine actually slows down and a vicious circle unfolds. But the effect on...

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