Latest news with #pre-LiberationDay
Business Insider
28-05-2025
- Business
- Business Insider
Investors should brace themselves for another 20% stock market correction this summer, veteran strategist warns
A bear market is coming back just in time for summer, according to David Bianco, the chief investment officer of DWS Group Americas. While the S&P 500 has recovered from its earlier dip on news of trade talks with China and the EU, another steep pullback is in the cards, as Bianco sees a case of "June gloom" on the horizon. "It's very possible for us to go right back to the lows," Bianco told Business Insider. "A number like 5,200 is a real possibility for a summer correction." He's concerned about S&P 500 valuations and doesn't believe the ongoing stock market rally is sustainable. Valuations are back to their pre-Liberation Day levels, yet earnings estimates have dropped and tariff rates are elevated. With the S&P 500 trading above 5,900 at 23x earnings, stocks are definitely not cheap. "Even before Liberation Day, the market was very richly valued," Bianco said. "Valuations are right back to where they were before Liberation Day. The market's just a few percent off from its high, but almost everybody's cut their earnings estimate for the year by at least a few percentage points. We did by 4%." DWS Group expects tariffs to be 14% on average — significantly higher than the 2.5% rate at the beginning of the year. With higher tariff rates and economic uncertainty combined with lower earnings, Bianco doesn't feel like the S&P's high valuation is tenable. The interest rate outlook is further stalling a stock market rally. Many across Wall Street are concerned over rising Treasury yields in response to a growing US fiscal deficit and the recent downgrading of US debt — a development that could signal stagflation. With a trade war damaging international relations, especially with countries that have historically bought US Treasurys, Bianco believes rates have room to rise. "Trade and the demand for Treasurys go hand in hand. If there's less trade, there'll be less demand for Treasurys," Bianco said. "If we're going to reduce trade, we need to figure out how we're going to get Americans to buy Treasurys, and that may require a higher yield." Limited upside Bianco isn't just warning about near-term correction — the strategist also believes the S&P 500's gains will be capped for the year. In his opinion, the market is trading at valuations closer to year-end expectations. "The S&P is overshot," Bianco said. "We've already hit our year-end targets in May already, and investors shouldn't get their hopes up that we'll see even more price appreciation." In Bianco's opinion, if all goes well by the end of the year, meaning that earnings growth is strong and the 10-year Treasury yield stays below 4.5%, investors can expect to see the S&P 500 ending the year around 5,800 to 6,000. "The summer is going to test some of the areas where the S&P was before and see if investors are still confident in the outlook for the economy," Bianco said. How to prepare The stock market volatility won't clear itself up overnight, which is why investors need to have a long-term plan. In light of the tariff volatility, Bianco is underweight on the consumer discretionary, consumer staples, energy, industrials, and materials sectors, as he believes these will be the hardest hit. "These tariffs have yet to really kick in, and we'll see to what extent companies try to offset it, how much they pass forward to consumers, and how consumers react to that," Bianco said. "We need at least six months to figure out what's really happening here with inflation and what the cost of goods are going to be at big retailers in the coming months." Technology may emerge as a bright spot in the economy, as Bianco anticipates the sector will be less rate-sensitive than other parts of the stock market and real estate investments. Bianco is also overweight on financials, utilities, and healthcare. Investors can add exposure to these areas of the stock market through funds such as the Invesco QQQ Trust (QQQ), Financial Select Sector SPDR Fund (XLF), Vanguard Utilities ETF (VPU), and iShares US Healthcare ETF (IYH).
Yahoo
24-05-2025
- Business
- Yahoo
Here's Why UPS Should Cut Its Dividend
Its dividend isn't well covered by its current free cash flow generation. The company is taking measures to improve profitability and return on equity. Cutting the dividend may be in the best interest of long-term investors. 10 stocks we like better than United Parcel Service › There's a good case for buying UPS (NYSE: UPS) stock, and an even better one for buying the stock if it cuts its dividend. It's not just about ensuring that the dividend is adequately supported by cash flow generation in the short term; it's also essential to guarantee that management can fully capitalize on the growth opportunities created by its current actions. In a previous article on UPS, I outlined how management's pre-Liberation Day guidance for 2025 called for $5.7 billion in free cash flow (FCF) when its dividend payment is $5.5 billion, and management plans $1 billion in share buybacks. However, since then, the tariff escalation has undoubtedly impacted the global economy, and UPS declined to update its full-year guidance on its first-quarter earnings call in late April. As such, it's not difficult to see that UPS might be unable to cover its dividend with FCF if it misses its FCF estimate. As for the share buybacks, management has considered debt-financing them as the dividend on the stocks repurchased could be higher than the after-tax debt cost. But here's the thing. Following the same logic, it's not going to make sense to debt-finance a dividend (which UPS may have to do if its FCF falls short of guidance) if the dividend yield is more than the after-tax debt cost. Moreover, there's another major reason to cut the dividend, and it doesn't stem from sustainability considerations. Instead, it comes from the argument that it's in the best interests of shareholders because it frees up resources for management to generate value for them. Fellow writer Sean Williams believes UPS might be a stock Warren Buffett is buying, and in one aspect, UPS is the kind of stock he might buy. Buffett is known for buying stocks that can improve their return on equity, or assets, but not necessarily their revenue or earnings. It's doing so as part of its plan to repurpose its network to handle more selected and higher-margin deliveries. This plan has a few key parts. A conscious decision to reduce low or negative-margin deliveries for by 50% from the start of 2025 to the second half of 2026 -- Amazon made up 11.8% of total company revenue in 2024. Investments in automation and smart facilities will increase productivity, allow UPS to consolidate less-productive facilities, and lower the cost per package. Management plans to grow its small and medium-sized business (SMBs) and healthcare revenue and shift to higher-margin deliveries. On the investor day presentation in March 2024, management outlined plans to double its healthcare revenue from $10 billion in 2023 to $20 billion in 2026 , partly by making acquisitions. These plans sacrifice revenue for increased profitability while consolidating facilities to improve productivity. This all points to increased returns on equity (RoE) and capital employed, as UPS will earn more for less. That's fine and worthy, but there are a couple of key considerations here. First, UPS is making acquisitions in healthcare to achieve its aims. They include the acquisition of European complex healthcare logistics solution provider Frigo-Trans and BPL for an undisclosed sum in January , and an agreement to buy Andlauer Healthcare (logistics and cold chain transportation) for $1.6 billion in April. That said, UPS could be more aggressive in acquisitions to hit its $20 billion target in 2026 if it didn't pay such a large dividend. Second, assuming UPS achieves its aim of generating more from less and improves its potential (RoE) by having a more productive network in place, at this point, it would make sense to start plowing back investment into the business to benefit from an improved ability to generate returns. That's more challenging to do if the company continues paying such a large amount of its earnings and FCF in dividends. Arguably, cutting the dividend would free up resources to invest more in doing things like increasing SMB and healthcare exposure. Ultimately, investors buy equities because they believe management can generate better returns with the money than they can. Suppose UPS is going to achieve its aim of improving profitability and return on equity or assets. In that case, investing more makes sense rather than paying a high percentage of its earnings or cash flow out in dividends. As such, cutting the dividend might encourage the market to reset expectations and feel more positively about UPS' long-term growth prospects rather than stress over its dividend sustainability. Before you buy stock in United Parcel Service, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and United Parcel Service wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $640,662!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $814,127!* Now, it's worth noting Stock Advisor's total average return is 963% — a market-crushing outperformance compared to 168% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy. Here's Why UPS Should Cut Its Dividend was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Insider
20-05-2025
- Business
- Business Insider
Wall Street investors share 3 predictions for what could make or break the stock market's recent rebound
The stock market has been on a winning streak for six days — a welcome change from the downward slide in the days and weeks after " Liberation Day." While Wall Street is feeling more optimistic now than they were earlier this year, a lasting stock-market rally is far from guaranteed. There are a few key factors in particular that could shape the direction of the market for the rest of the year, investors shared in the Evercore ISI Flash Survey. Evercore surveyed over 450 institutional investors on May 16 and found that 45% of respondents expected a US recession to start in 2025. That's down from 67% just a couple of weeks prior, on May 2, but still substantially elevated. Although the S&P 500 has made a round trip back to its pre-Liberation Day levels, the US weighted average tariff rate is still at 14%, significantly elevated from 2.5% at the beginning of the year. Investors are still overwhelmingly pessimistic about the impact of tariffs, with 63% of respondents saying that investors and the global economy are worse off than before the announcement of tariffs. Here's what investors think will determine whether the S&P 500 advances higher. 5% Treasury yields will stop stock-market gains Evercore ISI Treasury yields have been and will be a big topic of discussion this year, according to investors. Of the survey respondents, 48% said a 5% 10-year Treasury yield would stop S&P 500 gains, and another 45% said a yield of 4.75% would be enough. The 10-year yield was near 4.4% on Tuesday. Bond vigilantes, investors who sell in protest of fiscal or monetary policies they don't agree with, have been on high alert this year. In the wake of President Donald Trump's Liberation Day announcement, bond yields spiked as investors sold off their holdings — eventually leading to Trump announcing a 90-day pause. Now, with Moody's downgrading US debt, yields are under even more scrutiny. The yield on the 30-year Treasury bond jumped to 5.02% on Monday, the highest level since late 2023. The "sell America" trade will continue Evercore ISI Investors are leaning toward diversifying outside the US for stock market gains, showing that the " sell America" trade is going strong. While US exceptionalism dominated the stock market in 2024, tariffs have shaken that narrative. Among survey respondents, 35% said the MSCI All World index would be the highest performer from now to 2025 year-end, followed by 31% who said the S&P 500 would take that title. Investors aren't giving up on the Magnificent Seven, though — almost 25% of respondents said those Big Tech stocks would be the top performers for the second half of the year. Tech stocks will continue to perform Evercore ISI Despite everything that's happened in 2025, the tech sector is still an investor favorite. Within the S&P 500, information technology was the most popular sector for investors looking to deploy "fresh money" and buy the dip, as 36% of respondents said it was the most attractive opportunity. Financials were a distant second choice, with 18% of responses.
Business Insider
20-05-2025
- Business
- Business Insider
Wall Street investors share 3 predictions for what could make or break the stock-market rebound
The stock market has been on a winning streak for six days — a welcome change from the downward slide in the days and weeks after " Liberation Day." While Wall Street is feeling more optimistic now than they were earlier this year, a lasting stock-market rally is far from guaranteed. There are a few key factors in particular that could shape the direction of the market for the rest of the year, investors shared in the Evercore ISI Flash Survey. Evercore surveyed over 450 institutional investors on May 16 and found that 45% of respondents expected a US recession to start in 2025. That's down from 67% just a couple of weeks prior, on May 2, but still substantially elevated. Although the S&P 500 has made a round trip back to its pre-Liberation Day levels, the US weighted average tariff rate is still at 14%, significantly elevated from 2.5% at the beginning of the year. Investors are still overwhelmingly pessimistic about the impact of tariffs, with 63% of respondents saying that investors and the global economy are worse off than before the announcement of tariffs. Here's what investors think will determine whether the S&P 500 advances higher. 5% Treasury yields will stop stock-market gains Evercore ISI Treasury yields have been and will be a big topic of discussion this year, according to investors. Of the survey respondents, 48% said a 5% 10-year Treasury yield would stop S&P 500 gains, and another 45% said a yield of 4.75% would be enough. The 10-year yield was near 4.4% on Tuesday. Bond vigilantes, investors who sell in protest of fiscal or monetary policies they don't agree with, have been on high alert this year. In the wake of President Donald Trump's Liberation Day announcement, bond yields spiked as investors sold off their holdings — eventually leading to Trump announcing a 90-day pause. Now, with Moody's downgrading US debt, yields are under even more scrutiny. The yield on the 30-year Treasury bond jumped to 5.02% on Monday, the highest level since late 2023. The "sell America" trade will continue Evercore ISI Investors are leaning toward diversifying outside the US for stock market gains, showing that the " sell America" trade is going strong. While US exceptionalism dominated the stock market in 2024, tariffs have shaken that narrative. Among survey respondents, 35% said the MSCI All World index would be the highest performer from now to 2025 year-end, followed by 31% who said the S&P 500 would take that title. Investors aren't giving up on the Magnificent Seven, though — almost 25% of respondents said those Big Tech stocks would be the top performers for the second half of the year. Tech stocks will continue to perform Evercore ISI Despite everything that's happened in 2025, the tech sector is still an investor favorite. Within the S&P 500, information technology was the most popular sector for investors looking to deploy "fresh money" and buy the dip, as 36% of respondents said it was the most attractive opportunity. Financials were a distant second choice, with 18% of responses.
Mint
20-05-2025
- Business
- Mint
Forget the US downgrade. Here's what really matters to the market.
Investors reacted Monday morning to the U.S.'s credit rating before stocks rebounded later. A better bet is to focus on what really drives stock returns: corporate earnings. The S&P 500 was down early Monday, as investors reacted to the recent decision by Moody's to strip U.S. sovereign debt of its triple-A credit rating. They may be overreacting, While psychologically jarring, history suggests the move will have little impact on stock returns in the longer term. 'The history of U.S. sovereign debt rating agency downgrades spans +10 years and uniformly shows that these actions do not portend higher rates, recession, or lower stock prices," wrote DataTrek analyst Nicholas Colas in a note Monday. 'Over the last 20 years, 10-year Treasury yields were highest when America was AAA rated by all three agencies," Indeed, Colas noted Standard & Poor's cut its rating on U.S. debt all the way back in 2011, and Fitch did so in 2023. Neither move ultimately scared investors away from Treasury bonds, which remained capital markets ultimate safe haven. Meanwhile the S&P 500 has enjoyed one of its best stretches in recent memory. A better way to gauge where stocks are headed may simply be to focus on corporate profits. There has been cause for worry there too, noted Morgan Stanley analyst Michael J. Wilson in a Monday note, but the picture is improving. One of Wilson's preferred gauges is 'earnings revision breadth," a sentiment measure which compares the number of downward earnings revisions issued by Wall Street stock analysts to upward ones. While the earnings revision breadth measure is still bearish, it's improved dramatically in the past few weeks. Wilson notes that breadth for the S&P 500 is now at -15%, up from a low of -25% in mid-April. If that trend continues, the S&P 500 could approach its mid-February highs. 'The combination of upside momentum in revisions breadth and last week's deal with China has placed the S&P 500 firmly back in our pre-Liberation Day range of 5500-6100," Wilson wrote. 'We think continued upward progress in EPS revisions breadth back toward 0% will be needed to break through 6100 on the upside." The S&P 500 hit its all-time high of 6144 on Feb. 19 Among the sectors that have enjoyed the biggest rebounds are media and entertainment, materials, capital goods and tech hardware. By contrast, laggards with worsening outlooks include consumer durables, autos and consumer services. Citi analysts, for their part, are also bearish on consumer stocks, worrying about recent signs that spending by American consumers is slowing. On Friday, the University of Michigan reported its consumer sentiment index slipped to 50.8, its second-lowest reading in more than 40 years. 'We have been [underweight] consumer discretionary and staples stocks this year as the U.S. consumer has been in the crosshairs of tariff policy risk," analysts wrote Friday. 'A worst-case policy impact has seemingly been alleviated, yet recent signs of consumer slowing are concerning." Citi analysis recommended investors who do want to own consumer stocks pick and choose, with an emphasis on defensive names. To that end, they ran a screen hunting for individual stocks, with low cyclicality, high debt-to-capital ratios and high capital expenditures relative to deprecation. Among the names that came up: Walmart, Dollar Tree, Amazon and Procter & Gamble. Write to Ian Salisbury at
