February 1, 2023

Premarket stocks: Want to avoid debt ceiling fallout? Invest in foreign stocks

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Wall Street analysts say the U.S. may be approaching a 2011-style debt ceiling market meltdown, but worried investors shouldn’t abandon ship. Instead, they should jump On A ship (hypothetically speaking) and invest your money in equities abroad.

What is happening: The US government has dealt a blow to it. $31.4 trillion statutory debt limit And the treasure is taking at this time. Extraordinary measures Just to pay the bills and keep the lights on.

Those extraordinary measures are mostly behind-the-scenes accounting tricks, Treasury Secretary Janet Yellen said. told CNN’s Christiane Amanpour – He added that he may stop working as early as June.

This means that if Congress does not raise the debt ceiling by then, the US could default on its debt. This would “undoubtedly cause a recession in the US economy and could cause a global financial crisis,” Yellen said.

But lawmakers are deadlocked over whether to lift their self-imposed borrowing limit: Democrats want Congress to approve raising the debt ceiling without conditions, but Republican leadership says the debt Any increase in the limit should decrease costs.

Wall Street’s answer: A reduction in the debt ceiling poses a serious risk to investors.

Markets plunged during the last major debt ceiling crisis in 2011. That happened a dozen years ago fooled investors and signaled the loss of America’s top AAA credit rating from S&P. As a result of the credit crunch, the S&P 500 fell 15% and the sectors with the closest revenue ties to U.S. government funding — health care and defense — fell 25%.

So what’s a scared investor to do? Must be a businessman. Be prepared for “worse consequences.” JP Morgan Chief Global Strategist David Kelly said. Kelly told CNN that he should consider creating a “debt ceiling disaster emergency kit” that includes “high-quality international stocks and bonds denominated in foreign currencies.”

Kelly is not alone. In a research note on Friday, European equity strategists at Barclays said Europe and the US were “decoupling” with more upside in Europe. Lisa Shalette, chief investment officer at Morgan Stanley, believes that US investors should consider putting their money into emerging markets this year.

Even if the debt ceiling debate is resolved, it’s still not a bad idea to put some money overseas just in case of a shake-up.

“You diversify because things you don’t expect bite you,” Kelly said. Even without the impairment, he explained, overseas equity is “relatively cheap” and the dollar is still very strong, meaning American investors get a double discount in overseas markets.

Global equity markets have outperformed the S&P 500 since mid-October. The MSCI All-Country World Index (excluding the U.S.) has risen nearly 24 percent since October lows. The S&P 500 has gained about 12% during that time.

Focusing solely on European stock performance, the Euro STOXX benchmark has beaten the S&P 500 by more than 18 percentage points since September. According to Morgan Stanley, this is the most that has outperformed Wall Street in 20 years.

How to do it: Trading overseas is fairly easy because almost every major US financial institution offers global equity funds – some of these offerings are in foreign currencies.

If investors are wondering how much to invest, Kelly has a simple solution. About 60% of global stocks are listed in the U.S. and about 40% of equities are listed elsewhere — a well-rounded portfolio can have a similar distribution, he said.

Of this 40%, about 28% of global stocks are traded on European exchanges and the remaining 12% in emerging markets (mostly in China).

The past few decades have been full of unexpected market downturns, Kelly said. It wouldn’t hurt Americans to invest in foreign equities … just in case.

Wall Street may be hoping for an economic “soft landing” rather than a full-blown recession. News flash: Corporate America isn’t as optimistic as investors are.

Executives at top companies are far less sanguine about the economy’s prospects.

Verizon (VZ) CEO Hans Westberg said during the company’s earnings conference call with analysts on Tuesday that it was a “difficult economic environment” and that there was still “high inflation.”

3M (Mmm) CEO Mike Roman said in his earnings release that “we expect macroeconomic challenges to persist in 2023.” The Post-Sticky Note maker also joined a parade of notable companies announcing job cuts, with plans to lay off about 2,500 workers.

Healthcare giant Johnson & Johnson (JNJ) also discussed concerns about the economy in its earnings call. and General Electric (G.E) 2023 profit outlook was well below forecast.

It seems that the US economy can avoid recession altogether. After all, the Federal Reserve aggressively raised interest rates last year to combat inflation … and the Fed probably hasn’t raised rates yet. This should slow down the economy.

Yes, the labor market is holding up reasonably well. This gives hope that the economy may not fall off a cliff. But there is still likely to be some pain in the job market, as already evidenced by layoff announcements in the tech, financial services, retail and media sectors.

With that in mind, the CFO of credit card company Synchrony (SYF) said on an earnings call Monday that in a “mild recession,” the unemployment rate should be around 5 percent. This is still historically low … but it is much higher than the current level of 3.5%.

The New York Stock Exchange suffered a technical glitch on Tuesday morning that led to a brief trading halt for dozens of major companies shortly after the market opened. As a result of the issue, some trades that took place before the halt will be “null and void,” according to an exchange representative.

In total, more than 250 stocks were affected, including Verizon, McDonald’s, Morgan Stanley, AT&T, Nike, MasterCard, Uber, Wells Fargo, Shell, 3M, Sony, UPS, Visa, Walmart and Big names like ExxonMobil are included. NYSE

Many of these stocks made big moves in just a few minutes in the morning trading session, knocking down shares of companies such as Wells Fargo and Morgan Stanley.

so what? We’re still not sure why (the US Securities and Exchange Commission is investigating the matter), but we do know what.

Stocks typically open for trading on the NYSE at 9:30 a.m. ET, and each stock is assigned an “opening price” determined by the thousands of orders placed overnight and before the early morning opening bell. They gather. The exchange compiles these buy and sell orders and gives a single price format. The price is then entered in the open space and is known as the “Auction Print”.

In an emailed statement, exchange officials said the opening auction “did not take place” for many of those stocks, after a “system problem” prevented accumulated orders from being settled at the opening price of some stocks on Tuesday. . This meant that the shares opened with an imbalance of supply and demand at prices where they closed on Monday.

Trades made before the initial price is printed will be evaluated as “clearly invalid” under their rules and may be voided, the exchange said.

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