Indicators confirm to BofA that U.S. is in downturn and cash beats stocks
Quantitative market indicators watched at Bank of America by a team led by cross-asset and quant strategist Alex Makedon and equity and quant strategist Savita Subramanian confirm that the U.S. economy fell “deeper” into a downturn (from a late economic cycle phase) for a second straight month in February, a report out Tuesday said.
Going back to 1990, similar conditions prevailed seven times, with the downturn lasting an average 12 months (but ranging between six months in 1995-1996 and 19 months during the Global Financial Crisis), BofA said.
What’s more, “Cash IS the alternative now,” BofA said, adding “we see cash as more attractive than equities given our expectation for only 2% to 3% S&P 500 total return this year” compared with a cash yield bear 5% on short-term Treasury bills and the bank’s economists “still expecting a terminal rate of 5.25%-5.5% even after recent developments.”
The best equity investment strategies revolve around those that are based on companies’ cash flow, the team wrote. Those strategies, stressing free cash flow to enterprise value or price to free cash flow ratios, “outperformed the index in previous downturns, especially outside of the zero interest rate policy (ZIRP) era, when cash had little value. These factors remain underowned by active managers and inexpensive vs. history.”
The BofA idea is that stocks offering free cash flow and dividends represent a “bird in hand,” while high P/E, growth stocks are “buy the dream” ideas. Unfortunately for those counting on a revival of leaders from the past, “Long equity duration stocks (`buy the dream’ growth stocks that are most sensitive to funding costs) may have more room to falter,” said BofA.
— Scott Schnipper
Lennar, First Republic among stocks moving after hours
Lennar — The homebuilding stock gained about 3% in extended trading. Lennar beat analysts’ earnings and revenue expectations for the recent quarter, according to Refinitiv. The company posted earnings of $2.06 a share on revenue of $6.49 billion.
First Republic — Shares of the regional bank stock were on the move once again after the bell, last up 8.9%. Other bank names Western Alliance and KeyCorp also rose, gaining about 5% and 3%, respectively.
Read the full list of stocks moving after hours here.
— Samantha Subin
3M — at lowest in 10 years — among 15 new S&P 500 52-week lows on Tuesday
Among the 15 stocks in the S&P 500 that touched fresh 52-week lows on Tuesday was 3M, which fell to its lowest point since Feb. 2013. Once known as Minnesota Mining and Manufacturing, 3M is the only stock in the 15 that’s also in the Dow Jones Industrial Average.
- Dish Network (DISH), lowest since 2009
- Hasbro (HAS), lowest since March 2020
- VF Corp. (VFC), lowest since 2011
- Hormel (HRL), lowest since 2019
- Devon Energy (DVN) , lowest since Jan. 2022
- Centene (CNC), lowest since Oct. 2021
- CVS Health (CVS), lowest since April 2021
- Southwest (LUV), lowest since May 2020
- 3M (MMM), lowest since 2013
- Gen Digital (GEN), lowest since March 2020
- CF Industries (CF), lowest since Feb. 2022
- WestRock (WRK), lowest since August 2020
- Advance Auto Parts (AAP), lowest since May 2020
- Organon (OGN), lowest since spin-off from Merck in June, 2021
- Boston Properties (BXP), lowest since 2009
Three stocks in the S&P 500 touched new 52-week highs on Tuesday:
- Arista Networks (ANET), all-time high back to 2014 IPO
- Cadence Design Systems (CDNS), all-time high back to when ECAD went public in 1987
- GE Healthcare Technologies (GEHC), all-time high back to GE spinoff in Dec. 2022
— Scott Schnipper, Christopher Hayes
