Author: admiin

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U.S. stock futures headed higher Friday morning, setting the three main equity gauges up for new records in just the third week of the year, after data showed China’s economic growth picked up in December, though annual growth was the weakest in about three decades.

Gains have been mostly aided by an apparent detente between China and the U.S. and corporate quarterly results which have helped to extend the view that the U.S. will avoid a recession in 2020.

How are benchmarks faring?

Futures for the Dow Jones Industrial Average YMH20, +0.21% gained 74 points, or 0.2%, at 29,311, while those for the S&P 500 index ESH20, +0.22% rose 8.35 points, or 0.3%, at 3,324.75, while Nasdaq-100 futures NQH20, +0.36% advanced 34.50 points, or 0.4%, to 9,168.

On Thursday, the Dow DJIA, +0.92% gained 267.42 points, or 0.92%, to 29,297.64, the S&P 500 SPX, +0.84% advanced 27.52 points, or 0.84%, to 3,316.81, while Nasdaq Composite Index COMP, +1.06% added 98.44 points, or 1.06%, to 9,357.13.

For the week, as of Thursday’s close of trade, the Dow and S&P 500 are on pace for their second straight weekly gain. The blue-chip gauge is up 1.6% for the week, on pace for its best weekly advance since Aug. 30. The S&P 500 is headed for a 1.8% gain for the week, which would mark its best return since the week ended Sept. 6. Meanwhile, the Nasdaq is on track for a 1.9% return for the week, which would mark its best return since the period ended Dec. 20 and its sixth weekly gain in a row.

What’s driving the market?

Wall Street is in rally mode, undeterred by China reporting its worst annual growth in three decades of 6.1%. To be sure, the reading was in line with economists’ consensus expectations and many investors saw positive takeaways from the economic report from the world’s second-largest economy.

Indeed, China’s economic growth picked up in December, marking the fastest pace monthly expansion since last March.

“The data was in line with expectations but there were positive surprises from the monthly indicators, with both industrial output and retail sales beating the forecasts in December and pointing to a possible quickening in growth momentum towards the end of 2019,” wrote Raffi Boyadjian, senior investment analyst at XM Markets, in a daily research note.

“There seems to be no stopping to Wall Street’s rally lately as all three main indexes closed at a record high for yet another day on Thursday as there was nothing to dampen the risk-on mood that’s been driving the markets since early December when the ‘phase one’ deal was announced,” he wrote.

Markets extended gains on Thursday on the back of the signing of the first phase of a Sino-American trade agreement in Washington but also investors got an added jolt after the Senate passed a revised trade deal between the U.S., Mexico and Canada.

Looking ahead, investors are awaiting a report on U.S. housing starts and building permits for December at 8:30 a.m. Eastern Time, a reading of industrial production at 9:15 a.m., and at 10 a.m., reports on job openings and consumer sentiment.

Meanwhile, Managing Director Georgieva of the International Monetary Fund is due to speak at the Peterson Institute at 10 a.m.

Which stocks are in focus?

Google-parent Alphabet Inc. GOOG, +0.87% GOOGL, +0.76% just joined the $1 trillion club, closing above that market capitalization mark on Thursday. Shares of Google’s Class A shares are up 0.6%.

Schlumberger SLB, +1.17%  shares were up 2.5% in premarket trade after the oil-services company reported fourth-quarter profit and revenue that exceeded expectations.

State Street STT, -0.09%  was scheduled to report results. The company’s stock was moving 3.2% higher in premarket action.

Shares of CSX Corp. CSX, +2.33%  fell 2.8% in off-hours trade, after the railroad operator posted revenue in the fourth quarter that fell more than analysts had expected, in a Thursday afternoon release.

Gap Inc. GPS, +3.85%  shares were in focus after it announced late Thursday that it has cancelled plans to spin off its Old Navy brand. The retailer’s stock was up 3.2% in the premarket.

How are other markets trading?

In bond markets, the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +0.58%  edged 1 basis point higher to 1.812%.

Crude oil prices were on the rise, with the cost of a barrel of West Texas Intermediate crude CLG20, +0.51%  for February delivery gaining 15 cents, or 0.3% to $58.67. In precious metals, gold GCG20, +0.59%  rose $8.10, or 0.5%, to $1558.50 an ounce.

The value of the U.S. dollar DXY, +0.17%  rose 0.2% relative to a basket of its peers.

In Europe, stocks were rallying, as reflected by a 0.9% gain for the Stoxx Europe 600 SXXP, +0.92%.

Asian stocks gained overnight, as the China CSI 300 000300, +0.14%  rose 0.1%, Japan’s Nikkei 225 NIK, +0.45%  added 0.5% and Hong Kong’s Hang Seng index HSI, +0.60%  advanced 0.6%.

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Shares of Signet Jewelers Ltd. blasted off Thursday, to their biggest one-day gain since the early-1990s, after a strong holiday performance helped flip the fourth-quarter sales outlook to growth from a decline.

The company, which retail store brands include Kay Jewelers, Zales and Jared, said total same-store sales for the nine-weeks ended Jan. 4 rose 1.6% above year-ago levels, as 13.5% growth in digital sales helped offset a 0.2% decline in brick-and-mortar sales.

Among the self-proclaimed world’s largest diamond jewelry retailer’s SIG, +40.20%  store brands, holiday-period same-store sales rose 0.2% for Kay, increased 5.4% for Zales, fell 3.5% for Jared, grew 6.9% for Piercing Pagoda, jumped 26.9% for James Allen and were up 4.5% for Peoples.

As a result, Signet said it now expects same-store sales for the fiscal fourth quarter, which ends in January, to be up 0.1%, compared with the guidance range provided on Dec. 5 of down 4.0% to 2.0%. Net sales are now expected to be $2.12 billion, above previous guidance of $2.03 billion to $2.07 billion.

The stock rocketed 40.2% on heavy volume in midday trading Thursday. That was the biggest one-day percentage gain since it rose 42.9% on Oct. 13, 1992, according to FactSet data. Trading volume swelled to 25.3 million shares, compared with the full-day average of about 2.5 million shares.

Signet also raised its guidance for net earnings per share to $3.42 to $3.56 from $2.99 to $3.26, and for adjusted EPS to $3.44 to $3.52 of from $3.01 to $3.16. The FactSet consensus for adjusted EPS was $3.26.

“Product newness, investments in our digital capabilities, and more targeted marketing campaigns drove both e-commerce and brick and mortar growth in North America,” said Chief Executive Virginia Drosos.

In North America, same-store sales grew 2.0%, as growth in bridal and fashion offset declines in beads and watches. E-Commerce sales rose 13.3% and brick-and-mortar same-store sales increased 0.4%.

Signet’s surprisingly strong performance comes after a disappointing holiday-period sales reports from a number of retailers, including Target Corp. TGT, -0.58%  , GameStop Corp. GME, +0.22%  , Victoria’s Secret-parent L Brands Inc. LB, +2.48%  , Macy’s Inc. M, +0.63%  and Kohl’s Corp. KSS, +0.66%  

Signet’s stock, which is headed for the highest close in a year, had now nearly tripled (up 175%) since it closed at a 10-year low of $11.01 on Sept. 4, 2019, which was a far cry from the Oct. 30, 2015 record close of $150.94. Read more about Signet’s fiscal third-quarter results.

After the stock lost 31.6% in 2019, to extend its record yearly losing streak to five years, it started 2020 with a 12.9% plunge, after Wells Fargo analyst Ike Boruchow turned bearish, citing expectations of a continued decline in consumer interest.

It has run up 38.6% year to date, while the SPDR S&P Retail exchange-traded fund XRT, +1.30%  has slipped 0.2% and the S&P 500 index SPX, +0.84%  has edged up 2.7%.

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Markets appear to be impressed by the substance of the U.S.-China trade deal, unveiled by President Trump at a White House signing ceremony Wednesday.

The Dow Jones Industrial Average DJIA, +0.92%, S&P 500 SPX, +0.84%  and Nasdaq Composite COMP, +1.06%  indexes all surged to new intraday records on Wednesday, with further gains on Thursday, in the wake of the deal’s announcement, with investors and analysts praising the details found in the 96-page document.

“The critics of the trade deal underestimate some of the accomplishments the Trump administration was able to achieve,” Michael Arone, chief investment strategist with State Street Global Advisors told MarketWatch.

He added that the market wasn’t expecting China to commit to purchasing as much as $200 billion in additional U.S. imports over 2017 levels in calendar years 2020 and 2021, nor did investors predict that manufacturing and energy products would compose such a large portion — $115 billion — of the overall commitment.

Arone also lauded the new bilateral dispute mechanism that will give U.S. companies a new avenue for raising complaints about intellectual property and an enforcement mechanism backed by the threat of new tariffs.

“These are solid achievements,” Arone said. “There’s real teeth to this deal.”

Unfortunately for stock-market bulls, however, investors and analysts told MarketWatch that the deal will likely fall short in creating an environment of certainty for businesses hoping to plan new capital investments — and therefore fail to boost economic or corporate profit growth.

David Bahnsen, chief investment officer of The Bahnsen Group, which manages $2 billion, said, “It strikes me as incredibly obvious that there will be more volatility and trade flip-flopping, more threats” by the president to major trade partners.

Bahnsen said these new threats could be toward China, if it isn’t acting aggressively enough to meet import targets, but that Europe is also a likely target. “The president won’t suffer politically with his base to start jawboning Europe, and yet it would create volatility in the market that isn’t currently appreciated.”

The White House has threatened to impose tariffs on $2.4 billion in French exports in response to a new digital tax France instituted, which the administration says is aimed at U.S. firms. In October, the Trump administration imposed new levies on $7.5 billion of EU exports, in retaliation for what the World Trade Organization agreed is unfair subsidies to Leiden, Netherlands-based aerospace company Airbus SE AIR, +2.50%, and it has still hasn’t revoked threats to impose tariffs on European auto parts and automobiles, which analysts have predicted would be a major problem for auto makers globally.

Meanwhile, the trade deal only rolled back a fraction of the new tariffs imposed by the U.S. and China during the past two years, with the U.S. keeping tariffs of between 7.5% and 25% on $370 billion in Chinese exports and China maintaining retaliatory duties on $110 billion in U.S. exports. JPMorgan analyst Dubravko Lakos-Bujas estimated that these already-existing tariffs are imposing an annual cost of $600 per American household and $5 in per-share earnings for the S&P 500.

“Nothing in phase one will specifically add much to global [economic] growth,” wrote Tom Essaye, president of the Sevens Report in a Thursday note to clients. “All we need to do is look to Treasurys and market internals to see that.”

“Yesterday, on a day when the trade war truce became official, the 10-year Treasury TMUBMUSD10Y, +0.58%  yield fell to a six-week low an the yield compressed further,” he said. “Similarly, cyclical stock sectors, which stand to benefit the most from a rebound in global growth, lagged behind defensive sectors.” That said, the benchmark bond has mostly been trading in a range between 1.71%-1.95% in January.

Some strategists make the case that, despite major equity benchmarks marching to new highs, the fundamental case for current valuations is becoming weaker, given tepid earnings growth, and likely won’t be helped much by the effects of a trade truce.

Another headwind that could blunt economic benefits of the deal is rising political uncertainty, as the outcomes of both congressional and presidential elections foster an element of uncertainty that isn’t ideal for business planning. The outcome for the 2020 presidential race and the composition of Congress are acutely significant because the economic policy platforms of the Republican and Democratic parties are as divergent as they have been in generations, increasing the potential for volatility on corporate business strategies, notably surrounding tax rates and regulatory posture.

“Investors have set themselves up for some disappointment if we don’t see follow through to much better numbers going forward.” said State Street’s Arone. “It will likely take a couple quarters to play out, that’s why investors are underestimating the impact of a too-close-to-call election on business confidence.”

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Some investors are concerned the U.S. stock market may have gotten ahead of itself because price-to-earnings valuations have increased so significantly. The same couldn’t be said of the big U.S. banks.

In a report Jan. 8, D.A. Davidson analyst David Konrad said his team is “constructive” on the group because the P/E multiples are at the lowest levels since the financial crisis a little over a decade ago, expanding returns on equity (ROE), as well as what he called “improving business models” and “better clarity on regulations.”

This chart shows the movement of trailing price-to-earnings ratios for the S&P 500 banking industry group and the entire S&P 500 Index SPX, +0.84%  over the past three years, as calculated by FactSet:

FactSet

So FactSet’s figures are in line with Konrad’s. The banks are trading for 11.7 times trailing earnings, which is 54% of the S&P 500’s valuation of 21.6 times trailing earnings. Three years ago, the banks traded at a trailing P/E of 14.6, which was 76% of the S&P 500’s trailing P/E of 19.3.

Some investors will prefer to consider forward P/E valuations, based on consensus earnings estimates for a rolling forward 12 months:

FactSet

The banks’ forward P/E ratio is the same as the trailing: 11.7 times consensus earnings estimates. That’s 63% of the forward P/E of 18.5 for the entire S&P 500. Three years ago, the banks were trading at a forward P/E of 13.4, which was 78% of the S&P’s forward P/E of 17.2.

So on either P/E basis, bank valuations have fallen, while S&P 500 valuations have increased. For the full S&P 500, the forward P/E is at its highest level since June 2002, except for a brief period in early 2018.

Banks increase earnings

During 2019, the S&P 500 returned an astounding 31.5%, with dividends reinvested, and the banks did even better, returning 40.6%.

But for the S&P 500, the excellent performance wasn’t driven by earnings growth. Analysts polled by FactSet estimate that weighted aggregate earnings per share for the index were up only 1% in 2019.

So “multiple expansion” accounts for much of the stellar return, which simply means investors were willing to pay more for stocks, as the Federal Reserve changed direction and lowered short-term interest rates three times, and central banks in Europe and Japan continued their unprecedented negative-rate policies.

The S&P 500, with a dividend yield of 1.82%, has its attractions when compared with negative interest rates outside the U.S. and the 1.80% yield on 10-year U.S. Treasury notes TMUBMUSD10Y, +0.58%.

For big banks, the earnings situation has been much better. Analysts estimate the S&P 500 banking industry group increased its earnings per share by 9% in 2019, despite the challenges to interest-rate spreads from the Fed’s change in policy. Banks’ earnings per share increases are driven, in part, by continued share buybacks, as regulators allow them to deploy excess capital. Increases in dividends also attract investors.

Holding all the cards

In an interview Jan. 16, Mark Doctoroff, the global co-head of MUFG’s Financial Institutions Group, said the narrowing of net interest margins caused by the Fed’s rate cuts affects regional banks much more than the largest U.S. banks, which are less reliant on loan growth and interest income.

One reason bank’s P/E valuations are relatively modest is that many investors believe the U.S. economy, with unemployment equal to its lowest level in 50 years, seems to be at a “top” for this cycle.

“Who wants to buy at a high?” he asked.

On a more positive note, Doctoroff said “the big U.S. banks are in the one place with interest rates and a strong consumer.” He emphasized that the asset-management business is a consumer business, and its importance to earnings growth for the biggest U.S. banks.

“When the assets go up, the fees go up,” he said.

Doctoroff said the largest U.S. banks have been taking wholesale business away from Deutsche Bank DB, +1.55% and other European competitors.

“If you are a global bank with a large consumer franchise in the U.S., you have two things powering you to success,” he said.

Fourth-quarter earnings

Here are comparisons of quarterly and annual EPS and return on common equity (ROCE) figures for the “big six” U.S. banks.

First, EPS:

Bank Ticker EPS – 2019 EPS – 2018 EPS – Q4, 2019 EPS – Q3, 2019 EPS – Q4, 2018
J.P. Morgan Chase & Co. JPM, +0.39% $10.72 $9.00 $2.57 $2.68 $1.98
Bank of America Corp. BAC, +0.14% $2.75 $2.61 $0.74 $0.56 $0.70
Citigroup Inc. C, -0.30% $8.04 $6.68 $2.15 $2.07 $1.64
Wells Fargo & Co. WFC, +1.92% $4.05 $4.28 $0.60 $0.92 $1.21
Goldman Sachs Group Inc. GS, +1.84% $21.03 $25.27 $4.69 $4.79 $6.04
Morgan Stanley MS, +6.61% $5.19 $4.73 $1.30 $1.27 $0.80
Sources: FactSet, Morgan Stanley earnings release

And now ROCE:

Bank Ticker ROCE – 2019 ROCE – 2018 ROCE – Q4, 2019 ROCE – Q3, 2019 ROCE – Q4, 2019
J.P. Morgan Chase & Co. JPM 14.9% 13.3% 14.9% 14.2% 13.3%
Bank of America Corp. BAC 10.7% 10.9% 10.7% 10.8% 10.9%
Citigroup Inc. C 10.3% 9.3% 10.3% 9.8% 9.3%
Wells Fargo & Co. WFC 10.6% 11.7% 10.6% 12.2% 11.7%
Goldman Sachs Group Inc. GS 9.3% 13.2% 9.3% 10.9% 13.2%
Morgan Stanley MS 11.7% 11.8% 11.3% 11.2% 7.7%
Sources: FactSet, Morgan Stanley earnings release

We have compared the fourth-quarter with the third quarter as well as the year-earlier quarter because the fourth quarter of 2018 was unusually weak. The S&P 500 was down 14% for the quarter and trading revenue suffered accordingly.

The sequential quarterly results show the pressure on net interest margins, with half the group showing EPS declines and half showing lower ROCE. But the full-year comparisons are mostly better, with Wells Fargo WFC, +1.92%  a glaring exception as it continues to work through myriad operational and regulatory problems and new CEO Charles W. Scharf finds his footing. Goldman Sachs GS, +1.84% reported higher-than-expected expenses.

Earnings-report reactions

Oppenheimer analyst Chris Kotowski wrote in a note to clients after Bank of America’s BAC, +0.14%  earnings call that the bank’s results were “solid,” in what might have been “the quarter of peak impact from last year’s rate cuts.” He rates the shares “outperform.”

But Bank of America’s earnings “beat” was fueled by lower provisions for loan-loss reserves and a lower-than-expected effective tax rate, according to KBW analyst Brian Kleinhanzl.

The analyst maintained his neutral rating on the shares, and wrote in a report: “[W]e need to see catalysts emerge that will push earnings growth higher at BAC to get more constructive, but a flattish yield curve and sluggish economic growth make positive catalysts hard to come by.”

For Citigroup C, -0.30%, leaving aside “various gains and tax benefits in both years,” Kotowski said annual trends remained “up and to the right,” which he believes is “the main thing that drives bank stocks.” The analyst rates Citi “outperform.”

J.P. Morgan Chase JPM, +0.39%  is generally considered the best-in-class performer among the largest U.S. banks. Odeon analyst Richard Bove wrote in a note Jan. 14: “The stock is reaching valuation highs as investors may put this company in a different category than all other banks, recognizing its management excellence and ability to create strong earnings.”

Morgan Stanley’s MS, +6.61%  shares were up as much as 8% on Thursday after the company’s management highlighted aggressive two-year goals during its earnings call.

Sell-side summary

Here’s a summary of forward P/E ratios and analysts’ ratings and price targets for the big six U.S. banks:

Bank Ticker Forward P/E Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – Jan. 15 Consensus price target Implied 12-month upside potential
J.P. Morgan Chase & Co. JPM, +0.39%   12.7 31% 54% 15% $136.72 $139.52 2%
Bank of America Corp. BAC, +0.14%   11.4 54% 38% 8% $34.67 $37.38 8%
Citigroup Inc. C, -0.30%   9.4 81% 15% 4% $81.24 $91.10 12%
Wells Fargo & Co. WFC, +1.92%   11.7 12% 61% 27% $48.32 $50.91 5%
Goldman Sachs Group Inc. GS, +1.84%   10.0 58% 34% 8% $245.21 $261.75 7%
Morgan Stanley MS, +6.61%   10.7 70% 26% 4% $52.94 $56.92 8%
Source: FactSet

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Three weeks into the new year and there really haven’t been that many surprises.

Stocks keep reaching new records, and companies with what one could charitably say are elevated valuations, like plant-based food company Beyond Meat and car maker Tesla, are back in fashion. A brief flare-up of tensions in the Middle East seems to have been quickly relegated to history. The impeachment trial for President Donald Trump looks like it will be short-lived.

So take Credit Suisse global strategy team’s annual surprise predictions with a grain of salt, and even the investment bank takes pains to insist this isn’t a set of expectations for the year. But the predictions do pose some interesting food for thought.

First, a few positive surprises. Credit Suisse outlines a scenario where the S&P 500 SPX, +0.84%  surges another 25%. Reasons for such a melt-up include the equity risk premium—the return of stocks over government bonds—being too high, flows into stocks being cautious and monetary conditions being loose.

Another possible surprise is Japan being the best performing region. Reason for such performance include Japan trading on a 35% discount to global markets, it being the most leveraged to a global recovery and foreign investors appearing to be underweight.

Now for a few ghastly shockers.

One is where China’s gross domestic product growth slumps to below 4%. The Credit Suisse team warns of a triple bubble in credit, real estate and investment, and says that in Japan, the U.S., Ireland and Spain, recessions happened within a year of house prices falling. Housing accounts for half of household wealth, 9.5% of GDP, nearly a quarter of local government revenue and a quarter of bank’s assets, it says.

Another would be technology stocks underperforming. Global technology is overbought, the sell side is very positive on the semiconductor sector, and, statistically, the best-performing three sectors in the U.S. and Europe tend to underperform the following year. Plus, regulatory headwinds are increasing.

A funding crisis in Italy is another nasty surprise the Credit Suisse team imagines. Italy’s per capita growth is the weakest in Europe, it is losing export market share, it has one of the lowest levels of secondary education in Europe, and very challenging demographics. Either a political crisis—Italy is no stranger to those—or a downgrade of Italian debt by credit-rating firms could trigger such a crisis, which could drive spreads on Italian government bonds versus German debt much higher, trigger an Italian recession, and weigh on European stocks.

Other possible surprises: the euro EURUSD, -0.2155%  surging; oil CL.1, +0.39%  being a top-performing sector; green-related public infrastructure spending taking off; U.S. bond yields reaching 3% and credit being the worst-performing assets after adjusting for risk.

The buzz

China reported its worst annual growth in three decades of 6.1%. Industrial production and retail sales data from the world’s second-largest economy was well-received, however.

In the U.S., data on housing starts, industrial production, job openings and consumer sentiment is on tap. In the U.K., retail sales disappointed, further raising the odds of an interest-rate cut at the Bank of England’s January 30 meeting.

Google owner Alphabet GOOGL, +0.76%  became the third technology giant to reach $1 trillion by market capitalization. Retailer Gap GPS, +3.85%  may climb after canceling a plan to spin off its Old Navy brand.

Trump officially nominated Judy Shelton and Christopher Waller to the Federal Reserve Board, in what could lead to contentious hearings in the U.S. Senate.

The markets

U.S. stock futures ES00, +0.23% YM00, +0.25%  pointed to further gains after the fourth record finish for the Dow Jones Industrial Average DJIA, +0.92%.

Gold and oil futures rose. European SXXP, +0.91%   and Asian ADOW, +0.49%   stocks gained ground.

Random reads

Without warning, rapper Eminem has released a new album.

ABC News examines the business dealings of the young brother of former Vice President Joe Biden.

A horse on the loose ended up taking the bus.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

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London stocks rose and the pound fell on Friday, after disappointing sales data drove up expectations for an interest-rate cut when the Bank of England’s Monetary Policy Committee meets at the end of the month.

The FTSE 100 index UKX, +1.03%  rose 0.9% to 7,678.24, and was poised to gain 1.2% for the week. That is as the pound GBPUSD, -0.2676%  fell 0.3% to $1.3033, continuing to push lower after previous data showed December retail sales falling 0.6%.

“Economists were expecting an increase of 0.5%, so the reading was a big miss on forecasts,” said David Madden, market analyst at CMC Markets, in a note to clients. Stripping out fuel, retail sales fell 0.8%, against expectations for 0.7% growth.

“Seeing as the December report includes the important Christmas period, the sharp fall is particularity distressing. The markets are now pricing in a roughly 70% chance of an interest-rate cut from the Bank of England—the next meeting will take place later this month,” Madden told clients in a note.

Several Bank of England policy makers have voiced support for an interest-rate cut recently, while data earlier this week showed consumer prices falling, which also helps build a case for policy easing.

Gains in London were in step with positive action across European markets and firmer U.S. stock futures as a positive earnings week and upbeat trade news pushed Wall Street equities to a record on Thursday.

And data on Friday showed the Chinese economy stabilizing, with 2019 growth coming in at 6.1%, news that lifted mining stocks as the country is a big buyer of metals. Shares of Rio Tinto RIO, +0.27% RIO, +3.07%  rose 2%, and BHP BHP, +2.80% was up 1.8%.

Shares of NMC Health NMC, +6.97%  climbed 7% after the private health care operator said it would hire a former director of the Federal Bureau of Investigation, Louis Freeh, and his firm to look into questions raised by short seller Muddy Waters over the company’s finances.

Ashtead Group AHT, +4.82%  shares shot up 5% after the machinery rental company was upgraded to overweight from equalweight at Morgan Stanley.

International Consolidated Airlines Group IAG, +6.70%  shares rose 6.5%, leading London gainers after the multinational airline holding company removed the cap on ownership of shares by non-EU investors.

“This removes an overhang on the shares from the last year and should be taken positively by the market,” said Daniel Röska and Alex Irving, analysts at AB Bernstein, in a note to clients.

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Want to improve your investment results? The deadly sins below are not only among the most serious financial transgressions, but also they’re among the most common. I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio.

1. Pride: Thinking you can beat the market by picking individual stocks, selecting actively managed funds or timing the market.

Antidote: Humility. By humbly accepting “average” returns through low-cost index funds, you will—paradoxically—outperform the majority of investors.

2. Greed: Having an overly aggressive asset allocation.

Antidote: Moderation. Follow the great Benjamin Graham’s advice and keep no more than 75% of your portfolio in stocks. Once you determine your asset allocation, doggedly maintain it through thick and thin by rebalancing periodically.

3. Lust: Being addicted to financial pornography. Financial pornography—think CNBC and Fox Business—may be entertaining, but it has no lasting value and is actually harmful to your financial health by promoting short-termism.

Antidote: Turn off financial media and delete financial apps from your smartphone.

4. Envy: Chasing performance. This sin trips up more investors than any other. It ultimately leads to the cardinal sin of “buying high and selling low.”

Antidote: Stop comparing your investment performance to that of others. Success is not measured by relative performance, but by whether you meet your own financial goals.

5. Gluttony: Failing to save. You may be a financial saint in every other respect, but—if you fail to save—it’s game over. You can’t invest what you haven’t saved.

Antidote: Start saving something today. Slowly raise your savings rate over time.

6. Impatience: Lacking investing stamina has dire consequences. Patience in financial markets is measured in years, sometimes decades. The first decade of the 21st century was not kind to U.S. stock investors, who lost a cumulative 9%. If you had bailed on U.S. stocks in 2009, you would have missed out on the following decade’s glorious rebound, with annualized returns of over 16%.

Antidote: Patience and a knowledge of financial history. While history doesn’t necessarily repeat, it does rhyme. What history has shown time and again is that markets mean revert—that is, sharp declines are typically followed by rebounds.

7. Sloth: Not contributing enough to get your employer’s full 401(k) match. This is like walking past $100 bills on the sidewalk and being too lazy to pick them up. Similarly, make the effort to rebalance. While doing less is generally beneficial when investing, failing to rebalance is the exception to the rule.

Antidote: If you’re too lazy to rebalance, sign up for a low-cost target-date fund, which will rebalance for you. The antidote for not getting your 401(k) match? Just do it.

Read: How to shop for a target-date fund

8. Fear: Having an overly cautious asset allocation. This investing sin is easy to overlook, because inflation is so insidious. Inflation reduces our money’s purchasing power by some 2% to 3% a year. Hiding out in cash investments guarantees you an inflation-adjusted loss of 1% to 2% annually.

Antidote: Overcome your fear of stocks by understanding their historical returns. History suggests that, while there’s a 46% chance that the S&P 500 SPX, +0.84%  will be down on any given day and a 27% chance you’ll lose money in any given year, the odds of losing fall to 5% over 10-year stretches and 0% over 20-year holding periods.

9. Imprudence: Failing to diversify. This is a surefire road to the poorhouse. Consider the lesson of the Japanese stock market. The Nikkei 225 NIK, +0.45% —analogous to our S&P 500—reached an all-time high of 38,915 in December 1989, before ultimately declining 82% to close at 7,055 on March 10, 2009. Even today, the Nikkei 225 remains about 40% below the peak reached 30 years ago. This should give serious pause to those who advocate investing in a single national market.

Antidote: Diversify, diversify, diversify—by owning both stocks and bonds, by owning thousands of securities through index funds, and by funding traditional retirement accounts, Roth accounts and regular taxable accounts.

10. Negligence: Mixing investing and insurance through variable annuities, equity-indexed annuities and cash-value life insurance. Ever read the entire prospectus for an annuity? I didn’t think so.

Antidote: Keep your investments and insurance separate, with one notable exception: immediate fixed annuities.

11. Hyperactivity: Being an overly active investor. It might seem counterintuitive. But when it comes to investing, it pays to just sit on your hands most of the time. Aside from choosing an asset allocation and rebalancing periodically, further efforts are generally counterproductive.

Antidote: Learn to do nothing, aside from rebalancing once a year or so.

12. Aimlessness: Failing to plan for retirement, including drawing up an investment policy statement. An investment policy statement—a set of ground rules for your portfolio—provides the guardrails against the numerous behavioral pitfalls that investors face. This is probably one of the most overlooked facets of investment planning.

Antidote: Don’t delay another day. Have a retirement plan in place, including a written investment policy statement. Review these documents every year.

John Lim is a physician and author of “How to Raise Your Child’s Financial IQ”, which is available as both a free PDF and a Kindle edition. His previous articles include How Low? Too Low, Solomon on Money and Out on a Lim. Follow John on Twitter @JohnTLim.

This column originally appeared on Humble Dollar. It was published here with permission.

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Grocery chain Albertsons is reportedly planning to go public — and this will be more than just a test of the IPO market’s health.

Albertsons possible IPO will also be a test of claims that privately held companies perform better than publicly traded ones.

Initial indications are that Albertsons will fail this test. Though publicly traded grocers have suffered in recent years from competition from the likes of Amazon.com AMZN, +0.85%  and Walmart WMT, +0.54%  , Albertsons appears to have done no better, and quite possibly worse, than comparable publicly traded grocers.

To be sure, tracking Albertsons’ performance while private is difficult. But we do know that the company went private in January 2006 at a price tag of $17.4 billion and has since undergone a number of restructurings. The company in its current incarnation is preparing for an IPO that would reportedly award it a market value of around $19 billion.

It’s hard to make an apples-to-apples comparison of these two valuations. Consider the performance since January 2006 of seven publicly traded grocery chains. Though none of these seven is exactly comparable to Albertsons, they all have operated in predominantly the same space. Notice from the accompanying chart that the average cumulative gain of these seven, according to FactSet, is over 300%. (For context, consider that the S&P 500 SPX, +0.84%  over this same period produced a cumulative total return of 246%.)

Notice also that six of these seven have outperformed the return represented by Albertsons’ going-private price in 2006 and its projected going-public valuation now.

Surprised? You shouldn’t be. As I discussed in a mid-November column, private-equity firms’ performance claims often are misleading. In that column I reported on research from Nicolas Rabener, founder of London-based FactorResearch, who found that private-equity funds, on average, have not outperformed the stock market on a risk-adjusted basis over the past 30 years.

That means that any apparent outperformance by private-equity funds is most likely due to their greater risk. This is especially important information right now, since investors are increasingly looking to alternative investments such as private equity, since the stock market appears to be so overvalued and the bond market is unable to promise much more than breaking even after inflation.

But, to repeat what we already know but too often overlook, if something looks too good to be true, it probably is.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More about IPOs: The last time this ‘clear danger sign’ flashed in the stock market was in 1999, and we all know what happened next

Also read: Stock investors in 2020 should be careful about partying like it’s 1999

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The FDA is approving new drugs more quickly than ever, and using less-stringent standards to determine whether those drugs actually work, according to a new study published in the peer-reviewed JAMA, the journal of the American Medical Association.

Lead study author Jonathan Darrow, a faculty member at Harvard Medical School, told MarketWatch there had been “an erosion of evidence standards at the FDA” over the past four decades, as FDA programs aimed at speeding up drug development and approval proliferated.

‘There has been an accumulation of special FDA programs over the past 40 years that reduced the amount and the quality of the evidence that’s required for drug approval.’

—A new study published in JAMA, the journal of the American Medical Association

“There has been an accumulation of special FDA programs over the past 40 years that reduced the amount and the quality of the evidence that’s required for drug approval,” he said. These programs have allowed some attributes of clinical evidence to be “more flexible” over time, he added.

The researchers examined FDA databases of approved new drugs and several FDA drug-approval programs, some of which were designed to get life-saving drugs to patients faster. They also looked at the issue of so-called user fees, which drug manufacturers pay to help fund FDA activities.

The study — coauthored by Aaron Kesselheim and Jerry Avorn, professors of medicine at Harvard Medical School — found, in part, that the share of new drugs approvals backed by at least two “pivotal trials” declined from 81% in 1995-1997 to 53% in 2015-2017. Pivotal trials are randomized clinical trials designed to determine whether a drug is effective and safe for humans.

Don’t miss: Federal government bans popular e-cigarette flavors to curb underage vaping

In response to the JAMA article, an FDA spokesman told MarketWatch that “based on a preliminary analysis, the FDA is concerned that the publication’s researchers do not adequately consider the marked changes in the types of drugs that the FDA now reviews and the patient populations targeted by development programs compared to those from 10-20 years ago, nor the type, quality, and extent of data the FDA routinely receives now compared to decades ago as is referenced in the publication.”

A spokesman for the FDA says it’s concerned that the researchers ‘do not adequately consider the marked changes in the types of drugs that the FDA now reviews.’

“For example, statistics used in the study that compare FDA actions on applications from recent years (such as the overall first cycle approval rate, or how many trials the FDA reviewed in an application, or use of surrogate endpoints) relative to actions decades ago, without considering these important factors, are potentially confounded and could result in inaccurate conclusions,” the spokesman said.

The FDA is conducting a detailed review of the JAMA article and its recommendations, he added, and plans to issue a more comprehensive response after analyzing the publication.

The study published in JAMA also found that the agency had increasingly relied on “surrogate” measures to predict actual clinical benefit (for example, using cholesterol levels to predict whether a drug would affect cardiovascular disease risk).

Also see: FDA warns companies to stop making ‘unsubstantiated’ claims about CBD curing cancer and Alzheimer’s

Meanwhile, the median review time for standard and priority drug applications dwindled: It was 2.8 years in 1986-1992, 1.5 years in 1993-2005 and 1.2 years in the 2006 to 2017 period. In 2018, that review time sat at just 10 months for standard applications and less than eight months for priority applications.

“The FDA has increasingly accepted less data and more surrogate measures, and has shortened its review times,” Darrow and his co-authors concluded.

The median review time for standard and priority drug applications dwindled to 10 months in 2018 from 2.8 years three decades ago, the study found.

But for all of the programs designed to expedite FDA review times, there was little movement in overall drug-development time, Darrow added. This could be due to factors like an increase in application submissions for rare-disease drugs or “longer time horizons needed to establish efficacy,” the authors noted.

“These regulatory innovations have not clearly led to an increase in new drug approvals or to reduced total development times,” they wrote.

Darrow and his fellow researchers also found that annual fees received by the FDA from the pharmaceutical industry — a practice authorized by Congress in 1992 to raise money to speed up review times — had ballooned from $29 million in 1993 to $908 million in 2018, when around 80% of drug-review personnel’s salaries came from these user fees.

Of course, the FDA needs to be adequately funded in order to do its job, Darrow said. But “if the majority of funding of FDA personnel comes from industry, the FDA will begin to consider industry as its primary client rather than the public,” he added.

Darrow offered tips on how to be a smart consumer of prescription drugs:

Consider more than drug price. While price is an issue for many patients, Darrow also recommends asking, “Are the benefits of this product worth taking at any cost?” “If the answer is yes, then you can start thinking about whether the benefits are justified by the cost,” he said.

Do some digging. Scour a drug’s patient-package insert and the FDA website for information on the benefits and risks of the medication. Consumer Reports’ Best Buy Drugs provides scientific evidence on the effectiveness of prescription drugs, as well as information on cost and alternative therapies.

Ask about older, similar drugs. Ask whether there’s an older drug that is similar and would work about as well as what the doctor is prescribing. (Older drugs tend to have longer safety records, Darrow said.) Inquire to see if there’s a less-expensive alternative that is similar.

Look for bias. Has your physician ever accepted compensation from the drug’s manufacturer? Databases, including the Centers for Medicare and Medicaid Services’ Open Payments and ProPublica’s Dollars for Docs, can reveal potential ties to the pharmaceutical industry.

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Dear Moneyist,

My 93-year-old father has dementia. He married his second wife, who is 91, four years ago. He did not make a last will and testament, and cannot legally make one now because of his dementia. He is not expected to live much longer because of heart problems. My sister and I are concerned about what will happen to his estate after he dies.

Also see: ‘I’m sick to death of him.’ My 70-year-old boyfriend sits in front of the TV and has no savings — is it too late to tell him to leave?

If he passes away, how much of a right does she have over his property and money, given that they have only been married four years? She says she is in charge of everything and we have no rights to anything. Is this true? She has included her friends, not us, in helping her with decisions made about Dad. I’m lost and don’t know what to do.

Marcia M. in South Carolina

Dear Marcia,

If you believe your stepmother is not acting in your father’s best interests, you should seek legal advice. It does not appear that there is any financial or elder abuse happening here — at least from what you say in your letter — so you may wish to wait until your father passes away to take action. In that case, you could contest your stepmother as the administrator of your father’s estate.

The probate court appoints an administrator, usually the deceased’s spouse or his/her children. You could petition the court to appoint you or your sister, or an independent third party. In most states, you have a limited amount of time to act — typically, 30 days — and it must be done in writing. You would need to provide just cause: dishonesty, incapacity. Personality clashes don’t count.

Also see: My wife and I bailed out our son with his mortgage and car payments, and set up 529s for his kids — yet we have the daughter-in-law from hell

In South Carolina, the estate is divided between the spouse and surviving children if there is no will. Nosal & Jeter, a law firm in Fort Mill, S.C., says intestate laws don’t apply to life-insurance proceeds; funds in an IRA, 401(k) or any other retirement account; or property they own together or property to which your stepmother has the right of survivorship.

Ultimately, your stepmother may be left with fewer assets than she anticipates. I hope you can resolve this situation and ensure that your father is comfortable during the time he has left.

Also see: ‘Nothing is ever his fault, everyone is out to get him.’ Our brother inherited our late mother’s home and it was repossessed. He’s now in prison — do I send him money?

Do you have questions about inheritance, tipping, weddings, family feuds, friends or any tricky issues relating to manners and money? Send them to MarketWatch’s Moneyist and please include the state where you live (no full names will be used).

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Hello there, MarketWatchers. Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas: inheritance, wills, divorce, tipping, gifting. I often talk to lawyers, accountants, financial advisers and other experts, in addition to offering my own thoughts. I receive more letters than I could ever answer, so I’ll be bringing all of that guidance — including some you might not see in these columns — to this group. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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