ItsMoneyMark Newsletter #71

U.S. Inflation, Earnings Take a Hit, and the Impending U.S. Fed Rate Increase 

Market Outlook 

All these interest rate hikes are not going to help just yet, it will take some time, and the U.S. June inflation number, is evident of that, coming out at 9.1%. Still, a heavy, high number, and really making living and cost of living tough on many. 

The next U.S. Federal Reserve meeting is scheduled for July 27, 2022, and U.S. analysts are highly expecting a whopping 100 bps, or 1% rate hike. Impact, U.S. corporate notes, bonds, etc, will if so, move higher (yields), and the ensuing lending rates, corporate bonds, will move higher. In Jamaica, headline items have been similar, with rates increasing, inflation not abating yet, and corporate bond rates moving higher. It has led to investment managers, naturally, moving towards the shorter end of tenures, maturities and seeking higher yields, for 1-2-year maturities. 

The U.S. Banks, which are a real gauge of the U.S. economy, and with several U.S. financials reporting earnings this past week, to name a few, Wells Fargo, and JPMorgan Chase, reported lower numbers year over year and missing analyst estimates as well, tells us something. The item coming out of both earnings reports, is the boosting of reserves for bad loans, and the U.S. financials planning for growth in credit losses as we move forward. 

Overall, even if Citigroup (US: C), gave us some hope with their earnings report, the outlook that continues regarding inflation, and interest rates, gives us concern for markets not just in the U.S. but eventually the impact on Jamaica financial markets. 

Market Moves:

  • Several corporate actions having been taking place, and do not underestimate them if you are an avid investor in the markets… We are talking about the local markets here… Both Key Insurance Company Limited (JSE: KEY) and Access Financial Services Limited (JSE: AFS) reported resignations of directors Mrs. Mariame Mcintosh Robinson (effective July 15, 2022) and Mr. James Morrison (effective June 30, 2022) respectively. In the latter case, AFS, Mr. Morrison was at AFS for four (4) years, and he was also the Chairperson of Access Financial Services Limited, Audit & Risk Management Committee and Corporate Governance Committee. 

On the addition standpoint, tTech Limited (JSE: TTECH), the IT outsourcing pure play company, appointed a senior manager. tTech announced recently, that Mr. Damani Brown was appointed as the Technical Services Manager, effective July 15, 2022. 

Always read, and consider these corporate action movements, when they consider, the critical factor of “people” when you are looking to invest. 

  • On that note, we are going to jump into tTech Limited (JSE: TTECH) for a bit… tTech has one of the lowest market capitalizations on the market, on or around J$ 300 million. If you like the company, the business, it will just take a strong quarter, or a few quarters for TTECH’s share price to rally strongly, when you see a listed Junior Company, at such a low market cap. Additionally, TTECH, is trading at approximately 0.75x sales or less. Creating this further recent fall-off in market cap from on or around J$ 400 million to presently around J$ 300 million, was the last quarter whereby TTECH made a net loss. It could be a one-off quarter, but the market is not treating the market cap like it is. 

The Company has been making some moves though, and recently announced a corporate action item to the JSE – Jamaica Stock Exchange, whereby, they appointed Mr. Damani Brown, as Technical Services Manager, effective, July 13, 2022, as mentioned above. 

  • There are a few dividend considerations coming up, particularly, Supreme Ventures Limited (JSE: SVL) and the Jamaica Stock Exchange (JSE: JSE). Both are expected to be good ones, especially from SVL

The respective dates, set for their board of directors’ meetings are, July 21, 2022, and July 20, 2022. SVL has not only been showing robust growth over the years, and even more rapidly in the past 12 months, but it represents great dividends. Remember, one of its largest shareholders, Mayberry Jamaican Equities Limited (JSE: MJE) is a large beneficiary of this cash flow, and do not expect this to decrease anytime soon from SVL as a result… So, with SVL you get the best of both worlds, (a) growth & (b) dividends. In these times, with tremendous global market uncertainty, inflation showing no signs of slowing down in the U.S. and many other countries, June 2022 inflation in the U.S. came out at 9.1%, interest rates moving continuously higher, having some defensively positioned stocks that offer dividends like SVL – not a bad idea…

  • FosRich Company Limited (JSE: FosRich), continues to be on the move in 2022, and continues to give the “vibe”, that every year on the JSE – Jamaica Stock Exchange, is FosRich. Justifying the share price move, and the recent trading share price range for FosRich of J$ 35 – J$ 37/ share. FosRich’s 52-week range has been, J$ 7.46/ share to J$ 39.84/ share. A wide band for a stock trading locally on the JSE, but it just shows you how much deals, earnings improvement, and positive momentum, FosRich has had over the past 12 months. 

To add to this, FosRich, has received SEZ status, which is approval from the Jamaica Special Economic Zone Authority for its associated company, “Blue Emerald Limited.” As a refresher, Blue Emerald is in Hayes, Clarendon, and FosRich had announced in calendar Q3 2021, that their plans would be to produce PVC pipes at the location. Additionally, they had announced earlier, in calendar Q1 2021, that they planned to repair damaged transformers at the location as well, under a 4-year renewable contract with the Jamaica Public Service. 

  • As the saying goes, U.S. banks, investment banks, financial houses, are a strong gauge of the U.S. economy, and especially, of what is to come… Well, the earnings reports coming out of the U.S. banks, financials have been mixed and one common denominator so far, from most, that has been dragging down their quarterly earnings, is the preparation they have been making, for “bad loans, or boosting reserves for bad loans in the last financial quarter.” 

JPMorgan Chase (US: JPM) got us going, with some disappointing earnings, with their 2nd Quarter earnings lower by 28%. The earnings and revenue numbers were not far off from the analyst estimates, but year over year, the earnings number was crushing. Their profit declined to US$ 8.65 billion, due to JPMorgan Chase building reserves for bad loans. 

Wells Fargo & Co (US: WFC), for its 2nd quarter, continued the trend with earnings falling and missing its revenue estimate as they too set aside funds for “bad loans”. By the numbers, Wells Fargo, registered revenue of US$ 17.03 billion versus an estimate of US$ 17.53 billion. Year over year, profit fell to US$ 3.12 billion, from US$ 6.04 billion. 

After most U.S. banks’ share prices declined initially to earnings, they rebounded to close the week, as adjusting for the impairments, and the bad loans, as banks prepare for credit losses to jump from the incredibly low levels, the results are not as bad as they seem. 

Goldman Sachs (US: GS) is expected to report on Monday, July 18, 2022, pre-market, and we will see how that looks. One thing we do know, awaiting that report, is IPO fees, equity and debt capital markets have been lower for the 1st half of 2022 compared to 2021, but GS always tends to make fees, or trading gains from an asset class. They just know how to make money for their shareholders. After all, its Goldman, right. 

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