This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Apple’s Bet on a Cashless Future
Profit Alerts
Money Morning Profits Alert
Aug. 28: Like “jet packs” and “flying cars,” a frictionless future without physical money has been a staple of pundits’ and authors’ sci-fi speculations since the first ATMs were installed in 1969....
However, the fact remains: In 2020, cash is still very important to Americans’ everyday lives. According to Federal Reserve numbers, while 86% of people report using “plastic” at least sometimes, nearly 13% of economic activity in the U.S. is still in cash. That’s roughly $2.7 trillion dollars, and it’s “money on the table” for fintech innovators. Traditional credit-card companies and banks haven’t shown much interest in going after it.
But there’s a company with the vision to see this as a $2.7 trillion opportunity for the taking....I’m talking about Apple (ticker: AAPL). The iPhone is still very important—and could become more so with the 5G model on the horizon—but Apple’s Apple Pay fintech and its other innovations have become bigger and, indeed, more important contributors to Apple’s bottom line since about 2014. Apple watchers like me were excited earlier this month when the company spent $100 million to acquire a small start-up called Mobeewave. It didn’t generate many headlines, but in my view, this is a critical step on the road to another trillion in Apple’s market cap.
The Mobeewave tech that Apple now owns specializes in near-field communication, or NFC, a set of communications protocols that two electronic devices can use to talk over a distance of just 1.5 inches or less. It has an array of applications—it can be used for identification and authentication and keyless entry, for instance.
But perhaps its biggest and most important application is in the growing field of contactless payments. They are coming of age at an interesting time: a novel coronavirus pandemic. The digital-payment market is expected to more than double to $87.6 billion by 2023 and, beyond that, to $98 billion by 2027. A great deal of that business will go to companies like Apple and Square (SQ)....
A recent study by Visa, conducted during the pandemic, revealed the unsurprising result that two of every three American consumers would now prefer contactless, cashless transactions. It’s clear to me that these consumers and the businesses that serve them will practically beat a path to Apple’s door.
—Michael A. Robinson
Bullish on Japan Post -Abe
Japanese Economy
UBS
Aug. 28: Japanese equities may see higher volatility in the wake of [Prime Minister Shinzo] Abe’s resignation, as markets weigh the economic policies proposed by potential successors and the risk of political instability. We would expect any successor to be very supportive of existing policies aimed at helping Japan recover from the pandemic. We remain constructive on Japanese equities, given continued Bank of Japan, or BOJ, ETF buying and our expectations for corporate earnings to grow 41% in the fiscal year ending in March 2022. We anticipate a rally driven by nontech companies in the next phase of the recovery, with more-cyclical manufacturing and private consumption sectors outperforming. Japanese auto makers stand to benefit from a shift to more-energy-efficient vehicles and tighter emissions standards, thanks to their leadership in hybrid technology. Japanese real estate investment trusts remain attractive, given the BOJ’s asset purchases and the ultralow interest-rate environment.
—Daiju Aoki, Toru Ibayashi, Chisa Kobayashi
Insider Buying’s Positive Message
Cumberland Advisors Market Commentary
Cumberland Advisors Market
Aug. 26: Insider trading often refers to acting on material nonpublic information. However, when company employees buy and sell their own stocks, it is also called insider trading, which is permitted by the SEC....
In the U.S. equity market, a popular insider-trading gauge is the Insider Buy/Sell ratio, which is the aggregate insider purchase over insider sale. Normally, the ratio stays at 0.4 to 0.5, indicating roughly twice as much insider sale volume as purchase. This is understandable, given that many insiders receive stock compensation. There have been only 11 months when the ratio reached above one since 2004, meaning there are more insiders buying than selling their stocks. Interestingly, each insider-purchase spike coincided with a market drop. While the highest reading on the ratio came from the financial crisis in November 2008, the second-highest reading was in March this year. Both can be viewed as the entry signal of the decade.
Digging further into the insider-buying frenzies, we find that the stock market post-performance once the Insider Buy/Sell ratio jumps above one is phenomenal. The U.S. equity market increases about 25% in one year and 54% in three years. Next time someone doesn’t believe in market timing, maybe we should point them to the corporate insiders.
—Leo Chen
Consumer Confidence: Not So Bad
AM Charts
BMO Capital Markets
Aug. 25: The Conference Board reports that U.S. consumer confidence weakened significantly in August. The index fell almost seven points, to 84.8, the lowest reading since 2014. This is a dash of cold water on the recent upbeat readings on retail, home, and auto sales.
Still, we would note a few things. First, this level of confidence is not especially low, and has been consistent with real spending growth of about 1.5%. Second, perhaps surprising to many, sentiment actually trails spending, not the other way around. Bottom line: not good news, but also not necessarily a sign that spending is about to tank.
—Douglas Porter
Tax Policy and Stock Performance
Market Perspective
SunTrust Advisory Services
Aug. 24: One of the common concerns voiced by some investors recently is the potential of higher taxes’ impact on the stock market should a shift in government control occur in Washington. On an individual level, tax policy can have significant and varied consequences. However, from a market perspective, the data in aggregate suggest that other factors have often overwhelmed tax policy....
Despite extremely high taxes, the 1950s had the best stock market returns of the past 70 years, as well as a robust economic environment, aided by the post–WW II boom and stock valuations that were very low coming into the decade. Conversely, despite very low taxes, the 2000s were beset by the aftermath of the bursting of the technology bubble, record-high valuation levels, and the 2008 global financial crisis.
Counterintuitively, market returns during years with tax increases have been higher on average and more consistently positive than the typical year. This doesn’t mean that raising taxes is good for the stock market; however, [it] suggests that other factors historically have overwhelmed the influence of tax increases.
Despite a tax increase in 2013, stocks rose more than 30%. The market was supported by below-average valuations and a significant rise in monetary stimulus. Conversely, in 2018, despite tax cuts, stocks faltered by about 4%. Starting valuations coming into the year were well above average; at the same time, monetary policy was becoming more restrictive as the Fed started to unwind its balance sheet and raise short-term interest rates on fears that the economy was overheating.
—Keith Lerner, Dylan Kase
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Apple’s Bet on a Cashless Future Could Pay Big Dividends for Investors, Analyst Says - Barron's
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