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Question: I am reaching out for help hiring an advisor. My salary is $101,899, with a bonus that can vary each year but last year it was $17,000. I would like an adviser who will proactively help me grow a portfolio, tell me where and when to invest and work with my accountant that helps maintain and reach my goals. I am also looking for someone who helps late savers. Note that I have student loans, I’m securing a mortgage now, I don’t have a car loan, I’d like to live on as little as possible and I’d like to secure rental properties as part of my investment strategy. (Looking for a financial adviser too? This tool can help match you with an adviser who might meet your needs.)
Answer: Kudos for coming to a place where you’re now looking to save and invest for your future — no matter how late in the game you feel you are. A financial adviser could be of help to you, but it may be tougher to find someone to help you at your wealth level, as many advisers have account minimums.
That said, it’s not impossible, and your best bet may be an adviser who works on an hourly or flat-fee project basis. “These types of advisers are often more willing to help you address the full spectrum of financial planning issues,” says certified financial planner Joe Favorito at Landmark Wealth Management.
Looking for a new financial adviser or have an issue with your current one? Email picks@marketwatch.com.
Pros recommend searching on sites like CFP Board, the National Association of Professional Financial Advisors or XY Planning Network. “NAPFA and XY Planning Network are industry organizations that help promote fee-only financial planning and they offer tools to assist consumers with their search for a financial adviser. Typically, you can filter by location and an adviser’s specialties,” says certified financial planner Mark Humphries at Sentinel Financial Planning. (Looking for a financial adviser too? This tool can help match you with an adviser who might meet your needs.)
Look, too, for a fee-only adviser, as they are paid a set rate for their services rather than a commission on the products they sell or trade. And look for someone who has experience where you need it, such as with real estate investments, investing and budgeting. (Here are the 15 questions you should ask any adviser you want to hire.) “The advantage of working with an adviser is that you can develop a plan and monitor and track your progress,” says certified financial planner Anthony Ferreira at WorthPointe Wealth Management. (Looking for a financial adviser? This tool can help match you with an adviser who might meet your needs.)
After you’ve narrowed down several prospective advisers, speak with them to get a sense of their philosophy and to understand if it matches yours. “I believe finding the right financial adviser is more than someone who can crunch numbers and make recommendations. It’s finding someone you feel comfortable with and are not hesitant to be honest with,” says Humphries.
Discuss the pros and cons of all different investment solutions, including investment real estate. “Just like getting advice from your doctor or coach or physical trainer, the advice may not be what you want to hear,” says Ferreira.
You mention working with an accountant, and certainly, many folks have both an accountant and a financial planner who fulfill different needs; ultimately your accountant and financial planner can work together to make sure they’re on the same page regarding your financial situation. Just consider whether you need both: While accountants typically handle auditing work, tax preparation and some financial forecasting, financial planners assist with things money management and retirement planning.
Looking for a new financial adviser or have an issue with your current one? Email picks@marketwatch.com.
Questions edited for brevity and clarity.
The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.
If someone promises you the “deal of a lifetime,” it’s probably not a good investment.
That’s what finance guru Matthew Onofrio, who sold a program claiming to have cracked the code on commercial real estate, promised inexperienced investors looking to strike it rich. But prosecutors say it was all a fraud aimed at lining Onofrio’s pockets.
The 31-year-old native of Eau Claire, Wis., appeared on investing podcasts and at conferences with a compelling tale. He said he had walked away from a promising career as a nurse anesthetist when he discovered a real estate strategy known as triple net investing, through which he had amassed a portfolio worth over $150 million in just three years.
But between 2020 and August of this year, federal prosecutors in Minnesota say, Onofrio had ripped off numerous banks to the tune of $35 million by roping investors into a complex web of quick-flip real estate sales, fraudulent mortgage applications and doctored appraisals.
In a statement, Onofrio’s attorney, Marsh Halberg, said none of his client’s investors had been hurt financially by their investments.
“The defense is aware of very few, if any, transactions where the investors have suffered actual losses at his time. We believe most of the transactions with Mr. Onofrio still maintain a positive cash flow and /or an increase in the value of the property that was purchased,” Halberg wrote in an email.
A civil suit filed this year involving a radiologist from Puerto Rico named Matthew Hermann, who wanted to get involved in real estate investing with his wife, laid out how Onofrio operated.
The suit said the pair met at a networking conference in Colorado in 2020 and hit it off while discussing real estate opportunities. Hermann said he was hoping to build up a real estate portfolio that would provide him with enough income that he could stop working.
Hermann said in court papers that Onofrio offered to bring him into “the deal of a lifetime,” involving a commercial property for sale for $6.3 million in Minneapolis. All Hermann had to do was come up with $1.5 million for the down payment.
“Onofrio told Hermann that he won’t get to his goal of leaving his job by buying duplexes. Onofrio told him that ‘this will light gas on the fire of where you need to go’. He told Hermann that this is all about mindset’,” the court documents read.
When Hermann said he didn’t have that kind of money available, Onofrio offered to lend it to him so he could secure a bank loan for the purchase and Hermann agreed, the court filings said. What Onofrio didn’t say was that he had already reached a deal with the owners to buy the building for $4.75 million, not $6.3 million, and that the difference was going into his pocket, the suit claimed.
Hermann was then stuck paying nearly $6,000 a month in loan payments to Onofrio in addition to his bank loan.
“Onofrio pushed Hermann—a novice with real estate—into this purchase with grand promises of the deal of lifetime. The reality, though, was that Onofrio was the one assured to make money on the deal, not Hermann,” the papers read.
Hermann later tried to sell the property and said he found a buyer willing to pay $6.3 million for it, but the deal fell through due to litigation surrounding Onofrio’s loan.
Hermann’s attorney didn’t respond to a message seeking comment.
Federal prosecutors described a similar pattern, with Onofrio allegedly placing his own money into investors’ accounts to make their finances look better to lenders, and also fabricating appraisal documents to inflate the value of properties.
In one deal in 2021, a Minneapolis commercial property was sold three times in just five months, passing through more than one business entity Onofrio controlled. By the end of the string of transactions, the price had jumped by nearly $4 million, business publication Finance & Commerce reported.
Onofrio is charged with three counts of bank fraud and prosecutors say they are seeking the forfeiture of $35 million seized during the course of the investigation.
Wonderful, wonderful news.
At least if you’re a creative money manager with a good line in blarney.
Nine out of 10 financial advisers say they plan to pour clients’ money into “alternative” investments over the next couple of years, including such lucrative high-fee vehicles as private equity, private credit, hedge funds, venture capital and the like.
Whether this will be such good news for the clients is another matter. But they, famously, are rarely the ones with yachts.
“As they face uncertain markets, nearly nine in 10 financial advisers (88%) surveyed plan to increase their allocation to alternatives over the next two years,” reports a new survey published by CAIS, which calls itself “the leading alternative investment marketplace for independent financial advisers,” and Mercer, an asset-management company. It adds that, “Of those, more than half (53%) estimate that their allocation to alternatives will make up more than 15% of their overall client portfolios. Meanwhile, more than 20% said they would allocate more than a quarter of their portfolio to alternatives.”
A mere 8% said that they do not plan to increase these allocations at all during the next couple of years.
Granted, this may not be a fully representative sample of the entire money management industry. CAIS and Mercer polled 200 financial advisers who had turned up to their Alternative Investment Summit last month at the Beverly Hilton Hotel in LA. Those attending were, naturally, more predisposed toward “alternatives.”
But there’s no reason to think this finding is directionally wrong. Institutional investors have been lured by the siren song of alternatives for several years. And the latest poll coincides with a moment of extreme revulsion—some might say, “capitulation”—toward the traditional assets of stocks and bonds because this year they have absolutely sucked.
So far this year, the S&P 500
SPX,
stock index has lost 15% and the S&P U.S. Aggregate 13%. The bond market has had one of the worst, and possibly the absolute worst, performance on record. No wonder the latest BofA Securities survey of institutional investment managers worldwide show they are shunning both stocks and bonds, while holding more than usual levels of cash, alternatives and commodities.
There are multiple problems with most alternatives. There is the fallacy of composition: If private-equity managers and hedge-fund managers plan to outperform by “beating the market,” there is only so much money they can take in. Otherwise you end up in the situation where everyone is expecting to beat the market.
Then there is the Heraclitus problem, meaning that the future will not be the same as the past. Private-equity managers benefited enormously from the long-term collapse in interest rates from 1982 until, well, last year. They were able to buy companies with cheap debt and then flip them. What happens if rates continue to go back up? We shall see.
Then there are the liquidity and transparency problems. You know what your publicly traded stocks are doing, because you can see the prices in real time. Not so private funds, many of whom furthermore make their money on untraded assets. How do you properly “value” an untraded asset, like a small company in the middle of an uncertain, multiyear turnaround? You can’t, really.
But above all there is the “agency” problem. The people running these ventures generally make out very well, but that doesn’t always translate into big bucks for the investors, because of the fees.
It is mathematically implausible for hedge funds to beat the market over time. And business school professor Ludovic Phalippou at Oxford University calculates that overall private equity returns have been no better than the stock market since at least 2006.
Important note: That is especially astonishing because during that period, from 2006 to 2020, the interest rate on BBB-rated corporate bonds halved. So the private equity crowd, who make their money by purchasing undervalued companies with debt, should have been making out like bandits.
Some people argue that things like real-estate investment trusts (REITs), infrastructure investments and master limited partnerships (MLPs) count as “alternatives.” But they have suffered this year along with stocks and bonds.
The one standout so far in 2022 has been commodities. The S&P GSCI Commodity Index is up 30% so far this year.
A fascinating research paper by the number crunchers at AQR, a hedge fund firm in Greenwich, Conn., suggests that if anyone feels they need to add something else to their portfolio of stocks and bonds, they might not need look any further than commodities. The paper, using commodities data going back to the 1870s, finds that commodity futures have added value to a traditional portfolio over time, zigging when everything else zagged (like this year) while generating a positive overall return.
“We find that, over the entire sample, the optimal mean-variance portfolio allocates 17% to commodities, 29% to stocks and 54% to government bonds,” write the authors, Ari Levine and Yao Hua Ooi of AQR and professor Matthew Richardson of NYU’s Stern School of Business. “Moreover, a 54%/36%/10% portfolio of stocks, bonds and commodities consistently outperforms a 60%/40% allocation of just stocks and bonds.”
Doug Ramsey’s “All Asset No Authority” portfolio at Leuthold, arguably the ultimate all weather portfolio, includes the commodity index and gold as two of its seven components.
Those who want to own commodities can do so without dealing with high-fee investment managers. There are a variety of ETFs that invest in commodity futures, including the iShares S&P GSCI Commodity-Indexed Trust
GSG,
among many others. (Thanks to the tricky nature of commodity futures, many perform slightly differently from each other. You need to check the data before buying.) Their fees aren’t low—GSG charges 0.75%, which is expensive compared with stock and bond ETFs, but a bargain compared with any private-equity fund or hedge fund.)
Naturally the best time to buy commodities was last year—or actually during the COVID-19 crash in 2020, but that’s another story—and not now, once they have already risen a long way. If we are heading into a recession the next move may be down. And when commodities go down, they can really, really go down. (The S&P GSCI Index fell two-thirds during the global financial crisis.)
It is dismally predictable that the global money managers who say they are shunning stocks and bonds are heavily into commodities.
But commodities can at least genuinely claim to be a third asset class, alongside stocks and bonds. And timing aside, there are worse ideas than, in general, including some alongside the others. It helped this year and it may help again in the future.
But hedge funds? Private equity? We shall see.
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Bed Bath & Beyond reported plummeting sales, raising doubts over whether it can pull off a turnaround.
David Paul Morris/Bloomberg
Three bathroom merchants slipped on a bar of soap this past week. I’m not big on arbitrary stock market definitions, but I’m pretty sure that’s known as a bearish nude sprawl. Technically, it can signal that an economic haunch slide has already begun.
First was
Bath & Body Works
(ticker: BBWI), a mall seller of creams and scrubs, like Rainbow Cereal Gentle Foaming Hand Soap, marked down this past week to $3 from $7.50. My recent field work on the name confirms that the stores are still too perfumy for me to walk into. J.P. Morgan Securities has done a more thorough examination, and sees sales slipping this year. It downgraded shares to Neutral from Overweight and slashed its price target by more than half. The stock lost 9%.
Don’t confuse
Bath & Body Works
with
Bed Bath & Beyond
(BBBY). That’s the one where you go up a quarter-mile escalator holding a 20% off coupon the size of a shoebox in order to buy a shower curtain for more or less what
Amazon.com
(AMZN) charges. Bed Bath reported plummeting sales, raising doubts over whether it can pull off a turnaround. Let’s just say that when the title of a stock report from BofA Securities uses “liquidity,” “circles,” and “drain” in that order, it doesn’t inspire confidence. That one tumbled 24%.
Both of these companies are now in the market for new CEOs. Financially, they’re nothing alike. Bath & Body was the bright spot of L Brands before it split last year into two companies, the other being
Victoria’s Secret
(VSCO). Sure, fragrant hand-washing has lost its pandemic momentum, and JPM says it has spotted fall and winter merchandise still being cleared out. But the company still generates ample free cash. Most analysts remain bullish. And I’m thinking of upgrading the Pumpkin Pecan Waffles 3-Wick Candle to Buy on valuation.
Bed Bath, on the other hand, was burning cash even before the outlook recently turned darker on revenue. It owns a stroller and crib seller called buybuy BABY, and activists have pressured the company to sell. But same-store sales there are now declining., too. And there’s a deep industry depression in output units—babies, not cribs.
I’m counting
RH
(RH) as the third bath stock, because it sells tubs and faucets. The company changed its name from Restoration Hardware so as not to bring hardware to mind. It won’t evoke restoration, either, the way it just lowered guidance for the second time in a month. Shares there dropped 11%.
Back to Bed Bath. How could an epic home-goods boom have left it so weak? It was slow to embrace e-commerce, says Sucharita Kodali, a retail analyst at tech forecaster Forrester Research. That left it behind the curve on so-called omnichannel retailing, whereby sophisticated data systems can put both store and warehouse inventory to full use while predicting local buying trends. Everyone struggled with supply chain mayhem, but Bed Bath seems to have been flying blind.
It also pushed too hard on in-store brands at a time when customers wanted nationally known ones, says Seth Basham at Wedbush Securities. And it failed to convince customers that with coupons, the company’s pricing is in line with Amazon.
Bed Bath now finds itself stuffed with big, high-price items that shoppers no longer want. And it’s not alone. If you’re in the market for a patio set, this is your summer. Stores have pulled back on orders, but merchandise they ordered previously is still showing up. It could take nine months to work off the inventory bloat.
Everything depends on demand. “The consumer is deteriorating,” says Basham. He recommends shares of car parts sellers like
AutoZone
(AZO) and pet chains like
Petco Health & Wellness
(WOOF), because shoppers still fix their rides and spoil their furry friends in recessions. Kodali at Forrester is more upbeat. “The economy is stronger than there seems to be credit given to it right now,” she says.
We’ll know soon. This past week, spending data for May showed less growth than expected, but growth nonetheless, giving bulls and bears something to point to. We also learned for sure that first-quarter economic growth was negative, as estimated. And a real-time estimate of second-quarter growth called GDPNow, tracked by the Atlanta Fed, slipped from positive to negative. Defining recessions is a bit of a roll-your-own affair among economists, believe it or not, but if your definition is two straight quarters of sagging gross domestic product, we might already have entered one.
At least that would take some of the pressure off prices, right? Speaking of which….
Inflation will rise to more than 10% by the end of the year, versus a recent 8.6%, predicts Rob Arnott, founder of Research Affiliates, which has $168 billion tied to its strategies. He looks first at monthly inflation rates that fall from the annual measure as we move on to new months. Next to fall is 0.9% for June of last year, which is high. But the Atlanta Fed’s GDPNow forecast has a Midwest cousin called Cleveland Fed Inflation Nowcast. It puts inflation for the June that just ended at 0.97%, suggesting we’ll go from high to slightly higher.
The three months following June 2021, however, had only modest inflation. The upshot is that the inflation rate for this July through September would have to fall below 4% annualized to pull the overall rate lower, Arnott says.
He doesn’t see that happening, and housing is a big part of the reason. It makes up a third of the consumer price index, counting both rents and something called owners’ equivalent rent, which is calculated by surveying homeowners. Rents have undershot house prices, because it takes a while for leases to come due. OER is even more understated, because most homeowners have no idea what their houses could generate in rent. Arnott predicts three years of already high house prices moseying their way into CPI math.
That would do little to soothe investor anxiety. I’m not sure that even deep discounts on out-of-season aromatherapy would help.
Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.
My summer portfolio strategy is to play the old disco hit “Baby Come Back” while slow dancing with my December brokerage statements. If it works, I have a business idea involving Hall, Oates, and a two-and-20 fee structure.
At least there’s real estate. Home equity is said to be hitting record highs. Then again, taking comfort there would be like slipping on a financial toupee—everyone knows that underlying conditions have deteriorated.
The latest reading on nationwide pricing comes from back in March. Since then, 30-year mortgage rates have shot up to nearly 6%, and applications from buyers have slowed. This past week, a pair of online brokers with a good read on house searches,
Redfin
(ticker: RDFN) and
Compass
(COMP), announced layoffs.
Meanwhile, Redfin shares are down some 90% from their peak. Builders have gotten clobbered, too. Friends don’t let friends own leveraged exchange-traded funds with names like
Direxion Daily Homebuilders & Supplies Bull 3X Shares
(NAIL), especially when interest rates are rising, but if you’re curious, that one just lost 45% over five trading days.
Should investors buy shares of home builders here? Brokers? What’s next for house prices? And when will the stock market come back? Let me answer those in order of declining near-term confidence, starting at iffy.
Yes, buy builders. Prefer
Lennar
(LEN) and
Toll Brothers
(TOL), says Jade Rahmani, who covers the group for KBW. He points out that builder shares trade at 60% of projected book value, which is where they tend to bottom during recessions, ignoring the 2008 financial crisis. Lennar will benefit from the pending sale of a real estate technology unit, and Toll focuses on affluent buyers, around 30% of whom pay cash, and so aren’t put off by high mortgage rates.
Price/earnings ratios across the group are astonishingly low, but ignore them. They stem from two conditions that won’t repeat soon: land values jumping 30% or more from the time companies bought acres to when they sold houses, and a sharply higher pace of transactions during the pandemic. A builder that trades at four times earnings might really go for eight times assuming normalized conditions—still cheap, but a big difference.
House prices jumped more than 20% in March from a year earlier, but Rahmani expects that rate to plunge to 2% by the end of the year. His baseline view is that next year brings flat prices. His recession scenario, based on a study of past sales volumes, has prices falling 5% next year—perhaps more if mortgage rates rise to 7%. That might not sound like much, but for recent buyers with typical mortgages, a 5% price drop can reduce equity by 25%.
Most homeowners don’t have mortgage rates anywhere near recent ones; some two-thirds are locked in below 4%. These buyers are unlikely to move and take new loans if they don’t have to, which is one reason that supply could stay low for years. Another is that mortgages are much higher quality than they were during the last housing bubble, so there’s unlikely to be a wave of defaults and panic selling.
But something has to give on affordability. Typical payments on new mortgages have topped 23% of disposable income, close to their 26% high during the last bubble. But incomes are growing by 6% a year, so a long pause for house prices could help restore affordability. Anyhow, the pandemic has left people spending more time in their homes, so they should be willing to pay somewhat more on housing as a percentage of their income, reckons Rahmani.
Don’t rush to buy shares of the brokers, says William Blair analyst Stephen Sheldon. He has Market Perform ratings on three of them: Redfin,
RE/MAX Holdings
(RMAX), and
eXp World Holdings
(EXPI). In a blog post this past week, Redfin CEO Glenn Kelman wrote that May demand was 17% below expectations, and that the company will lay off 8% of employees. Redfin hires agents directly, whereas many brokers use independent contractors.
Kelman wrote that the sales slump could last years rather than months. More agents could leave on their own. National Association of Realtors membership, a proxy for the number of people selling houses, hit 1.6 million last year, up from about a million in 2012.
Sheldon at William Blair says he’s struck by how far broker valuations have come down, but sentiment is sour, and he’s waiting for signs of stabilization. Redfin goes for less than a tenth of its peak stock market value early last year, even though revenue has roughly doubled. That puts shares at around one-third of revenue. Free cash flow was expected to turn consistently positive starting in 2024. Now, we’ll see.
As for the stock market, I have good news and bad news, neither of which is reliable. The S&P 500 this past week dipped below 15 times projected earnings for next year, which suggests pricing has returned to historical averages. But there’s nothing to say that the market won’t overshoot its average valuation on its way to becoming cheap. And
Goldman Sachs
says forecasts for 10% earnings growth this year and next look too high.
Expect slower growth, says Goldman, and if there’s a recession, earnings could fall next year to below last year’s level. The bank’s estimates under that scenario leave the S&P 500 today trading at more than 18 times next year’s earnings. Goldman predicts that the index will rise 17% from Thursday’s level by year’s end without a recession, or fall 14% with one. Please accept my congratulations or condolences.
Not to worry, says Credit Suisse. Statistically, individual forecasts for company earnings are tightly clustered. That’s the opposite of what tends to happen before earnings tank.
I’ve heard people refer to the stock market as a “total cluster” before, but I had no idea they were talking about estimate dispersion.
Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.
My summer portfolio strategy is to play the old disco hit “Baby Come Back” while slow dancing with my December brokerage statements. If it works, I have a business idea involving Hall, Oates, and a two-and-20 fee structure.
At least there’s real estate. Home equity is said to be hitting record highs. Then again, taking comfort there would be like slipping on a financial toupee—everyone knows that underlying conditions have deteriorated.
The latest reading on nationwide pricing comes from back in March. Since then, 30-year mortgage rates have shot up to nearly 6%, and applications from buyers have slowed. This past week, a pair of online brokers with a good read on house searches,
Redfin
(ticker: RDFN) and
Compass
(COMP), announced layoffs.
Meanwhile, Redfin shares are down some 90% from their peak. Builders have gotten clobbered, too. Friends don’t let friends own leveraged exchange-traded funds with names like
Direxion Daily Homebuilders & Supplies Bull 3X Shares
(NAIL), especially when interest rates are rising, but if you’re curious, that one just lost 45% over five trading days.
Should investors buy shares of home builders here? Brokers? What’s next for house prices? And when will the stock market come back? Let me answer those in order of declining near-term confidence, starting at iffy.
Yes, buy builders. Prefer
Lennar
(LEN) and
Toll Brothers
(TOL), says Jade Rahmani, who covers the group for KBW. He points out that builder shares trade at 60% of projected book value, which is where they tend to bottom during recessions, ignoring the 2008 financial crisis. Lennar will benefit from the pending sale of a real estate technology unit, and Toll focuses on affluent buyers, around 30% of whom pay cash, and so aren’t put off by high mortgage rates.
Price/earnings ratios across the group are astonishingly low, but ignore them. They stem from two conditions that won’t repeat soon: land values jumping 30% or more from the time companies bought acres to when they sold houses, and a sharply higher pace of transactions during the pandemic. A builder that trades at four times earnings might really go for eight times assuming normalized conditions—still cheap, but a big difference.
House prices jumped more than 20% in March from a year earlier, but Rahmani expects that rate to plunge to 2% by the end of the year. His baseline view is that next year brings flat prices. His recession scenario, based on a study of past sales volumes, has prices falling 5% next year—perhaps more if mortgage rates rise to 7%. That might not sound like much, but for recent buyers with typical mortgages, a 5% price drop can reduce equity by 25%.
Most homeowners don’t have mortgage rates anywhere near recent ones; some two-thirds are locked in below 4%. These buyers are unlikely to move and take new loans if they don’t have to, which is one reason that supply could stay low for years. Another is that mortgages are much higher quality than they were during the last housing bubble, so there’s unlikely to be a wave of defaults and panic selling.
But something has to give on affordability. Typical payments on new mortgages have topped 23% of disposable income, close to their 26% high during the last bubble. But incomes are growing by 6% a year, so a long pause for house prices could help restore affordability. Anyhow, the pandemic has left people spending more time in their homes, so they should be willing to pay somewhat more on housing as a percentage of their income, reckons Rahmani.
Don’t rush to buy shares of the brokers, says William Blair analyst Stephen Sheldon. He has Market Perform ratings on three of them: Redfin,
RE/MAX Holdings
(RMAX), and
eXp World Holdings
(EXPI). In a blog post this past week, Redfin CEO Glenn Kelman wrote that May demand was 17% below expectations, and that the company will lay off 8% of employees. Redfin hires agents directly, whereas many brokers use independent contractors.
Kelman wrote that the sales slump could last years rather than months. More agents could leave on their own. National Association of Realtors membership, a proxy for the number of people selling houses, hit 1.6 million last year, up from about a million in 2012.
Sheldon at William Blair says he’s struck by how far broker valuations have come down, but sentiment is sour, and he’s waiting for signs of stabilization. Redfin goes for less than a tenth of its peak stock market value early last year, even though revenue has roughly doubled. That puts shares at around one-third of revenue. Free cash flow was expected to turn consistently positive starting in 2024. Now, we’ll see.
As for the stock market, I have good news and bad news, neither of which is reliable. The S&P 500 this past week dipped below 15 times projected earnings for next year, which suggests pricing has returned to historical averages. But there’s nothing to say that the market won’t overshoot its average valuation on its way to becoming cheap. And
Goldman Sachs
says forecasts for 10% earnings growth this year and next look too high.
Expect slower growth, says Goldman, and if there’s a recession, earnings could fall next year to below last year’s level. The bank’s estimates under that scenario leave the S&P 500 today trading at more than 18 times next year’s earnings. Goldman predicts that the index will rise 17% from Thursday’s level by year’s end without a recession, or fall 14% with one. Please accept my congratulations or condolences.
Not to worry, says Credit Suisse. Statistically, individual forecasts for company earnings are tightly clustered. That’s the opposite of what tends to happen before earnings tank.
I’ve heard people refer to the stock market as a “total cluster” before, but I had no idea they were talking about estimate dispersion.
Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.