Is the U.S. national debt entering a “doom loop”?
Maybe. The national debt just topped $40 trillion, and investors are starting to demand higher yields as a result. Bond yields have already been trending higher for months, and higher interest costs cause debt payments to snowball. Uncle Sam has to borrow ever more just to keep up with the interest payments on existing debt… a classic doom loop.
So, are the bears right? Is this potentially setting us up for a major reckoning?
Here’s my take…
The risk is real. It’s been building for decades, and it may indeed be reaching a tipping point. But the government’s response is also really predictable… and that’s what we need to prepare for.
The government will do everything in its power to keep interest rates low, which will in turn keep inflation running hot. Trillions of dollars in debt suddenly gets easier to pay if you’re doing it with depreciated dollars.
That means it’s incredibly important for us to stay ahead of inflation. And the best way to do that is by buying strong “Bullish” rated companies that are trending higher.
Today is Thursday, which means we’ll be looking at stocks that recently crossed into “Bullish” territory by earning a Green Zone Power Rating of 60 or higher.
Let’s start with the newest additions from the S&P 500 Index.
S&P 500 New Bulls
I ran my usual screen for S&P 500 companies that popped up as “Bullish” this week, and this is what I came up with:
There are a couple noteworthy names I’d like to highlight.
The first is Airbnb (ABNB), the travel site that allows both professional property managers and regular people alike to list their properties or even individual rooms for rent.
Airbnb enjoyed a massive 36-point jump in its Green Zone Power Rating over the past month, pulling it into “Bullish” territory.
The stock isn’t cheap, rating a 9 out of 100 on its value factor. But it really picks up points on its growth and quality factors, where it rates at a 92 and a 97, respectively.
I wasn’t surprised to see Airbnb rating as high as it does on its quality factor. This is a classic high-quality business. It’s highly profitable, it’s capital light, and it carries no net-debt. It checks all the boxes my quality factor looks for.
Airbnb also tells us a lot about the state of the American consumer. As I wrote last week about travel website Expedia (EXPE),
“Yes, inflation is taking a major bite out of American budgets. But a significant portion of the population is still making travel a priority. And sites like Expedia help them do so more economically.”
It’s the same story with Airbnb. After years of high inflation, Americans are struggling to pay their bills… but still desperate for a vacation. Airbnb allows us to enjoy an affordable holiday, bypassing expensive hotels.
After an extended period in “Neutral” territory, Amazon (AMZN) now rates as “Bullish.” And like Airbnb, Amazon rates exceptionally well on its quality and growth factors, with factor ratings of 88 and 99 respectively.
It’s that 99 on growth that really stands out. Despite being a $2.8 trillion company by market cap, Amazon is still one of the fastest-growing companies in the world.
Amazon still gets classified as a “consumer discretionary” by Standard & Poor’s, and most people still associate the company with its retail business. But Amazon is so much more than that. It’s an AI hyperscaler, the leader in cloud computing, and a budding powerhouse in shipping and logistics.
And finally, I’d note that we have two defense stocks making the cut, Howmet Aerospace (HWM) and RTX Corp (RTX).
By most accounts, the war in Iran has been a disappointment. The Iranian regime is still in power… and still wreaking havoc on international shipping. But the war has created a potential rearmament boom for American defense companies. With America’s inventory of missiles, interceptors and other armaments now running low, there is virtually guaranteed demand for military hardware for the foreseeable future.
New Bulls Outside the S&P 500
Let’s cast the net a little wider and look at the newly “Bullish” stocks outside of the S&P 500. I ran a screen for the top 20 stocks with the largest score increases over the past month, and this is what popped up:
Speaking of the Iran war, German potash producer K+S AG (KPLUY) popped up as “Bullish” this week. K+S is Europe’s biggest supplier of potash for use in fertilizer.
Iran’s closure of Hormuz created severe shortages of fertilizer, as Iran and the countries ringing the Persian Gulf are all major fertilizer producers. That created a window for K+S, which sources most of its potash from Germany and Canada.
Madison Square Garden Sports Corp (MSGS) is a noteworthy addition. MSGS is the owner of the New York Knicks NBA basketball team and the New York Rangers NHL hockey team.
It’s no coincidence that MSGS has enjoyed a major surge following the sale of the Los Angeles Lakers for a record $12.5 billion… a 25% increase over last year’s previous sales price. Valuations of premier sports teams are rising, and MSGS is one of the few publicly-traded options.
But this is more than a momentum story. MSGS also rates exceptionally well on its volatility and growth factors, with factor ratings of 91 and 87, respectively.
There’s a reason billionaires are willing to shell out $12.5 billion on a premier franchise. It’s a profitable business!
To good profits,
Adam O’Dell
Editor, What My System Says Today
