State of the markets - Feb 13th 2023
State of the markets - Feb 13th 2023
Markets: What I am watching and doing in the markets this week
The no. of SP 500 stocks closing above their 200 DMA rose to about 78% last week, the highest since Sept 2021. This change in equity market character signals that bearish investor sentiment is receding and that the bulls are getting more active.
On the other hand, the 2-year to 10-year yield curve is still deeply inverted, by the widest margin since 1980. An inverted yield curve, where the rates for short-term Treasury bonds are higher than the rates on longer-term bonds, is usually a sign of an impending recession. These bond markets are telling us that we could have a recession within the next 12 months, that revenues and earnings will come down in 2023, that stocks are overbought right now, and that rates will have to be reduced to balance out any economic slowdown.
The debate rages on…
Current state
The SP 500 has risen about 6.5% for the year 2023 and is sitting on support at it’s 21-day EMA.
Sentiment
The latest AAII (American Association of Individual Investors) survey shows that the percentage of investors with a bearish view over the next six months fell to 25%, the lowest since November 2021. The bulls are back in business.
Other indicators
US $DXY - The US $ is likely to be volatile this week in anticipation of Tue’s Jan CPI report. This could impact foreign markets and commodities that are heavily dependent on the value of the US $
Eggs - Egg prices in the U.S. are down about 50% since peaking in December 2022
OJ - As discussed in a prior SOTM post, the orange crop in Florida is one of the worst in about 90 years, leading to record high prices for the breakfast staple, orange juice
Last week
A few key learnings from last week floated to the top of my notes:
Economy
The US trade deficit rose to $67.4B in Dec, lower than the $68.5B estimate and higher than Nov’s $61B.
The world economy is expected to expand 2.9% in 2023, after having grown 3.4% in 2022. 2024 growth is expected to come in higher at 3.1%. These numbers are all lower than the historical global growth rate of 3.8%.
Over the next two years, China and India are expected to grow at an average of 4.8% and 6.4%, respectively. India has taken over China in terms of population as well as economic growth.
The US is estimated to grow about 1.0 - 1.5% in 2023 and about 1.5 - 1.9% in 2024.
Earnings
AFRM - Badly missed Q4 expectations
CMG - Missed on both the top line and and bottom line
DIS - Beat on top and bottom lines. Major restructuring and cost-cutting planned
ENPH - Beat on both Q4 top line and bottom line estimates
FTNT - Q4 was better than expected and Q1 guide was better than feared
LYFT - Unexpected Q4 loss and weak forward guidance
NET - Beat on Q4 estimates. Smaller net loss of $45.9M and steady forward 2023 guidance
PEP - Beat on Q4 estimates. Forward guidance in line with expectations
PINS - Missed Q4 revenue estimates and provided weak forward revenue guidance
PYPL - Mixed Q4 results left investors confused about the future path
UBER - Beat on Q4 earnings and revenue estimates. Taking marketshare from LYFT
Labor
Weekly jobless claims for the week of Feb 4th were up 13,000 to 196,000 versus estimates of 190,000.
Layoffs continue in several industries:
AFRM cutting 19% of it’s staff
BA cutting 2,000 positions
DELL cutting 5% or 6,650 jobs
DIS cutting 7,000 jobs
HP cutting 6,000 jobs
Real estate
According to Redfin, about 8% of US homes for sale have cut their asking price over the last 4 weeks, the highest no. of price cuts since 2015.
Key market events
Mon Feb 13th - Earnings: MNDY, PLTR
Tue Feb 14th - Jan CPI report, Earnings: ABNB, KO, UPST
Wed Feb 15th - Retail sales report, Homebuilders index report, Earnings: RBLX, SHOP, TTD, ROKU, TWLO
Thu Feb 16th - Jobless claims report, Earnings: DDOG, DASH, DOCN
Fri Feb 17th - Leading economic indicators index report, Monthly options expiration
Next US FOMC meeting is Mar 21 - 22, 2023.
Risks
The biggest risks that I am tracking this week are:
Monthly options expiration is this Fri, Feb 17th. These options expiration events are usually preceeded by higher market volatility. Stocks tend to drop on the morning of the Thu and they could close lower for that day, if bearish sentiment is strong this week
The Jan CPI report is due on Tue, Feb 14th. Markets are expecting inflation to continue dropping, however, one never knows what the report might give us and markets could react negatively to any unwanted surprise
I believe markets are currently overbought and are overdue for a correction of sorts. I will post a couple of charts on the chat line (link in the email header) to illustrate this point
Beachman’s plan
Here is what I plan to do with my portfolio…