State of the markets - Nov 14th 2022
Markets: What I am watching and doing in the markets this week
A quick housekeeping item before we discuss the current state of the markets: If you have not already done so, please download the Substack app and join the live Beachman chat here:
The SP 500 regained it’s 150day moving average last week (see image below). There is no denying that this chart now looks more bullish than bearish and these moving averages could provide downside support going forward.
The RSI has been pressured to keep rising since late Sept (about 6-7 weeks now) and the oscillator indicators have also been trending higher during this timeframe.
Since the beginning of 2022, the index has tried to break above the 150DMA five times and history shows that former points of resistance become future points of support soon enough.
Investor sentiment has turned more bullish as evidenced in the Fear & Greed index (see above). We were at extreme fear levels only a month ago.
We can see further evidence of this investor optimism in the put to call ratios above. They are all leaning towards their 52-week lows, meaning investors have been placing more bullish Call options bets versus bearish Put options bets.
US $DXY has dropped about 6% since late Sept and is not showing signs of recovering its former highs.
Oil prices are still basing in the $80-90s where we like it.
Natural gas prices are back to pre-pandemic normal levels after spiking due to a possible EU related shortage.
Copper prices are rising in anticipation of a possible China re-opening.
Longer term mortgage rates are dipping this morning. 30-year fixed rate is back under 7% to 6.91%. Small change no doubt, but it’s a start :-)
Coffee prices have declined about 20% in the last month. I bet Starbucks is not dropping their prices anytime soon.
Wow, what a week it was! Much happened and I had to send out a followup market update to touch on some burning, emerging developments.
Key learnings from the week that floated to the top of my notes:
About 90% of the S&P 500 have now reported Q3 earnings for an overall beat of 3.1%. Nine of Beachman’s comeback portfolio stocks have reported and eight of them delivered solid results.
The Oct CPI report delivered a cooler than expected inflation print. 7.7%yoy versus 7.9% expected. Core CPI, which excludes energy and food costs, rose 6.3%yoy versus 6.5% expected.
Looking at 2023, US inflation is expected to drop to about 4.5%. UK's and Spain's inflation rates are expected to be over 6%. Germany's inflation is expected to be 5.5%. Japan and Switzerland will see average inflation of 2% or less in 2023.
AFRM - lowered 2023 revenue guide
BYND - lower sales and higher losses; mgmt team in chaos
DIS - surprising weakness in streaming business; layoffs and cost-cutting moves coming
LYFT - ridership dropped to pre-pandemic levels, revenues challenged
PLTR - uncertainty on continued Govt spending
RBLX - revenue miss due to less gaming revenue
Tik Tok - lower revenue forecast due to compressed ad spend; no one is immune to macro pressures
U - widening losses, negative FCF, SBC rising
UPST - business model is broken, strong macro headwinds, ugly balance sheet
Labor and employment - Layoffs continue especially in the tech, retail and real estate e.g. META, DIS, CITI, Barclays, LYFT, RDFN, OPEN, CRM, PTON, COIN, SHOP, HOOD, TSLA
US mid-term elections are likely giving us a divided congress. This bodes well for markets at least for the next two years because no major or controversial regulations will be passable until the next US elections.
Crypto - FTX blew up and filed for bankruptcy. Just few weeks ago, FTX was bailing out other crypto companies and now it has become a poster child for shaky crypto-based business models. I don’t believe this is the last shoe to fall. There are other crypto-craters that will show up in the future.
Consumer sentiment plunged; the University of Michigan’s consumer sentiment index fell to 54.7 in the first two weeks of November, about 9% below October. Consumers expect 5.1% inflation next year and this could impact their spending habits. The US Fed closely watches these numbers.
In Q3, U.S. credit-card balances surged 19% to a record $866B. The number of new home-equity lines of credit surged almost 50% in Q3.
NVDA begun offering an alternate high-end chip (A-800) for China exports, instead of the restricted A-100 chip. This could recover a portion of their lost $400M annual China revenues going forward.
Finally, President Xi reiterated China's Covid-zero policy. However there was some easing of about 20 restrictions starting with shorter quarantine times for foreigners. Perhaps they are going to take a more micro-targeted approach to Covid outbreaks.
Key market events
Mon 11/14 - Earnings MNDY, DLO
Tue 11/15 - PPI (Producer price index) Oct report, Earnings WMT, HD, SEA
Wed 11/16 - Earnings TGT, NVDA, GLBE
Thu 11/17 - Jobless claims report, Earnings PANW, PG, GM
Fri 11/18 - Leading economic indicators Oct report
There is more upside risk in the markets this week than downside uncertainty. Lot’s of cash sitting on the sidelines waiting to be deployed. This includes retail investor and institutional cash. Hedge funds are particularly severely under-invested.
I read some unconfirmed tweets this morning that Ukraine might now be open to peace talks to end the Russian invasion of their country. If this is true, it could mark a turning point in the conflict that has put Europe on its knees.
I also saw this new acronym in a Goldman Sachs report: FOMU - fear of materially underperforming. God bless those analysts and their acronyms. Investing would not be fun without a few good cryptic abbreviations. FOMO is so 2020...let's get with the times.
So here is what I plan to do with my portfolio this week…
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