State of the markets - Oct 31st 2022
Musings: What I am watching and doing in the markets this week
The Nasdaq closed up 2% last week and the SP 500 delivered 4%. Investors are hoping for some more green action on Mon Oct 31st so that we can close the month on a more positive note.
The SP 500 chart above continues to show encouraging signs that the lows for 2022 are, perhaps, behind us. The index has taken back and is riding its 55day EMA for 4 days now. Average trading volumes have been rising since mid-Oct. We have a higher-trending RSI and a recovering oscillator indicator.
Look (below) how quickly investor sentiment has changed in a few weeks. We are now in Greed territory and FOMO is starting to set in.
US dollar index DXY is showing signs of topping. It dropped below and is stuck beneath its 55day EMA.
The 5-day average Put to Call ratio has dropped to about 0.9, meaning there are more bullish Call options positions than bearish Put positions.
The VIX volatility index is currently below its 50day MA and in a down trend portending less future chaos in markets.
Oil prices are stuck within $85-90 range.
Natural gas prices in Europe and US are dropping because there is lots of supply available and a milder winter is predicted in Europe.
Wheat futures are rising after Russia reneged on a joint agreement to allow the export of grains from Ukrainian ports laid seige by their Navy. This is due to get resolved shortly, imo.
Shipping and transportation rates continue to decline in the US and globally.
Copper prices dropped about 3% in as many days last week due to slowing global industrial demand.
Several big-tech names and cloud hyperscalers announced their Q3 earnings last week with mixed results. The mega-caps like AMZN, GOOG, MSFT and META were down by an average of 12% after earnings, except AAPL which rose more than 7%.
Over-analytical investors are twisting themselves in pretzels trying to predict upcoming earnings for their favorite cloud companies based on what these “FAANG” or “MAGMA” stocks published. I have seen some pretty fancy MS Excel and statistical work on this that I don’t know what to make of….guesses upon guesses upon guesses.
A few key learnings from last week floated to the top of my notes:
Any company with a wishy-washy outlook on Q4 and 2023 is being punished with large drops in their stock price - AMZN, GOOG, MSFT
Some companies still don’t realize that they need to be conserve cash and control expenses. This includes reducing their hiring plans and current headcount - AMZN, GOOG, META
Some companies are spending, on new equipment and infrastructure, like drunken sailors - META, MNDY. Either they know something we don’t or these are early dotcom-like signs of excess.
Foreign exchange rates are having an impact to top line and bottom line performance of global businesses. Some large companies like AAPL are actively hedging against currency headwinds.
Cloud growth with the hyperscalers was not as strong as expected. Enterprise clients are sharpening their pencils to reduce their cloud and technology spend. They are cutting their usage of some cloud-based services and data processing. Additionally rising energy prices are hurting cloud providers.
Consumer confidence is dropping according to the Conference Board’s Oct report, Present Situation index report and consumer expectations index report.
New home sales decreased by 11% in Sept. Aug sales were revised down to 18% lower than one year ago. The median new home price rose 14%yoy to $470,600
US GDP growth in Q3 was 2.6% as compared to a 1.6% contraction in Q1 and 0.6% contraction in Q2. Q3 growth was fed by higher exports from the US and more government spending.
JPM reported that global inflation is rolling over from 10% towards 5% and will fall further in 2023.
Inflation in Europe surged to 11% while their GDP growth was 0.2% for Q3.
Global growth is expected to be 2.7% in 2023 according to the IMF.
Blackrock is expecting some discussion of a pivot at the Nov 2nd FOMC meeting. WSJ reported that the FOMC has already been discussing a pause in rate hikes.
Chinese markets tanked about 15% following Xi’s renewal to a third term as President. His new leadership team is viewed as more conservative and nationalistic than the previous team he led. Currently 232M poeple in China are still in a COVID-19 related lockdown and Shanghai Disney is closing down again for the same reasons.
The Labor party’s Lula has won the presidential elections in Brazil.
Key market events
Mon Oct 31 - Earnings from XPO (were positive, btw)
Tue Nov 1 - Earnings from AMD, ABNB, SOFI, ZI
Wed Nov 2 - FOMC meeting with 0.75% rate hike expected, earnings from CFLT, HUM, ROKU
Thu Nov 3 - Earnings from BILL, CTRA, DDOG, MELI, NET, TWLO
Fri Nov 4 - US Oct jobs report
This is going to be another busy week right before next week’s US elections and Oct CPI report.
The US mid term elections are about 10 days away. Look for a media blitz of campaigning action, political advertisements and dirt being thrown by and at candidates. It’s hard to know if we get a last-minute surprise.
The FOMC could surprise markets with a 1% rate hike instead of the expected 0.75%.
Beachman’s plan for the week
Here is what I plan to do with my portfolio…
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