Anemic Volume

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Anemic Volume

The indexes struggled to find momentum on Monday suffering from post-holiday anemic volume which is pretty typical as traders extend vacations and travel home.  With a GDP reading on Wednesday and the Core PCE numbers on Thursday, it is possible the light volume chop could continue today.  However, we have some earnings and economic reports today that may well inspire the bulls or bears so be prepared for just about anything in this short-term very extended condition.

Asian markets closed mixed overnight with modest gains and losses trying to shake off the growing real estate crisis in China.  However, European markets trade in the red across the board this morning with modest losses as momentum stalls.  Ahead of earnings and economic data, the U.S. futures suggest a flat to slightly bearish lean but that could quickly improve or get worse depending on the reaction to pending data.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AZEK, BMO, CRWD, HPE, INTU, LESL, NTAP, PDD, SPLK, & WDAY.

News & Technicals’

Some regional banks in the U.S. are facing the risk of being acquired by their more profitable rivals, according to a report by KBW, a financial services research firm. KBW analysts said that Comerica, Zions, and First Horizon are among the banks that might be targeted for takeover, as they have lower returns and weaker growth prospects than their peers. On the other hand, larger banks with strong returns, such as Huntington, Fifth Third, M&T, and Regions Financial, are well-positioned to expand their market share and scale by buying smaller banks. KBW analysts also said that two other banks, Western Alliance and Webster Financial, could also consider selling themselves, as they have attractive franchises and valuations. The report said that the consolidation in the regional banking sector is likely to continue, as the banks face competitive pressures, regulatory challenges, and technological changes.

Wells Fargo Securities has released its 2024 stock market forecast, and it is not very optimistic. The firm’s head of equity strategy, Chris Harvey, predicts that the S&P 500 will end 2024 at 4,575, which is only 75 points higher than its closing level on Monday. Harvey expects the stock market to face a lot of volatility and uncertainty in the first half of 2024, as the economic growth and the Federal Reserve’s policy will be in a dilemma. He said that if the economy grows faster, the Fed will not ease its monetary policy, and if the economy slows down, the earnings will be lower, and the Fed will eventually cut its interest rate. He said that the second half of 2024 will be better, but the first half will be “really, really sloppy.” Harvey’s forecast is based on his analysis of the economic, earnings, valuation, sentiment, and technical factors that affect the stock market. He also shared his views on the sector and style preferences, as well as the risks and opportunities for investors.

The European tech sector has faced a significant drop in funding in 2023, according to a report by Atomico, a venture capital firm. The report, titled “State of European Tech”, showed that the total funding for European tech companies backed by venture capital is expected to decline by 45% in 2023, compared to 2022. The report attributed the decline to the reduced inflow of institutional capital from the U.S. and Asia, which had boosted the European tech market in 2020 and 2021, but retreated in the last year due to the macroeconomic uncertainties. The report also highlighted the bright spot of artificial intelligence, which attracted 11 mega funding rounds of $100 million or more in 2023, showing the strong potential and innovation of the European AI sector. The report also covered other aspects of the European tech ecosystem, such as talent, diversity, regulation, and social impact. You can read the full report here.

The indexes ended the day with modest losses on Monday, suffering from anemic volume which is pretty normal after a holiday shutdown. Today we have a bit more inspiration for the bulls and bears on the economic calendar and several notable earnings that have the potential to be market-moving as they are in the tech sector. However, the T2122 indicator continues to signal a short-term over-bought condition so guard yourself from getting caught up in the fear of missing out and chasing already extended stocks. That said the bulls remain in control and the so-called magnificent seven seem to have the ability to lift three of the indexes without the help of other stocks so it would be unwise to ignore the bullish enthusiasm.

Trade Wisely,

Doug

Unchanged over the Holiday

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Markets largely unchanged after the Thanksgiving holiday and its possible it could be a light and choppy Monday as many traders likely traveling home or extending their vacation time with family.  The T2122 indicator continues to display a short-term overbought condition but there is no clue in the price action that the bulls are ready to stop buying just yet.  Today we will look for inspiration in the New Home Sales and Dallas Fed MFG numbers with a very light day of earnings.  However, with pending GDP and PCE numbers mid-week we can expect substantial volatility as the market reacts. 

Asian markets sold off across the board while we slept with Chinese real estate decline and a Japanese surge of 2.3% in service inflation bringing out the bears.  European markets are also starting the week lower across the board modestly giving up some of last week’s gains.  U.S. futures point to a slightly lower open with eyes on the market moving GDP and PCE numbers pending mid-week. 

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include CRNC,& ZS.

News & Technicals’

Nuclear power is one of the most controversial topics in the global efforts to reduce greenhouse gas emissions and fight climate change. Nuclear power is a low-carbon source of energy, but it also poses significant risks and challenges, such as safety, waste management, proliferation, and cost. Nuclear power is expected to be a key issue at the COP28 conference in Dubai, where world leaders and experts will discuss how to achieve net-zero emissions by 2050. One of the events that will focus on nuclear power is the “Atoms4NetZero” ministerial event on Dec. 5, where representatives from countries that use or plan to use nuclear power will share their views and experiences. The event will also address the role of nuclear innovation and technology in the energy transition. The event is organized by the International Atomic Energy Agency (IAEA), the United Nations agency that promotes the peaceful use of nuclear energy. The event aims to highlight the potential benefits and challenges of nuclear power, and to foster dialogue and cooperation among stakeholders.

The stock markets in the Asia-Pacific region fell on Monday, as the Chinese market was dragged down by the slump in the property sector, while the Japanese market faced the pressure of rising service inflation. The Chinese property firms suffered from the ongoing debt crisis of Evergrande, the largest real estate developer in China, which missed another bond payment deadline last week. The property sector accounts for a large share of the Chinese economy, and its troubles have dampened the investor sentiment and the consumer confidence. The Chinese industrial profits also declined for the third consecutive month in November, but at a slower pace than before, indicating some signs of recovery. The Chinese market will be closely watching the official and the Caixin manufacturing data for November, which will be released later this week. The Japanese market was also under stress, as the service producer price index, which measures the changes in the prices of services, rose to 2.3% in October, the highest level since January 2020. This was higher than the 2% increase in September, and reflected the impact of higher energy and transportation costs. The service inflation added to the worries of the Bank of Japan, which has been struggling to achieve its 2% inflation target for years.

U.S. consumers spent $9.8 billion online on Black Friday, the biggest shopping day of the year, according to Adobe Analytics. This was a 7.5% increase from last year, and showed that consumers were eager to take advantage of the big discounts offered by retailers. Consumers also found it easier to compare prices and deals online, rather than going to physical stores. However, the online spending spree is expected to slow down after Cyber Monday, the next big deal day, as retailers will reduce their discounts for the rest of the holiday season.

The stock market was almost unchanged on Friday, after the Thanksgiving holiday. The S&P 500 had a small 1% increase for the week, extending its positive streak for the fourth week in a row. There was not much news to move the market today, from the economic or the earnings front. The market seems to be waiting for the PCE inflation report next week, which is the Fed’s preferred measure of inflation. The interest rates on Treasury bonds rose slightly, with the 10-year yield ending at around 4.45%. The Asian markets struggled do to the sharp declines in real estate price while Japanese service inflation surged 2.3% bring out the bears. We have a light day on the earnings calendar but we have New Home Sales and the Dallas Fed numbers for the bulls or bears to find inspiration.  Keep in mind many traders will be traveling home from the holiday so don’t be surprised if the volume is light.

Trade Wisely,

Doug

Parabolic Bull Run

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The parabolic bull run continued on Monday as the magnificent seven surged to a new high for the year with the composite up % in 15 trading days. Though the T2122 indicator continues to display an overbought condition corporate buybacks and fear of missing out continue to fuel bullish momentum. Today with will get Existing Home Sales figures and the FOMC minutes along with a busy day of earnings highlighted by the highly anticipated report from NVDA after the bell.  Plan carefully as volumes are likely to start declining as traders escape early to beat the travel rush for the holiday.

While we slept Asian markets closed mixed but mostly lower with modest gains and losses as China’s real estate crisis deepened requiring more government intervention.  European markets trade mostly lower this morning with modest declines in a cautious session.  U.S. futures point to a slightly bearish open ahead of earnings and economic reports with the holiday shutdown just around the corner. 

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ADI, ADSK, ANF, BIDU, BBY, BURL, CAL, DKS, DY, GES, HIBB, HPQ, JACK, J, KSS, LOW, MDT, NVDA, JWN, URBN.

News & Technicals’

Microsoft, the tech giant and the major investor of OpenAI, has expressed its continued support for the artificial intelligence research company and its former CEO Sam Altman, who was removed from his position on Friday. Microsoft’s CEO Satya Nadella said in an interview with CNBC on Monday that he still believes in OpenAI’s vision and mission and that he respects Altman’s contributions to the company. Nadella also said that he understands that OpenAI needs to change its governance structure, after facing a backlash from its employees and investors over Altman’s ouster. He said that he hopes that OpenAI can resolve its internal issues and continue to pursue its ambitious goals of creating artificial general intelligence and benefiting humanity.

OpenAI, the artificial intelligence research company that aims to create artificial general intelligence and benefit humanity, is facing a crisis of leadership and trust, as hundreds of its employees have signed a letter demanding the resignation of its board. The letter, which was leaked to the media, accuses the board of mismanaging the company, violating its values and principles, and ousting its former CEO Sam Altman without a proper explanation. The letter also warns that if the board does not step down, many employees will leave the company and join Altman’s new venture at Microsoft, where he and another co-founder and board member of OpenAI, Greg Brockman, have been hired to lead a new AI division. The letter claims that the employee exodus will happen “imminently.” Among the signatories of the letter are some of the top executives and researchers of OpenAI, such as Mira Murati, who served as the interim CEO after Altman’s departure, Brad Lightcap, the chief operating officer, and Ilya Sutskever, a co-founder and board member of OpenAI. The letter reflects the deep dissatisfaction and frustration of the employees with the board’s decisions and actions, and the loss of confidence in the company’s direction and vision.

Lowe’s, the home improvement retailer, has reduced its sales forecast for the year, as it faced lower demand from customers for do-it-yourself projects in the third quarter. Lowe’s reported that its sales fell by nearly 13% compared to the same quarter last year and that its comparable sales, which measure sales at stores open at least a year, declined by 7.5%. Lowe’s said that customers spent less on home improvement projects, as they shifted their spending to other categories, such as travel, entertainment, and dining out. Lowe’s also faced supply chain challenges, labor shortages, and higher costs, which affected its margins and profitability. Lowe’s now expects its comparable sales to drop by about 5% for the fiscal year, which is worse than its previous estimate of a 2% to 4% decline. Lowe’s shares slid by more than 8% on Tuesday, after the disappointing results.

The stock market continued its parabolic bull run driven mostly by the so-called magnificent seven as the QQQ stretched to a new year high ahead of the Thanksgiving holiday. Treasury bonds went down slightly with the 10-year U.S. Treasury bond yield, trading around 4.42%, which is good for both stocks and bonds. The Bloomberg U.S. Aggregate bond index, which represents the overall U.S. bond market, is up more than 3.0% in November but is still slightly negative for the year 2023. Today we have a busy earnings calendar with the higher anticipated report from NVDA after the bell.  Investors will also look for inspiration in the Existing Home Sales and FOMC minutes coming at 2 PM Eastern. As you plan forward please keep in mind the U.S. markets will be closed on Thursday and will have a half-day on Friday, ending at 1 PM.

Trade Wisely,

Doug

Third Week in a Row

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Although Friday proved to be a light choppy day the bulls held the bullish parabolic run for the third week in a row.  The Bears after working so hard this year seem to have entered hibernation heading into the holidays. However, with a shortened week with light earnings and economic calendars can the corporate buybacks keep the party going this week?  Perhaps, but keep in mind volume could quickly decline this week with record travel expected over the Thanksgiving holiday.  Plan your risk accordingly.

Asian markets closed mostly higher overnight with China holding benchmark lending rates unchanged.  European markets trade mixed but mostly lower this morning with modest gains and losses in a cautious session.  U.S. futures bounced around the flatline this morning but will look for inspiration in a light earnings and economic day to begin this holiday-shortened week.

Economic Calendar

Earnings Calendar

Notable reports for Monday include A, BRBR, KEYS, & ZM.

News & Technicals’

Disney, the entertainment giant, has been struggling to produce high-quality films since the pandemic ended, according to its CEO Bob Iger. He admitted last week that he was not satisfied with the quality of Disney’s films in the past two years. Disney’s film business has been losing money, as it has not reported positive operating income in its “Content Sales/Licensing and Other” segment, which includes theatrical releases, since the quarter that ended in April 2022. However, Disney hopes to turn things around in 2024, with some highly anticipated films, such as Marvel’s “Deadpool 3,” Pixar’s “Inside Out 2,” and “Mufasa: The Lion King,” a prequel to the classic animated film.

Cruise, the self-driving car company owned by General Motors, has announced a major leadership change, as its co-founder and CEO Kyle Vogt has stepped down from his role. Vogt, who founded Cruise in 2013 and sold it to GM in 2016, said he was leaving the company to spend time with his family and explore new ideas. He did not explain the reason for his departure, which comes after a series of setbacks for Cruise, such as delays in launching its robotaxi service, lawsuits from competitors, and regulatory hurdles. Cruise has appointed Mo Elshenawy, its former executive vice president of engineering, as its new president and CTO. Elshenawy, who joined Cruise in 2018, will lead the company’s efforts to develop and deploy its autonomous vehicles.

OpenAI, the artificial intelligence research company co-founded by Elon Musk, has undergone a dramatic leadership shake-up in the past few days. On Friday, the board of OpenAI announced that it was removing Sam Altman, the former president of Y Combinator, as its CEO and replacing him temporarily with Mira Murati, the chief technology officer of OpenAI. Then on Sunday night, OpenAI revealed that it had hired Emmett Shear, the former CEO of Twitch, the live streaming platform, to be its new CEO. However, the story did not end there, as on Monday morning, Satya Nadella, the CEO of Microsoft, announced that Altman and Greg Brockman, the co-founder and chairman of OpenAI, would be joining Microsoft as part of a new AI division. Microsoft is a major investor and partner of OpenAI and has provided it with cloud computing and technical support. The reasons for the sudden changes in OpenAI’s leadership are unclear, but they could signal a shift in the company’s vision and direction.

Stocks ended the week with little change on Friday but extended the third week in a row and it seems the bears went into hibernation heading into the holidays. The S&P 500 and QQQ are very near 2023 highs and though this rally has gone parabolic the fear of missing out could keep the chaise going this week. However, other than corporate buybacks there is very little to earnings and economic calendar to garner a lot of enthusiasm in this holiday-shortened week.  With the expectation of a record holiday, travel volumes could begin dropping sharply by Tuesday afternoon so plan your trading carefully.

Trade Wisely,

Doug

Bulls are on a Roll

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The bulls are on a roll extending the indexes on Wednesday with better-than-expected retail numbers in the short-term government spending bill to avoid shutdown worries until after the holidays.  Today investors will key off earnings reports with a big box retail theme and a busy economic calendar full of reports and Fed speakers.  Although the fear of missing out is strong right now be wary of chasing this parabolic because a pullback to punish those last in the door could begin at any time.  That said it is entirely possible the extremely bullish enthusiasm could remain through the rest of the week so plan carefully.

Asian market closed mostly lower overnight seeming not very encouraged by the U.S.-China talks.  European markets trade cautiously mixed this morning with consumer weakness worries as luxury brand seller Burberry posted disappointing results.  U.S. futures also suggest a hesitation to keep driving higher this morning ahead of a busy day of earning and economic reports. 

Economic Calendar

Earnings Calendar

Notable reports for Thursday include BABA, AMAT, BBWI, BZH, BERY, BORR, BRC, BV, DLB, DOLE, GPS, M, POST, ROST, SCVL, SSYS, UGI, WMG, WMT, & ZTO.

News & Technicals’

China’s President Xi Jinping delivered a message of cooperation to U.S. business leaders on Wednesday, after meeting with U.S. President Joe Biden for the first time since he took office. Xi said that China and the U.S. have to choose between being partners or adversaries, and urged them to work together on global issues such as climate change, trade, and pandemic response. He also announced that China would send two of its giant pandas to the San Diego Zoo, as a gesture of goodwill and friendship. The dinner, which was held in San Francisco, was part of the Asia-Pacific Economic Cooperation conference, where leaders from 21 countries discussed ways to boost economic growth and cooperation in the region.

Cisco, a leading provider of networking and communication products and services, reported its quarterly earnings on Wednesday, beating the analysts’ expectations. However, the company’s guidance for the next quarter was lower than anticipated, as the company faced a slowdown in product orders from its customers. The company explained that its customers were busy implementing the Cisco products and services that they had purchased in the previous quarters, and therefore had less demand for new orders. The company also said that it was facing some supply chain challenges and higher costs due to the global chip shortage and the pandemic. The company’s shares fell by 4% in after-hours trading.

The Congress has averted a government shutdown for now, by passing a short-term funding bill on Wednesday night. The bill, which would keep the government running until February 18, 2024, received bipartisan support in the Senate, with 87 senators voting for it and 11 voting against it. The bill had already passed the House of Representatives on Tuesday. The bill now goes to President Joe Biden, who is expected to sign it into law. The bill also includes some emergency funding for disaster relief, health care, and defense. The bill does not address the debt ceiling, which is expected to be reached by mid-December. The Congress will have to deal with the debt ceiling and other contentious issues, such as immigration and social spending, after the holidays.

The bulls are on a roll this week, reaching up in a parabolic bull run trying once again to anticipate how the FOMC will approach the rates in the future. However, it would be wise to keep in mind that the market’s track record on Fed predictions has been 100% wrong over the last year. The positive mood continued Wednesday, as retail sales beat the forecasts and producer prices moderated. Another factor that boosted the confidence of investors was the House passing a bill to prevent government shutdown worries until after the holidays. We have a busy day of economic reports and Fed speakers on the economic calendar with a big box retail theme on the earnings calendar to keep investors guessing in the current extremely over-bought parabolic conditions.  Be very careful chasing stocks higher as a pullback could begin at any time.

Trade Wisely,

Doug

Market Raced Higher

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A milder-than-expected inflation report than analysts forecast produced a huge morning gap that continued to extend in wild bullish exuberance.  Although the T2122 indicator suggests a short-term extreme overbought condition there is a very good chance the QQQ will make a new high for the year in the remarkable reversal.  The bull or bears will look for inspiration in Mortgage Apps, PPI, Retail Sales, Empire State MFG, Business Inventories, Petroleum Status, Fed speakers, and a dozen or so notable earnings reports.  Avoid the fear of missing out chase as it is highly likely a pullback or at a minimum a longer choppy market consolidation is just around the corner.  I would not rule out a substantial whipsaw to punish those last-minute buyers.

While we slept Asian markets reacted in kind closing green across the board with Japan and Hong Kong zooming while China was only able to muster a 0.55% gain.  Across the pond, European markets are looking to extend the bullish celebration currently decidedly green across the board. U.S. Futures also want to keep the party going headed for another gap up open ahead of earnings and economic reports.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include AAP, CTLT, CSCO, CPA, DAVA, HI, JJSF, JD, KLIC, PANW, SONO, TGT, TTEK, & TJX.

News & Technicals’

Congress has reached a last-minute deal to avoid a government shutdown that would have affected millions of Americans. The House passed a bill on Saturday that would fund the government for another 45 days, with bipartisan support from both Republicans and Democrats. The bill also includes billions of dollars for disaster relief but does not include any new aid for Ukraine, which was part of a separate agreement in the Senate. The Senate quickly approved the bill by unanimous consent, and President Biden signed it into law. The bill will give lawmakers more time to negotiate a longer-term funding solution and address other pressing issues, such as the debt ceiling and the Biden administration’s request for additional security assistance to Israel and Ukraine.

The economy shrank by 2.1% year-on-year in the third quarter, reversing the 4.8% growth in the previous quarter, according to the latest data from the Bureau of Economic Analysis. This was worse than the 0.6% contraction that analysts had expected. The economy also contracted by 0.5% quarter-on-quarter, compared to a 0.1% decline that was forecast. The data showed that the recovery from the pandemic-induced recession was losing momentum, as consumer spending, business investment, and exports all slowed down. The third quarter GDP data was the last major economic indicator before the presidential election on November 7.

The U.K. inflation rate dropped to its lowest level in two years in October, according to the latest data from the Office for National Statistics. The consumer price index, which measures the changes in the prices of goods and services, fell to 4.6% year-on-year in October, down from 6.7% in September. This was lower than the 4.8% that economists had predicted. On a monthly basis, the consumer price index was unchanged in October. The core consumer price index, which excludes the prices of food, energy, alcohol, and tobacco, also declined to 5.7% year-on-year in October, from 6.1% in September. The main factors that contributed to the lower inflation rate were the decreases in the prices of clothing, footwear, furniture, household goods, and recreation and culture. The inflation rate is still above the Bank of England’s target of 2%, but the central bank expects it to fall further in the coming months. The lower inflation rate could ease some of the pressure on consumers, who have been facing higher costs of living and lower wage growth.

The stock market raced higher on Tuesday after a milder-than-expected inflation report, which showed both the overall and the core CPI inflation rates lower than what analysts had forecasted. All the sectors in the S&P 500 index gained, with the real estate sector leading the way with a 5% increase. The sectors that benefit from economic growth, such as technology, communication, consumer discretionary, and small-cap stocks, also performed well. The bond market reacted positively to the inflation report, as the yields on the 10-year and the 2-year Treasury bonds dropped to around 4.45% and 4.85%, respectively. Today we have about a dozen notable earnings reports with Mortgage Apps, PPI, Retail Sales, Empire State MFG, Business Inventories, Petroleum Status, and some Fed speakers for the bull or bears to find inspiration.  The T2122 is now in a short-term extreme overbought condition so a pullback or consolidation could begin at any time but expect the price action to be wildly volatile if the current exuberance begins to fade.

Trade Wisely,

Doug

Bulls Shrug it Off

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A negative credit downgrade from Moody’s but the bulls shrug it off to continue the straight-up rally with a pending CPI number just around the corner.  Investors seem very sure that the Fed inflation fight is over.  We may find out this morning when the inflation data is revealed so be prepared for significant price volatility as the market reacts.  Home Depot reported a beat of expectations but also issued a caution on the forward strength of sales as the consumer weakens.  Keep in mind that on Wednesday bring a PPI and Retail Sales report so plan your risk accordingly.

Asian markets closed modestly higher overnight with only the tech-heavy Hong Kong exchange experiencing some light selling ahead of the Biden-XI talks.  European markets trade mostly bullish this morning with only the FTSE slightly lower as they wait on the pending inflation data.  However, U.S. futures trade cautiously bullish heading into the CPI report which will likely create a significant price reaction.  The question on everyone’s mind is whether the reaction is up or down.  Buckle up we will soon find out.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ALC, ARMK, CAE, CSIQ, ENR, HD, HUYA, IHS, OCSL, ON, PSFE, SBH, TME, VREX, VIPS, & WKME.

News & Technicals’

Home Depot, the largest home improvement retailer in the U.S., reported its third-quarter earnings and revenue on Tuesday, beating the analysts’ expectations. However, the company’s sales dropped by 3% compared to the same quarter last year, as the demand for home improvement products slowed down amid the easing of the COVID-19 pandemic and the rising inflation. Home Depot also issued a cautious outlook for the full year, saying that it expects its sales to grow by 4.9%, lower than the previous estimate of 6%. The company said that it faces uncertainty and volatility in the market, as well as supply chain challenges and labor shortages. Home Depot’s stock price fell by 4.3% on Tuesday, following the earnings release.

Stellantis, the parent company of Chrysler and other car brands, is offering buyouts to about half of its U.S. white-collar workers, as part of its plan to reduce costs and improve efficiency in its North American operations. The company said on Monday that it will offer voluntary separation packages to 6,400 of its 12,700 nonunion U.S. employees, who can choose to leave the company with a lump sum payment and other benefits. This is the second time this year that Stellantis has offered buyouts to its salaried workers, after a similar offer in March. The buyout offer comes after Stellantis reached a tentative agreement with the UAW, the union that represents its hourly workers, in October. The agreement includes wage increases, bonuses, profit sharing, and investments in U.S. plants. Stellantis is the fourth-largest automaker in the world, formed by the merger of Fiat Chrysler and PSA Group in January 2021. The company faces several challenges, such as the global chip shortage, the competition from electric vehicles, and environmental regulations. The company hopes that the buyout offer will help it streamline its workforce and optimize its resources.

The consumer price index (CPI), which measures the change in the prices of goods and services, is expected to show a slight increase of 0.1% in October 2023 from the previous month and a moderate increase of 3.3% from the same month last year, according to a Dow Jones poll of economists. The CPI is one of the main indicators of inflation, which is the general rise in prices over time. The CPI is released monthly by the U.S. Bureau of Labor Statistics (BLS) and will be released on Tuesday, November 14, 2023, at 8:30 A.M. Eastern Time.

Moody’s downgrades U.S. credit from stable to negative and the bulls shrug it off in a relentless straight-line rally heading into Tuesday’s inflation report. Bond yield showed little change yesterday with investors seemingly very confident that the Fed inflation fight has concluded despite the continued hawkish comments from FOMC members. Home Depot beat estimates but issued a caution about the softer sales ahead due to the weakening consumer. Target and Walmart will report later this week helping to clarify how the consumer is feeling amid record credit card debit.  Today investors will be looking for inspiration in the CPI figures.  Be prepared for volatility as the market reacts.

Trade Wisely,

Doug

Tech Giants Led

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Investors chose to ignore the warnings from Jerome Powell reversing Thursday’s bearish engulfing as the tech giants led indexes higher breaking overhead resistance.  After the market closed Moody’s downgraded the U.S. creditworthiness with a possible government shutdown at midnight this Friday.  So the question for today is, can the market follow through and continue to ignore the massive debt problem we face? With CPI and PPI just around the corner, plan for volatility as we find out if the bulls have it right this time or if once again got it wrong as they have over the last 18 months.  In any case, be prepared for substantial price volatility as the week unfolds.

Asian markets began the week mixed but mostly higher waiting on Biden-Xi talks that could be a bit contentious. However, European markets start the week with modest bullishness across the board ahead of talks with China as well as pending inflation data.  U.S. futures recovered off of overnight lows after Moody’s credit downgrade but still point to a modestly lower open with CPI, PPI, and a possible government shutdown battle to curb the rapidly growing debt.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ACM, FTRE, GENI, HROW, HSIC, MNDY, SKIN, SLF, TSEM, & TSN.

News & Technicals’

The U.S. government is facing a potential shutdown next week unless Congress can agree on a funding plan. However, the outlook for the U.S. fiscal strength has been downgraded by Moody’s, a credit rating agency, to negative from stable. This means that the U.S. may lose its top credit rating in the future if it does not address its rising deficits and debt. Moody’s said that the U.S. has unique credit strengths, such as its economic size, diversity, and resilience, but also faces downside risks, such as political polarization, social inequalities, and environmental challenges. Moody’s affirmed the U.S. long-term issuer and senior unsecured ratings at Aaa, the highest possible rating, but warned that the U.S. needs to improve its fiscal governance and sustainability. The Moody’s report was based on the data from the second quarter of 2023. Meanwhile, the newly elected House Speaker Mike Johnson, a Republican, said he will release a Republican government funding plan on Saturday. He did not provide any details about the plan but said he hopes to avoid a shutdown and reach a bipartisan agreement with the Democrats. The current government funding expires on Friday, November 17, 2023. If Congress fails to pass a new funding bill by then, the government will have to shut down non-essential services and furlough federal workers. This would have a negative impact on the economy and public services. The last government shutdown occurred in December 2022, and lasted for 35 days, the longest in U.S. history.

The workers of Ford’s two plants in Louisville, Kentucky, have given a mixed verdict on the proposed contract between the company and the United Auto Workers (UAW) union. The contract, which would last for four and a half years, was rejected by the majority of the production workers, who make up most of the workforce. The production workers voted 55% against the contract, according to the UAW Local 862 union. However, the skilled trades workers, who are a smaller group of workers with specialized skills, voted 69% in favor of the contract. The contract would offer wage increases, bonuses, profit sharing, and retirement benefits to the workers, as well as investments in the plants. The reasons for the rejection by the production workers are not clear, but some workers have expressed dissatisfaction with the contract terms, such as the lack of cost-of-living adjustments, the two-tier wage system, and the health care costs. The contract vote is still ongoing at other Ford plants across the country, and the final result will depend on the overall majority of the workers.

The U.S. bond market is stable on Monday, as investors weighed the economic outlook and awaited the inflation data that will be released this week. The inflation data, which will show the consumer price index (CPI) and the producer price index (PPI) for October, will be closely watched by the investors, as they will provide clues about the future direction of the monetary policy. The Federal Reserve, the U.S. central bank, has signaled that it will start tapering its bond purchases this month, and may raise interest rates next year if the inflation remains high and persistent. The bond yields, which reflect the market’s expectations of the interest rates, were little changed on Monday. The 10-year Treasury yield, which is a benchmark for long-term borrowing costs, rose slightly to 4.63%, from 4.62% on Friday. The 2-year Treasury yield, which is more sensitive to short-term interest rate changes, fell slightly to 5.056%, from 5.064% on Friday. The bond yields have been volatile in the past few months, as investors reacted to the changing economic conditions, such as the COVID-19 pandemic, the supply chain disruptions, the fiscal stimulus, and the labor market recovery.

The stock market rebounded Friday with a surprising reversal as the tech giants led indexes higher. The market was spooked Thursday by Fed Chair Powell’s comments at the IMF, which suggested a more aggressive monetary policy, and by a weak bond auction, which pushed the yields higher. However, investors defiantly choose to ignore the Chairman’s warning believing they have it right this time despite their poor track record in predicting a pivot over the last 18 months. We may not have long to find out if the bulls are correct with a CPI report on Tuesday followed by the PPI on Wednesday.  We will also get a reading on the strength of the consumer with Retail Sales figures mid-week.  That said, it could be a hurry-up and wait Monday with volatility in the morning after Moody’s downgrade and possible government shutdown this Friday at midnight.  Buckle up it could be a wild week ahead.

Trade Wisely,

Doug

Chopped Sideways

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The bulls and bears ended the day equally matched as the DIA, SPY, and QQQ chopped below resistance and above their 50-day averages.  However, without the benefit of the magnificent seven, the IWM slipped lower closing the day well below its 50-day average.  The tech giants enjoyed most of the bullish energy as they almost exclusively determine the direction of the big three indexes.  Today traders have a busy day of earnings to keep them guessing as well as Jobless Claims and Fed speeches that include Jerome Powell at 2 PM Eastern.  While the bulls seem determined to extend the rally into the end of the week the pending inflation data next week could keep price action choppy into the weekend.

Overnight the Asian markets closed mostly higher with only Hong Kong closing modestly lower after China’s deflationary price reports.  European markets look to extend their rally this morning boosted by earnings sentiment.  Ahead of another busy day earnings, Jobless Claims, and a Powell speech, U.S. futures suggest a modest yet mixed open with slight a weakness showing up in the Nasdaq but that could quickly change as data rolls out.  Buckle up for another day of challenging price action.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ALRM, AQN, MT, ARLO, AZN, BDX, BLNK, CPRI, CLNE, CCOI, DGII, FA, FVRR, FLO, GDRX, GRAB, HBI, HIMX, HOLX, ILMN, INDI, IRWD, KELYA, DNUT, LI, LGF, MTD, NWSA, NOMD, NVAX, OTLY, PLUG, RDNT, STNG, TPR, TTD, TDG, U, USFD, UTZ, VERX, WB, WRK, WPM, WWW, & YETI.

News & Technicals’

Sony, the Japanese electronics and entertainment giant, reported a lower operating profit for the second quarter of 2023, as it faced challenges in its imaging sensor business and other segments. The company’s operating profit fell by 29% to 211.8 billion yen ($1.9 billion), compared to the same quarter last year. The main reason for the decline was the weakness in the imaging sensor business, which supplies camera chips to smartphone makers such as Apple and Samsung. The business was affected by the global chip shortage, the slowdown in smartphone demand, and the increased competition from other suppliers. Sony also saw lower profits in its financial services and entertainment, technology, and services units, which include its music, movie, and gaming businesses. However, the company said it expects its PlayStation 5 console, which launched in November 2020, to meet its sales target of 25 million units shipped in 2023, despite the supply constraints and the rising costs of components. The PlayStation 5 is one of the most popular gaming consoles in the world and has been in high demand since its release.

Disney, the world’s largest entertainment company, reported its quarterly earnings on Wednesday, beating the profit estimates but missing the revenue expectations. The company’s profit was $1.12 per share, higher than the analysts’ forecast of $0.98 per share. However, the company’s revenue was $16.25 billion, lower than the expected $16.76 billion. The company’s revenue was affected by the decline in ad revenue, which fell by 13% to $2.6 billion, as well as the impact of the COVID-19 pandemic on its theme parks and movie studios. On the positive side, the company’s streaming segment, which includes Disney+, Hulu, and ESPN+, reduced its operating loss to $312 million, from $580 million a year ago. The streaming segment also added 18.5 million subscribers in the quarter, reaching a total of 179 million. Disney also revealed the quarterly results of its ESPN unit for the first time, showing that both revenue and operating income increased in the quarter, to $2.8 billion and $814 million, respectively. Disney’s CEO Bob Iger announced that the company plans to launch ESPN as a direct-to-consumer service by 2025, which will allow sports fans to access ESPN content without a cable subscription.

SoftBank, the Japanese technology conglomerate, reported a mixed performance for the second quarter of its fiscal year, as it recorded an investment gain on its Vision Fund but also a net loss for the quarter. The Vision Fund, which is SoftBank’s main vehicle for investing in startups, posted a gain of 1.3 trillion yen ($11.6 billion) for the quarter, thanks to a gain from the sale of its stake in Arm, a chipmaker, to a SoftBank subsidiary. However, this gain was partly offset by a decline in the value of some of the Vision Fund’s portfolio companies, such as SenseTime, a Chinese artificial intelligence company, which faced regulatory challenges in China. SoftBank also reported a net loss of 131.7 billion yen ($1.2 billion) for the quarter, compared to a net profit of 627.4 billion yen ($5.6 billion) a year ago. The loss was mainly due to a loss on derivatives and a loss on investments in listed stocks. SoftBank’s CEO Masayoshi Son said that the company remains confident in its long-term vision and strategy and that it will continue to invest in innovative and disruptive companies.

The DIA, SPY, and QQQ chopped sideways Wednesday lacking the volume to push through resistance levels though holding above their 50-day averages. Once again the magnificent seven enjoyed most of the bullish activity that held the indexes steady. The SPY edged up by 0.1%, extending its winning streak to eight days. The IWM, which is the only index that does not have representation from the magnificent seven continues to lag well below its 50-day average. Bond yields fell, with the 10-year Treasury yield dropping to around 4.5%, while the 2-year yield stayed around 4.95% and oil continued to fall sharply.  Today we have another busy earnings calendar with Jobless Claims, Fed speeches that include Jerome Powell, Natural Gas, and Fed Balance Sheet figures to find inspiration.  Expect choppy price action to continue with the uncertainty of inflation data pending next week.

Trade Wisely,

Doug

Winning Streak

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The tech giants almost exclusively extended the market winning streak to seven days in a row as index prices continued to pound on the door of overhead resistance. At the same time, oil prices plunged as China’s export declines suggest slowing economic growth in major economies of the world including the U.S.  Today investors will look for inspiration in Mortgage Applications, Inventories, Petroleum Status, Fed speakers that include Jerome Powell and busy day of earnings to keep prices volatile and challenging. Be prepared for just about anything as weakening consumer demand concerns and the current buying enthusiasm battle for control of market sentiment.

While we slept Asian markets closed mostly lower with only Australia gaining a modest 0.26%. European markets this morning have chopped between gains and losses waiting on earnings to break the log jam of caution.  U.S. futures are also rather cautious this morning currently suggesting a flat open that could change dramatically by the open depending on the reaction to all the earning and economic data ahead.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ME, DDD, AFRM, ADNT, BIRD, AMC, ARM, APP, ASH, ATO, BYND, BIIB, BE, CEVA, CRL, CDE, CTVA, APPS, DIOD, DIS, DUOL, EVGO, AG, FICO, FSR, FLT, FNV, GNK, G, HP, HLMN, HLLY, HUBS, CART, JAZZ, K, KRNT, LITE, LYFT, MCFT, MGM, NYT, PAAS, PYCR, PFGC, PUBM, RL, REYN, RBLX, SEAS, STWD, SGOO, TTWO, TEVA, TTGT, MODG, COOK, TTEC, TWLO, UAA, SPCE, WRBY, WDB, WOW, KLG, XPEL, & ZIP..

News & Technicals’

Credit card debt in the U.S. has reached a record high of $1.08 trillion, according to a report from the Federal Reserve Bank of New York. This reflects the impact of rising inflation, which has eroded the purchasing power of consumers and forced them to use up their savings and rely more on credit cards to cover their expenses. However, credit cards are also one of the most costly forms of borrowing, as they charge high-interest rates and fees. This can create a vicious cycle of debt, as consumers struggle to pay off their balances and incur more interest and penalties. Therefore, consumers should be cautious about using credit cards and try to pay more than the minimum amount each month to reduce their debt burden.

UBS, the Swiss banking giant, is issuing a new type of bond that can be wiped out if the bank faces a financial crisis, according to CNBC. The bond is called additional tier 1 (AT1) security, and it is designed to absorb losses and protect the bank’s capital. However, the bond also carries a high risk for investors, as they can lose their entire investment if the bank fails or needs a bailout. This happened to Credit Suisse, another Swiss bank, in March when its AT1 bonds worth $17 billion were canceled as part of a rescue deal by the Swiss authorities. The bondholders were outraged by the decision, which left them with nothing. UBS did not disclose the details of its AT1 offering but said it will provide more information when the deal is completed.

Salesforce, the leading cloud-based software company, and San Francisco, the host city of its annual conference, Dreamforce, have reached an agreement that will ensure the event will stay in the city in 2024. The agreement came after Salesforce CEO Marc Benioff hinted that the conference might move to another location, due to the challenges of hosting a large-scale event amid the COVID-19 pandemic and the social issues facing the city. However, Benioff later praised the conditions of this year’s Dreamforce, which was held in a hybrid format, with both online and in-person sessions. He also thanked the city officials and the local community for their support and cooperation. Dreamforce is one of the largest and most influential tech conferences in the world, attracting tens of thousands of attendees, speakers, and exhibitors every year.

The stock market extended its winning streak to seven days on Tuesday, as the S&P 500 index rose again predominately due to the energy of the magnificent seven the. The bond yields held firm and are once again ticking higher this morning but are still well below the peak of over 5.0% in mid-October. However, oil and energy prices had a rough day with export declines out of China showing a weakening consumer demand. WTI crude oil plunged by more than 3.5% to around $77. Concerns about the slowing economic growth in major regions of the world, such as the U.S., the eurozone, and Canada, hint that job declines could be just around the corner. Today we have another big of earnings to keep traders guessing as well as Mortgage Applications, Inventory figures, Petroleum status, and a slew of Fed speakers adding in a touch of uncertainty. 

Trade Wisely,

Doug