Public Holidays
No public holidays for Hong Kong, Singapore, the US & China in the coming week.
Economic Calendar (14Aug2023)
Economic Calendar for the week starting 14 Aug 2023
Notable Highlights
Retail data - Core retail sales and retail sales data will be announced this week. This reflects consumption in the USA.
Building Permits. This will shed some light pertaining to real estate.
Philadelphia Fed Manufacturing Index. From investing > The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. A level above zero on the index indicates improving conditions; below indicates worsening conditions. The data is compiled from a survey of about 250 manufacturers in the Philadelphia Federal Reserve district.
Jobless claims. Initial jobless claims will be announced on Thursday. This would form critical data points for the Fed to decide on the next interest rate adjustment. This is part of the data consideration for the Fed in their coming interest rate decision.
Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, this implies demand erosion that can lead to reduced production & weakening consumer spending. We have last seen much excess inventory previously.
Earnings Calendar (14 Aug 2023) - can the tide rise at SEA?
Earnings of the week starting 14 Aug 2023
Personally, there are a few companies of personal interest that include NU, SEA, ZIM, CISCO, Walmart, JD and Applied Materials. Let us look at SEA in detail.
SEA’s performance
For SEA, the stock is currently on a downtrend having reached the 52-week high of 92.35.
SEA has demonstrated strong growth in revenue since 2014. Though the company has remained in the red (in terms of operating profit), the loss has been reducing (comparing 2021 and 2022). The one-year change in stock price is about 34.95%.
The forecast for the coming earnings is 0.6552 and 3.26B for the EPS and revenue respectively. Can SEA continue to report profits after quarters of cost management? Can we see another quarter of profits?
Market Outlook - 14 Aug 2023
Note that S&P500 seems to have peaked with a much lower trading volume of 1.85B compared to the average volume of 4.0B. Volume represents the strength of the current momentum that seems to be “weakening”.
S&P500 1D chart as of 13Aug2023
Technical observations of the S&P500 1D chart:
The stochastic indicator is on a downtrend. There was a double bottom that can imply a coming reversal of the current downtrend.
The MACD indicator is on a downtrend.
Moving Averages (MA). Both MA50 & MA200 lines are on an uptrend. With the last candle being above both the MA50 line and MA200 lines, this can be interpreted as an uptrend in the mid-term and the long term. The last candle is approaching the MA50 line and a cross-over can also imply a “downtrend” for the mid-term too.
Exponential Moving Averages (EMA). All 3 EMA lines have converged, implying a reversal of the current uptrend. This is the confirmation that we are looking for coming to a reversal.
From the 1D technical indicators above, there are a total of 7 (Buy), 13 (Sell) and 1 (Neutral). Investing recommends a “STRONG SELL” based on the technical indicators above (1D chart for S&P500) but is neutral if we are using moving averages.
In conclusion, I think that the various indicators point to a downtrend in the coming week.
News and my thoughts from the last week
From Twitter user Wall Street Silver:
From Twitter user Wall Street Silver:
US 30-Year Mortgage Rates Hit A 23-Year High, Raising Concerns According to data, the 30-Year fixed-rate mortgage reached 7.39% on Thursday, the highest rate since November 2000. This increase was driven by a surge in US Treasury yields. A flood of new US Govt debt is being issued to cover deficit spending. As a result, yields are going higher.
The US economy created 187K jobs in July of 2023, below 200K expectations & a downward revised 185K in June. Payroll figures for May were also revised lower. Thus, employment in May & June combined is 49K lower than previously reported.
USD’s buying power over 90 years.
<WSJ> New Lending by Mortgage REITs Has Dried Up Total commercial and multifamily mortgage lending is expected to fall to $504 billion this year, a 38% decline from 2022, according to the Mortgage Bankers Association.
<Yahoo Finance> The U.S. buy now pay later market size is expected to reach USD 9.20 billion by 2030, growing at a CAGR of 24.3% from 2023 to 2030
<FinMaster> The US experienced 0.23% foreclosure rates in 2022. The rate appears low, but it is, in fact, higher than in 2021 (0.11%) and 2020 (0.16%).Based on the 331 million population (2021), it implies 763,370 homes have been affected. This represents about 301,760 households in the US.
<CNBC> Biden is specifically targeting investments in technologies like semiconductors, quantum computing and AI on concern of U.S. national security interests. The new measure is expected to go into effect next year.
The latest YoY CPI is 3.2%. If we consider the inflation pre-Covid, it stands at about 18.5% from Jan 2020. How many of us have had income gains of 18.5% since 2020?
<investopedia> Moody's decision reflects a challenging backdrop for the banking industry, amid intense competition for attracting deposits. Moody's cited increased funding costs, profitability pressures & slowing loan growth in banks' Q2 earnings.
<Business Insider> Big US banks are reportedly trying to dump commercial real estate loans - but buyers are scarce as pressures mount for property markets
<Politico> And because 70% of bank-held commercial mortgages sit on the balance sheets of regional and smaller lenders, a write-down in commercial loans could spell big trouble for the financial system and spill over into the larger economy.
My investing muse - red flags of debts, bonds & banks
There are several red flags from the last week:
<Yahoo Finance> Bank of America has USD$14M worth of insider sales recently. Is there room for concern?
<Bloomberg> Goldman Sachs Sells $2.75 Billion of Bonds Ahead of CPI. The sale follows a stream of IG debt offerings earlier this month.
<Business Insider> A $2 trillion corporate debt wall will spark job losses in 2024, Goldman Sachs says
<CNBC> Dow slides 400 points as Wall Street sell-off intensifies
Banks fell broadly after Moody’s downgraded the credit rating on several banks, including M&T Bank & Pinnacle Financial. Bank of N.Y. Mellon & State Street are due for review.
<CNBC> Regulators hit banks with $549 million in fines for record-keeping failures
<CNBC> Credit card balances jumped in the second quarter and are above $1 trillion for the first time
<WSJ> Chinese Exports Fall at Steepest Pace Since 2020
Overseas shipments from China slumped 14.5% in July from a year earlier, the steepest year-over-year decline since February 2020, by China’s General Administration of Customs showed.
Insider sales can be treated as “bearish” news as they work within the bank. It may also be a case of the insider cashing out their profits. For Bank of America, let us monitor closely.
Concerns about the bond market rose when Goldman Sachs sold about $2.75 billion worth of bonds. In terms of uncertainty, bonds can offer a “better” option when the earnings can be “confirmed”. However, it is also depending on the creditworthiness of the bonds sold. Is Goldman doing a re-balancing or just taking off some risks? This remains something that we should monitor.
According to Business Insider, we have a $2 trillion debt wall that will be due in 2024. There seem to be increasing concerns about default with speculations of job losses.
Banks have also been hit with fines USD$549 million for record-keeping misappropriation. To compile the misery of the banks, Moody’s has downgraded credit ratings on several banks and more are due for review. This led to a 400 points single-day plunge in Wall Street.
From the retail side, credit card balance has breached the $1 trillion mark. With the recent interest rate rises, this looks more like a debt spiral.
China (the world’s factory) reported a record 14.5% decline in export value, which implies weakening global demand.
Conclusion
S&P500 companies do not represent the US economy alone but these are some of the biggest Multi-National Companies with global operations, revenue and presence. This implies that part of the S&P500 represents the global market.
Both retail and corporate debt seems to be mounting and we should be hitting some challenges soon. Student loan repayment is expected to resume in September after the recent Covid suspension. This will add to the debt burden of the US households. While there are some companies with good earnings, it is important for us to exercise caution.
Comments
This is fantastic, we have 6 more days to accumulate around $60 before earnings. I see this going straight back to $90 atleast. Opportunity of a lifetime here gentlemen.
It is so frustrating how options driven this has been up to now. Only thing keeping this down is the huge amt of 59/60 calls. we literally went from 57.95 to over 80 in days. This time, I believe we will finally stay towards an upward path.
To clarify, the current share price is Absolutely ludicrous. We all know that Sea will show even more profitability and a positive surprise for gaming division. The current share price seems to have totally forgotten that Sea is even profitable, as if the previous three earnings never happened. This is truly one of the best opportunities in the market right now, with many similar stocks having increased massively while Sea lags behind, for no apparent reason at all.
This has been options driven and day traded until earnings. This has been in accumulation mode from 54ish to 67ish. It made a Higher low and retested it multiple times. This went down due to the S&P and Baba.
With tourism money entering South East Asian economy people have more money to spend. I think SE will show impressive results.
Great ariticle, would you like to share it?