Public Holidays
There are no holidays in Singapore, Hong Kong, China and America for the coming week.
Economic Calendar (06 May 2024)
Notable Highlights
The 10-year note auction and 30-year bond auction are references needed for the servicing of the US Federal deficit. Should there be insufficient take-up of these assets, the US government would need to turn to money printing that is inflationary. This would also add to the burden of debt.
Initial jobless claims will also be a key macro data that the Federal Reserve will look into as they ponder the next interest rate decision
Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, demand erosion can lead to reduced production & weakening consumer spending.
Earnings Calendar (06 May 2024)
earnngs of the week
Some of the earnings of interests are Palantir, Disney, Rivian, Occidental and Tyson.
Let us look at Tyson in detail.
Observations:
Revenue grew from $37.5 billion in 2014 to 52.8 billion in 2023.
The operating profit suffered a drop in 2023. It fell from $4+ billion in 2021 and 2022 to $386 million in 2023.
Earnings per share EPS has fallen from $8.92 in 2022 to negative $1.87 in 2023.
This is of concern for the business.
The management has offered increasing dividends per share over the last 10 years.
The above is some of the news about Tyson. Most of these hurt the reputation.
Despite the news, Investing has a strong buy rating for the stock. The stock is approaching its 52-week high. Analysts from Investing have compiled a price target of $62.58.
The forecast from Investing for its coming earnings are 0.3933 and $13.14B for its EPS and revenue respectively. Can Tyson hit a new peak?
Market Outlook of S&P500 - 06May24
The MACD indicator is on a downtrend and there is a setup for a potential reversal in the common days.
Chaikin Money Flow (CMF) has hit below the zero line. This can be seen as a bearish signal with more selling volume. Note that there may be a reversal in this coming up as the line moves toward the “0” line.
Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is above the MA 200 line and below the MA 50 line. Thus, it could be read as bullish for the long term and bearish for the mid-term.
Exponential Moving Averages (EMA). The 3 EMA lines have converged and started a downtrend. The 3 EMA lines are turning sideways and there could be ranging or reversal. For the reversal to be confirmed, the 3 EMA lines need to complete cross-over for all 3 lines with the EMA 9 line on top and the EMA 20 line at the bottom.
I have replaced Stochastic with CMF to incorporate consideration of volume. Stochastic and MACD are similar with Stochastic being “more active” and more capable for “false” signals.
Investing recommends a “Strong Buy” for S&P500 with 16 indicators having a “buy” status, 2 with a “sell” status and 3 “neutral” status.
For the coming week, the S&P500 could go down though a technical reversal is expected in the coming days. There are no major economic data announcements but tensions are building in the local school campuses and the Middle East.
News and my thoughts from the last week (06May24)
From X user Investingcom:
BREAKING: *U.S. APRIL NONFARM PAYROLLS RISE BY 175,000; EST. 238,000; PREV. 315,000
From X user: Wall Street Silver
This is to destroy small time investors and small business.It doesn't make any sense
From X user The Kobeissi Letter
This is incredible: The US economy LOST 192,000 jobs in Q3 2023, according to the BED report released by the BLS last week. BED data tracks quarterly changes in employment at all private businesses in the US economy. Meanwhile, US nonfarm payrolls data showed that the US labor market added 494,000 new jobs in Q3 2023. This is a WHOPPING 686,000 difference in job count over just one quarter. The BED data from the BLS suggests that the final labor market revisions released in 2025 will be MUCH lower than the headline-reported job numbers.
Specifically, the Tesla CEO discussed the increasing national debt that could have the US economy headed toward an impending crisis.
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. - CNBC
The federal debt balance is at a record high of $34.5 trillion. Ballooning debt levels could spark various problems for the economy, including higher inflation, greater market volatility, and a lower quality of life for Americans. - Business Insider
Executives at some of America's largest companies have said that consumers feel the pinch of higher prices. Their remarks come as sticky inflation poses a challenge for Main Street, Wall Street and the Federal Reserve. - CNBC
Long-predicted consumer pullback finally hits restaurants like Starbucks, KFC and McDonald's - CNBC
When fast food is out of reach for more, the problem is getting much worse.
The policy rate remains in the 5.25%-5.50% range. Fed policymakers are concerned by recent inflation data. - Reuters
“So far this year, the data have not given us that greater confidence. In particular, readings on inflation have come in above expectations,” Powell said, adding that it might “take longer than previously expected” for Fed officials to cut rates. - CNN
PetroChina reported on Monday its highest net profit for a first quarter as its revenues rose by 11% thanks to steady oil prices and higher domestic natural gas demand and production. - Oil Price
Are jobs meaningless if life remains unaffordable?
The first container ship arrived at the Port of Baltimore a month after the cargo ship Dali lost power and rammed a support column of the Francis Scott Key Bridge - CA News
The owner & operators of the container ship that toppled the Francis Scott Key Bridge in Baltimore last month knowingly allowed an “unseaworthy” vessel to leave port & are directly responsible for the accident, the city of Baltimore said. - USA Today
My Investing Muse (06May24)
Layoffs & Closure news
Google lays off staff from Flutter, Dart and Python teams weeks before its developer conference - TechCrunch
Google is laying off at least 200 employees from its “Core” organization, which includes key teams and engineering talent. As part of the unit’s reorganization, the company will hire corresponding roles in Mexico and India. - CNBC
Layoffs in Logistics
From X user Craig Fuller:
Raven shuts over the road and dedicated trucking fleet. In the trucking bloodbath in 2019, the bankruptcies surged starting in Q2.
Seeing people lose their jobs is very unfortunate. But the trucking industry is built on the same economic principles that drive every capital system: supply and demand. We have too much supply. We need to eliminate the excess capacity, or the market will never reset. Bankruptcies are going to increase. This is a part of the bottoming process, as bad as it sucks for the carriers and their employees. We will see an acceleration in bankruptcies in the coming weeks and months. Long term, this is very positive.
Logistics is the blood of the economy. For every value that is created, they come in the form of a product or a service. Everything requires logistics for this good or service to be delivered. In the case of Services, the spending on logistics can be found in areas such as the procurement of materials, ingredients and the hardware required to deliver the various services.
A reduction in the supply chain implies a drop in consumption. While there is an increase in service consumption, there is a drop in the consumption of goods. We can correlate the health of the economy with the health of the supply chain industry. Supply chain volume is a forecast of the goods and services that would be consumed by the economy. The order needs to be placed, manufacturing to be completed and goods need to be delivered before reaching the warehouse or buyers.
This is extracted from the Trading Economics post about the Logistics Manager’s index (LMI).
The Logistics Manager’s Index in the US increased to 58.3 in March 2024, from 56.5 in February, marking the fastest expansion since September 2022. This indicates that the overall logistics industry is experiencing healthy growth, albeit at the lower end. The growth is attributed to long-planned inventory expansions and improved efficiency in warehousing and transportation. Inventory levels saw significant growth (63.8 vs 58.5 in February), reaching their highest level since October 2022, driving the overall expansion. However, this has led to a contraction in warehousing capacity for the first time since January 2023. Despite this, transportation capacity remains higher than transportation prices, indicating that the freight recession is not yet over. Overall, these trends suggest that firms are preparing for continued consumer spending and indicate ongoing economic growth in the near future. source: Logistics Managers' Index
Is there any contradiction about the outlook of logistics with 3 months of growth (when the LMI index is more than 50)?
Yet, both can co-exist at the same time as LMI has contracted for some months. During the freight recession, the LMI can grow. The macro trend is more important.
USA Debts
The US Federal debt is incurring $2.4 billion worth of daily interest and this debt is expected to grow. It is not an issue until people stop buying up the treasury assets needed to fund the spending deficit. News from PGPF.
The economy needs to be funded by value creation and not debt. When people struggle with the cost of living, the burden is placed on the people. When there are no solutions in sight, there could be strikes. When people are desperate, there could be unrest.
Banking Sector
From the X post above, Republic First, which had $5.87 billion in total assets as of year-end 2023, is the sixth-largest failed bank by total assets since 2010.
The small lender had approximately $6 billion in total assets & $4 billion in total deposits by the end of January. The FDIC estimates that the cost to its Deposit Insurance Fund related to Republic First Bank’s failure will be $667 million. - QZ post
My thoughts on investing
We diversify when we have in-depth knowledge of the business that has demonstrated great competitive edges. Yet, the stock should be available with a good margin of safety (discount) . It requires research, patience & willingness to hold. There is no profit or loss till an exit.
News may not represent changes of fundamentals, strategy, operations, or culture. Some changes take a moment and some years to realize. News is info and may have correlation or causation. Let's look at the earnings that follow.
For all new technologies, let us consider the regulations and infrastructure to have a chance of successful implementation and profitability. It is hard to promote electric vehicles when there are insufficient charging networks. Same for hydrogen.
My final thoughts
It is possible for the market to rally with weakening fundamentals. There are a few sectors of weakness that we need to monitor: Commercial Real Estate (CRE), banking (regional banks especially as they have higher exposure to CRE, mortgages and interest rates), oil (SPR), insurance, supply chain and energy (electrical grid especially).
With the extreme weather in the USA, this would complicate the challenges. The country is getting divided over politics, the Israel and Gaza conflicts, AI and even more.
Let us qualify great companies and look for good price discounts for entry points. The market looks volatile due to inflation, unemployment and expectation of interest rate cuts. Let us spend within our means, avoid leverage and invest in great companies with a good margin of safety.
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