Preview of the week starting 21Oct24 - do you need some SAP?

Public Holidays

There are no public holidays in Singapore, Hong Kong, America, or Singapore in the coming week.

Economic Calendar (21Oct24)

Notable Highlights

• Existing Home Sales and New Home Sales figures will update us on the real estate market.

• S&P Global US manufacturing PMI was 47.3 previously. A figure of under 50 indicates a contraction. Are we able to see a rebound in the manufacturing sector?

• S&P Global US services PMI was 55.2 previously. This implies growth in the services sector. Will this sector continues its growth?

• Durable Goods Orders contracted by 0.9% previously. Investopedia defines Durable Goods as: new orders placed with domestic manufacturers for delivery of long-lasting manufactured goods (durable goods) in the near term or future.

  Will this be good news for our manufacturing sector?

• Initial jobless claims will be announced. The Federal Reserve uses this as one of the key macro data references as it balances inflation and employment in the economy.

• 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 (21Oct24)

Q4/2024 has started. We have some interesting earnings namely, SAP, GM, Tesla, UPS and IBM.

Let us look at SAP.

Observations of SAP:

• Revenue grew from $21.6 billion in 2014 to $34 billion in 2023.

• Gross profit grew from $15.5 billion in 2014 to $24.5 billion in 2023.

• Operating profit grew from $5.8 billion in 2014 to $6.5 billion in 2023.

• Earnings per share EPS grew from $3.38 in 2014 to $5.67 in 2023.

• The 10-year median margins for gross profit is at 70.7% and 16.1% for free cash flow (FCF).

• The P/E ratio stands at 94.3.

The stock price grew 76% from a year ago.

The Technical Analysis recommends a “STRONG BUY”.

The Analysts Sentiment recommends a “BUY” rating with a price target of $242.19 that represents an upside of 5.10%.

For the coming earnings, the forecast of its EPS and revenue are $1.32 and $9.26 Billion.

The expenses in SAP is concerning as the increase of its expenses is more than the increase of its revenue, thus leading to the most recent operating income.

With a P/E ratio of over 94, this seems a tad expensive. I prefer to monitor the stock.

Market Outlook of S&P500 -21Oct24

Observations:

• The MACD indicator is showing an uptrend.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. Both MA50 and MA200 lines are below the last candle. Thus, it could be read as bullish for both the mid and the long term.

• The 3 Exponential Moving Averages (EMA) lines are on an uptrend.

• Chaikin’s Monetary flow (CMF) shows an uptrend. This implies more buying momentum than selling.

There is a “Strong Buy” rating with 1D interval. There are 20 technical indicators with a “Buy” rating and 0 with a “Sell” rating.

There are also 3 indicators that point to a status of “Overbought”.

From the candlestick patterns above, these seem to be more bearish candlestick patterns.

From the indicators above, they point to a bullish run in the coming days though we should not be surprised if there are some retracement.

News and my thoughts from last week (21Oct24)

• MICHAEL SAYLOR THINKS BITCOIN WILL HIT $350,000 IN 2024.

• How many war fronts can America afford?

• BILLIONS WORTH OF SHORTS WILL BE LIQUIDATED IF BITCOIN HITS $72,000. - X user - BitcoinLFG

Final numbers for fiscal year 2024 Total US govt revenue = $4.918 trillion Interest on natl debt = $1.133 trillion 23% of all govt revenue went to interest on the debt. 2025 fiscal year started Oct 1st, we are on pace for 30% of all govt revenue going to interest payments. - X user Wall Street Silver

This would reduce the resources needed for infrastructure, healthcare, utilities, education, defense, and more. Is it ok to live in deficit?

• DEL BIGTREE: SURGING CHILDHOOD ILLNESS IN THE U.S. WILL DESTROY OUR NATION’S FUTURE “1 in 22 boys right now has autism in America. We are on the verge of not being able to mount a standing army. What is going on? Why are our kids so sick? It all started right around 1989. This entire explosion of all these autoimmune diseases, autism, lupus, cancers in children, all of it, skyrocketing, ADD, ADHD. Nearly 50% of kids are pre-diabetic or moving towards diabetes. Nearly 70% of Americans are now obese or on the verge of obesity.” Source: delbigtree

US corporate executives of the S&P 500 companies have been buying the least stock since the start of the 2021 bear market. If you are an investor it is an important trend to notice... Chart: jasongoepfert

Dropping insider trades?

$500B was added to the national debt in just the last 3 weeks… Half a TRILLION in 3 WEEKS. Front running the election. The government is out of control. - X user Geiger Capital

43% of the Russell 2000 companies are unprofitable, the most since the COVID CRISIS. At the same time, interest expense as a % of total debt of the Russell 2000 firms hit 7.1%, the highest since 2003. This is insane. - X user Global Markets Investor

(AP, June 2024) Zombies are companies that failed to make enough money from operations in the past 3 years to cover the interest on their loans. Nearly 7,000 publicly traded companies around the world are zombies, including 2,000 in the USA.

Norway wanted to increase tax revenue by $146M. To achieve this, the wealth tax was raised. The result however was slightly different: individuals worth $54B left the country. This led to $594M less in wealth tax revenue. The net loss? $448M. The Laffer Curve is Econ. 101. - X user Visegrad24

• Ongoing African drought has plunged Zambia into daily blackouts as hydroelectric dam unable to run - EuroNews

• Crude oil prices could go into triple digits if supplies are disrupted by conflict in the Middle East, despite weak market fundamentals. Is this inflationary? - WSJ

• BlackRock has become the largest shareholder in the UK’s biggest brickmaker as it bets on a property sector rebound spurred by the Labour government’s plan to build 1.5mn homes over the next five years. - FT

• Companies backed by private equity have been more likely to default than other borrowers as sponsor firms use out-of-court restructurings to preserve their stakes, new data from Moody’s shows. - WSJ

• the private equity and venture capital deal value in the oil and natural gas sector between January to mid-August this year surpassed the $6.61 billion reached at the end of 2023. - Oil Price

• Global interest rates are now on the way down, and countries such as Zambia and Sri Lanka are finally exiting default, many countries have been left with scant resources to service foreign currency debts and little access to capital. - FT

• For victims facing catastrophic losses due to water damage from either storm, many “are just walking away,” Friedlander said. “Most people can’t realistically afford to rebuild their homes.” - NBC News

From X user The Kobeissi Letter

US households now hold 48% of their assets in equities, the highest since the 2000 Dot-Com bubble peak. Since the 2020 crash, this has risen by ~13 percentage points as the stock market has rallied 160%. Over the last 15 years, this percentage has DOUBLED. Interestingly, Americans' allocation to bonds and cash is just 16% and 15%, respectively, well below their long-term averages. In other words, households are all-in on the stock market rally. Bullish sentiment is at record levels.

Equities may be their tool to fight inflation and accumulate wealth. Given the economy, will there be blood in the streets soon? Do not leverage.

Credit markets have rarely been this optimistic: US bond credit spreads declined to 80.4 basis points, the lowest in 19 years. Since the 2022 bear market, credit spreads have HALVED. In other words, the difference between company and government bond yields is the narrowest in two decades. This means investor optimism about the condition of the US economy has skyrocketed. Market sentiment is through the roof.

Small-cap companies are struggling: The share of unprofitable Russell 2000 companies is now at 43%, the most since the 2020 pandemic. This even exceeds the 41% seen at the end of the 2008 Financial Crisis. Adding to concerns, interest expense as a % of total debt of Russell 2000 companies hit 7.1%, the most since 2003. Small companies are struggling to service their debt due to historically high interest rates. As a result, the Russell 2000 is the only major index that has not exceeded its 2021 all-time highs. Small-cap companies are in desperate need of rate cuts.

A lack of profits meeting high interest servicing can be overwhelming for small cap businesses.

My Investing Muse (21Oct24)

Layoffs & Closure news

• Tech Layoffs: Amazon To Cut 14,000 Jobs In Managerial Positions - MSN

• EY slims workforce for first time in 14 years Slowdown in demand for consulting services leads Big Four accounting firm to post weakest revenue growth since 2010 - FT

• If laid off today, 40% of workers said they would run out of money within one month based on their current spending. 24% said they would run out within two weeks. - Market Watch

Layoff & closure news continued into the week.

Cost of living

(taken from tweets of X user The Kobeissi Letter)

The average cost of a family’s annual health insurance premium is up 7% over the last 12 months to a record $25,572. This is the second consecutive year with a 7%+ increase, pushing premiums higher by $3,109 in just 2 years. Since 2000, the average health insurance premium has QUADRUPLED. To put this into perspective, CPI inflation has risen by 78% over the same period. Strangely, the cost of health insurance as measured in the CPI report has fallen 31% over the last 2 years, according to the BLS.

US consumers' inflation expectations for the next 5-10 years skyrocketed to 7.1% in October, the highest in over 40 years. This metric has DOUBLED in just several months, according to the University of Michigan Consumer Survey. To put this into perspective, median inflation expectations have been at ~3% for the last 3 years. Consumer sentiment has been severely damaged by rising prices of necessities, and expectations are getting worse. This comes as core CPI inflation has been above 3% for 41 months, the longest streak since the early 1990s. Inflation is still a major concern for Americans.

Health insurance premiums have surged recently. For those who suffered natural disasters like fire, hurricane and floods, they faced the challenges of recovery. How would these add to the burden? With an expectation of more inflation to come, how would this change the spending habits of the citizens?

Is the banking sector doing well?

Auto loan serious delinquencies of 90+ days spiked to 2.88%, the most since 2Q 2010. They are rising at a similar pace to the one seen in the 2008 Financial Crisis. Meanwhile, Auto loan debt hit a record $1.6 trillion. - X user Global Markets Investor

JPMorgan Chase, Bank of America, Wells Fargo and Citi recorded $6.9 billion in net charge-offs in Q3 of this year, primarily driven by credit card delinquencies and soured consumer loans. How about the regional banks? - DailyHodl

UNREALISED LOSSES BY U.S. BANKS 7x HIGHER THAN 2008 FINANCIAL CRISIS

With the above, should we be concerned about the banking sector?

My final thoughts

Q3/2024 earnings season has started and it is looking good thus far. The climb in the S&P500 index is encouraging and this represents the global footprint of some of the top businesses in the world (and not just America).

With the above considerations, I recommend some caution. Following every peak is a retracement. Following every dip, there is a recovery. What we need to ascertain are the magnitude of these and the fundamentals supporting these.

If we deep dive into the data, would we gather more confident or concern? With the coming USA presidential election, it is likely to add volatility in the market. With Warren Buffett selling the shares of Bank of America, my suspicion of “a shrinking moat” compounds. This should trigger the start of due diligence looking into the company. To blindly follow is not wise but to turn a deaf ear to this loud gesture is folly too.

Let us consider some profit taking. Personally, I have taken profits from some of my Palantir holdings and I could be wrong. Let us invest wise and may we take advantage of the various opportunities presented by the market.

@TigerStars

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