To The Moon

As a new trading week draws upon us, I guess the question on everyone’s mind — will US market fare better this week?

Factors that caused market to tumble, I think were:

• Tesla’s Q3 2023 earnings report.

• US weekly jobless claims.

• Consumer Board - leading economic index (LEI).

• Jerome Powell’s discussion at the Economic Club.

(1) Tesla - Q3 2023 earnings report.

• For the first time since Q2 2019, $Tesla Motors(TSLA)$ failed to meet both Earnings & Revenue.

• Earnings: $0.66 per share adjusted vs $0.74 cents per share expected.

• Revenue: $23.35 billion per share vs $24.1 billion expected.

• All this despite massive discounts extended to all its EVs.

• The “real” kill joy was mr musk’s confession during earnings call that the 5 years overdue Cybertruck production ramp up will take place after 2024.

(2) US weekly jobless claims.

• US weekly jobless claims for week ending 14 Oct 2023 came in at 198,000.

• This is -14,000 less claims (or -6.6%) than market expectations of 212,000.

• It is also -13,000 less claims than jobless claims - the week before.

• This implies US labour market is still not loosening up as hoped.

• Certainly not “music” to the Fed who is watching all economic indicators.

(3) Conference Board - US’s September Leading Economic Indicator (LEI).

• The Leading Economic Index (LEI) provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term.

• The LEI grew worse in September with a -0.7% reading.

• This is a -0.2% worse than August 2023’s of -0.5%.

• September’s reading is -0.3% worse than economists’ expectation of -0.4%.

(4) Mr Jerome Powell’s speech.

On Thu, 19 Oct 2023, Fed chair was present at a moderated discussion hosted by the Economic Club of New York, at Washington DC.

In his usual self, he did not divulge anything nor give clear indications on FOMC’s view on whether there will be an interest hike on 01 Nov 2023.

What he did touch on were:

1. He has been encouraged by the slowing trend in inflation.

2. The inflation decline needs to be more “protracted” rather than for a month or two.

3. Assured the American public that the Fed would proceed carefully with its monetary policy.

4. Confirmed that inflation is still too high.

5. He does not know how long the lower readings will persist, or where inflation will settle over coming quarters.

Instead of boosting market confidence, his non-committal replies gave market the jitters and caused it to dip further.

For week ending Fri, 20 Oct 2023:

• DJIA: -2.0% (-705.14 to 33,127.28).

• S&P 500: -2.72% (-118.21 to 4,224,16).

• Nasdaq: -3.49% (-470 to 12,983.81). Major disappointment of the 3 composite index.

Investors are gearing up for the busiest week of earnings season, with 30% of S&P 500 companies due to report their results.

US stocks - Magnificant 7 are in the house

• This week alone sees 4 of the 7 Magnificant US stocks reporting their results. (see above)

• Starting on Tuesday and ending on Thursday, with Tesla completed its “missed” results reporting last Wednesday, that caused EV stocks across the board to tumble with it.

• FYI — The Magnificant 7 account for nearly half of the US gross domestic product (GDP) and 27% of the S&P 500 by weighted exposure.

• Their profits or losses definitely have an impact on the US market’s trend this week, like it or not.

• Apart from that, non-Tech giants will also be reporting their earnings as well. (see above)

• Will be interesting to find out how both $Ford(F)$ & $General Motors(GM)$ will fare in the midst of the UAW strike.

• Will “possible” strong results validate the strike on inequality that is taking place?

• With $AT&T Inc(T)$ having reported an okay set of results last Thursday, it will be equally interesting to see what telcos: $Verizon(VZ)$ & $T-Mobile US(TMUS)$ have to say?

August 2023 PCE

• On official reports front, the most important would be the Personal Consumption Expenditure (PCE) that will be out on Fri, 27 Oct 2023.

• Predictions on the streets sees "core" PCE rising to 3.7% YoY; that is down -0.2% from August 2023.

• Two ways to interpret the data to be released - timely or ill-timed as the FOMC committee is set to convene on 31 Oct & 01 Nov.

• We are all too aware that the Fed refers “heavily” on the PCE data in their policy-making decision.

My Viewpoint:

If September PCE data is as per Wall Street prediction, there is a likelihood that the Fed would keep interest rates status quo.

Taking into considerations:

• The still-tense political standoff in the Middle East between Palestine-Hamas and Israel.

• The ongoing 5 weeks UAW strike against US Big 3 car makers.

• The brewing troubles with US government debt limit still in a “limbo” as the House of Representative is crippled without its House Speaker.

• Recent string of positive economic surprises will keep the Federal Reserve on high inflation alert.

• With both 10 years & 30 years Treasury yields all hitting above the 5% mark (its highest since 2006), the Fed would approach the interest hike with more care and caution; lest it tipped the balance.

• Do you think the Tech titans will help US market to recover some of the lost grounds?

• Do you think the non-Tech blue chip stocks’ earnings will help to further boost US market recovery this week?

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