To The Moon

Public Holidays

No public holidays in the coming week for Hong Kong, China, Singapore and the USA.

Economic Calendar (11 Dec 2023)

Notable Highlights

• Fed’s interest rate decision should dominate the headlines in the coming week. We can expect to be volatile leading to this announcement.

• Auction of Treasury note and bond. This deserves some attention as this is deemed a relatively safe asset class. This is used to finance the deficits incurred by the Federal government.

• CPI. This is the common indicator used to reflect inflation. This should be the next most closely watched data which has significant implications for the Fed’s coming interest rate decisions.

• Retail Sales & Core Retail Sales - this is an indication of consumer health.

• Initial Jobless Claims - This is a reflection on the impact of unemployment, a data point for the Fed’s 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 is demand erosion that can lead to reduced production & weakening consumer spending.

Earnings Calendar (11 Dec 2023)

In the coming week, these are the few earnings of interest: Oracle, Adobe, Jabil and Costco.

Let us look at Adobe in detail.

Observations of Adobe’s performance:

• Revenue has grown more than 4x in 10 years, from $4,055M (2013) to 17,606M (2022).

• The Gross Profit 10-year median margin is an impressive 86.1%.

• The EPS grew from $0.56 (2013) to $10.10 (2022), over 19x.

• FCF looks strong with a 10-year median margin of 36.8%.

The stock price has risen 83.42% compared to a year ago and investing has recommended a “Strong Buy” for this stock. With the P/E ratio over 54.68, is this stock too expensive?

For the coming earnings, the EPS and revenue are 4.13 and 5.01B respectively. How should Adobe fair for the coming earnings? How can they continue to grow and develop?

Market Outlook - 11 Dec 2023

Technical observations of the S&P500 1D chart:

• The Stochastic indicator has completed a top crossover and could range sideways. The latest crossover is indicating an uptrend.

• The MACD indicator is on an uptrend with a top crossover setup. This setup could range sideways but we can anticipate an eventual downtrend in the coming days.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is above both the MA 50 line and the MA 200 line. Thus, it could be read as bullish for the long-term and mid-term. As the 2 lines move closer, there is a chance of forming a death cross - typically, a bearish indicator. This could take weeks before this death cross is formed and changes are possible.

• Exponential Moving Averages (EMA). All 3 EMA lines are moving upwards and thus, implying an uptrend.

From the 1D technical indicators above, there are a total of 21 (Buy), 0 (Sell) and 0 (Neutral). Investing recommends the “STRONG BUY” recommendation based on the technical indicators above (1D chart for S&P500).

From the data above, the market should continue to rally into the coming week. Note that a few indicators show “overbought” for the S&P500.

News and my thoughts from the last week (11 Dec 2023)

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Analysts lowered Q4 EPS estimates for $SPX companies in 10 of 11 sectors in October and November, led the Health Care (-19.9%) sector. - FactSet. Technology is leading the way but the rest seems to be struggling, healthcare especially.

• Office of Management and Budget Director Shalanda Young warned the U.S. will run out of funding to send weapons and assistance to Ukraine by the end of the year, saying that would "kneecap" Ukraine on the battlefield.

• JPMorgan's top chartist says the S&P 500 to tumble all the way back to 3,500, retesting bear lows - CNBC

• Wells Fargo CEO warns of severance costs of nearly $1 billion in fourth quarter as layoffs loom - CNBC

• More banking layoffs are coming our way?

• Values of commercial real estate continues to get destroyed in Chicago. A 155k SF office building in Chicago just sold for $17 million, or $109 per SF. The seller took a huge 61% loss, paying $44 million for the building in 2017. Here's a worrying snippet from Crain's:

  "Thanks to remote work and higher interest rates, real estate investors can buy downtown office buildings on the cheap these days. Add a motivated seller trying to unload all of its office stock and the discount gets even steeper. Many office properties in the heart of the [Chicago] are now worth less than the mortgages tied to them, fueling a historic wave of distress."

  It will be interesting to see how bad the US commercial real estate meltdown gets (particularly in office) but it's certainly a story to keep an eye on in 2024 as big opportunities emerge. Twitter user Triple Net Investor.

• Will there be collateral damages in retail, banking, insurance, and the Federal government from a Commercial Real Estate (CRE) decline?

• The next credit card debt update from US will shed more light. Could it be trending upwards? Are more people facing potential default? Is it about being too big to fall or too big to save?

• A singular event is no guarantee that a similar event will happen again. Thus, some experience is one-off.

My investing muse - US trillion dollar credit card debt and layoffs.

US USD$1 trillion credit card debt

America's $1 trillion Credit Card debt

The above diagram was taken from Visual Capitalist’s recent Nov 2023 post.

With the average credit card charge of around 21%, this is a heavy burden on the USA households. The average household credit card balance was $10,173.87 in June, $2,242.77 below the record set in Q4 2007.

At 21%, this implies that the credit card interest doubles in less than 4 years. Both consumers and banks have great risk exposure on this matter. When the banking sector is affected, the impact on the rest of the economy can be fast. I recommend keeping a close lid on the banking sector.

Layoffs

More layoffs are hitting the news with Spotify laying off 1,500 and Wells Fargo estimates of 1 billion in severance costs.

Conclusion

The market is starting to cook news about the Fed Pivot (reduction of the interest rates in anticipation of lesser inflation). The number of jobs created has been on a recent downtrend. With a solid GDP performance, is the recession over? Are we able to achieve a soft landing?

The consumer, business and Federal government have been clocking up debts over the months. Once this is out of control, this can lead to a debt spiral. Beyond defaults, bankruptcies, unemployment and civil unrest could rise.

With more companies and individuals predicting a market downturn in the coming 2024, this is something that we need to look into. Some hedging can be needed.

@TigerStars

$S&P 500(.SPX)$

$Adobe(ADBE)$

$Costco(COST)$