To The Moon

With the final inflation report (PCE) out of the way and Q3 corporate earnings coming to its tailend, what is there to look forward to as the Fed gears up for its last FOMC meeting come Dec 17-18 ?

All the jobs reports coming out this week, culminating on Friday would hopefully provide a clearer picture on the state of US economy as we look forwards a year end rally, round about this time of the year.

State of US Economy ?

What is really the state of US economy ?

Data showed consumer spending increased solidly in October 2024, suggesting the US economy maintained its strong pace of growth.

However, progress on lowering inflation appeared to have stalled. Oh dear!

Personal Consumption Expenditure - October 2024.

Very quickly, below is a summary of US PCE and Core PCE.

Headline inflation.

• Monthly: 0.2% vs forecast (0.2%) vs Sep (0.2%).

• Annual: 2.3% vs forecast (2.3%) vs Sep (2.1%). (see above)

Core inflation:

• Monthly: 0.3% vs forecast (0.3%) vs Sep (0.3%).

• Annual: 2.8% vs forecast (2.8%) vs Sep (2.7%).

Analysts attempted to downplay inflation ‘rise’ saying that they were in lined with analysts’ estimates.

So what ?

It does not hide the fact that core PCE:

• Monthly: has been rising and stalling and rising since May 2024.

• Annual: has been stealthly rising since June 2024 as well and its at its highest since April 2024. On a 6 month annualized basis, core PCE sits at 2.34%, up slightly from 2.3% in September 2024.

US CB Confidence Report - November 2024.

• US consumer confidence increased to a 16-month high of 111.7.

• This was marginally lower than forecast of 111.8 but higher than upwardly revised October’s readings (109.6).

• This comes amid optimism over (a) the labor market and (b) higher stock prices over the next year.

• It was reported that the 2nd straight monthly rise in the confidence report was attributed to the outcome of the 5 Nov 2024 election that returned Donald Trump to the White House and gave his Republican Party control of both the US Senate & House of Representatives.

US Weekly Jobless Claims.

• For week ending 23 Nov 2024, initial jobless claims fell by -2,000 claims to 213,000. (see above)

• This was based on an upward revised 215,000 level (previously 213,000) reported for the prior week.

• 23 Nov 2024’s recorded claims was (still) below the consensus of 217,000 — based on the Econoday survey of forecasters.

• The 4-week moving average is also down by -1,250 to 217,000, after a revised 218,250 in the prior week.

Gross Domestic Product (GDP).

To support the suspicion that inflation is creeping back into the US economy, we could defer to US GDP as an alternate information source.

• 30 Oct 2024 - Q3 preliminary estimates was 2.8% vs Forecast (3.0%) vs Q2 GDP (3.0%).

• 27 Nov 2024 - Q3 2nd estimates remained 2.8% vs adjusted Forecast (2.8%) vs Q2 GDP (3.0%).

The second estimate confirmed and indicated a modest slowdown from the 3.0% growth seen in Q2.

While this growth rate is positive, it falls short of Wall Street's expectations, that have been revised downwards during 2nd estimate.

Looks like the marginal increased in PCE inflation has eroded purchasing power, dampening consumer spending and potentially slowing economic growth.

More Economic Reports !

Whether stock market fears can be allay and rally that starts with a “Big Bang”, will depend on the next wave of economic reports that will be due the following week.

Incidentally, it is also marked the beginning of last trading month in 2024.

• 04 Dec 2024. ADP employment jobs report.

• 04 Dec 2024. S&P final U.S. services purchasing manager index (PMI).

• 05 Dec 2024. US weekly jobless claims.

• 06 Dec 2024. US Non-Farm payroll (NFP).

Above set of data will also influence the Fed’s decision on whether a final interest cut is necessary, before the year is over.

Buy of the Week !

Amongst the list of large and mega cap, consumer cyclical stocks, the followings stood out:

• $Amazon.com(AMZN)$ - internet sales.

• $Home Depot(HD)$ - home improvement retail.

• $Lowe's(LOW)$ - home improvement retail.

Although red chips stocks ( $Alibaba(BABA)$ & $PDD Holdings Inc(PDD)$) were shortlisted too, i do not foresee them offering values, given a soon-to-return US president that has already announced an additional 10% tariffs on Chinese made goods.

In the end, I think Amazon will be the best bet of the lot and here’s why.

Quarterly Earnings.

On 31 Oct 2024, it reported its Q3 earnings.

• Earnings per share (EPS) : was $1.43 vs analysts’ consensus of $1.14 vs Q3 2023 ($0.85).

• Revenue : was $158.88 billion vs analysts’ expectations of $157.28 billion vs Q3 2023 ($143.14 billion).

• Return on equity: was 22.415%. It is a good return, as a return between 15% & 20% is generally considered positive.

• Net margin : was 8.04%. It is considered an above average rating, as 5% is a low margin and 10% is a healthy margin.

Price Target & Upside.

Several funds houses have provided their latest target prices for Amazon

• DA Davidson. Issued a target price of $235.00, and restated a "buy" rating.

• Piper Sandler. Raised their target price from $215.00 to $225.00, with an "overweight" rating.

• Rosenblatt Securities. Raised their target price from $221.00 to $236.00, with a "buy" rating.

• Monness Crespi & Hardt. Raised their target price from $225.00 to $245.00, with a "buy" rating.

• JMP Securities. Raised their target price from $265.00 to $285.00, with a "market outperform" rating.

• On Wed, 4 Dec 2024 Amazon ended trading higher by +1.3% (+$2.73) at $213.44.

• Based on above target prices, the potential upside for Amazon ranges from +5.14% to +25.10%.

• With its stock price above its 20-day, 50-day and 200-day moving average, the stock is poised for higher gains in the short to medium term.

• It’s two resistant points will be (1) $215.09 and (2) $216.74.

Above depicts institutions’ buying & selling of Amazon by quarter. Safe to conclude that Amazon is a “Buy” in the short to medium term ? Looks like it right !

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