To The Moon

Markets are waiting to see if the ultra-tight labor market is easing, with US non-farm payroll expected to come in at 260k in September according to consensus estimates after August’s 315k increase. This comes after the latest job opening data showing an almost 1 million drop to 10 million, which points to signs that the labor gap is starting to close. This has been one of the key contributors to rising inflation with rising wages. However, this initial slowdown may still be premature for the Fed to start pivoting in terms of its monetary policy, given that the Personal Consumption Expenditure index, the Fed’s preferred gauge of inflation, continued to rise by 0.6% sequentially.

US markets were buoyed over the week by optimism as yields and the US dollar corrected from the year’s highs. $Cboe Volatility Index(VIX)$  Volatility index (VIX), a gauge of market fear, also contracted after hitting the highs of 32.6 in Sep, leading to a bear market rally this week. $S&P 500(.SPX)$  saw gains of 1.7% while $NASDAQ(.IXIC)$  rose 0.9%. US mid-term elections is just a month away, volatilities may rise into the elections amid polls showing the likelihood of a gridlock government.

Oil stocks were cheered on by the OPEC+ agreement to cut production by 2 million barrels a day starting from November despite tight global supplies. The actual net-impact would likely be less given that OPEC members have not been able to meet productions against their quotas. WTI crude recovered sharply back to the $88-per-barrel level over the month, bucking fears that macroeconomic slowdown would dent demand.

$Energy Select Sector SPDR Fund(XLE)$  surged by 12.4% since the start of the month, along with oil prices that rose 10.4%. Into the winter months, amid the slower production and impending sanctions on Russia, oil could see firmer footing after its correction from June highs.

$Costco(COST)$  , a leader in the membership warehouse retail, saw September comparable sales growth up +8.6% despite the challenging retail landscape. This is a testament to its positive business model which focuses on selling in bulk at low prices, its Kirkland house brand and its famous $1.50 hotdogs to attract customers to drive turnover. Amid the ongoing inflationary problem that has seen consumer discretionary companies experiencing challenges, Costco has benefited from consumers focusing on “more bang for the buck” from bulk purchases of necessities and groceries from the warehouse retailer. Costco has maintained stable membership growth, keeping its basic membership fees flat at $60 per year since June 2017; a strategy which has tapped on the recurring loyalty of its customer base and a major contributor to its net income. Costco’s trades at 33x FY23 consensus price to earnings multiples which is at the premium to its competition such as BJ’s Wholesale or Kroger.