In 2022, stock performance has been mostly reliant on changes in interest rates and valuations. But this is starting to shift towards corporate fundamentals playing a bigger role. Some portfolio managers are skeptical of the ability for “Big Tech” stocks to keep their high sales growth rates, especially compared against other less successful companies. This change comes as investors become more confident about the future prospects of many S&P 500 firms.
Although the slow October US CPI suggests that the Fed will max out it’s rate hikes soon and that there is fading upward momentum in terms of USD, we cannot rely on a single data point. There needs to be more confirmation for a sustained USD correction. We can better assess whether or not policy normalization is possible this week by gathering inflation/employment data from other regions.
The FTX show was entertaining. Before you get too excited and bearish. US equity market cap $41tn,…cryptos around $0.8-0.9tn. FTX has raised $1.8bn from venture capital and pension funds over past years according to Citi. For some perspective Apple gained around $23bn on Friday (+2%) ….
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
US Retail Sales Advance: expect the retail sales advance to increase by 1.2%M vs. 0.0%M prior.
US Retail Sales Control Group: expect the control group, which further excludes food services, to increase by 0.4%M vs. 0.4%M in September.
US Industrial Production: forecast that industrial production in October rose by 0.1%M vs. 0.4%M in September.
US Business Inventories: Consensus expects that business inventories grew by 0.5%M in September, down from 0.8%M prior.
US Building Permits: forecast building permits to decline by 7.5%M in October vs. +1.4%M prior, lowering the year-over-year rate from -3% to – 15%.
US Housing Starts: forecast that housing starts declined by 5.1%M in October, following an 8.1%M decline in September, and lowering the yearover- year rate from -8% to -13%.
US Existing Home Sales: forecast that existing home sales in October declined by 7.1%M to a 4.376 million annualized pace, which would mark a low since June 2020.
Data from Morgan Stanley
Global Spotlight
The G-20 summit, where world leaders gather annually to discuss pressing global issues, will be hosted by Indonesia on Nov. 15-16. One of the most anticipated side meetings at this year’s summit is between U.S. President Joe Biden and Chinese President Xi Jinping, who will meet for the first time in person. Although Sino-American global competition will continue to grow no matter the outcome of the summit, it is still important whether or not the two countries agree to work together on specific issues after U.S. House Speaker Nancy Pelosi’s August visit to Taiwan — following which China canceled climate talks that had been going on with the United States, one of only a few areas where such communication was taking place. Furthermore, the summit will reveal how closely aligned the West is with other G-20 countries in opposition to Russia’s war in Ukraine despite Russian President Vladimir Putin not being scheduled to attend the talks. Afterward, Thailand will host Asia-Pacific Economic Cooperation meeting Nov. 18-19 where more announcements and side meetings involving attendees like Xi are planned, though Biden won’t be present.
With Benjamin Netanyahu at the helm, Israel begins the government-formation process on Nov. 13–an undertaking that has been over a year in the making. He will have to balance an upcoming right-wing party, Religious Zionism. The United States is already mad at Israel because of this political situation and annexation calls in Israel, but Netanyahu has no choice but to appoint someone from the competing party into his Cabinet. If horse trading and insider politics go a certain way next week, it will give us clues about how Religious Zionism will influence Israeli policy. In turn, this will define the extent of strain on U.S.-Israel relations.
On Nov. 17, British Chancellor Jeremy Hunt will present his medium-term fiscal statement alongside new economic and public finance forecasts from the Office for Budget Responsibility. The new measures are looking to close a fiscal deficit that is predicted by the OBR to be between 30 and 40 billion pounds every year by 2027-8. On top of this, Hunt will try to add an extra “fiscal headroom” of 10-15 billion pounds. The chancellor plans to present tax hikes and spending reductions estimated at 55 billion pounds per year until 2027-8. The motive behind this is reducing government borrowing and lessening the nation’s public debt. Despite the economic turmoil caused by Liz Truss’ government, this will pacify financial markets seeking to restore British credibility. However, it will hinder economic growth and may enrage voters before the 2024-5 elections.
The sluggish COP27 resumes next week in Egypt, where delegates will aim to reach international climate agreements before the conference ends on Nov. 18. One of the main topics at the conference has been poorer countries asking richer Western nations to cough up money for the destruction wrought by natural disasters, which they argue are more frequent and severe because of emissions from places like Europe and North America. But a European Union official said this week that negotiations have not progressed to the stage where such an agreement seems likely. The United States has proposed that carbon credits should be sold to the private sector in order to finance eco-friendly projects in developing countries. However, responses have been mostly negative due largely to fears that companies might use carbon credits as a way of falsely advertising themselves as environmentally friendly (a phenomenon known as greenwashing). One German official even went so far as to say that the US proposal seemed like it was from “a different galaxy.” Although more announcements are scheduled for next week, the conference is still being overshadowed by pressing issues such as the global energy crisis. Consequently, it’s unlikely that many new pledges or announcements will be made.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 22Q3 Y/Y earnings are expected to be 4.1%. Excluding the energy sector, the Y/Y earnings estimate is -3.6%.
- Of the 460 companies in the S&P 500 that have reported earnings to date for 22Q3, 70.7% have reported earnings above analyst estimates. This compares to a long-term average of 66.2% and prior four quarter average of 78.1%.
- During the week of Nov. 14, 15 S&P 500 companies are expected to report quarterly earnings.
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