US Market weekly preview for week starting 14 Nov 2022
Will the Chinese giants fall off the cliff
Public Holidays
None for Singapore, Hong Kong, China & the US
Earnings
For the coming week, there are a few earnings that are of interest, especially Tencent and Alibaba which are the heavyweights in China. Tyson, NU, SEA, NVIDIA and GRAB should be interesting too.
Tyson may shed some light on the food inflation that we experience, with its outlook especially important.
NU is one of the banking stocks to look out for. This is an overview extracted from investors.com,
Nubank (NU) is a Brazilian fintech and Warren Buffett holding that may prove itself as a great value pick. The Oracle of Omaha's Berkshire Hathaway (BRKB) purchased a $500 million stake just before its 2021 initial public offering and has now raised its investment to a whopping $1 billion.
SEA was a fallen gaming giant who was trying to branch into Fintech.
NVIDIA is one of the leading chip players and GRAB is a type of UBER in Southeast Asia. Following quarters of big losses, can GRAB turn the corner with the coming earnings?
Some investors have steered away from China stocks due to their concern about governmental policies and “nationalisation”. However, China is not anti-prosperity but wants a better distribution of income among the various demographics under her “common prosperity”.
ALIBABA
Alibaba BABA 0.00%↑ has fallen from a 52-week high of 169.94 and is lingering nearer to the 52-week low of 58.01. The stock has fallen over 57% from a year ago and now stands at an attractive P/E ratio of 37.84. Investors are still concerned about the policies but we are seeing much more funds inflow into China.
For the coming earnings, the market is expecting 11.74 and 208.52 billion for their EPS and revenue respectively. China just had the 11.11 sales. While the sales was not disclosed, it was expected to be near 2021’s amount (for Gross merchandise value). Will BABA be able to continue her climb from recent lows.
Economic Calendar
In the coming week, we have a few important economic updates:
China will share her Industrial Production (YoY October 2022) figure. As China is the world’s factory, this figure paints an important outlook for the global market, and not just China alone.
Core Retail Sales & Retail Sales. This will be an important update on the consumption of the US market. A lesser-than-expected figure could dampen confidence in a market recovery.
Crude Oil Inventories. This is an important indication of the future production and demand of oil-related products, an important upstream product before this translate into consumer consumption.
Building Permits (Oct) and Existing Home Sales (Oct). With the rise of mortgage rates, real estate has slowed down significantly. There are some who expressed concern that the housing market is weakened significantly. This will be an important data point that is the barometer of the housing market.
Initial Jobless Claims. The forecast seems to put this on an upward trend, implying more unemployment is expected. This will be an important data point for the Fed. Should the figure be less than expected, this should be bullish for the short term.
News and my muse (for the week ending 13 Nov 2022)
volatility when managed well is also a chance for wealth transfer. invest with what you can afford to lose. do not leverage. If you can't sleep after placing your investments, the amounts are too big for your threshold.
<Reuters> Europe is rocked by various marches and protests. Will this spill over?
In anticipation of the downturn, an internal review is needed for all businesses. Match the core competencies against the opportunities. Enlarge your moat. Identify the core team. Optimize and expand when needed. If you survive, you are ahead.
<WSJ> Europe is rocked by protests due to inflation
<Coindesk> Blockfi pauses withdrawal. Is this the next to enter crypto winter?
<CNBC> The global shipping industry is facing a new problem — too many containers ~ cancelled orders and reduced demand
Is energy the reason for the next wars?
The market rallied due to a lesser magnitude of inflation, not the absence of it. The presence of inflation should be received by a hawkish Fed, pending the other economic and unemployment data
There are several among us who are buying index funds like $SPY ETF using DCA. Let us consider buying into Berkshire - treating this like an ETF (without the expense structure). 1 year on, S&P500 has dropped 15.52% & $BRK.B has grown 6.02%
People buy for FOMO (fear of missing out) and sell in panic. This usually leads to overbought and oversold situations. temperament is needful for investing.
good reminder - for every equity/business, we can find ourselves in various hybrid roles ~ investor, customer, and observer. For some, it is best that we remain as customers, not as investors.
coming to Q4, let us not forget the practice of tax loss harvesting.
Investing starts with savings, not leverage.
The Covid outbreak in China can affect the global economy. $AAPL has spoken of its impact on the #iPhone14 production.
<Fox Business> Over the 3-month period, lenders repossessed 10,515 U.S. properties through real estate-owned (REO) foreclosure - property undergoes foreclosure but fails to sell at an auction & becomes owned by a bank or lender. up 18% from Q2 & up 39% from a year ago.
Is it not time to identify the new growth stocks? What businesses should we review and categorize into value stocks?
Market Outlook
Technical observations of the S&P500 1D chart:
Stochastic indicator - points to an uptrend
MACD indicator - points to an uptrend
Moving Average (MA) - both MA50 & MA200 lines are still downward pointing, thus, implying a downtrend for both mid and long-term. However, the candles are now between MA50 & MA200 lines. These imply that it is bullish for the mid-term and bearish for the long term.
Exponential Moving Average (EMA) - the EMA lines are pointing upwards.
Based on indicators, we are looking at a likely uptrend in the coming week for S&P500. The rally since Thursday was not due to the absence of inflation but rather a lesser magnitude. Seeing this, some are calling the Fed to pivot. While the Fed pivot is possible but a 7.7% YoY inflation rate is still way off the target of 2%. Thus, I doubt that the Fed should pivot unless other economic indicators show otherwise.
My investing muse…
FTX
The collapse of FTX remains the hottest topic over the weekend. This is one of the biggest cryptocurrency exchanges in the world. Personally, I know of a handful of friends who were unable to withdraw their assets. I would not venture much into Crypto in the absence of a robust legislative structure. I do think that there is future application but a secured and regulated infrastructure is needed to protect the users and investors. Reuters has reported that at least USD$1billion worth of client funds is missing.
Ukraine
Kherson has been taken back by Ukraine but there were many “concerns” expressed by the Ukraine Forces. Russia claimed that there is no agreement made about the grain shipment moving out via the Black Sea as per the latest Reuters news on 12 Nov 2022. Russia is trying to get some sanction relief in return. As Ukraine continues to reclaim their lost grounds, Russia has continued to attack key utility installations that led to power and water interruptions in various parts of Ukraine. Ukraine looks to be facing a challenging winter as the war drags out. While bullets fly in the street, let us be hopeful that they are able to end the war over the negotiation table. Ukraine is draining her allies (USA & Europe) who are also fighting stubborn inflation in their respective regions.
Agriculture
With Ukraine’s expected harvest of about 50 million tons of grains (compared to 86 million tons in 2021), this can continue to compound the food inflation and insecurity faced by many. The developing countries are likely to face worsening prices and supplies following the Ukraine challenges and a lesser global harvest.
US Mid-Term Elections
While most of the media has forecasted a red wave of Republican wins, it looks to be unlikely following the count. In contrast, Republicans look to take the House with a lesser margin and the Senate is still too close to call. The Democrats could still win the Senate majority. Should the Democrats edge out a win, would this be bearish for the market?
Both parties would have much to review. Here is an extract from a CNN article dated 30 June 2022:
In an AP-NORC survey released Wednesday, 85% of US adults say that things in the country are headed in the wrong direction, with just 14% believing things are going in the right direction. That’s a more pessimistic reading than in May, when 78% said things were headed the wrong way and 21% that things were generally moving in the right direction.
While the recent rally in S&P500 brought relief, it looks more likely to be short-lived as inflation persisted and the Fed should remain hawkish. It would be wise to be prudent and watch the earnings unfold. We have black swans circling (Russia’s nuclear threat, China’s recent mobilisation of troops, crypto challenges, earnings headwind and more) the market. The market should continue to be bearish until the Ukraine conflict is over.
Let us spend within our means, avoid leverage and invest with what we can afford to lose. Let us consider setting aside some “cash for crash” as great companies become available at good discounts.