Happy hump day folks! The gains have continued for both the market and our picks this week with the S&P 500 advancing 164 bps throughout yesterday's trading session while both our recommendations on $DX and $CCK have netted stellar returns of 6% and 8%! It’s a trader’s market and today we have stories on the oil and tech sectors for you as well as a short play on $GOOG that makes use of their abysmal earnings update. Lastly, there’s a slew of economic announcements hitting the press throughout the day, so be sure to keep up with those figures here.
Markets in Review
The futures market is painting the picture of a pullback as the Dow, S&P and Nasdaq are down 22, 83 and 183 bps at the time of writing. This is likely as housing fears have become the center of attention with multiple research firms putting out fear-mongering reports that forecast a 20%+ further drop in home values. This has quickly translated to a lack of faith in the US consumer and a prediction of a 5-8 quarters-long recession as the situation has only been compounded by the conflict in Ukraine. Given that we’re now well into 2022’s fourth quarter, it’s good to take a step back and reflect on the performance of the market on a sector-by-sector basis - as such, below is a heatmap of the S&P’s YTD performance by sector. With mega-cap tech, communications and consumer cyclicals weighing down the rest of the market with their 25-35% drawdowns while the energy, aerospace & defense, as well as healthcare sectors, have been doing their best in propping up returns.
Short: Alphabet Inc. (GOOG-NASDAQ) | Timeline: 2 days
Alphabet Inc. (GOOG), which provides various online products and platforms around the world, reported a very surprising earnings report after the market closed yesterday. For the third consecutive quarter, the company missed earnings and revenue estimates by 16.10% and 2.69%, respectively, as high inflation has substantially slowed online advertising sales across all social platforms. (Full Story) Referring to the chart, GOOG hasn’t had a great year so far, declining 30% from all-time highs of $150. That said, buying had started to occur at $100, a key psychological price level - however, with the stochastic RSI now touching 100, this stock has entered extremely overbought territory, and with poor news, will result in a rejection of the stock's previous support level.
Zooming out...
Flashback to the 70’s… After expressing support for Jamal Khosoghi and declaring that he would make Saudi Arabia a pariah state on the campaign trail (Full Story); it’s no secret that Joe Biden’s had a frosty relationship with top Saudi officials. While some previously hostile, yet somewhat minute statements have been made by prince MBS, more concerning comments were made yesterday by the Saudi energy secretary, quoted below. “It is my profound duty to make clear to the world that losing emergency stocks may be painful in the months to come"
His comments come as SPR draining has left the US with a mere 25 days of diesel. As a result, the government has limited relief options if a 1970’s style embargo was enacted by OPEC. Meaning that even if a recession were to strike the world, oil prices could remain high, or become further elevated as we head into 2023. Can Tech Employment Remain Tight? Once upon a time, Alphabet promised to implement a hiring freeze (Full Story), however, they have not lived up to their ideals. During the 3rd quarter, the company added nearly 13k employees, increasing the total headcount by 7.3%. During this hiring spree, the company’s operating margin fell to 25%, a dismal result when compared to last year’s 32%, or even last quarter’s 28%. Although revenues did increase on a YoY basis, net income and EPS fell over the same timeframe by 27% and 24% respectively. Their higher operating expenses, which have risen 26% year over year, were “primarily driven by increases in compensation due to headcount growth” according to their own 10-Q report (Full Report). Even with poorer performances into 2022, will Alphabet, and other tech companies like it continue to swell their ranks in the face of rising costs and diminishing profits? Or, will they begin implementing austerity measures at the employee level? While no surefire conclusion can be drawn today individuals from the cubicle to the Federal Reserve are holding their breaths in anticipation.
Making headlines...
U.S., EU launch formal group to discuss the conflict over EV subsidies
U.S. and European Union officials will formally launch a task force next week to discuss new American laws that Europeans fear will discriminate against foreign electric car makers, according to a statement on Tuesday. (Full Story)
Australia Inflation Accelerates to 32-Year High, Yields Gain
Australia’s annual headline inflation accelerated to a 32-year high in the third quarter, validating the Reserve Bank’s rapid policy tightening and prompting a jump in government bond yields. (Full Story)
Liberal U.S. lawmakers withdraw Ukraine letter after blowback
A group of liberal U.S. Democrats withdrew a letter to the White House urging a negotiated settlement to the war in Ukraine, the group's chairperson, Democratic Representative Pramila Jayapal, said on Tuesday, after blowback from within their own party. (Full Story)
DOJ Charges 13 in Cases Targeting Chinese Spy and Influence Campaigns
The Department of Justice (DOJ) on Monday announced charges against 10 alleged Chinese government spies and three other Chinese nationals in three separate cases, including a matter in which two intelligence officers sought to recruit a U.S. double agent in order to damage prosecution of tech company Huawei. (Full Story)
Putin monitors drills of Russia’s nuclear forces and practices missile launches
Defense Minister Sergei Shoigu reported to Putin that the drills were intended to simulate a “massive nuclear strike” by Russia in retaliation for a nuclear attack on Russia. (Full Story)
Chart of the Day: Treasuries have never been this oversold on a 9-week RSI.
“Wise men speak because they have something to say; Fools because they have to say something.”
- Plato
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