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Monday, October 10, 2022
Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.
The money you have invested in the stock market is at big risk of being further vaporized in the remaining weeks of October. Full stop.
That’s not a scare tactic so you share this newsletter with five friends. It’s just the assessment of one person who has been doing this close to 20 years now. I think investors took too many hits on the “hopium pipe” (thanks RSM Chief Economist Joe Brusuelas for this new fin-term for my vast arsenal) during the two-day, rip-your-face off rally to start the fourth quarter.
Now, it’s reality check time again as the high wears off.
Here are a few risks barreling toward you…
This week, inflation data in the form of the Consumer Price Index (CPI), the Producer Price Index (PPI), and price expectations from the University of Michigan’s consumer sentiment survey are coming out. The CPI report is arguably the most important at the moment as investors look for signs that inflation is cooling at the hands of the Fed’s aggressive rate hikes.
The problem is that the CPI report isn’t expected to slow much on a month-to- month basis. “Core inflation continues to wield significant momentum,” Wells Fargo Economist Sarah House pointed out in a client note.
In turn, that sets the table for a harsh market reaction like what we saw on Friday to a too-hot September jobs report.
Raw earnings numbers
Warnings in recent weeks from AMD, Micron, Nike, FedEx highlight how crappy this earnings season will be. The negative reactions to those warnings underscore how the market hasn’t truly priced in downside risks from the stronger dollar, still-high inflation, and the higher cost of capital.
The ugliness of the top and bottom lines could surprise investors, even when considering expectations have been marked lower.
Consensus expects 3% year-over-year EPS growth for S&P 500 companies, 13% sales growth, and 75 basis points of margin contraction to 11.8%, according to data crunched by Goldman Sachs. Excluding the energy sector, EPS is expected to fall by 3% and margins to contract by 132 basis points.
I expect investors to be reminded of this new economic normal (which mirrors stagflation) in earnings out later this week from banks Citigroup, JPMorgan, Morgan Stanley, and Wells Fargo.
If you hate listening to earnings calls, suck it up and get on them this earnings season. The economy is downshifting and you need every clue possible on companies to survive.
I think the tones on conference calls will be decidedly bearish. Two good points on this one from Goldman Sachs:
“Topics for managements to discuss: (1) headwind to sales due to a stronger U.S. dollar, (2) headwind to margins due to elevated inflation and high inventories, (3) tax changes effective in 2023.” All bearish topics.
“Early guidance from managements has demonstrated the various headwinds to corporate profitability. CEO confidence for the six months ahead fell to levels last seen in 1980. Earlier in September, FedEx pre-announced a large EPS miss and withdrew 2023 guidance. More recently, Micron guided revenue and EPS below consensus expectations, citing uncertain demand and growing inventory. In addition, more than 10% of S&P 500 market cap has pre-announced earnings this quarter, consistent with prior periods of high uncertainty as companies manage investor expectations.” Expect other companies to act in a similar fashion to these early reporters.
On a more upbeat note, Constellation Brands CEO Bill Newlands told me on Yahoo Finance Live demand for Corona and Modelo remain strong. So maybe the world isn’t ending — just any market rallies. Cheers to that!
What to Watch Today
No notable reports scheduled for release.
No notable reports scheduled for release.
Yahoo Finance Highlights
(Bloomberg) — Cathie Wood flagged the risk of “serious losses” in the trillion-dollar auto debt market, after statistics showed US used vehicle prices decreased in September. Most Read from BloombergUkraine Latest: Putin Calls Security Meeting, Comments on BridgePutin Threatens More Strikes on Ukraine After Missile BlitzEight Years of Combat Hardened Ukraine’s Army Into a Fighting ForceRussia Races to Reopen Crimea Bridge Damaged in Fiery BlastThe Ark Investment Management LLC founder and chief
(Bloomberg) — Washington unveiled sweeping curbs on the way chip companies do business with China’s tech industry, a series of restrictions that together represent some of the strongest actions taken so far to contain the rise of a geopolitical rival.Most Read from BloombergUkraine Latest: Putin Calls Security Meeting, Comments on BridgePutin Threatens More Strikes on Ukraine After Missile BlitzEight Years of Combat Hardened Ukraine’s Army Into a Fighting ForceRussia Races to Reopen Crimea Brid
and other cryptocurrencies were weaker Monday as sentiment for risk-sensitive assets continued to deteriorate in the wake of the U.S. jobs report on Friday. Crypto holders should brace for more volatility in the coming days with key inflation data on the docket. The price of Bitcoin has fallen 1% over the past 24 hours to $19,250.
LONDON (Reuters) -Oil prices fell on Monday, ending five straight days of gains, as investors looked to slowing economic activity in China, the world’s biggest crude importer, which revived concerns about a global recession and falling global fuel demand. West Texas Intermediate crude for November delivery declined by as much as 1.1% and was last at $91.94 a barrel, down 70 cents, or 0.8%. Services activity in China during September contracted for the first time in four months as COVID-19 restrictions hit demand and business confidence, data showed on Saturday.
Columbus Day arrives this year after investors navigated choppy waters last week. The marked its largest two-day gain since April 2020 on Tuesday, after a weak ISM manufacturing activity report and other economic data suggested the Federal Reserve might ease future interest-rate hikes. This week, investors can expect third-quarter earnings results, the September consumer price index reading, and other macro data to give better clues as to whether the Fed will be able to negotiate a soft landing or plunge the U.S. into a recession.
(Bloomberg) — Investors in technology companies are focused more than ever on profits, following an era when low interest rates drove a speculative frenzy in money-losing companies. Most Read from BloombergUkraine Latest: Putin Calls Security Meeting, Comments on BridgePutin Threatens More Strikes on Ukraine After Missile BlitzEight Years of Combat Hardened Ukraine’s Army Into a Fighting ForceRussia Races to Reopen Crimea Bridge Damaged in Fiery BlastUnprofitable companies have underperformed t
Yahoo News UK
Dad-of-three, 43, facing extradition and jail in Qatar after being arrested in Iraq over unpaid debt
Brian Glendinning, 43, from Kincardine, Fife, is in prison in Baghdad and facing extradition to Qatar after being arrested when he arrived in Iraq to start a new job.
Chinese cities were imposing fresh lockdowns and travel restrictions after the number of new daily COVID-19 cases tripled during a weeklong holiday, ahead of a major Communist Party meeting in Beijing next week. The latest lockdown started Monday in Fenyang city in northern China’s Shanxi province after a preliminary positive case was found in citywide testing the previous day, state broadcaster CCTV reported. In the nearby Inner Mongolia region, the capital Hohhot announced that outside vehicles and passengers would be prohibited from entering the city starting Tuesday.
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