“Crypto punk” a non-fungible token (NFT), sold for a staggering $ 532 million, setting a new record for this bizarre asset class. From a traditional investor’s perspective, the NFT sale helps illustrate the insane amount of speculation affecting the crypto markets as well as most other asset classes.
Buckle up, it will be another volatile week with the Fed on Wednesday and the BLS on Friday. Plus, it’s also another very busy earning week. Currently, investors seem to be on the same page, expecting the Fed to start gradually reducing quantitative easing in November.
The risk arises if the Fed surprises with a faster-than-expected rate of reduction and / or increased concern for inflation.
Very overbought market
The underlying technical condition of the market remains a major concern for investors. While the rally has been impressive, rising almost 6% from recent lows, the market has now returned to more extreme overbought levels, trading 2 standard deviations above the 50 MA, and the width remains disturbing.
Chart updated through Friday.
As reported last week, our “Money flow buy signal” is near a peak and is about to trigger a “Sell signal”. With the MACD still positive, the signal suggests more consolidation than correction. However, a confirming MACD often minimizes short-term corrections. Also, as noted, this whole rally from recent lows has been on very low volume, suggesting a lack of engagement.
At the moment, the bulls control the market and the downside risk is somewhat limited. However, this positioning becomes very aggressive.
AbbVie (NYSE 🙂 announced the third quarter Friday morning before it opens. GAAP EPS of $ 1.78 is lower than expectation of $ 2.00, but adjusted EPS of $ 3.33 is above expectation of $ 3.22. Revenue of $ 14.34 billion (+ 11.2% year-on-year) was slightly above expectations of $ 14.30 billion, thanks to strength across the board.
Management has raised the EPS GAAP forecast for FY21 to $ 6.29- $ 6.33 from a previous range of $ 6.04 to $ 6.14. Management has also raised its guidance for Adjusted EPS to $ 12.63- $ 12.67, which is above the consensus of $ 12.57. Finally, ABBV increased its quarterly dividend by 8.5% to $ 1.41 / share, implying a forward yield of 5.14%. The title traded up + 4.1% by mid-morning after the release. We have a 4% position in the equity model.
Technical summary table courtesy of RIAPRO.NET
Exxon Mobil revenue
Exxon Mobil (NYSE 🙂 released its third quarter on Friday before it opens. EPS GAAP broke estimates at $ 1.57 against the consensus of $ 1.50. Revenue of $ 73.8 billion (+ 59% year-on-year) also exceeded the consensus estimate of $ 72.1 billion thanks to the surge and prices.
Management expects future capital investments of $ 20 to $ 25 billion per year with a fourfold increase in low-carbon spending. In addition, the board of directors authorized a share buyback plan to start in 2022 with a cap of $ 10 billion in buybacks over the next two years. Market reaction was muted amid a slight pullback in crude prices, as XOM traded 0.6% higher by mid-morning on Monday. We have a 2% position in the equity model.
Tweet of the day
Tweet of the day
Consumers are at an inflationary impasse
The quarterly rose 1.3% from expectations of a 0.9% gain. On an annual basis, the index is up 3.7%. Although the data is a bit old, it indicates pressures on corporate profit margins.
fell 1% in September. increased 0.6%. It seems that spending is increasing because of inflation, not because consumers buy more goods. This data also helps explain the recent increase in credit card spending.
The Fed’s preferred method of measuring inflation, the, has grown 4.4% in the past year, the highest rate of inflation since the early 1990s.
The graph below, courtesy of Eric Basmajian, shows that real disposable income per capita is once again lower than the trendline growth of 1.8% from 2009-2020. Simply, the stimulus is gone.
The BOC shocks the market
The Bank of Canada (BOC) surprised the markets by abruptly ending quantitative easing and they could rise as early as April. LINK to the press release. In addition, they expect a total of four rate hikes next year. Their justification appears to be a concern that price pressures “Now appear to be stronger and more persistent than expected. “
Since the announcement, Canada’s ratings are up 20 basis points, while its ratings have underperformed slightly. The Canadian 2/10 yield curve hit 50bp on Monday, down from nearly 100bp a month ago. BOC shares and its large impact on its yields and yield curves appeared to be partly responsible for similar trades with yields and US Treasury curves. On October 8, it was 130 bp. On Monday, it stood at 108 basis points.
The US and Canadian yield curves seemed to warn that the respective central banks could tighten their policies into an economic downturn. As the Fed meeting approaches, equity investors should brace themselves for a more hawkish-than-expected statement. This may include a faster reduction schedule and / or a more specific discussion of the rate increase.
Home price increases are slowing
According to the Case-Shiller Home Price Index, the increase could finally slow down. As shown below, the monthly index gain was only 0.08%. This compares to the past 12 months which saw gains of around 1% or more each month. The index gain is 19.8%.