Republicans Win The House But Senate Remains Split, These Sectors Will Outperform
Layoffs are beginning to show cracks in the labor market
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Market Talk ⏪
After a week in which we saw a slight slowdown in inflation, this week that data was further confirmed when Producer Price Inflation or PPI, also showed weaker than expected growth, which was a good sign. Could this mean the constant rant hikes are beginning to work?
The answer to that question is, potentially.
Could this lead to a Fed pivot? Doubtful. I am still of the belief that we will see another 50 basis point hike in December followed by a 25 basis point hike in the following meeting before we potentially hit a pause. A full blown pivot still seems far fetched, which is one reason I believe we not in a “Buy The Dip” period, but rather a “Sell The Rip” period.
The Fed is directly trying to slow inflation by increasing rates with the hopes of also slowing the economy. Indirectly the Fed, although they will not say it, they are looking for layoffs as a way to slow the economy. Layoffs is exactly what we have been seeing of late, particularly from technology companies. Twitter, Meta Platforms, and Amazon (AMZN) all released a portion of their workforce last week and I do not expect that to be the last.
The impact the Fed is having on the economy is evident. Although S&P 500 earnings have been up roughly 4% so far, much of that has to do with the energy sector. If you exclude the energy sector, earnings would have been down nearly 4% in Q3, which tells you more of the story. Proceed with caution moving ahead.
Also last week, we had the midterm election which saw Republicans regain majority in the House, but the Senate still remains split. This will make things a little more difficult for the current administration, but it should also help in specific sectors of the market. The first sector that comes to mind is the oil and gas sector, as Republicans are more open to onshore drilling and less regulation within the space.
Given that this week is the Thanksgiving holiday week in the US, I expect trading volume to be down, which could lead to another flat week in the markets before we enter December and the potential for a Santa Claus rally.
In terms of sector focus, at least in the near term, I believe Healthcare and Energy continue to be areas of focus, meanwhile, the tech sector could remain under pressure, especially as rates continue to rise as I expect. The next few weeks could play a huge role in the direction the market will move to close out the year.
It is interesting to see the Dow Jones Industrial Index down only 7% on the year (see US Markets section below), and one of the main reasons is due to the fact the Dow Jones is a price weighted index, meaning stock price determines weighting, not market cap. Unitedhealthcare (UNH), Johnson & Johnson (JNJ), and Amgen (AMGN) are all three sizable healthcare companies with solid performance YTD and larger weightings. This is a testament to the strength of the Healthcare sector.
In international news, President Biden and Chinese President Xi met for the first time in office since Biden took office. The two had discussions while attending the G-20 summit. There was not a lot that came out of the meeting, but having a meeting over not is a step in the right direction.
Deep Dive 📰
I recently dropped a Deep Dive on Starbucks Corporation (SBUX). If you have not checked it out yet, CLICK HERE. If you have checked it out, let me know what you think of the video and summary format.
US Markets 🇺🇸
Here is a performance summary for US Equities:
Here is a look at US Treasuries:
The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.
When it comes to the Fear and Greed Index, and the continued uptick in the markets, we have seen the index continue to remain in the Greed level. Investors have survived the earnings season, thus far, but the economic headwinds remain the same giving me cause for concern. Currently, the index has a reading of 62, which is not much change from the prior week reading of 66.
Earnings on Deck 💰
Last week we saw a huge week of retail earnings. Reports from Home Depot, Lowe’s, Walmart, and Target all shined different lights on the consumer. Walmart had a solid quarter, but then on the flip side Target S*%t the bed. Target continues to deal with high inventory levels, which will lead to more discounted pricing and lower margins in order to right size that.
Given the Thanksgiving holiday this week, earnings reports are minimal this week. Best Buy will be an interesting report to watch as will Disck’s Sporting Goods, but my main focus will be on John Deere next week.
Notable Analyst Updates 📝
Raymond James increase PT of Devon Energy (DVN) to $87
Citi downgrades Bank of America (BAC) to neutral
Truist increase PT of Eli Lilly (LLY) to $421
Credit Suisse cuts PT of Proctor & Gamble (PG) to $130
Raymond James downgrades Home Depot (HD)) to neutral
Piper Sandler upgrades Target (TGT) to overweight and increases the PT to $200
Deutsche Bank increases PT of Deere (DE) to $374
This Week 📆
Monday
None
Tuesday
None
Wednesday
Mortgage Applications
Initial Unemployment Claims
Durable Goods
S&P Global Manufacturing PMI
S&P Services PMI
New home sales
Consumer sentiment
Thursday
THANKSGIVING
Friday
BLACK FRIDAY SHOPPING
Other Resources 📺
If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.
Here is a look at my latest video in which I discussed 3 Ways To Earn HIGH YIELDS and Retire Early.
Also during the week, I did a video explaining Warren Buffett’s TOP 5 Dividend Stocks.
Here are a few others of my latest videos:
3 Top Dividend Stocks To Buy In November
Better Buy: Home Depot vs Lowe’s
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Have questions? You can email me directly at Mark@RoussinFinancial.com.
Have a Great Week!
Mark
Great newsletter!