Weekly preview (starting 17 Oct 2022) - can Tesla recover?

Public Holidays
Nil - USA, Hong Kong, China & Singapore


Earnings Calendar

This week has several key earnings.  I am paying attention to companies like Dow Chemicals, Netflix, Tesla and Goldman Sachs.  These companies can be seen as a "wide" representation of the different industries.

Earnings for the week starting 17 Oct 2022

Tesla is one of the best innovators as we journey into a more sustainable future.  Let us look at Tesla in lieu of the coming earnings.

Tesla is widely recognised as the leading EV player.  From a year ago, the stock price has fallen 27.05% and fell to its 52-week low of 204.16.  This is a good 50%+ drop from its 52-week high of 414.50. 



For its coming earnings on 19 Oct 2022, the EPS and revenue forecast are 1.03 and 22.5B respectively.  Will Tesla be able to reverse the decline?  Beyond the EPS and revenue, will Tesla's outlook remain bullish?  Elon is expecting there will be a 50% increase in annual production.  Will Tesla be on track for 2022?

Economic Calendar

Economic Calendar starting 17 Oct 2022

Here are some important considerations in lieu of the coming economic calendar:

• China's GDP is important as it reflect the status of the global recovery.  Thus, the outlook of China's GDP can be taken as a view of the global recovery.  If China's outlook turns bearish, this can be a preview of the global market especially with China being the global factory.
• Building permits (Sep) - may turn negative due to the falling housing sentiments.
• Crude oil inventories - can be seen as a forward indicator of market demand.  The producer's consumption of oil inventories is based on their "anticipated" demand.  Should the consumption be lesser than expected, it is a bearish indicator for the coming consumotion.
• Initial Jobless claims - this is a "forward" indicator for recession and thus, it is something that we should pay attention to.  This data point will add to Fed's interest rate hike considerations.
• Philadelphia Fed Manufacturing Index (Oct).  From investing dot com below:

The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. A level above zero on the index indicates improving conditions; below indicates worsening conditions. The data is compiled from a survey of about 250 manufacturers in the Philadelphia Federal Reserve district.

My muse & news

• <Moneycontrol> In 2021, Japan, China, United Kingdom, Ireland, and France were the top buyers of US treasury notes that have turned net sellers in the first seven months of 2022, data from the US treasury department shows.  In total, foreign investors and institutions sold $246 billion worth of US treasuries during this period. That’s a 3.2% drop in their holdings within a few months as against a 9% build-up in the year 2021. The treasury department expects that the holdings will come down further.
• <Crunchbase> In fact, as of early-October, more than 42,000 workers in the U.S. tech sector have been laid off in mass job cuts so far in 2022, according to a Crunchbase News tally.
• <Business Insider> Back in February 2021, Burry predicted Wood's success would fizzle & her fund would collapse in value. "It is too early, she is too hot, and, today, short sellers are timid, but Wall Street will be ruthless in the end,"
• The annual trade volume btw #China & 150 countries which have participated in the Belt and Road Initiative expanded from $1.04 tln in 2013 to $1.8 tln in 2021, a quantum leap of 73% over 8 years.
• <CNN> Economists say tens of thousands of people are likely to file for unemployment benefits in the storm’s wake, but if those workers don’t come back, the local economies of some hard-hit areas could struggle to rebound.
• <Reuters> The six biggest U.S. banks are expected to have set aside nearly $5 billion in the third quarter to cover future loan losses, Wall Street analysts said, as lenders brace for a potential global recession.
• some of the companies with disruptive technologies may not survive the coming downturn.

Snapshot of YTD performance

• Snapshot of YTD performance of some of the companies. Buying the dip is not always a good strategy for a bearish macro. However, there are some stocks that are doing well in this environment.
• Starlink has changed the rules of war. Usually, the first installations to be hit during the war are communications. With Starlink, there is reliable uptime & the other counters will be via cyber hacking and space wars.
• <CNBC> The International Monetary Fund predicts global growth will slow to 2.7% in 2023. Its GDP estimate for this year remained steady at 3.2%, which was down from the 6% seen in 2021.
• With autonomous vehicles, data privacy and security becomes ever  important. A breach may have serious consequences.  
• More than 60% of France's refining capacity has been taken offline by the strikes, driving diesel prices higher and prompting the country to increase imports of the fuel.
• Bulls, Bears or Beatles.  What we need most is a realistic outlook.
• <WSJ> 
• Retailers Kick Off Black Friday in October Again, This Time With Too Much Stuff.
• Driven by excessive inventory,  a bleeding point for operations, sales have started early
• <WSJ> BYD has dominated Chinese domestic market this year, defying supply-chain disruptions, shortages of chips & raw materials for batteries. The company’s monthly YoY sales of electric & plug-in hybrid vehicles have more than 3x on average this year.
• While revenue is firm, profits remains to be realized for Palantir.

Market outlook

S&P500 1D chart

S&P500 1 year overview

Observations from above:

• Stochastic indicator is on an uptrend though it seems to be pointing downwards, 
• MACD indicator is ranging at the bottom and we should see a reversal to uptrend soon.  It is also possible that a double bottom may form.
• the exponential moving average lines are yet to merge and thus, the current downtrend has yet reversed.
• the candles remain under the MA50 & MA200, thus, remaining bearish for the mid and long term.

From the above, it seems that the market is ranging along the bottom. While there is a chance for the market to reverse, the overall market sentiment could face a potential dip, aided by the coming earnings.

My investing muse

The global looks to be heading towards a perfect storm.  From a global economy struggling to get rid of a sticky inflation, energy crisis & food crisis have added to the complications.  The challenges of climate, supply chain and recessionary concerns has casted a dark outlook for the global macro.  With the approaching winter, the coming energy crisis looks even more daunting for Europe.  With UK saving their bonds (not once but twice), will it be a bandaid awaiting a greater crisis?

Ukraine looked to be recovering more ground but has asked for more weapons to be supplied.  This is a proxy war with de-escalation becoming needful priority to avoid a nuclear conflict.  How long can the west led NATO be able to fund this war even if no troops are involved.  With most of the allies facing their various economic challenges, the funding of this war (and the subsequent rebuild) will soon be a hot topic.  With Elon Musk's decision to self fund via Starlink in absence of US's assistance, how can this continue?

China is having a crucial week as President Xi seeks to be given an unprecedented 3rd term in office.  US seems to fighting on several fronts, be it China over chips, Russia for Ukraine, OPEC+ for oil production, North Korea's missile testing and their internal issues.  Unfortunately, it seems that their bi-partisan stand, inequality, gun violence and challenges of weather extremities will prove to be much more challenging.

I do not wish for a downturn but there is a high price for free money.  Despite the interest rate hikes, inflation has remained persistent and thus, the Fed would need to remain hawkish.  We are not certain if it is too little, too late with the recent rate hikes but there are other considerations about the market that we need to monitor.

The macro climate should continue to push down the market with housing bubble expected to be burst with the increasing rates.  We can expect more detaults, retrenchment as the economy move into more headwinds.  

It is a time to remain prudent, save and invest within our means, avoid leveraging.