Weekly preview starting 24 Oct 2022 - this week's earning sets the tone for the coming earnings season and economy

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Singpapore - 24 Oct 2022 for Diwali

No public holidays for the US, China & Hong Kong

Earnings Calendar

This is probably one of the most important earnings weeks because of Big Tech and other key businesses such as Oil & Gas. With the coming earnings of Microsoft, Alphabet, Meta, Apple & Amazon (FAANG+ without Netflix), this is probably the most important week of earnings.

From Slickcharts above, Apple, Microsoft, Amazon, Alphabet (Class A & C), & Meta account for 20.69 of the weightage in S&P500. These are the companies that are leading the growth in the US.  If Big Tech does not perform well in the coming week, it is hard to see how the rest of the companies can help the S&P500 to rally.  At the same time, companies like Exxon Mobil and Chevron Corporation have also benefitted from the recent energy crunch.  These 2 companies are also expected to be benefitting as the world fights an energy crisis.

Thus, if this week's earnings (and more importantly business outlook) disappoint, it is likely that the rest of the earnings are unlikely to lift up the mood of the market.

Personally, I have much interest in Alphabet, the parent company of Google.

Alphabet (Google Class C) 

Alphabet is down 26.8% from a year ago and has recently hit a low of 95.27 (Sep).  Its 52-week high was 152.1.

For Alphabet, Investing has a forecast of 1.28 and 71.34B for its EPS and revenue accordingly. Will the talks of a hiring freeze and reduced ads revenue, will Google be able to recover from its recent low?  Will the outlook remain bearish?

Economic Calendar

A few notable events:

• CB consumer confidence (Oct) - this is an indication of consumer confidence pertaining to economic activity.

[from Investing] Conference Board (CB) Consumer Confidence measures the level of consumer confidence in economic activity. It is a leading indicator as it can predict consumer spending, which plays a major role in overall economic activity. Higher readings point to higher consumer optimism.  

• China's GDP (Q3) will be an important global economic barometer as China is the world's factory.  If the figures came up to be lesser, then this can be a preview of the world's demand.
• New Home Sales (Sep) & Pending Home Sales (Sep) - this will be an important overview of the home sales market as it is beaten down with the rising interest rates.  The housing market is showing cracks from the interest rate hikes and more cases of homeowners walking out of their (current) home deals (due to the rise of mortgage rates).
• Initial jobless claims - this will be another important data point for the Federal Reserve as they plan for the coming rate interest.  Should this figure be lower than expected, the Fed can continue to remain hawkish in their interest rate hike.

My muse and news

• <CFP> As of the end of last month, 279 companies had filed for bankruptcy in 2022, which the S&P reports is the lowest since at least 2010. 
• <Businessleader> UK - As the economy slows and many businesses still see their energy bills rise, we are likely to see many more closures in the months ahead.
• Follow the money and we should find the source and cause. Money trail - a series of connected financial transactions and exchanges, especially when revealed during the investigation of a crime.
• The top exports of Ukraine are Seed Oils ($5.32B), Corn ($4.89B), Wheat ($4.61B), Iron Ore ($4.27B), & Semi-Finished Iron ($3.03B).  How will this extended war affect the rest of the world?
• As we drive towards a sustainable future, hybrid vehicles form an important interim for people to transit into Electric Vehicles (EV). For some of them, the charging infrastructure of their countries may not be adequate for a full EV adoption.
• <CNBC> Homebuilder sentiment in the single-family home market fell 8 points to 38 in October from the previous month. Builders cite rapidly rising interest rates for the drop in confidence 
• <CNBC> Even high-income earners are feeling the strain, the report found. Of those earning more than six figures, 45% reported living paycheck to paycheck, a jump from the previous year's 38%
• It is natural for most of us to pay attention to EPS and revenue during earnings season. What is even more crucial during earnings season is the market outlook presented by the companies? 
• During Covid19, isolation led us to the purchase of goods.  As we recover, more people will turn to experience and services.  We will eventually head towards a new balance of both goods and services.
• There is value in augmented and virtual reality. after Covid, people do what they miss the most - connecting in person. Social media is a workaround, not a need.
• Freight rates across nearly all modes of transportation except barges have weakened from historic highs reached during or because of the COVID pandemic, but the lack of labor continues to be a challenge to logistics at most levels.

Market outlook

S&P500 1D chart as of 23 Oct 2022

Here are the observations from the chart above:

• Exponential Moving Average (EMA) lines are converging but they have yet to converge and thus, the current trend remains downwards.  However, it is possible for the current downtrend to reverse.
• Moving Averages (MA) lines of MA50 (short & mid-term) and MA200 (long term) remain on a downtrend. With the daily candles below both M50 & MA200, it remains a bearish market for both mid/long term.
• The stochastics indicator looks to continue its uptrend and there are also signs of peaking near the current levels.
• The MACD indicator looks to continue its uptrend.

From the indicators above, it is possible that the market maintain its current uptrend.  If the uptrend continues, this could be a short-term rally though the longer term still points to a downtrend.

My investing muse
This is probably the most important week for the earnings season.  Big Tech is up next.  With Big Tech accounting significant weightage in the S&P500, their earnings will likewise be a significant representation (outlook) of the earnings of the rest of the market.

From Bloomberg: The tech sector overall currently represents about 28% of the S&P 500, more than the weighting of the health-care and consumer-discretionary sectors combined. (1 Apr 2022)

Forbes published a list of Bank of America's top growth businesses (2022) on 30 Sep 2022.  Here are some of the Big Tech who are listed:

Amazon

Alphabet (Google)

Meta (formerly known as Facebook)

During earnings, there are 3 important metrics that we need to pay attention to - EPS, revenue and market outlook. However, these are just glimpses of the performances of the businesses.  Personally, I recommend reviewing the earnings and performance of all shortlisted companies so that we can have confidence in what we want to invest in.  We need to establish if they have competitive advantages (moat), sound financials and eventually work out an entry price with a good margin of safety.

Using Palantir as an example, I am very intrigued by the value and the niche of services that they are able to provide.  However, I would need to see better performances in their earnings before I am willing to add to my current (losing) positions.  Be it an issue of scalability or yet to reach critical mass, they need to demonstrate profitability or the price can continue on its downtrend.

The situation in Ukraine looks to be escalating with US 101st airborne being deployed to nearby Romania for training.  The possibility of a nuclear war has increased with the recent news from Russia.  If Russia is threatened with survival on its cards, nuclear war (or involving other biological & chemical agents) cannot be ruled. 

China has just passed a critical week with their key CPC meetings.  President Xi has been given another term of 5 years and he has formed a new executive committee that is likely to help him with his causes.  The first topic that was covered was about the unification with Taiwan.

From the various news sources, the coming harvest of agricultural crops looks to be "lesser" than previous - partly due to the extreme weather (drought, hurricane, cold snap, floods and others).  These extremities have also led to supply chain challenges (where water levels at rivers have lowered), energy issues (hydro-powered dams) and more.   With the looming energy crisis & Nord Stream pipeline incident, things worsened in France when oil & gas workers went on strike for better benefits.  The energy situation has brought about rising costs and this will spiral into inflationary pressures for various industries.

While the markets look to have bottomed, it is possible that some of the more challenging days are still ahead.  Winter is approaching.  In USA, some states are already facing snow from a cold snap.  With more hotspots like Israel, Syria & Belarus, we could see more conflicts.  

Media not reporting the various protests across Europe

There are also more strikes taking place in various countries but these are not reported in the mainstream media.  

Whoever controls the media, controls the mind - Jim Morrison

It is important that we get various perspectives from the various events that took place before we come to our own conclusion.

As always, let us spend within our means, invest with what we can afford to lose, and buy great companies at good discounts.  Let us consider setting aside "cash for crash".