Preview of the week 18Sep2023 - can FactSet rise?
Public Holidays
There are no public holidays for Hong Kong, Singapore, the US & China in the coming week.
Economic Calendar (18Sep2023)
Notable Highlights
Fed’s interest rate decision would be the highlight with some expecting a pause in the rate hike though one more rate hike is expected to take place.
Philadelphia Fed Manufacturing Index will be released this week. This will shed light on the manufacturing sector’s performance and outlook.
PMI - S&P Global Services PMI will be released this week. This would reflect if services are expanding or contracting.
Building Permits & Home Sales. These will reveal the demand for buildings in the USA as various ones have touted the real estate crash.
Jobless claims. Initial jobless claims will be announced on Thursday. This would form critical data points for the Fed to decide on the next interest rate adjustment. This is part of the data consideration for the Fed in their coming interest rate decision.
Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, this implies demand erosion that can lead to reduced production & weakening consumer spending.
The most watched event should be the Fed’s interest rate decision which will be announced on US Wednesday afternoon, or 2 am if you stay in Singapore/Hong Kong (GMT+8hrs). We can expect some market volatility leading to this announcement.
Earnings Calendar (18Sep2023) - FedEx earnings this week
This week has a few earnings of interest. There are a few earnings that are of personal interest like FedEx and Factset.
Let us look at FactSet (FDS)
I am a user of the regular reports of FactSet. Thus, let us take a look at this company which has provided good market insights with their reports.
While their operating margin fluctuates between 29.3 to 33.0%, their revenue has increased from $858M to $1,855M in 10 years. This is a solid 116% growth in 10 years.
However, we should also note that the EPS growth has dropped from double digits to single digits in the last 3 years (2020-2022).
The stock has dipped 3.96% from a year ago.
For the coming earnings, the forecast for EPS and Revenue are 3.5 and $535.66M respectively. Will FDS be able to continue its current run?
Market Outlook - 18 Sep 2023
Technical observations of the S&P500 1D chart:
The Stochastic indicator is on a downtrend following a top crossover confirmation earlier in the week.
The MACD indicator is on an uptrend but looks to complete a crossover for a downtrend in the coming days.
Moving Averages (MA). Both MA50 & MA200 lines are on an uptrend. With the last candle cutting the MA50 line and above the MA200 line, this can be interpreted as an uptrend in the long term. For the mid-term, it is uncertain.
Exponential Moving Averages (EMA). 2 of the 3 EMA lines have converged and this implies a coming reversal. To confirm a reversal, we need all 3 EMA lines to converge, in this case showing a downtrend.
From the 1D technical indicators above, there are a total of 7 (Buy), 12 (Sell) and 6 (Neutral). Investing recommends a “SELL” recommendation based on the technical indicators above (1D chart for S&P500).
In conclusion, this week should be a downtrend for the S&P500 but much hinges on the interest rate decision and the tone of the Fed.
News and my thoughts from the last week (18Sep23)
Lower interest rates push up asset prices and higher interest rates push the prices down. - Grantham
If the UAW strikes this week, it could have a big impact on freight volumes across North America. The big three and their suppliers are massive consumers of logistics services, representing billions in freight spend. While the freight market is currently rebounding, an auto strike would likely kill the momentum, at least short term.
BBC > Wilko rescue bid from billionaire owner of HMV collapses, leaving future of thousands of UK jobs uncertain
CNBC > California’s high-speed railway is running out of money, but progress has been made. Jeniecep reports.
"If we do not read the newspaper, we are uninformed.
If we do read the newspaper, we are misinformed."
- Denzel Washington. It is not about being first, it is about the truth.
Liz Young from SOFI > Aug headline CPI came in at 3.7% y/y vs 3.6% est. Shelter still the largest contributor, and core services ex-shelter (the Fed's "supercore") moved up slightly. The +0.6% m/m read is the highest since Jun '22. Surely, we can find things that have cooled, but I'm having trouble seeing this as a "good" report.
Purpose over profits. How many of us can understand? How many of us can embrace this value system?
CNN > The cuts will affect a few hundred members of Google’s recruiting organization globally; most of the team will remain and continue hiring for critical roles such as top engineering talent, according to Google.
Yahoo Finance > Ray Dalio says he doesn't want to hold bonds, cash 'is good'.
Fuel Prices Are Soaring: Who Is Feeling the Pinch? Diesel, jet and marine fuel prices are soaring, pressuring the construction companies, transportation businesses and farmers that are the biggest users.
World Property Journal > "Although the uptick in delinquency rates was expected, they remain at the lower end of historical ranges."
TT News > Supply chain challenges caused by climate. Panama Canal Says Shipping Congestion Will Last Into 2024. Water Levels Low From Drought, Increasing Wait Times
Business Insider > The congestion in the Panama Canal is closely watched because 40% of US container traffic passes through the waterway, according to an August report from Container xChange, a logistics platform. This is inflationary to costing.
CNBC > More companies, especially airlines, warn higher costs will eat into profits. More companies are warning that a surge in the cost of fuel and employee pay hikes will eat into profits this quarter.
My investing muse
Inflation and interest rate
Most eyes will be fixed on the Fed with their coming interest rate decision. Most are expecting the hike rate to pause with a probable one more rate hike by the end of the year. The latest CPI figure may have matched expectations but there was an increase of 0.6% Month on Month (MoM). This implies that things are still getting more expensive over time.
With OPEC+ reducing their daily oil production by 1.3 million barrels per day (bpd), the oil price has crossed the USD$90 mark recently. This should be sustained till the end of the year.
Strikes
UAW strike has taken place with about 13,000 union workers involved. The strike is affecting the automakers GM, Ford and Stellantis. While the demands are largely inflationary, the income proportion between the workers and the CEO is widening over time. With record profits, it is natural that the union expect to benefit more in comparison to the CEO’s compensation. Yet, for every 1 job affected, there could be 6 other jobs affected. These affected jobs involve the partners & suppliers of the automakers.
Let us not forget that over 60% of Americans live from paycheck to paycheck. Thus, there could be an accumulation of debt over this time. As of Sunday, we understand that talks with the UAW have resumed. A timely resolution is needed.
Taking a step back, we can expect that there be a resolution. However, how much disruption it would cause would not be known till later. We are expecting there to be an increase in the labour costs for the automakers. This would affect their costing and we can expect some of the costs to be passed onto the consumers. Will the products be too expensive for the buyers leading to some loss of market shares? This will be inflationary in outcome. Will this send some of the automakers into bankruptcy? It is too early to tell. How will this affect the sticky inflation?
Ukraine
Ukraine is not a dominant topic nowadays with extreme weather and natural disasters dominating the news. Be it the floods that hit Hong Kong & China, the earthquakes in Morocco and the Maui fire that destroyed many lives, the weather continues to impact different geographies. How will this affect the agriculture? How would the insurance cope with all these? How fast can the rebuild take? How much more finances are needed to restore the affected communities?
With all these needful costs, some have expressed their concerns when their countries gave priority to a distant war over their own citizens. This was not a pro-Putin movement but rather, one to take care of their own citizens (first) in the face of these domestic challenges. Ukraine continues to demand the resources required to fight in this conflict.
Some have pointed out that the dragging out of this war would leave Ukraine destroyed. Concurrently, more resources and funding would be necessary to rebuild this war-torn country.
Conclusion
It is not hard to predict inflationary outcomes from the strikes. The coming week could be a volatile one. While the market has expectations towards the interest rate, it is not certain that the Fed would follow this narrative. Let us continue to exercise prudence. Keep well all.
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