The week ahead 09/19/2022

Now’s the time to keep it cool.

We know more negative market activity is likely ahead of us. Make a plan, stick to it, and keep reading our updates to stay informed.

Hedge Fund: Investing lessons from Ray Dalio – the man who leads the  world's largest hedge fund - The Economic Times

“I think it looks like interest rates will have to rise a lot (toward the higher end of the 4.5 to 6 percent range) and a significant fall in private credit that will curtail spending. This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it. 

I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices (on average, though greater for longer duration assets and less for shorter duration ones) based on the present value discount effect and about a 10 percent negative impact from declining incomes.”  Ray Dalio, Founder @ Bridgewater Associates

If the world’s largest hedge fund is screaming out a warning sign to you, then no — now’s not the time to load the boat. DCA’ing into positions is always fine, but don’t think that cash is trash just because inflation is bad.

Opportunities are ahead of us.

 

Key Earnings Announcements:

 

We see if the Costco recession craze has converted to higher profits, Accenture hopes to reverse decelerated bookings, and FedEx will add color to its worldwide recession warning.

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Monday (9/19): AutoZone

Tuesday (9/20): Aurora Cannabis, Stitch Fix

Wednesday (9/21): General Mills, KB Home, Trip.com

Thursday (9/22): Accenture, Costco, Darden Restaurants, FactSet, FedEx

FedEx Fired the Warning Shots:

As you may have read in the Week in Review — FedEx warned of a global recession ahead of its earnings call this week. Shares of FDX had their worst ever one-day drop on Friday, after the company admitted that lower volumes of packages will be delivered during supply chain issues that many people believe have somehow vanished.

“Clearly, there are questions about the direction of the global economy, especially in Europe and Asia, but we struggle to see how that accounts for the entirety of this quarter’s miss…We believe a meaningful portion of FedEx’s missteps here are company-specific…We drank the purple Kool-Aid. From here, there’s no more benefit of the doubt.”  Stifel analysts

 

Investor Events / Global Affairs:

 

China & India have mixed feelings toward Putin, the Bank of Japan has no idea what it’s doing (as predicted), and NVIDIA hopes to turn things around with another big conference.


  • China, Russia, and India’s Strange Love Triangle

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The China / Russia relationship has the world watching. Russia needs China more than China needs Russia — and it seems Vlad Putin knows this. According to the Moscow Times, the two giants recently conducted joint naval drills in the Pacific. The unification between the two has been described as being a “no-limits” relationship to counter the Western World.

Meanwhile, European leadership attempts to convey that Putin’s strategies aren’t as successful as he’d hopedThe key questions are “can Europeans make it through the winter, and if so — will that be the worst of it?”

Not to mention, India has been an ally and area of investment for both the Western World and China / Russia. Indian leadership has drawn some heat for not denouncing Putin’s actions this year — but they are now beginning to voice concerns. It will be interesting to see if things develop into purely a Chinese and Russian partnership — especially considering China would always own the upper hand.

Frankly — we’re just not sure we buy that Europe is in as prepared a situation as is being conveyed. Energy bills are still outrageous, limitations are being placed on citizens for their electricity use, and the winter is just around the corner. Regardless of what he says, Putin’s strategy is likely to drag this situation out as long as possible. Even if oil reserves can be used and new pipelines can be laid in Europe — Putin understands the money-printing and currency destruction that would take place due to inflation.


  • Japan Hoping to Avoid Collapse

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Back in June, we said the following about Japan:

Japanese financial markets are currently in the process of losing any semblance of a fundamental-based foundation. As global inflation increases, they print more money. As global inflation eases, they’ll need to slam on the brakes even harder than we are currently in the US. In today’s interconnected global financial system, a major collapse by the world’s third largest economy would be devastating.

Now fast forward exactly three months…

Translation: We were completely correct about Japan, and they’ve got an even more foolish approach than one would believe. Instead of raising interest rates, the Bank of Japan is boosting bond purchases. This is their way of saying “we will print money to buy ourselves out of our issues.”

It does not work. It will not work this time — and the Japanese Yen is in danger of becoming a rapidly devaluing currency.


  • Nvidia GTC Conference

One of the bigger events of the week will be the NVIDIA GTC Technology Conference — featuring CEO Jensen Huang’s walk-through of their latest chip and software developments.

More broadly thinking than just the event itself, NVIDIA needs a victory. The stock has been torched YTD (-56%) and many analysts believe the semiconductor sector is due for another leg down.

 
NVIDIA (NVDA) Stock Performance, YTD, Seeking Alpha

 

Major Economic Events:

 

All eyes are on the FOMC meeting, with a 100 bps (1%) interest rate hike in question.

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Monday (9/19): NAHB Home Builders’ Index

Tuesday (9/20): Building Permits, Housing Starts

Wednesday (9/21): Existing Home Sales, FOMC Meeting

Thursday (9/22): Leading Economic Indicators, US Account Deficit (% of GDP)

Friday (9/23): S&P Manufacturing and Services PMI (Flash)

Opinions on the Fed’s Next Moves:

  • MD @ MacKay Shields, Former VP @ New York Fed: Outside of the housing market, there’s not a tremendous amount of evidence that rate hikes to date are slowing the economy…It does raise the question about whether they feel they need to take rates even further into restrictive territory.”

  • Nomura: “Materializing upside inflation risks will likely result in the Fed raising rates by 100 bps at the September FOMC meeting, above Nomura’s previous forecast of 75 bps…Beyond September, we continue to expect a 50 bps hike in November, but now anticipate another 50 bps hike in December, 25 bps higher than our previous forecast.”

  • Chief Investment Strategist @ Yardeni Research: “It seems to me that they are committed to raising the interest rate significantly at this meeting… I do think they’re going to come around and and conclude that maybe just get it over with, maybe 100 basis points instead of 75 basis points. And then maybe one more hike after that.”

 

Events-Driven Winners

 

Which stocks moved the most last week.

Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.

You absolutely hate to see it. We’ve sadly become numb to it at this point — but Rent the Runway and Twilio joined the massive list of companies that are laying off employees. Expect this trend to continue for the foreseeable future.

 

If you’re starting your investing journey or want to change to a cleaner, social-focused investing platform, consider visiting Public.com.


Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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