It's beginning to feel like COVID 2.0, with markets starting to rally and then having the positive sentiment sucked right out with a single report. This week, it was an inflationary expectations survey that took steam out of the market. The survey indicated consumers expect higher prices ahead for the first time since March, indicating they aren't seeing reductions in inflation (like the Fed). Markets, which had largely shrugged off a high inflation report last week, fell on the news.

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The Nasdaq was hit the hardest, falling 3% Friday. Tesla stock also served as a drag on the Nasdaq. The stock was down due to myriad reports of Tesla batteries exposed to salt from the recent hurricane in the Southern U.S. causing car fires. Elon Musk's purchase of Twitter - likely funded in part by selling Tesla shares - was also pushing prices down.

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Have we hit bottom yet? It's hard to tell. Bottoming processes can take up to 20 months. We're at month 10. That doesn't mean the market goes straight down for 10 months, nor does it mean you can't hit a bottom then hit the same bottom again later.

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It does look like some sectors are close, as growth stocks have been selling off for 12 months, with many down over -80%. That creates a lot of space to move up. Investors are scooping up Payoneer, for example - a stock flagged by our system for its recent inclusion in the S&P Small Cap.

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There are pockets of the market doing well. Energy stocks continue to ourperform, as are ETFs that short bonds (TBT, PFIX). FANG, COP and PSX continue to do well. Heading into winter, look for natural gas stocks to outperform as prices rise due to rising demand, especially from Europe.

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Is Beyond Meat Beyond Themselves?

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Beyond Meat (BYND) announced Thursday that they are conducting further layoffs following a round of cuts made in August. The plant-based food company made the announcement just before Doug Ramsey, who was Beyond Meat’s operating chief, was arrested for biting a man’s nose after a college football game. Apparently he's a carnivore after all.

After the announcement, shares slid as much as 14.94% before closing down -9.71%. BYND is down almost -80% this year as product sales have waned from lack of interest and growing competition from the much healthier Gardein (owned by Conagra) as well as Tyson Foods (TSN).

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Did You Miss?

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Activist Investor Buys The Howard Hughes Corporation Stock

Howard Hughes stock jumped after Pershing Square launched tender to boost stake by up to 12.7%. The Howard Hughes Corporation owns, manages, and develops commercial, residential, and hospitality operating properties in the United States. Friday's announcement sent the stock +4.19%, but these events often have longer term impacts as the activists push for improvements to the company.

Revenue Last Quarter: 276.71 M

PE: 21.49

Market Cap: 2.85 B

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Global PC Sales dropped -15% in the third quarter of 2022. The reduction has been reflected in the declining prices of semiconductor manufacturers that makes chips for computers. Semis are having a horrible year, with the sector ETF (SMH) down -44% year to date.

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The bright spot is people keep buying Apple computers, with sales reaching 10M units in Q3 - an increase of +40% year over year for the same quarter. Given this, it seems the recent selloff in Apple stock is overdone and presents a buying opportunity as CNBC pundits continue to state errononeously that the error of Apple's growth is over. Apparently they forgot about the fact we'll all be using our iPhone instead of credit cards and Square to pay for things in the coming years. That represents a $200B addressable market by 2030.

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MillerKnoll, Inc Added to S&P SmallCap 600

MillerKnoll, Inc. manufactures and distributes interior furnishings worldwide. It operates through North America Contracts, International Contracts, and Retail segments. MillerKnoll will replace Covetrus Inc. in the S&P SmallCap 600, effective before the opening of trading on Tuesday, October 18. Thursday's announcement sent the stock up +4.12%.

Being added to this index is a badge of honor for small cap stocks, and the inclusion often serves as a long-term catalyst for the stock as inclusion gets the attention of analysts and media professionals.

MLKN's quarterly revenue just breached $1Billion and the company's net income is up +142% year over year. Despite this, the stock is down -55% YTD as analysts expect revenues and earnings to decline due to consumers pulling back on spending.

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Learning Corner

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Novel Ways to Trade Buybacks (part 2)

We've heard from users a few times that they "missed the trade" because they weren't able to act fast enough to catch the upward movement. So we thought we'd discuss a few additional strategies for playing buybacks.

Trade the Dips

When a company announces their intention to start repurchasing shares, the share price should - if you believe in market efficiencies - increase by the percent of the buyback. Thus, a company doing a buyback that is 10% of its market cap should see a price increase of 10%. This rarely happens instantly. Often there's a quick increase in price, followed by a selloff, followed by another increase in price before another selloff and another increase in price. Each of these selloffs is a tradeable dip. And if you know the expected price move based on the buyback size, you can enter and exit positions along the way to the expected price.

Pro tip: the more popular a company is, the faster the stock price will move on news of a buyback. However, the price often flies past the expected price move before coming back down by the market close. You can expect these overreactions and use them for trading. They present great opportunities for selling covered call options as well.  

Notable Earnings Announcements This Week

Monday:

• Charles Shwab (SCHW)
• Earnings Estimate: $1.05

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Tuesday:

• Netflix (NFLX)
• Earnings Estimate $2.13

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Wednesday:

• Tesla (TSLA)
• Earnings Estimate $1.00

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Thursday:

• American Air Lines  (AAL)
• Earnings Estimate $0.48

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Friday:

• American Express (AXP)
• Earnings Estimate $2.42

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Other Events:

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October 17

• China GDP report

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October 19

• UK Inflation Rate Report
• EU Inflation Rate report

The LevelFields Team