No Awful News Is Good News

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We've come a long way when investors celebrate the arrival of inflation rates below 8%, but that's where we are. In a year rife with bad news, a little good news becomes rocket fuel for rallies. This week's inflation report showed the annual inflation rate rising less (7.7%) than expected, which allowed speculators to believe the Fed now has a reason to taper off their intense interest rate increases next month.

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The reaction from markets was very clear: inflation is fading, it's time to take on some risk. The Nasdaq index climbed around 8% on the news and growth stock prices surged as their future cash flows now look better preserved amidst lower future inflation rates. The cloud computing ETF (WCLD) - a collection of growth stocks - shot up +19% in two days.  It had been down -55% this year until then.

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The U.S. elections also helped the rally, as Republicans are poised to win back control of the House of Representatives. If the Senate follows, there will likely be more to this rally. A Republican Congress normally equates to lower taxes, fewer regulations on businesses, and less spending on social welfare programs perceived this year as inflation contributors - all of which improve the outlook for stocks.

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Across the world, China eased its COVID restrictions some Friday, which led to increases in oil prices and the overall belief that shift will help prevent further inflation caused by supply chain gridlock...again.

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What does all this mean for stocks? It's likely the rally will continue or at least level out until the next lot of news comes in December. In the interim, there will be a shift in asset allocations as fund managers begin to buy into sectors that did poorly this year (consumer discretionary, tech stocks) and sell some assets that performed well (energy, consumer staples).  Beaten up stocks like Amazon (AMZN) and Shopify (SHOP) were up over 10% this week, with SHOP up 50% over the past month.  

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It also means the market will continue to be very volatile around events, so it's important to keep mindful the next Fed meeting and the inflation report (CPI) are coming in December.

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We're not out of the woods yet, as earnings across the board are coming down and companies are laying off thousands due to poor performance and rising costs of debt.

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The company formerly known as The Facebook turned Facebook turned Meta announced they would be laying off 11,000 people in an effort to stave off the greatest decrease in free cash flow in the company's history. We broke down how we were trading META for a 15%  gain in 3 days for Level 2 members last week.  This included the assessed value of the layoffs as well as projected tailwinds from advertisers fleeing Elon's chaotic Twitter that will likely bolster future Facebook ad revenues.

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The mass layoffs in the tech sector reflect the growing weakness in the economy and the unwillingness of investors to support extreme stock valuations. Keeping share prices propped up also helps retain employees that are compensated with stock, so the cost cutting measures are essential for continuity of operations aka preventing people from abandoning ship in droves.

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Taking You to Task

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TaskUs (TASK), which operates outsourced workforces for daily projects like social media management, beat earnings estimates and soared 33% on Wednesday. Back in September, our Quick Sprints scenario identified its move upward in advanced of earnings. The stock is up +45% since then.

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It Pays To Have A Small Package

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Small cap packaging company Veritiv (VRTV) announced the creation of a new dividend program and record income last week, sending the stock up +12% over multiple days on the news. The company grew EBIDTA 50% year over year and had no problem bragging about their perfect packages.

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Veritiv Corporation's Board of Directors approved a dividend of $0.63 per share (2% yield) payable on December 19, 2022 to shareholders of record as of the close of business on November 18, 2022.

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220 Years Old And Still Kicking

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Specialty chemicals maker Dupont (DD) is peeling out of a funk following authorization of a massive $5B buyback. The stock rose over +7% on the news and continued the momentum for days, ending up +14% in 5 days.

DuPont is one of the oldest companies still traded, having been formed in 1802. Obviously they have some staying power to their business model.

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Knowledge Corner

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What Are Sector Rotations?

In the Trends section of LevelFields, we show the performance of sector ETFs over time. The feature is here to keep track of changes in investor sentiment and changes in investor allocations towards certain sectors.  Many asset managers and wealth managers rotate their investments quarterly and/or annually, depending upon the performance of the sector. When a sector does well, asset managers will often trim gains from the investment in that sector and reallocate that capital to sectors that have underperformed or look less expensive on a valuation basis. The changes, which are done on a massive scale by managers of billions of dollars, alter prices in sectors. You can see the pattern if you keep tabs on the changes and can jump into stocks or ETFs in sectors gaining favor.

A quick look at the Trends section shows that financials, real estate, technology, and industrials got a major boost this week. Meanwhile, defensive sectors that have done better this year - healthcare and consumer staples - did not appreciate in price nearly as fast. There are a lot of strategies to run by following these trends, and multi-billion dollar fortunes are run off of those strategies.

If you're looking for help navigating the platform better, or learning about different, proven, investing strategies, we'll be diving into sector-based strategies this week for those who subscribe to our Level 2 membership. The membership is designed for those looking to invest deeper in expanding their knowledge of investment strategies and who want the best alerts flagged by our team that watches market patterns and events day in and day out.

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Key Earnings Announcements This Week

Nov 14:

• Li Auto (LI)
• Chinese Electric Vehicle Manufacturer
• Impact Focus: China COVID measures, Chinese Economic Rescession
• Tower Semiconductor (TSEM)
• Israeli Semiconductor Manufacturer
• Impact Focus: Ease of Chip Shortage
• Tyson Food (TSN)
• World's second-largest processor of beef, chicken, and pork.
• Impact Focus: Inflation and Supply Chain Disruptions

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Nov 15:

• Walmart (WMT)
• Multinational retail chain.
• Impact Focus: Consumer Spending, Inflation, Supply Chain Disruptions
• Home Depot  (HD)
• Home Improvement Retailer
• Impact Focus: Health of U.S Consumers & Housing

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Nov 16:

• Cisco Systems (CSCO)
• Information Technology
• Impact Focus: Rising Interest Rates and Supply Chain Issues

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Nov 17:

• Alibaba (BABA)
• Chinese E-Commerce
• Impact Focus: COVID Measures, Chinese Domestic Politics, Geopolitical Risks

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Nov 18:

• JD.com (JD)
• Chinese E-Commerce
• Impact Focus: COVID Measures, Chinese Domestic Politics, Geopolitical Risks

Economic Reports Due:

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Monday

• U.S Consumer Inflation Expectations

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Tuesday

• UK Unemployment Rate
• EU GDP Growth Rate
• US PPI

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Wednesday

• UK Inflation Rate
• US Retail Sales
• ECB Lagarde Speech

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Thursday

• US Jobless Claims
• Japan Inflation Rate

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Friday

• US Existing Home Sales

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The LevelFields Team