Macrosynthesis  

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A Pivotal Cross

The S&P 500 crossed a critical support line this week, falling below its 200-day moving average. The index was down -10.7% from its August high as of the time of writing this.

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On average, the index experiences a 10% correction every two years. A closer look at the data, however, shows that the years following interest rate hikes experienced multiple 10% pullbacks. In 2007, there were 8 pullbacks of 10% or more. In 2001, there were 5. And in 1997, there were 3 pullbacks of 10% or more. This is the first of 2023, though there was a 9% pullback in March.

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The S&P 500 is still up 7.5% for the year, carried by megacap tech companies which compose a large portion of the index's holdings. A look at the equal-weighted index, the RSP, shows a different picture as it's now down for the year -5.5 percent. The significance is that most companies are performing poorly in the 500-stock index.

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Many stocks have been hitting their 52-week lows this week, including Zoom, Enphase, Beyond Meat, Moderna, and Vail Resorts. Once a $235 stock and one of the most talked about IPOs, BYND trades now at an incredible $5.97. What a difference a couple years make.

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Will the market recover from here is the question. Historically, the index performs well in November and December. But there are too many uncertainties in the macroeconomic news to make a true assessment, i.e. two wars, rising interest rates, decreased consumer savings, and trade wars between China and U.S. are enough to keep markets and parents in worry mode.

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On the other hand, the U.S. GDP number shows the economy is very strong, as does the low unemployment rate.

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Core PCE prices aligned with expectations, but the overall PCE index rose more than anticipated. Personal spending exceeded forecasts, whereas income fell slightly short of predictions.

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For the week, the S&P 500 and Nasdaq both closed down over 2 percent.

U.S Economy Still Robust

In the third quarter of 2023, the U.S. economy saw a robust expansion of 4.9% on an annualized basis, surpassing market expectations of 4.3% and marking a significant increase from the 2.1% growth in the previous quarter. This growth was driven by a 4% rise in consumer spending, with notable contributions from housing and utilities, health care, financial services, insurance, food services, accommodations, and nondurable goods, particularly prescription drugs. The economy benefited from a rebound in exports, increasing by 6.2% after a 9.3% decline in the second quarter. Imports also showed improvement, growing by 5.7%.

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ECB Pauses Rate Hikes

In its October meeting, the European Central Bank (ECB) maintained interest rates at their highest levels in several years, halting a 15-month trend of consistent rate hikes. This pause in policy adjustments reflects a cautious approach from the ECB, as it balances the need to address inflationary pressures, which have shown signs of easing, with concerns about a potential economic downturn.

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Stepping on the Gas

U.S. natural gas futures experienced a significant surge of 8% on Thursday. The market's reaction is attributed to a smaller-than-anticipated increase in natural gas storage and the prediction of colder weather, leading to a higher demand for heating in the following two weeks.

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Meteorologists have also contributed to the rebound in natural gas prices, predicting significantly colder temperatures across the lower 48 U.S. states from late October to early November. This change in weather is expected to heighten the demand for heating, which relies heavily on natural gas.

War in Israel and its Economic Impact

The Israeli military began a ground invasion of Gaza in an attempt to remove Hamas from power in response to a massive attack by Hamas.

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Since the attack, the TA 35 Index lost 9%, and the shekel depreciated over 5% against the US dollar, reaching an 8.5-year low.

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Escalating the conflict, Iranian-backed terrorist groups attacked U.S. bases in Iraq and Syria 19 times in the past 10 days. This week, the U.S. government carried out airstrikes in Syria, adding to concerns of a larger war.

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Oil prices rose on news of the U.S. strikes on Friday, following a pullback.

Mortgage Woes

On October 26th, 2023, the average rate for a 30-year fixed mortgage reached 7.79%, reaching the highest point since November 2000. That makes the monthly mortgage cost 71% more expensive than it was two years ago and mortgage rates higher than they were in 2007.

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Top Bullish Events Last Week (1D move)

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Noteworthy Events

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Hasbro

Hasbro, the toy manufacturing company, experienced a significant -11.7% decrease Thursday after releasing a third-quarter financial report that fell short of expectations. The company reported earnings of $1.64 per share, with a total revenue of $1.5 billion.

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Whirlpool

Whirlpool, a leading home appliance manufacturer, experienced a significant -15.8% decline on Thursday. This drop was attributed to the company's issuance of its full-year earnings forecast, which was estimated at around $16 per share. Sales were impacted by slowing home sales.

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Align Technology

In a sign consumer demand is showing cracks, Align Technology, an online dental company, experienced a significant -24.9% drop on Thursday. This decline was attributed to the company's failure to meet Wall Street's expectations for the third quarter and a projection of subdued revenue for the upcoming quarter. Align Technology reported earnings of $2.14 per share and generated revenue of $960 million in the third quarter.

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Microsoft

Microsoft's stock experienced a 3% increase following the announcement of its impressive fiscal first-quarter results on Tuesday. The company reported a substantial revenue growth of nearly 13% compared to the same period last year. A significant contributor to this success was the Azure cloud segment, which saw a remarkable 29% revenue increase for the quarter. Additionally, the company enjoyed a boost in profits, attributed to a deceleration in operating expenses growth.

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Alphabet

Shares of Alphabet, the parent company of Google, fell sharply by -9.5% Wednesday, marking its most significant decline in almost a year. This drop followed the company's announcement of cloud revenue growth that fell short of what analysts had anticipated.

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General Dynamics

General Dynamics, a prominent defense contractor, saw its shares increase by 4% Wednesday following the release of its third-quarter financial results, which exceeded market expectations. The company reported earnings of $3.04 per share and generated $10.57 billion in revenue, surpassing the analyst predictions of $2.91 earnings per share and $10.05 billion in revenue. The CEO noted - we're paraphrasing - that war is good for business.

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Amazonian Earnings

Amazon's shares soared by 7.6% following a tripling of its profits and optimistic comments about AI. Amazon is investing heavily in AI, including in a ChatGPT competitor, Anthropic, in an effort to boost demand for its massive server business. The company has been trimming costs to become a more profitable company - a move that's driving the share price up.

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Intel’s shares also climbed over 9% after surpassing profit and sales expectations. In contrast, Ford’s shares dipped by -6% after the company missed quarterly expectations and revised its guidance downward due to the UAW strike. Chevron and Exxon Mobil both experienced share declines after reporting disappointing quarterly results.

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CASE STUDY: FIX up +12.10%

Comfort Systems USA, Inc. (FIX), a prominent HVAC and electrical contracting services provider, declared a quarterly dividend increase of 10% on Thursday - an indication of a strong cash position. This was backed up by their third-quarter earnings report.

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Comfort Systems USA surpassed analyst expectations, posting earnings per share of $2.74, which is $0.61 higher than the predicted $2.13. The company also reported a robust quarterly revenue of $1.38 billion, surpassing the consensus estimate of $1.3 billion.

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In response to both the dividend increase and the earnings beat, FIX jumped +15% on Friday, and 7% intraday Friday. LevelFields users were alerted to the event through the Dividend Increase scenario on Thursday night.

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Dividend increases of 10% or more on stock with a strong dividend yield already tend to have a very bullish impact. And since dividend investors don't trade, these stocks tend to rise at a slower rate than other events.

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Upcoming Catalysts:

It's now earnings season again, and that brings more events, more price moves, and more fun. Here's the lineup this week.

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Notable Earnings

Monday

ON Semiconductor Corp (ON)

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Tuesday

MPLX
Pfizer (PFE)
Caterpillar (CAT)
Advanced Micro Devices Inc (AMD)
Arch Capital Group Ltd (ACGL)
Sysco Corp (SYY)

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Wednesday

Energy Transfer (ET)
Northern Oil and Gas Inc (NOG)
Apollo Global Management Inc (APO)
Airbnb Inc (ABNB)

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Thursday

Apple (AAPL)
ConocoPhilipps (COP)
Starbucks (SBUX)
Booking.com (BKNG)
Palantir (PLTR)
Moderna (MRNA)
Abcellera Biologics Inc (ABCL)
Eli Lily and Co (LLY)

Friday

AMC Networks (AMCX)
Berkshire Hathaway Inc (BRKA)
Quaker Chemical Corp (KWR)

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