Last Week's Recap
The war between Israel and Hamas has markets on edge, with investors fearing the conflict will spread. Oil prices rose in anticipation of supply issues should Iran enter the war. Iran is a major financial backer of Hamas and other organizations labeled as terrorists by the U.S. government. Iran has engaged in a series of aggressive moves against oil shippers over the past years.
On Thursday, the U.S. Defense Department made a statement that one of its warships in the region intercepted three missiles shot from Iranian-back groups in Yemen towards the coastal city of Elat, Israel.
Gold prices are rapidly rising as a hedge against market volatility and in response to a report that China, in its preparation to take influence away from the U.S., is grappling with the need to buy more gold to wean off the use of the U.S. dollar.
China Curbs Exports of Graphite
In an effort to enable dominance in EV sales, China, a major producer of the graphite inside EVs, announced it would limit exports of graphite. China produces 90% of the global supply of graphite used in EVs. This will likely lead to increases in price.
Major U.S. stock indices declined on Thursday and Friday, influenced by war, remarks from Fed Chairman Powell and a rise in the 10-year Treasury yield to 5%. The Dow Jones dropped by over 200 points, and both the S&P 500 and Nasdaq decreased by around 0.9%. Powell's comments about the potential shift in neutral interest rates due to the U.S. economy's robustness impacted the yields.
Over the week, the S&P 500 dropped nearly three percent.
The Road Ahead for the Fed
The Federal Reserve (Fed) is moving with caution, with its decisions being influenced by comprehensive data and evolving economic perspectives, according to Fed Chair Powell's remarks in New York. He highlighted that the current stringent policies are impacting economic growth and inflation.
Continuous high growth or sustained labor market tightness could necessitate additional monetary tightening. Powell emphasized that to achieve the target 2% inflation rate, there might be a need for slower economic growth and a relaxation in the labor market. In September 2023, the Fed maintained the federal funds rate between 5.25% and 5.5% - its highest in 22 years.
The US 10-year Treasury note's yield hit a 16-year peak of 4.98% following comments by Fed Chair Powell. Speaking at the Economic Club of New York, Powell indicated the current interest rate policy isn't overly strict. While Fed officials' opinions on rate hikes vary, there's a consensus on maintaining higher borrowing costs to control inflation. Recent economic data, such as home sales, retail sales, and industrial output, suggest a strong US economy, even though some jobless claims metrics showed mixed results.
Don't Bank on It
Large U.S. banks have discreetly reduced their workforce throughout the year, with more cuts anticipated. Despite the economy's unexpected strength, many lenders have either downsized or have plans to, with JPMorgan Chase being a notable exception. The five major banks following JPMorgan Chase have collectively reduced 20,000 roles this year, based on company reports. After a hiring surge during the COVID-19 pandemic, influenced by heightened Wall Street activity, banks became overstaffed when the Federal Reserve raised interest rates.
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Top Bullish Events Last Week (1D move)
In company news, solar stocks are selling off big time following an announcement from Solaredge that lowered its outlook for growth. SEDG and Enphase (ENPH) fell by double digits, taking the solar ETF (TAN) to its lowest level in 3 years. High borrowing costs are weighing on solar panel sales.
Netflix's stocks rose by 16% due to a significant increase in subscribers, while AT&T's shares surged by over 7% following positive quarterly reports.
Tesla's stock fell over 8% on Thursday as the company didn't meet the expected earnings and revenue for Q3. After these results, many analysts reduced their price predictions for Tesla, anticipating further margin challenges.
Blackstone's stock declined over 5% Thursday after the investment company announced earnings of 94 cents per share and a revenue totaling $2.32 billion, figures which fell below expectations.
United Airlines' shares fell by 9.7% Wednesday after the company announced that increased jet fuel prices and the suspension of its flights to Tel Aviv due to the conflict between Israel and Hamas would impact its quarterly profits. This suspension was a decision made by various airlines, including others from the U.S. and around the world, earlier in the month.
Morgan Stanley— The bank stock slid nearly 7% Wednesday after the firm’s wealth management division posted underwhelming results. The division generated $6.4 billion in revenue, below the estimate by more than $200 million, as compensation costs rose and net interest income fell. Morgan Stanley did top profit estimates for the quarter on better-than-expected trading revenue.
Citizens Financial Group saw a decline of 5.6% in its stock value on Wednesday. This drop was attributed to the bank's third-quarter earnings, which, at 89 cents per share and a revenue of $2.01 billion, were below the anticipated figures by market analysts.
CASE STUDY: Lululemon up +10.31%
On Friday evening, Lululemon Athletica Inc. announced that they will replace Activision Blizzard Inc. in the S&P 500 due to Microsoft Corp.'s acquisition of Activision Blizzard.
Subscribers were notified about this development in the "Added to S&P 500" update early Friday evening.
Lululemon's stock price climbed from 395/share premarket Monday to an intraday high of 419/share.
The addition of the stock in the index requires ETFs that track the index to buy the stock.
It's now earnings season again, and that brings more events, more price moves, and more fun. Here's the lineup this week.
3M Co (MMM)
Boyd Gaming Corp (BOYD)
General Electric (GE)
O'Reilly Automotive Inc (ORLY)
BOK Financial Corp (BOKF)
Southwest Airlines (LUV)
American Tower Corp (AMT)
Abbvie Inc (ABBV)
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team