War, what is it good for?
Rising oil prices, bond yields and war in the Middle East influenced investor sentiment. Israel is retaliating in response to a terrorist attack in which Hamas killed, wounded, and abducted thousands of civilians. Experts believe the attack was intended to destabilize relations between Israel and Arab nations.
Israel and Saudi Arab were about to ink an historic deal that would have created a true economic partnership between Israel and Saudi Arabia. U.S. support for the deal is strong with Israel a close ally and the only democracy in the region. The problem for Hamas: the deal would legitimize the country of Israel to the rest of the Arab world and Hamas, designated a terrorist organization by Western nations, seeks the entire destruction of the Jewish state as its goal, which rejects the premise of a two-state solution.
The origin of conflict goes back thousands of years. The land changed hands many times since then due to wars, including long-standing rule and occupation by Israelites, Babylonians, Persians, Greeks, Romans, Ottomans, and British, to name only a few. There's a nice summary here for those interested in the history. It doesn't fit into a tweet - despite misconceptions on both sides.
Why is this important to investors?
The long history means it's tough for anyone to lay claim to land that changed hands so many times. This leads to unproductive debates and often, violence. On a macro scale, the conflict destabilizes the region, forces economic ties to be broken, and threatens the world with a broader war involving Iran (backed by Russia) and the U.S. Recently, the French government banned pro-Palestinian protests which were turning violent. Iranians are threatening Lebanon could join the war. And the Israeli air strikes against Hamas targets strategically placed in civilian areas have cost thousands of lives.
Conflict is polarizing, and often results in hard-liners gaining political control. In the U.S., that could mean the election of a Republican president and a change of party control in Congress leading to more defense spending, oil drilling, tax cuts, reversals on climate tech spending and policy, and rising deficits (not that either party can call themselves fiscally responsible).
If the U.S. supports two wars, that may open a window of opportunity for additional conflicts to rise with a distracted and divided America. The Chinese could attempt to gain control over Taiwan, for instance. And radicalization could become more widespread leading to more global terror attacks. It's a bleak picture, but a realistic one that could roil stock markets.
Last Week's Recap
The tech sector witnessed drops, with Nvidia, Meta, and Tesla down by 1.2% to 2.2%. Conversely, JPMorgan, Wells Fargo, and Citigroup saw increases of 3.6%, 3.1%, and 2.2% respectively after surpassing earnings and revenue expectations. UnitedHealth also rose by over 2%, following an upswing in profit guidance and earnings estimates. Over the week, gains were recorded by the S&P 500 (0.9%), the Dow Jones (1.1%), and the Nasdaq (0.7%).
Gold surpassed $1,900/ounce due to Middle East tensions, ECB and Fed's potential halt on rate hikes, and concerns about China's near-deflationary CPI. Weekly, gold's value rose by 4.3%. SPDR Gold Trust witnessed a +3.04 bump on Friday-- +5.45 for the week.
China Exports Drop
In September 2023, China's exports fell 6.2% year-on-year to USD 299.13 billion, an improvement from August's 8.8% drop. This marks the fifth monthly decline. Key exports like rare earths, aluminum, and refined products saw drops. Exports to major partners, including the US and the EU, decreased, but Russia observed a 21% increase.
WTI crude surpassed $86/barrel due to heightened Middle East tensions from the Israel-Gaza conflict and warnings from Iran. Additionally, the US sanctioned tankers carrying Russian oil above the G7's $60 cap in response to Russia's Ukraine invasion. While US crude stock increased significantly last week, supplies at the Cushing hub declined.
Top Bullish Events Last Week (1D move)
Oil - Don't Call It a Comeback
In this newsletter, we try to make note of macro trends to help investors align their trades with what's happening in the broader market. We noted in early summer that projections for supply/demand in oil would bring about a second boom in oil prices in the back half of the year. That boom arrived.
Shares of oil firms surged as crude prices rose by over 4% on Friday. Marathon Oil and EOG Resources both saw gains exceeding 4%, while ConocoPhillips increased by 3.8%, and Devon Energy appreciated by 11%. Diamondback Energy (the other FANG) rose 7% last week and broke above its resistance levels.
Walgreens Boots Alliance's stock rose 7% Thursday following an update on its cost-reduction efforts. Despite this, the pharmacy company reported adjusted earnings of 67 cents per share for the fiscal fourth quarter, falling short of expectations.
Birkenstock's stock (say that 3 times fast) experienced a 6.6% decline on Thursday, following over a 12% decrease during its initial market launch the previous day.
Boeing's stock declined by 3% Friday following the company's announcement regarding an extended inspection into production issues with the aft pressure bulkheads on their 737 Max 8 planes. Concurrently, Spirit AeroSystems, responsible for constructing the aircraft's fuselages, saw a 1% drop in its shares.
JPMorgan Chase's shares increased by about 3% Friday after announcing its third-quarter results. The bank's profit surged by 35% year-on-year to $4.33 per share. Their quarterly revenue of $40.69 billion surpassed the anticipated $39.63 billion.
S&P 500 Gets a New Shape
Shares of LuLu Lemon rose 5% afterhours Friday, after the athleasure company was added to the S&P 500 index.
Pharmaceutical company Novo Nordisk saw a 6.27% stock increase after announcing the suspension of Ozempic's kidney disease trial due to positive early results - a rare event with significant financial impacts.
Our Level 2 alerts picked NVO as a long-term winner when the stock was trading at 85/share.
CASE STUDY: Dollar General Rises +9.16%
On Thursday night, Dollar General announced the appointment of Todd Vasos as Chief Executive Officer. The following morning, DG opened up over 9%. Vasos, who served as CEO to DG before being replaced in the last few years, led the company to significant growth.
"Under his leadership, Dollar General expanded its store base by approximately 7,000 stores, added nearly 60,000 net new jobs, increased annual sales revenue by more than 80%, and more than doubled its market capitalization to approximately $58 billion."
Consumer defensive companies within the CEO hired scenario average a +8% 1-day return-- with a win rate of over 50%.
Poor performing companies have an even higher win rate, as the stock rallies on the hope the new CEO brings an end to the pain for investors.
For more on this scenario, visit our help section.
It's now earnings season again, and that brings more events, more price moves, and more fun. Here's the lineup this week.
Charles Schwab (SCHW)
Johnson & Johnson (JNJ)
Bank of America (BAC)
Bank of New York Mellon (BK)
Lockheed Martin (LMT)
United Airlines (UAL)
Discover Financial Services (DFS)
Morgan Stanley (MS)
State Street (SS)
Steel Dynamics (STLD)
Union Pacific (UNP)
American Express (AXP)