August 7, 2023

Snapshot of This Week

 Most weekends, I confess to engaging in self-composed homework. It’s usually updating my technical analysis research platforms, putting the puzzle of economic data into perspective, and researching the globe for new ideas and any connection those ideas may have to our investing interests. This is what I stumbled on.

 Last week earnings results continued to surprise on the upside. Some narratives indicated it proves that higher rates have not been hurting the bottom line as much as expected. However, in my opinion, the result of what was “expected” is a subtle reference to the analysts who lowered their expectations due to the previous three quarters of earning results providing weak guidance on future earnings. Worth noting, S&P earnings are down -5.2% for the year, however recent surprises have taken them up from down -7.0% in June, and in my opinion, this suggests the coming months could further reduce the year over year number, and that will be good for the market.

 As far as the technical condition of the broad indexes are concerned, the market is no longer over bought, but still not yet oversold. For now, uncertainties such as last week’s downgrade of the US debt by Fitch Ratings Inc. from AAA to AA+, first meant nothing to the market and then, in my opinion, was responsible in bringing a robust market on Friday to a loss. These are the kind of events, that when more fully analyzed render a more adequate judgment, rather than a simple, no big deal. I was pleased however, with Fitch’s comments regarding “erosion of governance” behind their decision. Personally, I would be more focused if the downgrade were brought by S&P Global Ratings, which happened in 2011 and resulted in a market downturn, albeit a temporary one.

 Ideas that have come out of the weekend are further research on the new addition to the models that focus on renewable energy production in general, and storage in particular. I’m also interested in the growing innovations in semiconductor technology. And as to be expected, the growing number of companies that are adapting to AI and machine learning technologies to their businesses, such as Salesforce (CRM), Amazon (AMZN), JP Morgan (JPM), and one that is curiously interesting to me, the move of Pfizer  (PFE) into what is described as AI Pharma.

 This week will see further earnings releases, many from less followed companies, but two from the industrial sector, that we’re invested in. As earnings settle down, the economy will come into focus as this week will see both Consumer (CPI) and Producer (PPI) inflation data released. The outcome could keep the market at bay, as the biggest inflation move could come from the energy sector, which, as I write this, shows US West Texas Oil trading at $82.25, nearly $10 dollars higher than a month ago. Perhaps to be expected, as there is a seasonal component to the rise. As that data rolls out, and interest rates remain at their lofty levels (10yr Treasury 4.08%) in time for quarterly refunding auctions this month, the markets will have time to digest and hopefully reach the moment of opportunity I’ve been waiting for. Therefore, I’m optimistic, because the markets are forward looking and valuations, in my opinion, aren’t as overextended as the narrative would like us to believe.

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