Monday Morning Edge Report - October 2, 2023

Government Shutdown Crisis Averted.....For Now

Author

Mark Roussin
October 02, 2023

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Market Talk ⏪

Welcome to the Monday Morning Edge Report, where we breakdown some of the top stories going on in the stock market and put it is an easy to understand report.

The month of September held up to its reputation as the worst month of the year for stocks. The market as a whole has a lot of headwinds moving forward, but earnings are also expected to recover, which could setup investors for a run to close the year.

Let me discuss some of the top stories:

  1. Government shutdown crisis averted for now: Hours before the deadline, the House of Representatives passed legislation to extend the deadline an additional 45 days. One major item that was left out of the bill was additional aid for Ukraine. A government shutdown in the past has historically not caused much in terms of volatility when it comes to the stock market. The average S&P 500 moves during a government shutdown usually averages around +/- 2%, however the government shutdown that lasted from mid December 2018 into mid-January 2019, the S&P 500 climbed ~10%, the biggest move during a shutdown.

  2. Student Loan Repayments Resume: Already faced with high inflation, high yields, and rising credit card debt, tend of millions of Americans face a reality of paying back their student loans, a reality that was put on pause for three years during the pandemic. More than 45 million borrowers owe approximately $1.6 trillion in student loans. This is expected to way on the consumer discretionary segment as well as leisure and travel. This will certainly test what has been a resilient consumer.

  3. All eyes on the jobs report this week: This week there is not a lot in terms of economic data, from a quantity perspective, but there is an update on Jobs for the month of September that all investors will have their eyes on. On Wednesday we will get the ADP report and then on Friday, the US jobs report will update us on how the labor force is doing along with an update on the unemployment rate.

  4. The Fed’s key inflation datat point came in lower than expected: The personal consumption expenditures or PCE price index (excluding food and energy) increased 0.1% for the month, lower than the expected 0.2%. On a 12-month basis, the index was up 3.9%, which was in-line with expectations. Higher rates along with higher food and fuel prices put a damper on consumer spending during the month of July, as Consumer spending rose 0.4%, which was a sharp decrease from the 0.9% increase in July. Consumers are still spending, but the trend is slowing, which should bode well for lower inflation moving forward.

  5. Pending Home Sales tumble 7.1% in August: Higher interest rates are certainly taking a toll on home buyers, especially first-time homebuyers looking to make a purchase. The 7.1% decline was a huge surprise as analysts were expecting a decline of less than 1% during the month. The average 30-year mortgage rate sits north of 7%, and with a lack of inventory being a key issue to go along with high prices. However, there was some relief on the price aspect of things as the median home price dropped from $436,700 to $430,000.

Other notable newsworthy topics include the ongoing labor issues amongst unions and some key auto manufactures. We have now reached day 17 of the UAW strike.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

The index remained in solid FEAR territory this week, even dropping into EXTREME FEAR at one point before returning back. Nonetheless, September was a rough month for stocks, and investors are worried about a potential slowdown. Currently, the index has a neutral reading of 28, which is slightly higher than the prior week’s reading of 36.

Earnings on Deck 💰

Quiet week of earnings this week until Q3 earnings season kicks off the following week. Here are the companies reporting earnings this week:

Analyst Upgrades/Downgrades 📝

In this section we will highlight any recent notable analyst upgrades or downgrades.

  • Oppenheimer names Domino’s a top pick

  • HSBC upgrades Johnson Controls to buy from hold

  • Bank of America names Occidental Petroleum a top pick

  • DA Davidson upgrades Tractor Supply to buy from neutral

  • Northcoast upgrades Texas Roadhouse to buy from neutral

  • Edward Jones downgrades Berkshire Hathaway to hold from buy

  • HSBC initiates FedEx as buy

  • Raymond James initiates AbbVie as outperform

Economic Data This Week 📆

Monday

  • ISM manufacturing

  • Construction spending

Tuesday

  • Job openings

Wednesday

  • ADP employment report (September)

  • Factory orders

  • ISM services

Thursday

  • Initial Claims (9/30) 

  • US trade deficit

Friday

  • US employment report

  • US unemployment rate

  • US hourly wages

  • Hourly wages YoY

  • Consumer credit

Other Resources 📺

If you have not done so yet, check out my growing YouTube community of ~36,000 like-minded investors where I publish weekly videos focused on building wealth through investing.

Here is the latest video I released: 4 of the BEST Stocks To Buy In October 2023:

Here is another video I put out last week: My FAVORITE Dividend Stock To Buy & Hold:

Here are a few others of my latest videos:

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Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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