Monday Morning Edge Report - October 23, 2023

HUGE week of Earnings and Busiest Week of Earnings

Author

Mark Roussin
October 23, 2023

If this is your first time reading, welcome to The Investor’s Edge where we are a thriving community of more than 10,000 subscribers striving to be better and more well informed investors.

After completion of the newsletter, if you could do me a HUGE favor and LIKE the article, it would be greatly appreciated to let us know you enjoy what you read.

Are you ready to LEARN how to add $1000s in monthly income by utilizing options. Join Cash FLow University to not only learn HOW to trade options, but you will also be able to track the teams option trades as well.
I have a SPECIAL PROMO code that will get you 33% of your first month or an annual subscription. Use promo code “DIVEDGE33” to get your discount.
Click HERE to check out CFU.
*This is sponsored advertising content.

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.

Last week was the first full week of earnings, but this coming week is set to be the BUSIEST week of earnings with many top names reporting this week. We will be hearing from many of the top technology companies and many other notable companies set to update investors on how their respective companie have been performing.

We are giving the newsletter a refresh in terms of layout and also rebranding it to “THE INVESTORS EDGE” as we look to keep ALL investors informed on the stock market and cover more than just dividend stocks.

5 Noteworthy Stories:

  1. Risk-Off Strategy ⏩ Time for investors to get more conservative

  2. Real Estate is a sector in trouble ⏩ 8% Mortgage rates have arrived

  3. Q3 GDP Report prior to Fed Meeting ⏩ Advanced GDP report due out Thursday

  4. Netflix and Tesla go in opposite directions ⏩ Earnings Reports very different

  5. Low Unemployment and a Strong Consumer ⏩ Jobs are ok for the moment

1. Investors imply a “Risk-Off Strategy”

In recent weeks we have seen the fear levels increase evidenced by a jump in interest rates, a jump in the VIX, an increase in the Fear & Greed Index, and selling within many high-flying technology companies.

The CBOE Volatility Index (VIX) is a barometer to measure short-term volatility. Usually when we see the VIX with a reading above 20, you can expect some heightened volatility ahead, which is exactly what we have already begun to see. In the past month, we have seen the VIX go from a reading below 13, to ending last week near 22. This is the highest levels we have seen on the VIX since March, which if you recall, that was when the market hit its lowest levels of the year.

The banking sector overall reported better than expected earnings the last few weeks, but there have been some red flags raised regardless of how earnings have done. We saw a continued rise in credit provisions, but the other area was the sizable unrealized losses that were reported. Much of this has to do with the crashing bond prices. Bank of America reported unrealized losses of $131 billion. 

Since the start of August we have seen the Technology sector as a whole drop nearly 10% as more and more investors realize the high valuations within many of the mage cap technology stocks, and the headwinds the market is facing. The S&P 500 is up 10% on the year, but much of that is driven by the mega cap technology stocks. If you look at the equal weighted S&P 500 (RSP), it is actually down 3% on the year, which is very telling on how the other 400+ stocks in the index are performing. Investors are taking note and looking to increase cash positions.

2. Real Estate is a sector in TROUBLE

Last week we got a few reports that suggest the housing market is in trouble moving forward. Housing makes up a significant portion of economic activity, so this could really impact the economy in the foreseeable future. First off, we got news that the average 30-year fixed mortgage rate came in at 8% for the first time since 2000. This make home affordability extremely difficult, especially for first time home-buyers.

In my weekly live show on YouTube, I compared a $400,000 loan from just 2 years in 2021 to a $400,000 loan today, which showed that today’s home buyer would be paying $1,000 more PER MONTH for the same exact loan. That right there prices our many first time homebuyers, let alone regular home buyers. First time buyers historically make up roughly 40% of home sales, but in September that number dropped to 27%.

In addition to higher interest rates, we also saw September home sales drop to their lowest levels since 2010, when we were in the midst of a foreclosure crisis.

High rates have lead to extremely low mortgage demand, which is now equating to low home sales. Home buyers are being priced out both in terms of high home prices and unaffordable interest rates, and something has to give.

3. Q3 GDP Due Out and a looming Fed Meeting

This Thursday investors will get an update on the strength of the economy when the advanced Q3 GDP report comes out. On Thursday the report will be released with economists expecting average GDP growth of 3.7%, which would be an improvement over the 2.1% growth we saw in Q2. JPMorgan has a forecast even higher at 4.3%.

A solid GDP report would help ease any potential fears about a potential recession.

GDP will be the latest update following higher inflation reports in terms of CPI and PPI the prior week. All this data will be taken into account by a data-driven Fed who next expects to meet on November 1st.

Fed Chair Jerome Powell had a speech last week and made comments that alluded to the need for further tightening and higher interest rates which spooked investors.

CME Group survey does not expect a rate hike during the November 1 meeting, but the odds are much higher to see another 25 basis point hike in either December or January.

4. Netflix and Tesla go in opposite directions

Both Netflix and Tesla were major companies that reported their latest earnings reports and they could not have been more different from one another.

Netflix (NFLX) reported revenue growth of 8% YoY and Net Income growth of 20% YoY as their password sharing crackdown makes its impact. This also lead to subscriber growth of 8.76 million subs blowing out analysts expectations. This strong subscriber growth is expected to continue climbing at a strong pace into 2024. The company also increased its FCF of $13 billion in 2023 and as much as $17 billion in 2024. NFLX shares climbed 16% after the report came out.

Tesla (TSLA) reported revenue growth of 9% YoY, but Net Income actually fell from prior year. Elon Musk on the call blamed the slow growth quarter on rising interest rates. However, the company continued to slash prices for their vehicles which heavily weighed on operating margin, which fell 10% from prior year as it inches closer to legacy car manufacturers. The company increased its investment in AI, up nearly 60% year over year. Lastly, news on the cybertruck came out regarding deliveries expected to start rolling out this quarter, but those will again weigh on margins and profits. Musk mentioned it would take years before the company is expected to turn a profit on the vehicle.

Other notable companies that reported earnings last week include:

  • Bank of America (BAC)

  • Johnson & Johnson (JNJ)

  • Charles Schwab (SCHW)

  • AT&T (T)

  • Union Pacific (UNP)

  • American Express (AXP)

The first three companies on this list PREMIUM SUBSCRIBERS received an earnings report recap showing insights into the report and some of my thoughts. Become a subscriber today for less than $1 per day!

5. Low Unemployment and a Strong Consumer

Weekly jobless claims totaled 198,000 last week which again came in below expectations of 210,000. The total was a decrease of 13,000 from the week prior. Unemployment claims fell to a none-month low.

Those continuing to collect unemployment benefits increased 29,000 from the previous week to 1.734 million.

The job market remains remarkably strong, something that has left many economists and investors in awe. In the face of high inflation high interest rates, and muted company earnings, employment has remained strong in the face of all of it.

Although weekly unemployment claims were low last week, we did however hear reports of some companies announcing layoffs, and they include:

  • Qualcomm

  • LinkedIn

  • UBS

  • Bank of Nova Scotia

📰 Go Deeper, Go Premium

Join today because PREMIUM just got better! Become a PREMIUM subscriber today for LESS than $1 per day and take your investing to the next level. Premium subscribers receive the following:

  • Monthly Portfolio Updates

  • 2 Individual Stock Deep Dives Per Month

  • Earnings Recaps

  • Valuation Dashboard

  • Subscriber only content

Subscribers will continue to receive Earnings Recaps this week.

Take your investing to the next level and try PREMIUM today.

Earnings on Deck 💰

The first FULL week of earnings season kicks of. All PREMIUM SUBSCRIBERS will be receiving Earning Reports throughout the week for stocks we cover, so stay tuned for those.

Here are the companies reporting earnings this week:

Analyst Upgrades/Downgrades 📝

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

  • UBS upgrades UnitedHealth Group to buy from neutral

  • Jefferies upgrades Pfizer to buy from hold

  • Goldman Sachs upgrades D.R. Horton to buy from neutral

  • Stifel upgrades Colgate-Palmolive to buy from hold

  • Loop initiates Microsoft as buy

  • Goldman Sachs upgrades Dollar Tree to buy from neutral

  • Bernstein initiates Exxon Mobil as outperform

  • Bank of America names ASML a top pick

  • Bank of America downgrades Sherwin-Williams to underperform from neutral

  • Goldman Sachs upgrades Best Buy to buy from neutral

  • Jefferies upgrades Zscaler and CrowdStrike to buy from hold

  • Deutsche Bank initiates Chipotle, Starbucks and Domino’s as top picks

  • UBS upgrades Merck to buy from neutral

  • Deutsche Bank upgrades Union Pacific to buy from hold

Economic Data This Week 📆

Monday

  • None

Tuesday

  • S&P Case-Shiller home price index

Wednesday

  • New home sales (Sept)

Thursday

  • Q3 GDP

  • Initial Jobless Claims

  • Durable-goods orders

  • Durable goods minus transportation

  • Advanced US trade balance in goods

  • Advanced retail inventories

  • Pending home sales

Friday

  • Personal income

  • Personal spending

  • PCE index

  • Core PCE index

  • PCE (YoY)

  • Core PCE (YoY)

  • Consumer Sentiment

Other Resources 📺

If you have not done so yet, check out my growing YouTube community of ~37,000 like-minded investors where I publish weekly videos focused on building wealth through investing.

Here is the latest video I released: The BEST Dividend Stock For The Next Decade:

Here is another video I put out last week while on vacation: The Power of Compounding Dividends: Becoming A Dividend MILLIONAIRE:

Here are a few others of my latest videos:

If you enjoyed the newsletter, leave a LIKE and COMMENT down below. Also, if there is someone that could benefit from this newsletter, consider sharing it.

Subscribed

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

Happy Investing!

Mark

Reply

or to participate.