Why Stock Market Investing Is So Bizarre Right Now: Morning Brief

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Monday 22 October 2022

Today’s newsletter is by Brian Sozzian editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with The Yahoo Finance app.

Every Saturday I have different rituals.

First, I do two training sessions ̵[ads1]1; one in the morning and one in the afternoon. Second, I relax by waxing my car. And three, I’m revisiting a bunch of the content on camera I produced from the week. Call it the obsessive pursuit of constant improvement. Did I miss a question for a senior manager? Was I being too harsh on a company quarter? Did I smile when I should have been serious? All questions I discuss.

During this weekend’s analysis, I realized that I used the word bizarre tonnes when breaking down the company’s earnings and the general start of the earnings season.

Just look at some of the things we’ve covered at Yahoo Finance:

• Bank of America CEO Brian Moynihan tells me that consumer spending is up 10% through October. What recession?

• American Express CEO Stephen Squeri tells me in a heated phone conversation that the market is misunderstanding his quarter and guidance, and he sees no recession on the horizon.

• Snap’s stock is being hit by a continued decline in advertising (and the terrible execution of CEO Evan Spiegel) caused by the global economic downturn.

• Generac issues an earnings warning saying there is too much generator inventory in the sales channel. Take the energy-saving discounts with you!

• Whirlpool – known for its impressive execution – is reducing full-year guidance and also has inventory levels too high for the current economic environment.

• Verizon is posting lackluster subscriber additions as consumers balk at the company’s latest price hikes. CEO Hans Vestberg struck a more cautious tone on the business – in my view – in an interview with Yahoo Finance’s Brad Smith.

• AT&T CFO Pascal Desroches tells me that consumers are upgrading to higher phone plans and that they added a solid number of new subscribers in the third quarter.

• Netflix shares are getting a lot of love from investors for a bit of a comeback quarter — with everyone overlooking a projected $1 billion sales hit this year from the stronger dollar.

• P&G CEO Jon Moeller tells me he sees no recession even as his company continues to push through price increases on everything from Tide detergent to Gillette razors.

• Alcoa’s quarter sucked.

• I wasn’t too keen on the WD-40’s quarter either.

The story continues

The takeaway from all this: These are strange times for investors because they are strange times for publicly traded companies.

Interest rates are on the rise. Inflation in the supply chain is still high. Some companies do well in this environment – others not so much. There really is a lack of a clearly defined narrative at the moment for investors to rally around (or avoid). And oh yeah, the market can completely ignore corporate earnings and be shattered by one word uttered by a Federal Reserve member on TV.

So, what do we do? UBS chief investment officer Mark Haefele provided a good framework for evaluating these bizarre times, which means markets cannot make sustained progress until these conditions change:

• “First, the latest US inflation and labor market data suggest that rate cuts remain a long way off, although the Fed is likely to stop raising interest rates in the first quarter of next year. Core consumer price inflation is at its highest since 1982. The Fed has consistently communicated that it is more willing to “overtighten” policy than risk not doing enough, and the labor market is tight.

• Second, consensus income forecasts, which look for 5% growth globally in 2023, do not appear to take into account the potential negative consequences of a period of tight monetary policy. Numerous leading indicators point to the downside. And China remains a source of short-term risk as it tries to resolve issues related to COVID-19 and the real estate market.

• Third, the continued rise in interest rates also means that valuations, despite falling in absolute terms, do not yet fully discount a bear case, particularly in the US. The sell-off in shares can almost exclusively be explained by higher interest rates, while lower growth expectations have not yet been priced into shares.”

On that note, Happy Wealth Building in what could be another bizarre week.

What you should see today

Economy

• 8:30 a.m. ET: Chicago Fed National Activity IndexSeptember (0.00 in previous month)

• 9:45 a.m. ET: S&P Global US Manufacturing PMIprovisional October (51.0 expected, 52.0 during last month)

• 9:45 a.m. ET: S&P Global US Services PMIprovisional October (expected 49.6, 49.3 last month)

• 9:45 a.m. ET: S&P Global US Composite PMIprovisional October (49.5 last month)

Earnings

• Bank of Hawaii (BOH), Crande (CR), Discover Financial Services (DFS), Logitech International (LOGI), Schnitzer Steel (SCHN), Zions Bancorp (ZION)

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