The sell-off in equity markets continues, with U.S. futures trading 0.4% lower in pre-market trading and heavy selling in Europe and Asia. Oil prices continue recent gains, with WTI (Nov) rising above $90 a barrel, as concerns grow that the war between Israel and Hamas could escalate into a regional conflict. The Pentagon reported an increase in drone strikes in Iraq and Syria. A U.S. destroyer also shot down cruise missiles and drones fired at Israel by Houthi militants in Yemen.
There was also some safe haven demand for bonds, which helped cool yields somewhat in pre-market U.S. trading. However, there are signs (and I believe) that yields may continue to rise. Gold hit a 3-month high and traded briefly above $1,985 before some selling. The USD remains in demand thanks to the robust U.S. economy, which will allow the Fed to keep interest rates high for longer.
Analysts remain overly optimistic that the current earnings season will provide additional tailwinds for Wall Street. I disagree, and expect to see clear signs of slowing sales growth (especially for companies with tangible products) and cautious or even lower sales forecasts. In particular, companies dependent on Chinese demand are likely to issue disappointing forecasts.
A look at rising yields and the fact that bonds remain relatively unattractive, even with a “flight-to-safety” mood, shows that markets continue to price in that interest rates will remain higher in the longer term. The Israeli shekel weakened for the tenth day in a row, a clear sign that forex and risk markets expect the conflict to widen.
A record Chinese cash injection was not enough to help Chinese markets close on a positive note as the sell-off continues. The Chinese consumer remains weak, foreign investment continues to be pulled out of China, trade relations are deteriorating, and we see a very high risk that the downturn in the real estate market will continue.
I see European markets in particular in a very bad situation and expect the overall sell-off to continue – with further losses today as well, as investors look to reduce their LONG positions before the weekend as geopolitical tensions continue to escalate. Tesla's sharp sell-off is also shocking almost all investment banks and analysts, who continue to recommend buying Tesla – causing heavy losses for retail investors who follow their forecasts; we remain ahead of the markets.
👁 ROB'S MARKET OVERVIEW:
October 20, 2023
🇺🇸 US Markets ↕️/↘️ (we may see first some dip buying before sell-off returns)
Cyclical Stocks ↕️/↘️
Tech/Growth Stocks ↕️/↘️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️ (energy stocks remain undervalued, energy to outperform)
Materials Stocks ↘️ (CN property crisis / weak CN / European markets weigh)
EUR ➡️/↗️ (investors continue to see EUR undervalued)
USD ↘️/➡️/↗️ (USD overall remains in demand, rise in second half of US trading)
CHF, JPY ➡️ (relatively stable, but short-term outlook worse than USD)
GBP ➡️/↘️ (increases expectations of no upcoming hike)
⚒ Commodity Markets ↕️/↗️
Oil prices ↗️
Natural Gas prices ↕️
Metal prices ↘️ (CN property crisis / weak CN & European markets weigh)
Gold ↗️ (Gold remains bullish will see resistance in $1,985 – $1,999 range)
⚡️Cryptos ↗️ (cryptos see gains on ETF optimism and push out of equities)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)