The euphoria over sharply cooling inflation and possible central bank easing is fading and shares in Europe and Asia are under pressure as a number of companies presented disappointing earnings reports and issue cautious forecasts.
Wall Street is little changed in pre-market trading. The S&P 500 is trading around 0.1% lower than yesterday. Alibaba is trading significantly lower in New York, in contrast to its Chinese competitor JD, which rose sharply yesterday after an optimistic earnings report. Retail giant Walmart also fell 3.6% after slightly raising its earnings forecast but expressing caution about the outlook for US consumers – in contrast to Target, which gained more than 15% yesterday after delivering a much better than expected earnings report. Retailer Macy's was also trading sharply higher today, up 13% in pre-market trading on higher earnings. Luxury brand Burberry slipped more than 9% after the company said it would not be able to meet its sales forecast due to weaker demand for high-end goods. Luxury companies have reported mixed results. The German provider of meal kits, HelloFresh, lowered its sales expectations by 18% – the stock plunged by almost 25% (!).
European companies' earnings reports in particular are rather negative and the outlook is subdued, showing that the economic slowdown in Europe and the European/Asian consumer is already more advanced. The general slowdown in economies, including the US economy, remains the biggest threat to the current rally. Valuations are too high and will have to come down once the year-end rally and rate cut optimism fade.
The markets are now also becoming more realistic about interest rate cuts. Investors are still overly optimistic and expect quick rate cuts in 2024. The US consumer remains strong, which will likely lead to the Fed maintaining its overall hawkish tone. Several Fed officials will give speeches today.
I expect the period of low volatility to continue with a rather thin economic calendar today. However, with initial jobless claims pointing to further easing in the labor market, I expect most investors to remain optimistic that the Fed is comfortable with the current direction that economic data shows such as a moderate slowdown, easing of tight labor market conditions, and most importantly, a continuation of disinflation.
We see yields slipping back down. The fairly positive talks between US President Biden and his Chinese counterpart Xi Jinping also point to a cautious improvement in relations.
We see gold benefiting from the renewed fall in yields. Weak Chinese real estate prices are weighing on commodities such as industrial metals, but I expect market sentiment to remain positive overall. Oil prices remain oversold and have little room to fall further.
The USD is also oversold. While the medium/long term outlook for the USD is bearish, there may not be enough reasons for extended USD selling in the short term.
👁 ROB'S MARKET OVERVIEW:
November 16, 2023
🇺🇸 US Markets ↘️/➡️/↗️ (weak earnings reports first weigh; easing US labor market data could bring back rate cut optimism)
Cyclical Stocks ↘️/➡️/↗️
Tech/Growth Stocks ↘️/➡️/↗️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️/↗️
Energy Stocks ↘️/➡️
USD ➡️/↗️ (mostly sideways – with some rebound potential after overselling)
EUR, JPY ➡️/↗️
GBP, AUD, CAD ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ↘️/➡️/↗️
Natural Gas prices ➡️
Metal prices ↘️/➡️
Gold ➡️/↗️ (I expect yields to edge lower again after weaker labor data)
⚡️Cryptos ➡️ (BTC hovering near $36K – $37K)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)