Wednesday, October 19, 2022

Morning Note: Emerging Opportunities...

An overnight rally in equity futures -- aided by impressive earnings results from the likes of Netflix and United Airlines -- has since given way to a rise in the dollar, ostensibly inspired by still-high UK and Eurozone inflation prints, yet more dovish messaging out of the Bank of Japan, and a not-small spike in treasury yields.

As we continue to point out, seasonality is historically-strong right here, which, contrarianly-speaking, is potentially aided by what has been very poor sentiment overall and around Q3 earnings expectations.

With regard to earnings, while we're in the early going, 78% of the 61 S&P 500 members who've reported thus far have bested estimates.

Thing is, as I stated in a blog comment section conversation this week:

"Earnings actually stand to do well when inflation is heating up... I.e., inflation's up partly as a result of companies passing through higher prices to their customers... When inflation exceeds wage growth (companies' highest input cost), like last month, you actually get increased profit margins (prices of goods sold rise faster than the cost of production)... That can make for earnings largely beating estimates, which can make for upside pops to stock prices..."

As I continue to express, beyond what the present bear market has left to deliver, we see budding opportunities in what is clearly a changing world... One such theme has to do with the ongoing push toward all things renewable energy... Which, along with other elements/developments, has us long-term bullish select emerging (developing) markets.

Bloomberg's Tanseen Brogger pointed to that this morning:

"The biggest potential for decarbonization lies in the developing world, which also has the biggest need for investment dollars. It’s a view that’s supported by some of the heavyweights of global finance, including the head of sustainability at BNP Paribas SA, Jane Ambachtsheer, as well as Generation Investment Management LLP..."

"Industries to look at include the power sector, the industrial sector, food production, commodity exports and deforestation, BNP’s Ambachtsheer has noted. Ultimately, investors have the power to alter the fate of the developing world, on whose success the rest of the planet also depends."

I'll get more in the weeds a little later in today's mid-week video commentary.

Asian equities were mixed overnight, with 8 of the 16 markets we track closing higher.

Europe's in sell mode so far this morning, with all but 3 of the bourses we follow trading in the red as I type.

US stocks are drifting lower to start the session: Dow down 11 points (0.04%), SP500 down 0.22%, SP500 Equal Weight down 0.28%, Nasdaq 100 down 0.10%, Nasdaq Comp down 0.07%, Russell 2000 down 0.71%.

The VIX sits at 31.28, up 2.56%.

Oil futures are up 0.88%, gold's down 0.98%, silver's down 1.41%, copper futures are down 0.71% and the ag complex (DBA) is down 0.10%

The 10-year treasury is down (yield up) and the dollar is u 0.52%

Among our 34 core positions (excluding options hedges, cash and short-term bond ETF), 8 -- led by energy stocks, Disney, communications stocks, MP Materials and consumer staples stocks -- are in the green so far this morning. The losers are being led lower by utilities stocks, Sweden equities, emerging market equities, silver and emerging market bonds.


"The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages."

--Jesse Livermore

Have a great day!