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Note to Readers: We believe markets are potentially set up for big moves in November and December. October has been friendly to Dow Jones investors, but less so for China, Semis, and Internet-Software stock investors.
We’ll continue to help our friends inside position themselves best as possible in this environment. Dow Jones stocks consist of roughly 15-18% of our Coverage Universe (We cover AAPL, MCD, V, and HD among a few others). The majority of our coverage is in Semis, China, FAAMG, U.S Internet. If these sectors, in addition to Dow Jones names, are areas you follow closely, let us help you understand when the tide will turn in (or out) of favor.
Despite the Fed’s effort of pushing out hawkish policies to fight inflation, prices still remain at high levels and consumers expect inflation to remain elevated over the next 12 months. Lots of talk about pivot but we reiterate our belief that there cannot possibly be a hard pivot when inflation stays high and GDP is growing more than expected…
Macro Chart In Focus
Analyst Team Note:
“Companies have already been shrinking their gross debt by about 1% YoY over the past six quarters. That was in part due to normalizing debt levels after borrowing heavily in 2020 to protect against the effects of the Covid pandemic. Going forward we expect IG issuers to continue reducing gross debt, this time to strengthen their balance sheets against a potential recession. On top of that borrowing costs are much higher as well, with IG index yield at the highest levels since 2009.” - Bank of America
The average American would have had to put in more than 64 hours of work in September to pay the typical monthly rent, the highest in data going back to 2015. However, rents and home prices are beginning to roll over.
Home prices are down over the last few months and Zillow is showing that rents are starting to fall in several major markets. The Zillow data tends to be a leading indicator for Owners’ Equivalent Rent (OER). Shelter inflation (~40% of core CPI) is one of the factors driving the Fed’s hawkishness and continued moderation in rents and home prices could be positive steps in slowing down inflation.
Chart That Caught Our Eye
Analyst Team Note:
“Valuations for Chinese growth stocks, which were egregious at a 115% overvaluation in 2020, are now 18% undervalued. In late 2015, they were 45% undervalued. They can also stay undervalued for years (such as from 2011 to 2015). But still, undervalued they are.” - BofA
Sentiment Check: We can’t help but ‘DCA’… Decade-old habits…
We want to take a moment to thank Interactive Brokers for being one of our Channel’s trusted Partners and to inform my audience of the special features they have given that our online friends here closely follow Chinese Internet stocks (BABA/Tencent).
Much of Larry’s audience is concerned about the US ADR issue of Chinese Stocks being delisted.
