💥Investing Insights & Market Analysis [Issue #16: Week 31, August 2023]
😲 US Credit Rating Downgraded, US Government Interest Payments Soar to Nearly $1 Trillion,10% Decline in Cardboard Box Sales, Housing Market Is in a State of Imbalance, Stocks to Watch and Much More!
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🎉In this week’s issue of “Investing Insights & Market Analysis”, we’ll discuss:
This Week's Financial Analysis:
1) Weekly Stock Market & Economic Insights
2) 5 Important Financial Events that Happened this Week
3) Top 3 Charts this Week (and their importance)
4) Stats of the Week (and their significance)
5) Financial Tips of the Week
This Week's Premium Research:
6) 15 Stocks to Watch!
7) Notable Insider, Billionaire & Politician Trades this week
8) Options Trades [Options Flow Activity]
9) Real Estate & Housing Market Insights
10) Mortgage Rate Updates & Predictions
11) Technical Analysis [S&P 500, Bitcoin]
12) Market Sentiment & Economic Indicators
13) Key Earning Announcements This Week➕Before we start, please add this newsletter to your e-mail contacts to ensure that our emails never go to your spam folder!
1) Weekly Stock Market & Economic Insights📈
Earnings season has been mixed so far, with some companies beating expectations and others missing.
The path for earnings over the coming year will be a key driver of market performance. If earnings growth does slow, it could weigh on stock prices in the near term.
If earnings season results are weak, it could further dampen investor sentiment and lead to more selling in the stock market. I would avoid higher-risk assets like unprofitable tech names. Have cash on hand to deploy if we see capitulation and panic selling.
Fitch Ratings surprised the market by downgrading the U.S. government's credit rating, which has raised concerns about the economy, leading to a sell-off in stocks.
The recent stock market declines and surge in Treasury yields (highest level in 10 months) signal growing concerns over the health of the economy and corporate earnings.
Investors are embracing the paradox of U.S. government bonds representing a perceived safe haven — even after Fitch Ratings lowered its assessment of the country's debt.
Warren Buffet announced that Berkshire Hathaway bought $10 billion in U.S. Treasuries, while Bill Ackman said they are shorting 30-year USTs.
2) 5 Important Financial Events that Happened this Week⚠️
The US Credit Rating Downgraded by Fitch 🌎
Fitch Ratings, one of the world's leading credit rating agencies, has downgraded the US government's credit rating from AAA to AA+. This is the first time the US has been downgraded since 2011. Fitch cited three main reasons for the downgrade:
Ongoing political dysfunction: The US government has been unable to pass a budget or raise the debt ceiling without resorting to last-minute deals, which has eroded confidence in the government's ability to manage its finances.
Ballooning fiscal deficits: The US government's fiscal deficit has been growing for many years, and is now projected to reach $1 trillion in 2023. This is unsustainable and will eventually lead to higher taxes or cuts to government programs.
High and growing general government debt burden: The US government's debt is now over $30 trillion, and is expected to continue to grow. This is a major risk to the economy, as it could lead to higher interest rates and slower growth.
Only nine countries with AAA Fitch ratings remain:
My take: The US has no medium-term fiscal framework and has made "only limited progress" in tackling rising Social Security, Medicaid, and Medicare costs. This could lead to higher borrowing costs for the US government, which could have a ripple effect on the economy and consumers.
The US needs to reduce its deficits and debt to avoid further downgrades. The impact of the downgrade may be more symbolic and sentiment-driven than anything else, but it is still significant. It is important to demand accountability from elected officials who should prioritize the needs of the country over their political party.
10% Decline in Cardboard Box Sales: A Sign of Economic Trouble?📦
According to Packing Corp. of America, cardboard box sales fell 9.8% in the last quarter, marking the fourth straight quarter of declining sales. This is the largest decline in cardboard box sales in over a decade, and it is a sign that the economy is slowing down.
Cardboard boxes are used to ship and package goods, so a decline in cardboard box sales suggests that businesses are shipping and packaging less. This could be due to a number of factors, including a slowdown in consumer spending, a decline in manufacturing activity, or an increase in efficiency that is reducing the need for cardboard boxes.
My take: The decline in cardboard box sales is a leading indicator of economic health, meaning that it can signal a recession before other economic indicators do. This is because cardboard box sales are more sensitive to changes in the economy than other indicators, such as GDP or employment.
It is also important to remember that the cardboard box market is not the only indicator of economic health, and that we should look at a variety of indicators before making any conclusions about the state of the economy.
The Housing Market Is in a State of Imbalance — Homeowners with Low Mortgage Rates Are Delaying Selling, Driving Up Prices🏠
A record 62% of mortgaged homeowners have an interest rate below 4%, according to Redfin. This means that if they sell their homes today, they would likely have to take on a much higher mortgage rate, around 7%. As a result, many homeowners are delaying selling their homes, creating a shortage of inventory on the market.
This shortage of inventory is driving up the prices of existing homes. In June, the median home price in the United States was $414,700, up 18% year-over-year. The number of homes for sale is half of what it was in 2019.
The tight housing market is making it difficult for people to buy a home, especially first-time homebuyers. The housing market is in a state of flux right now. Homeowners with low mortgage rates are delaying selling, creating a shortage of inventory. This is driving up prices, making it difficult for people to buy a home.
My take: The irony is homeowners with low rates can't capitalize on high prices since they would need to buy another inflated home. This inventory chokehold looks unlikely to ease soon absent a major economic slowdown. While disadvantaging first-time buyers, it benefits current owners and locks them in place. But minimal turnover and selection keeps the market stuck. Only higher new construction can provide real relief, but that faces long lead times.
The Golden Handcuff will continue constraining supply until rates meaningfully decline or more existing owners accept higher borrowing costs in order to sell. Neither scenario appears imminent, prolonging the gridlock.
Amazon’s Clinic Expands Nationwide — Shaking Up Healthcare to Provide Affordable Telehealth 💊
Amazon ($AMZN) has expanded its telehealth marketplace, Amazon Clinic, to all 50 states. This means that people in any state can now connect with doctors by text or video for a flat fee. Amazon Clinic offers a variety of services, including:
Consultations with board-certified doctors
Prescriptions
Lab tests
Referrals to specialists
My take: The expansion of Amazon Clinic is a huge disruption to traditional healthcare, giving consumers on-demand access and pricing transparency. It is likely to put pressure on insurance companies to offer more affordable telehealth options. It is also likely to lead to increased adoption of telehealth by consumers.
I expect Amazon to steadily expand Clinic's services and potentially integrate it with pharmaceutical delivery. Data insights on patients and prescriptions are invaluable.
US Government Interest Payments Soar to Nearly $1 Trillion
The US government's annual interest payments have skyrocketed to a record high of nearly $1 trillion. This surge in interest payments is significant as it reflects the government's increasing debt burden. The Congressional Budget Office (CBO) projects that the cost of servicing the national debt will more than double in the next 10 years, with the government spending about $10.5 trillion on interest expenses alone over the coming decade.
The increasing interest payments on the national debt are a cause for concern as it can divert future taxpayer money away from much-needed federal investments in areas such as infrastructure, education, and healthcare.
My take: The high level of interest payments is also a sign of the fiscal challenges facing the US government. The government is spending more money than it is taking in, and this is leading to a growing national debt. If the government does not take action to reduce its spending or raise taxes, the national debt will continue to grow, and the interest payments will become even more burdensome.
The high level of interest payments is a major burden on the US government. The interest payments are paid for with taxpayer money, and they take away from money that could be used for other purposes, such as education, healthcare, and infrastructure.
3) Top 3 Charts this Week: 📊
US Inflation over the last 5 months
The trend indicates the Federal Reserve's interest rate hikes are having the desired effect of cooling demand and prices.
Uber has finally turned a profit after 10 years ($UBER)
The company's profitability was driven by a number of factors, including a decrease in driver subsidies, an increase in ridership, and a surge in food delivery revenue.
How Microsoft ($MSFT) makes money
Microsoft is a diversified technology company with a wide range of products and services. Microsoft's income breakdown is important for investors to understand because it provides insight into the company's financial health and growth potential. By analyzing the company's income sources, investors can determine which segments are driving growth and which segments may be lagging.
4) Stat of the Week📊
Mentions of "recession" by tech executives on earnings calls have dropped by 70% this year, meanwhile, mentions of "AI" have quadrupled, from 92 to 390.
5) Financial Tip of the Week🎯
According to research, 41% of marriages end due to financial disagreements. This means that nearly half of all marriages end over financial disputes and money. This means that choosing who you marry is one of the most important financial decisions of your life, as mistakes can cost thousands, including time, peace, and legal fees. Your spouse can either help you create wealth or deplete it.
Marriage has a significant impact on your finances, and who you choose to marry is one of the most consequential decisions of your life. If you are considering getting married, it is important to discuss your financial goals and values with your partner before you tie the knot. This will help you to avoid financial disagreements in the future.
🔒Premium Research:
6) 15 Stocks to Watch📊
Friday 8/4: Amazon (AMZN) shares up over 8% after the e-commerce giant reported strong earnings, driven by growth in its cloud and advertising businesses. The results indicate Amazon's core operations remain resilient despite economic uncertainties.
Friday 8/4: Apple (AAPL) down nearly 5% as weaker iPhone sales led to a revenue decline, even though earnings narrowly beat estimates. The tech giant is facing soft consumer electronics demand.
Friday 8/4: Tupperware Brands (TUP) up 35% after finalizing a debt restructuring agreement to improve its balance sheet and cash flow. The deal provides near-term stability.
Friday 8/4: Booking Holdings (BKNG) up 8% to a new 52-week high after posting earnings and revenue that highlight robust summer travel demand. Its results are a bullish indicator for the sector.
Friday 8/4: Block (SQ) down 14% despite topping earnings estimates, as its expense reduction plans raised concerns.
Friday 8/4: DraftKings (DKNG) up 6% after its smaller-than-expected loss and upbeat revenue reaffirmed positive momentum for the online sports betting space.
Thursday 8/3: DoorDash (DASH) up 4% after boosting its outlook on strong order volumes.
Thursday 8/3: Traeger (TRAR) up 45% after beating estimates, signaling its operational improvements are taking hold.
Thursday 8/3: PayPal (PYPL) down over 11% as its in-line earnings and light guidance failed to impress, overshadowing solid revenue growth. Investors are concerned about its competitive positioning.
Thursday 8/3: Sunrun (RUN) up 10% after the solar installer turned a surprise profit on residential installation growth. The company is demonstrating resilience amid industry turmoil.
Thursday 8/3: EVgo (EVGO) up 21% higher after demolition earnings expectations, underscoring accelerating demand for EV charging infrastructure. Its first-mover advantage is paying off.
Wednesday 8/2: Advanced Micro Devices (AMD) down 7% as its disappointing outlook exacerbated worries of a slowdown in PC and data center spending. Macro headwinds are weighing on the chipmaker.
Wednesday 8/2: Freshworks (FSLY) up 19% on upside earnings results and an upgrade. Its performance validates its differentiated competitive positioning.
Monday 7/31: SoFi Technologies (SOFI) up 20% after smaller-than-expected losses and strong guidance.
Monday 7/31: Sweetgreen (SG) up 7% after an upgrade from Piper Sandler who turned positive on its prospects.
7) Notable Insider, Billionaire, and Politician Trades this Week💰
Agree Realty Corp (ADC)
On August 3, 2023, Richard Agree, the Chairman and CEO of Agree Realty Corp (ADC), purchased shares valued at $1.16 million. Agree Realty is a retail REIT that acquires and develops properties net leased to industry-leading tenants. The company has been actively growing its portfolio this year.
Allegion Plc (ALLE)
On July 27, 2022, John H. Stone, the President and CEO of Allegion Plc (ALLE), purchased shares valued at $2.04 million. Allegion is a global security products and solutions provider for homes and businesses. The company recently reported strong earnings results.
Asana (ASAN)
On July 26, 2022, Dustin A. Moskovitz, the President, CEO, and Chairman of Asana, Inc. (ASAN), purchased shares valued at $3.6 million. Asana provides a work management platform that helps teams organize, track, and manage their work. The company has seen rapid adoption growth.
B. Riley Financial (RILY)
On July 25 and 26, 2022, Bryant R. Riley, the Co-CEO and Chairman of B. Riley Financial, Inc. (RILY), made two purchases, valuing each trade at $4 million. B. Riley Financial provides financial services and products including investment banking, wealth management, and restructuring services. The company has been diversifying its offerings.
8) Options Trades [Options Flow Activity]📈
Bullish Activity on Fluor Corp. (FLR):
Unusual call activity in FLR, with the ratio of call options to put options being about 14:1. This suggests that market sentiment is bullish for the stock.
The call activity is being driven by activity on the September 15th 37.50 call. This contract has a volume of 5,699, which is much higher than its open interest of 2. This suggests that there is a lot of new positioning on this contract.
A 3,960 contract block was bought for $1.10 when the bid/ask spread was $0.95 x $1.15. This trade took place above the midpoint of the bid/ask spread, which suggests that the intent is bullish.
9) Real Estate & Housing Market Insights this Week🏠
Per Realtor.com:
The number of homes for sale in July decreased by 6.4% compared to the same time last year.
The lack of inventory is contributing to a renewed sense of urgency among buyers, who are bidding up prices in an attempt to secure a home.
The median list price of available homes fell 0.9% year-over-year in July, the second straight monthly decline, and the number of homes under contract also declined.
This suggests that buyers are starting to become more selective, and they are no longer willing to pay top dollar for a home.
20.8% fewer new listings came on the market compared to July 2022.
Sellers are staying on the sidelines due to low expectations that mortgage rates will improve significantly in the next year.
10) Mortgage Rate Updates & Predictions: Rates should Increase🏠
Mortgage rates will continue to rise due to uncertainty in the market and as long as the bond market remains nervous.
The bond market is nervous, and the trend in long-term yields is higher, which is particularly relevant to mortgage rates as the spread over Treasurys is inflated and increasing further.
The yield on 10-Year Treasurys nudged above 4% again, and because mortgage rates are highly correlated with the yield on 10-Year Treasurys, we should see mortgage rates soon follow.
A 30-year fixed-rate mortgage is slightly lower today than it was last week, the same as it was last month, and higher than it was last year:
11) Technical Analysis📈
S&P 500 (Short-term, 1-6 weeks): Positive
The S&P 500 has broken through the floor of a rising trend channel in the short term, indicating a slower rising rate at first, or the start of a more horizontal development moving sideways and entering a period of consolidation. Overall the technical picture remains mildly positive for now.
Bitcoin (Short-term, 1-6 weeks): Negative
Bitcoin is in a falling trend channel in the short term, indicating negative development which shows that investors over time have sold at lower and lower prices. Overall, the technical outlook remains slightly negative in the near-term. The path of least resistance appears to be to the downside until proven otherwise.
This suggests caution is warranted for any new buys here. Consider waiting for a clear breakthrough of resistance and improvement in momentum before getting more bullish. Patience could be rewarded. The key takeaway is upside looks limited and downside risks are growing for Bitcoin in the near-term based on current technical trends.
12) Market Sentiment & Economic Indicators📈
The Fear & Greed Index is currently at 69, in the "Greed" zone. This suggests investor sentiment has become overly optimistic. When the index is this high, it often signals that markets are overheated and due for a pullback. It is based on the premise that excessive fear pushes stocks lower, while greed causes upward trends.
Consider taking some money off the table if you've enjoyed big gains recently. Look for better entry points on pullbacks.
Be selective and defensive in new buys. Don't chase hot momentum stocks with crazy valuations.
Keep enough cash reserve to capitalize on better bargains if we do get a 5-10% pullback.
The AAII Sentiment Survey shows bullish sentiment rose for the 9th straight week, hitting 49% - well above the historical average of 37.5%. This shows high levels of optimism.
Meanwhile, bearish sentiment fell to just 21.3%, below the historical average of 31% for the 9th consecutive week. Investors seem to be brushing off risks.
Recession Risk Key Indicators:
Several key indicators are signaling that the US is at an increased risk of entering a recession.
Housing sales and construction have slowed sharply as rates rise. Housing is important for jobs and consumer confidence.
Manufacturing indexes weakened. Businesses are pulling back on expansion plans.
Consumer sentiment dropped to lows. Shoppers are depressed and anxious.
The yield curve has inverted, with short-term rates higher than long-term rates. This often foreshadows recessions.
Detailed Economic Indicators and Market Conditions:
13) Key Earnings Announcements this Week💰
This week's key earnings releases include Palantir $PLTR, Walt Disney $DIS, Alibaba $BABA, Rivian $RIVN, AMC Entertainment $AMC, Upstart $UPST, Supermicro $SMCI, UPS $UPS, Lucid $LCID, and Eli Lilly $LLY
The key themes to watch are streaming/parks for Disney, China consumers for Alibaba, growth outlooks for Rivian/Lucid/UPST, and drug pipeline/demand for Eli Lilly.
Palantir ($PLTR): Palantir has recently announced a partnership with the US Army to provide AI-enabled battlefield intelligence systems and the US Air Force for its Foundry software platform., which could lead to more government contracts in the future, and be seen as a bullish catalyst.
Eli Lilly ($LLY): Eli Lilly is a pharmaceutical company that has recently seen growth in its diabetes and oncology businesses, which could be seen as a bullish catalyst.
Alibaba ($BABA): Alibaba has recently faced regulatory challenges in China, the Chinese government has been cracking down on tech giants, which could weigh on the stock price, which could be seen as a bearish factor.
Lucid ($LCID): Lucid is an electric vehicle company that has received significant investment from Saudi Arabia's sovereign wealth fund, which could be seen as a bullish catalyst. However, the company has yet to generate significant revenue, which could be seen as a bearish factor.
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