Macro is Moving And You Need to Keep Up (October 9-October 13)
October 9-October 13, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. The bond market is closed tomorrow and Q4 is upon us with managers coming back from break giving us some amazing opportunities. The market was about to drop into a huge danger zone last week, but closed off with a massive rally that caught a lot of people on the offsides, with the S&P 500 closing the week +1.1%.
Let’s take a look at what this week has in store!
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The most difficult market for me to analyze has been the impressively strong jobs market. According to the labor department over 360K jobs were added in September vs. the 160K expectation. Obviously the Fed is keeping a strong eye on this because too many jobs and low unemployment is not good for inflation. Too many jobs added in a month can lead to increased consumer spending as more people have income, which can create excess demand in our economy. This excess demand, without a corresponding increase in supply, drives up prices and therefore we have more inflation. The effects of the strike should show up in this month’s report.
The Israeli prime minister has declared war on Hamas after a massive attack that’s making waves. I’m going to stay away from talking too much about this since I am not an expert, but I will give my input on the financial implications of it. Supposedly the Saudi’s are not opposed to raising oil output to keep it under $100 in hopes to recognize Israel and win Congress’ support. If Congress sides with the Saudis I imagine the Saudis will cooperate to raise oil production to increase supply in a move to further relations with the US.
Dan Ives from Wedbush believes tech stocks are about to go another massive leg up after this correction due to mostly artificial intelligence. In all caps, Ives pitches that “THIS TIME IS NO DIFFERENT” and all macro worries are negligible and stocks will recover. The use of AI to boost productivity is real in my opinion, but will this increase in output have any real effect on demand when we may be going into a recession?
Louis Mouton LVMH has been on a tear recently, making its owner one of the richest men in the world. But research from BMO says “the luxury supercycle is over” and premium brands are at a pace to slow down. Growth rates are above average for these companies and they cite a multitude of different issues - interest rates, China, and inflation, and they share the same opinion as me. Consumers are on the tail end of having a lot of discretionary income, and as the effects of the Fed hikes really hit the earnings of these high growth, non-necessary luxury companies will also take a hit.
Birkenstock is going to be an amazing, huge IPO this week that I am looking forward to trading. They are selling themselves for ~32M shares and a pricing in the $40’s. As I just mentioned above, this is an interesting time to IPO generally, but not for the company. The recent cameo in the Barbie movie, the expansion of the new clogs, and the general hippie hype behind this company is something that will make this a very memorable IPO. Birkenstock wants to pay down debt with the IPO funding. Clark Schultz also reports that there is a “loose connection to LVMH” with Alexandre Arnault (Louis Vuitton’s Bernard Arnalut’s son) will be on the BIRK board. They are expected to raise $1.6B through this IPO.
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#1) Earnings week is again not worth trading, although the big banks will be reporting on Friday, including JP Morgan, Wells Fargo, Citi, and more. Dominos is on Thursday before open and should lead all the food names, including PZZA.
#2) On Tuesday, AMZN is hosting a prime day event and ADBE will have an investors event to show the new use of AI in their products. LVMH (as analyzed above) is also releasing their Q3 statement.
#3) On Wednesday, the PPI index for September will release along with the FOMC minutes, these will be market moving.
#4) On Thursday, the CPI inflation numbers for September will release.
#5) On Friday, the Taylor Swift movie will launch at AMC theaters and may impact the stock.
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S&P 500
The S&P 500 ($SPX index) has rebounded after an amazing hold of the $420 level this week (we tested it for four days in a row!) and rebounded back to $430. There is a gap to fill at $439 for bulls but I still think we need to test $4180 on SPX at some point, so I am just playing my levels.
My key breaks are $4334 for bulls and $4261 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla is in an a huge pennant here and is ready to break in any direction, but a hold over $262 will be massive. Under $244 is once again bear territory. Rivian just had a huge convertible offering to $1.5B this week and tanked that stock, but it’s for 2030 so I think it will recover if Tesla breaks out.
AAPL
Apple is breaking out, but they key way to trading this market is to make sure they don’t fake you out and only trade by the levels which is why I will be looking at the $180 break and hold for the next leg up on Apple. Wedbush says we have another rally coming so the new VR Pro catalyst can be big if the slow in the economy doesn’t slow demand of their $3000 headset.
IONQ
IonQ is still in an uptrend here and is in a small pennant where it looks like it may break out here.
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Insider Activity
In terms of insider trades, it’s the same story as every week - ASAN gets buys and Bill Ackman’s Pershing Square buys more HHH.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)