What Recession? (January 29-February 2)
January 29-February 2, 2024 by Adit Dayal for RIPPYGLOBAL.
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The market continued to rip higher, green four out of the five days last week advancing to a total gain of ~1% for the week hitting new 52wk highs by Friday.
Let’s take a look at what next week has in store for us!
First - if you were worried about a recession, it might be time to accept that it just isn’t happening as soon as we thought. Excess spending from not only the government, but also consumers led to a extraordinary 3.1% GDP growth print from the report this week. Looking forward for 2024, it can get even more interesting knowing the economy is going to be supported via lower interest rates. To me this begs the question - last year in one of the weekend reports, the odds of a recession were >60%, but the consumer never slowed. In fact, spending for restaurants was up 11.4% in December, electronics was up 11%, and health was up 10%. The Fed may have actually achieved their soft landing - inflation has cooled, but growth remained very strong.
On a political level, you may wonder why Biden’s job approval rating is so low. I did say last week electoral opinions are mostly driven by the economy, so why is it different this time? BTIG director of policy research states that this time people care about more than just the economy vs. previous years. The issue right now in this election is that there is a message being sent that the economy is doing great, which on an intrinsic level, it is, but consumers are still facing significantly higher prices than they were pre-COVID, and that doesn’t just go away. No matter who wins the election: international trade and tax reforms will be what I believe the market really wants to see and where the greatest inefficiency will lie this year.
According to an exclusive article posted by the Wall Street Journal, Biden is going to soon announce billions in subsidies to $INTC and $TSM as well as other semiconductor names. Since America is extremely over reliant on Asia for producing semiconductors, which are all the rage right now, the Biden administration is looking for ways to reduce reliance on Asia- and one way is through the $53B chips act. This will also lead to a huge amount of new jobs in the US - an expected 7500 in Arizona (TSM and INTC), another 2000 from Samsung in Texas, and many more across the nation. To me, the chips industry is getting monopolized by tech giants who can afford to invest in AI and therefore chips, but the smaller names are not going to be able to take advantage of this surge in demand, because there really isn’t one unless it’s for the big names (NVDA, etc.).
Tesla reported earnings this week and they were weak, with a slowed outlook dropping the stock almost 12% ($80B). The company warned that this year was going to be slower, and their operating margins fell by almost half - which the company couldn’t answer for on the call. Dan Ives from Wedbush, one of the most respected analysts on the street said “[w]e were dead wrong expecting Musk and team to step up like adults”. The company is working on a lower cost vehicle which could boost profits, but for now, Chinese competitors and shrinking margins, along with the difficulties with the Cybertruck are not helping Tesla. That being said - Elon did say on the call that he sees the path for this becoming the most valuable company in the world, but he wants more ownership in the company.
Lastly, there was big news for oil traders when a Yemeni group claimed attack on a fuel tanker in the Red Sea. The Marlin Luanda, run by commodity dealer Trafigura. This hurts the supply chain and increases the price of oil, which is breaking out of a downtrend. The fear in the market is that rebels will start attacking other oil tankers, specifically ones that could go to the US (image courtesy of CenterPoint).
#1) Earnings week is coming in full swing with Apple, Google, UPS, Amazon, Exxon, and more massive names reporting.
#2) On Tuesday, JetBlue is hosting it’s earnings call in the midst of the massive news around its failed acquisition of Spirit Airlines (which as become a memes stock courtesy of Dave Portnoy).
#3) On Wednesday, the Fed will make its policy statement and Fed Chair Jerome Powell will make a speech.
#5) On Friday, the January jobs report will release at an expected addition of 180K jobs.
The S&P 500 ($SPX index) broke out after this period of consolidation into new highs and is consolidating near the 4900 level before a massive earnings week.
My key breaks are $490 for bulls and $484 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
Tesla is now in a weird place where the market loves it at this price historically, but future outlooks for the name just aren’t there, especially with a lot of near term downside risks (EV tax credits getting taken back, price cuts from all EV manufactures, difficulty with Cybertruck production), so I really think this name just chops around here for a while. A bargain price would be around $150 for me.
Apple has earnings this week and the launch of their Vision Pro headset, so I think this will be a very headlines driven week for the name. Above $195 (post earnings) I think we can see $210, below $188 this like consolidates into a pennant pattern.
Nice chart here for LLY in a flag after a great breakout. Basically ignoring the market doing its own thing which is something I like.
Insider buys were pretty slow this week again, but ACET is a cheap name that recently exploded on huge volume and the director just bought the dip here, so maybe it can be a good play.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)