The Weekend Edition # 62

Welcome to another issue of the Weekend Edition. 

Thank you to all who’ve read and subscribed to the newsletter this week!

Here’s what we cover:

• Market Recap - The Market Celebrates

• Macro - Compensation

• Earnings Results

• Premium Post of the Week - When a trip costs $450,000 per day!

• The Week Ahead - Economic & Earnings Calendar

• Closing Thoughts - A spooky week ahead?

Let’s dive in ⬇️

Market Recap - Oct 24 - Oct 28, 2022

What a week! Earnings season certainly never disappoints. We had quite the strong negative reaction from the market with most of the big tech except Apple which sort of led the rally into Friday’s close.

The winners of the week though, were the Dow Jones up 5.72% and the Russell 2000 up 5.87%. The market seemed to shake off inflation data on Friday - PCE came in flat at 6.2% YoY and 0.3% MoM. No change from last month. While Core PCE increased from 4.9% to 5.1% YoY but flat MoM at 0.5%. All the numbers were within the consensus range and this gave the market something to celebrate.

Looking at the sectors - Industrials topped the list with Caterpillar leading the way after earnings.

Macro of the Week - Compensation

Among the economic data that came out this week, the one I thought was most interesting was the Employment Cost Index. This data is quarterly and it’s a lagging indicator but, it’s an interesting one to watch nonetheless.

I’ve briefly discussed the wage-spiral previously and how it can cause inflation to remain high, or even accelerate. The Fed definitely doesn’t want a wage-spiral and Chair Powell has spoken about this a few times.

But, the data shows significant increase. The chart above shows the Employment Cost Index (blue) and the Index subcategories in terms manufacturing (Red) and services (green). Services have increased far more than manufacturing. While we saw a slight decline in the last quarter, the index growth still remains higher than in the last 15 years.

These numbers however, are not adjusted for inflation. If we look at the inflation-adjusted numbers below, compensation growth still remains negative. It’s quite appropriate that with inflation running this high, wages and benefits will go up. But, it would still seem that they have not gone up enough.

Another reason for services compensation to outstrip manufacturing was the Covid era. People have been reluctant to return to the service industry because of Covid. Many were laid off and given compensation packages for being laid off. Couple that with the stimulus benefits and you have a situation where people would prefer to stay home and avoid a health scare.

But, the flip side of this is unemployment. With the cost of capital increasing, employers are cutting down on staff gradually. The first to go are usually the ones who continue to work from home. The chart below shows that job postings with high remote-work share are declining.

And finally, vacancies are also reducing. While overall job postings show a decline, so do new job postings. According to Indeed, the decline is lead by the companies that hired massively during the pandemic.

The job market remains in a precarious position. Jobs data is coming out this Friday, and as always it will be important to track the numbers closely because it remains a key determinant of the Fed’s policies.

Earnings of the Week

This was one of the busiest weeks for earnings with 166 S&P500 companies reporting all in one week. After the crazy declines in Google, Meta and Amazon, Apple came in and saved the day. But, let’s not forget we had some great price performance from Intel, Caterpillar, McDonald’s, Visa, and Mastercard.

A few notes from FactSet:

Premium Posts

When a trip costs $450,000 per day!

The Week Ahead

Economic Calendar

Earnings Calendar

Closing Thoughts - A Spooky Week Ahead?

Happy Halloween! And to celebrate, we have the Fed Meeting coming up this week. The market however, doesn’t seem to think there’s anything spooky on the horizon and is quite certain of a 75bps hike. I’ll be covering the meeting with my Traderade partner in a post-FOMC chat on Twitter spaces at 4pm EST on Wed Nov 02, 2022.

We’re in a classic bear market rally, yet again and we seem to want to go higher. Except what is spooky is how overbought this market is. As we look at the options market, we see there’s a serious imbalance and the idea is that even the smallest negative catalyst can bring this market down quite drastically. Stay sharp!

Here’s wishing you a happy weekend and safe investing. 

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Sincerely yours,

Ayesha Tariq, CFA

There’s always a story behind the numbers

None of the above is Investment Advice. I may or may not have positions in any of the stocks mentioned. I have a long position in   as of the date of publication of this newsletter. I have no affiliation with any of the companies that are mentioned.