The Weekend Edition # 67

Market Recap - Market under pressure; SPR Repurchase; Lennar Earnings; Does the Market believe the Fed?

December 18, 2022

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 - Market Under Pressure & SPR Repurchase

  • Earnings Results - Lennar

  • Premium Post of the Week - The Fed

  • The Week Ahead - Economic & Earnings Calendar

  • Closing Thoughts - Does the market believe the Fed?

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Let’s dive in ⬇️

Market Recap - Dec 12 - Dec 16, 2022

While all eyes were on the Fed this week, I think today’s news was the football World Cup final. What an ending to a spectacular series of games with Lionel Messi taking the cup for Argentina at the last World Cup that he will play.

And now back to our regular schedule of the Fed, CPI and the markets. It was quite an exciting week in the markets as well. With the CPI coming in cooler than expected, everyone had hopes for a very dovish Fed. Well, Powell certainly took the air out of that. He took quite a strong stance insisting inflation hadn’t declined as they expected and while they raised rates at a slower pace of 50bps, they raised the median rate to 5.1% for 2023.

Every sector except Energy was down for the week. Market breadth remains weak but not oversold. However, we have a situation now where we may continue to get some upward price pressure on oil, with discussions of China reopening and the US government announcing repurchases for the Strategic Petroleum Reserve.

Earnings of the Week

We had a few interesting earnings this week but, the one I was most interested in was Lennar, the homebuilder. The entire housing industry in fact was bid up on Wednesday bucking the market trend, quite possibly on the news of a slightly lower mortgage rate.

Lennar is one of the best homebuilders and it’s not surprising that they reported numbers ahead of estimates. But, what remains troubling is that they’re still reporting a reduction in orders for the next quarter and yet, the Street seems to be content raising targets on the company, many claiming the worst is behind them.

While we saw the units of “Homes Delivered” increase, the average selling price did come down. I’m still worried about the order backlog and the new orders, both of which are declining and, they’ve guided to further declines in the first quarter. The price per home is also declining. It may be wise to continue to be careful with the homebuilders.

Premium Posts

My premium subscription is only $10/month or $100/year. Each week I put out in-depth articles covering macro and industry analysis. This week’s discussion was the Fed.

The Week Ahead

Earnings Calendar - Watching General Mills, Nike and FedEx on Tuesday

Economic Calendar

Closing Thoughts - Does the Market believe the Fed?

The Fed Chair certainly had some strong messages for us on Wednesday, and I discussed my take on this in detail during the week for premium subscribers.

One thing we noted was that they are not anticipating rate cuts in 2023, and they were not going to change the target inflation rate from 2%.

We saw continuation of that hawkish message from Christine Lagarde on Thursday at the ECB meeting. While the rate hike was also lowered to 50bps, they discussed starting QT by March 2023 and reinforced the message that there may be another spike in inflation in the first quarter of 2023.

The market has been down since Fed Day and perhaps some parts of the market are finally believing what the Fed has to say. Nevertheless, the narrative of a Fed pivot hasn’t gone away completely, as some of the chatter on Twitter suggests.

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

As you may be aware, I am also a co-founder at Traderade, where we look at Macro, Technicals and Fundamentals to help educate traders and investors. We have a website & discord server where we have daily discussions among our community.
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None of the above is Investment Advice. I may or may not have positions in any of the stocks or asset classes mentioned. I have no affiliation with any of the companies other than explicitly mentioned.

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