The Weekend Edition # 90

Welcome to another issue of the Weekend Edition. 

Thank you to all who’ve read and welcome to all the new subscribers this week! 

Here’s what we cover:

• Market Recap - Debt Ceiling deal done

• Macro - Update on the OPEC+ Meeting

• Earnings - Upward revisions for next Quarter

• The Week Ahead - Economic & Earnings Calendar

• Closing Thoughts - Discipline

Let’s dive in ⬇️

Market Recap - 29 May - 02 Jun, 2023 📉📈

With the Debt Ceiling deal going through, the market is celebrating. While breadth was very narrow towards the beginning of the week, Friday brought on a more broad-based rally with the Russell 2000 leading , followed by the Dow. The Nasdaq-100 actually remained muted on Friday.

We got cooler than expected inflation numbers in Europe that seemed to have give the market some tailwind. Along with the US Debt Ceiling deal going through, European stocks had a better week as well.

We also received better than expected Jobs Data, all throughout the week. Although the unemployment rate has inched up to 3.7% from 3.4%, the job market still remains very tight with 339k jobs created vs. 294k created the previous month and far above the consensus of 190k.

Oil has been under pressure because of the Debt Ceiling negotiations as well. However, the resolution and rumors of an OPEC+ cut seemed to have given the market some lift. Look like that is set to continue with the latest announcements post the meeting. (More below)

Macro - An Update on the OPEC+ Meeting 🌎

We’ve had some concerns with Oil. I wrote about this earlier in the week. The OPEC+ meeting today in Vienna certainly brought some clarity to the situation but, also some “drama”.

The meeting was delayed far more than expected because there were a lot of discussion about moving around the production quotas particularly from three countries - Angola, Nigeria, Gabon and Congo - who have been producing below their current quota. The idea was to reallocate that to the likes of the UAE who have the ability to increase production. There will be some cuts from Nigeria and Congo but, those may be reallocated to the UAE.

The new production schedule for 2024 has been published. As of the now, the major change is a voluntary production cut for Saudi Arabia of 500,000 barrels per day until the end of 2024. However, they later announced another 1 million barrels per day starting in July for a month, to be extended. This brings the total voluntary cuts to 1.5million barrels per day, along with what was announced in April and total production to 9 million barrels per day. That is significant!

So from we understand:

1. The required production for 2024 will be lower than the required production that was instated for 2023 (during the 2022 meeting) [Last column]

2. The required production for 2024 will be higher than the current voluntary production [second last column]

3. With Saudi Arabia’s new adjustment of an additional 1million barrels starting in July, we’re looking at a cut of 11% from the 2023 Required Production level.

4. A few more countries have announced that their voluntary production levels (i.e., the cuts) will be extended until the end of 2024. These countries are Oman, Algeria and Gabon.

5. As of now, oil production output target stand at 39.199 million barrels per day.

Earnings - Highlights 📝

Here’s the FactSet Summary for the Week: 

The blended earnings decline for the week remained at -2.1%. We’re almost at the tail end of earnings season with very few companies left to report. Unless we have some massive increase in earnings, we’re standing at two quarters of negative growth and therefore an earnings recession.

Earnings however, have been revised to the upside for the next quarter.

The Week Ahead 📅

US Earnings Calendar

US Economic Calendar in Eastern Time 

Closing Thoughts - Discipline

There are those who look at market positioning as a contra indicator. We all probably agree that the market has become stretched here and not on a very broad-based rally. This rally doesn’t seem healthy nor, does it seem sustainable.

On the flip side, we have macro data that is screaming recession and tough times ahead. It’s become increasingly difficult to read this market and the only way to survive is to understand the data and put in place a process.

I’ve been reading Sam Zell’s autobiography “Am I being too subtle?” and he says:

And he also says:

It’s all about the discipline - discipline to listen to the numbers and discipline to manage risk. Whether you’re doing billions of dollars of deals or managing your own portfolio, having a process, understanding the risks and then implementing the discipline is what is paramount.

Your process may not always be right, and you may have to tweak it along the way but, at the end of the day, if you have the discipline to manage your positions and minimize your risks, you will be better off for it.

Here’s wishing you safe investing. 

Please take a moment to share and subscribe, if you found this newsletter useful. 

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 or asset classes mentioned. I have no affiliation with any of the companies other than explicitly mentioned.