“Crypto Punk,” a Non-Fungible Token (NFT), sold for a stunning $532 million, setting yet another high water mark for this odd asset class. From a traditional investor’s point of view, the NFT sale helps illustrate the wild amount of speculation affecting crypto markets as well as most other asset classes.
Buckle up, this will be another volatile week with the Fed meeting on Wednesday and the BLS unemployment report on Friday. Furthermore, it’s another very busy earnings week as well. Currently, investors seem to be on the same page, expecting the Fed to start tapering QE in November.
The risk occurs if the Fed surprises with a quicker pace of taper than expected and or a heightened concern for inflation.
Market Very Overbought
A significant concern for investors remains the underlying technical condition of the market. While the rally has been impressive, rising almost 6% from the recent lows, the market is now back to more extreme overbought levels, trading 2-standard deviations above the 50-dma, and breadth remains troubling.
Chart updated through Friday.
As noted last week, our “money flow buy signal” is near a peak and is close to triggering a “sell signal.” With the MACD still positive, the signal suggests more consolidation than correction. However, a confirming MACD often aligns with short-term corrections at a minimum. Also, as shown, this entire rally from the recent lows has been on very weak volume, which suggests a lack of commitment.
At the moment, the bulls control the market, and downside risk is somewhat limited. However, that positioning is getting very aggressive.
AbbVie Earnings
AbbVie (NYSE:ABBV) reported third-quarter earnings Friday morning before the open. GAAP EPS of $1.78 came in below expectations of $2.00, but adjusted EPS of $3.33 beat expectations of $3.22. Revenue of $14.34B (+11.2% YoY) inched above expectations of $14.30B, driven by strength across the board.
Management raised FY21 GAAP EPS guidance to $6.29-$6.33 from a previous range of $6.04-$6.14. Management also raised guidance for adjusted EPS to $12.63-$12.67, which tops the consensus of $12.57. Finally, ABBV raised its quarterly dividend by 8.5% to $1.41/share, implying a forward yield of 5.14%. The stock was trading +4.1% higher mid-morning following the release. We hold a 4% position in the Equity Model.
Technical Summary Chart Courtesy Of RIAPRO.NET
Exxon Mobil Earnings
Exxon Mobil (NYSE:XOM) reported third-quarter earnings Friday before the open. GAAP EPS came in above estimates at $1.57 versus the consensus of $1.50. Revenue of $73.8B (+59% YoY) also beat the consensus estimate of $72.1B thanks to surging oil and gas prices.
Management expects future capital investments of $20B-$25B annually with a four-fold increase in low-carbon spending. In addition, the board authorized a share repurchase plan to start in 2022 with a ceiling of $10B in buybacks over the next one to two years. The market’s reaction was muted amidst a slight pullback in crude prices, as XOM was trading 0.6% higher mid-morning Monday. We hold a 2% position in the Equity Model.
Tweet Of The Day
Consumers Are In An Inflationary Bind
The quarterly Employment Cost Index rose 1.3% versus expectations for a gain of 0.9%. On a year-over-year basis, the index is up 3.7%. While the data is a little old, it points to profit margin pressures for corporations.
Personal Income fell 1% in September. Personal Consumption Expenditures rose 0.6%. It appears expenditures are rising because of inflation, not because consumers are buying more goods. This data also helps explain the recent uptick in credit card spending.
The Fed’s preferred method for gauging inflation, the PCE Price Index, rose 4.4% over the last year, the highest rate of inflation since the early 90s.
The graph below, courtesy of Eric Basmajian, shows Real Disposable Income per Capita is back below the 1.8% trendline growth of 2009-2020. Simply, the stimulus is gone.
The BOC Shocks The Market
The Bank of Canada (BOC) surprised markets by ending QE abruptly and predicting they might increase interest rates as soon as April. LINK to the press release. Further, they expect a total of four rate hikes next year. Their rationale appears to be a concern that price pressures “now appear to be stronger and more persistent than expected.”
Since the announcement, Canada’s 2-year notes are up 20bps, while its 10-year notes are slightly lower in yield. The Canadian 2/10 yield curve reached 50bps Monday, down from nearly 100bps a month ago. The BOC’s actions and large affect on its yields and yield curves seemed to be partially responsible for similar trading with U.S. Treasury yields and curves. On Oct. 8, the UST 2/10 yield curve was 130bps. On Monday it stood at 108bps.
Both the U.S. and Canadian yield curves appeared to be warning the respective central banks may be tightening policy right into an economic slowdown. With the Fed meeting coming up, equities investors should be prepared for a statement that is more hawkish than expected. This may include a quicker taper timetable and/or a more specific discussion on raising rates.
House Price Increases Are Slowing
According to Case-Shiller Home Price Index, the surge in house prices may finally be slowing down. As shown below, the monthly gain in the index was only 0.08%. That compares to the last 12 months which saw gains of around 1% or higher each month. The annual gain in the index is 19.8%.
