October 29, 2023

S&P 500 Extends Drop From Its July Peak to 10%

📰 News Organizations

  • S&P 500 Extends Drop From Its July Peak to 10%. Equities pushed lower on news that Israeli forces are expanding their activity in the Gaza Strip. The benchmark stock gauge headed toward its worst week in more than a month.

  • Fed’s Preferred Inflation Gauge Drops to 3.7% Annual Rate. The Core PCE price index, which omits the volatile energy and food components, eased to 3.7 percent year-over-year, down from 3.8 percent in August.

  • Exxon, Chevron Profits Disappoint on Weak Refining. Exxon fell 9 cents, while Chevron’s miss was 66 cents. The companies cited an international oversupply of chemicals from new production plants and losses from overseas refining, respectively.

  • Intel Pops 10% After Earnings Beat Shows Progress. The chipmaker posted $14.16 billion in revenue for the quarter. The Friday boost was largely due to strong demand for PCs and management’s ability to stay on course for its initiatives.

  • Ford Misses Wall Street’s Q3 Expectations. The UAW strike has cost the company $1.3 billion in lost production to date, including roughly $100 million during the third quarter. The company lost production of about 80,000 vehicles so far due to the strike.

  • Colgate Posts a Beat-and-Raise Quarter. Net sales for the consumer products company were $4.92 billion, higher than analysts’ expectations of $4.81 billion. In the year-ago quarter sales were $4.46 billion. Across the company, prices rose 9.5% year over year.

  • GM’s Cruise Pauses All Driverless Operations Across US. This move comes after regulators in California said the vehicles aren’t safe in public and pulled the company’s self-driving permit. The halting of Cruise’s services represents another blow to GM.

🐦 Twitter

  • US firms have raised just under $70 billion from sales of bonds and leveraged loans so far this month, the quietest month this year and the weakest pace of borrowing in any October since 2011. Source.

  • Something strange is going on with the Home Builder Sales figures. New Home Sales have "bounced" back up over the last year, surprising many in the Housing Market. Yet - Buyer Traffic at home builder sites has collapsed to the lowest level in decades. Source.

  • Soaring mortgage rates "make leasing one of our homes much more affordable.. According to John Burns, it's now over $1,100 per month cheaper to lease than to own on average in our markets. That's over $13k per year". Source.

  • With 44% of companies reported, S&P 500 Q3 GAAP earnings per share are 18% higher than a year ago, the 3rd straight quarter of positive YoY growth and highest growth rate since Q4 2021. Source.

  • Megacaps starting to catch up to the downside with the rest of the market. Either interest rates must decline drastically from current levels or the valuations among these stocks are primed for a meaningful reappraisal. Source.

  • Bonds are up 5pct vs. stocks over the last week. Starting to price in recession dynamics. Very different market action than we’ve seen for most of the year. Particularly notable on the day the strongest growth in two years was reported. Source.

The S&P 500 is now down over 10% from its high in late July, the largest drawdown thus far in 2023. Is such a decline unusual? Not at all. A 10% intra-year drawdown has happened every 1.6 years on average.

Charlie Bilello

📓 Online Publications

  • PCE Measure of Shelter Slows to 7.2% YoY in September. Housing (PCE) was up 7.2% YoY in September, down from 7.4% in August. Since asking rents are slightly negative year-over-year, these measures will continue to slow over coming months.

  • US Serious Mortgage Delinquency Rate Drops to All-Time Low in August. The share of U.S. borrowers who were in serious mortgage delinquency (90 days or more late on payments) dropped to 0.9% in August, the lowest recorded since January 1999.

  • Microsoft Just Beat Google on 1 Important Metric. Microsoft's Azure cloud results were in sharp contrast to its rival Google, increasing 29% year over year, reaccelerating after five consecutive quarters of slowing year-over-year growth.

  • IBM Reported Strong Third-Quarter Results. Three-quarters of IBM's revenue comes from software and consulting, and both of those segments produced robust growth during the third quarter. Software revenue was up 6% year over year to $6.3 billion.

  • New Listings Remain in a Lull. Active inventory is down as well for the week ending Oct. 21 by 2.0% compared with last year. This lack of listings looks even more stark when compared with pre-pandemic days, when there were 45.1% more homes for sale in September.

🎧 Podcasts

  • S&P 500 Slides Despite Strong Q3 Earnings. The S&P 500 has fallen 10% from its July peak over seven of the last eight trading sessions, despite a strong Q3. Companies, wary of higher interest rates and global instability, caution about the future. Source(15:59)

  • Biggest Risk to the Markets is Geopolitics. A complex geopolitical situation is unfolding, involving Israel-Hamas tensions, Middle East dynamics, and efforts to align China, Russia, Iran, and Turkey, leading to uncertainty of pricing and handling this landscape. Source(1:16:37)

  • Stripe Faces Valuation Pressure. Stripe confronts a valuation challenge as public comps decline 50%, potentially reducing its value from $55 billion to $25-30 billion. This shift puts pressure on Venture Capitalists, impacting companies and valuations across the board. Source(44:43)

  • Startups Face Cash Crunch. Startups that raised substantial funds during the market peak are now running out of cash, forcing them to reenter the market, resulting in a trend of winding down operations expected to continue for the next 18 months. Source(48:02)

  • Biden Moves to Embrace AI as National Security Tool in Executive Order. The order, which hasn’t been finalized, is aimed at establishing guideposts for federal agencies’ own use of AI, while also leveraging the government’s purchasing power. Source(7:28)