In his Daily Market Notes report to investors, Louis Navellier wrote:
Range Trading
Stocks are in a trading range as earnings season motors on.
The S&P 500 has managed to stay above 4,100 but seems to have resistance at 4,150. Likewise, the NASDAQ keeps punching above 12,000 but then pulls back to 11,900. The Dow and Russell are also trading in a relatively narrow range this week, as the winners and losers of earnings season are steering things more than macro considerations, typical during earnings.
Q4 2022 hedge fund letters, conferences and more
Cost Cutting Wins At Disney
The common theme we are seeing is cost cutting, as we heard last night from Walt Disney (NYSE:DIS) which came in with beats top and bottom but traded up on the earnings call when the returning CEO Bob Iger spoke of cutting 7,000 jobs and $5.5B in costs. The stock traded up over 5% on the prospects of better margins, though has since come back down to +1% (albeit + 27% YTD) as it will take several quarters for these plans to play out.
Bear/Bull Equilibrium
We seem to be in equilibrium between the bulls getting a very strong January bounce and the bears having plenty of misses in the earning season and subsequent forecast cuts.
At the same time, the Fed is resolute that they will take the Fed Fund rate over 5% yet the bond market is keeping the curve inversion high, a classic recession signal, with the 2-year - 10-year spread still at a very high 85 bps and the 2-year below the current overnight Fed Fund rate. It also reflects the tension between believing inflation will fall while at the same time that companies will retain pricing power and grow margins.
We have likely seen the major moves in the indexes for the time being as further Fed increases tether the stronger-than-expected economy and cost-cutting plans are implemented, leaving us in a stock-picking situation and people comfortable parking money in 4% cash yields as the indexes move sideways. Hard to complain with the S&P now up 8.2% YTD and the NASDAQ up 15.5%. If the indexes go flat from here it was still an above-average year.
The consumer has proven resilient so far but credit card balances are rising rapidly and savings are being drained quickly. Travel and leisure is the center of new hiring but also a source of high prices/ inflation. The reopening of China may bring higher energy and commodity prices and bets are being made that the Fed will have to go to 6% as a result.
If the indexes stay in a trading channel, some profit-taking of names that have risen to very high P/Es is likely, as are names that have bounced on cost-cutting plans that have execution risk. Names with high-quality earnings and reasonable P/Es who continue to beat their forecasts should outpace index performance.
Coffee Beans
The conversational AI bot ChatGPT, which can produce human-like text and can be used to write short stories, prose, music and term papers to program basic code, solve math problems and do translations, gained one million users just five days after launching in November of last year. Microsoft confirmed in January a multimillion-dollar investment in U.S. company OpenAI, the makers of ChatGPT. Source: Statista. See the full story here.
