Banks, Netflix Bolster Market As Rate Fears Persist!

'I can't change the direction of the wind, but I can adjust my sails to always reach my destination." -Jimmy Dean

Often when you watch a young dog get a bone, you see a creature which realizes it now has something in its possession which is quite valuable, at least to it. If anything were to try and take away this important source of entertainment, rest assured, the little canine won’t let go without quite a battle. It is why there is the saying, ‘Like a dog with a bone,’ to emphasize the importance of not letting go without a fight. In this light, it seems the investment world has discovered a theme and at the moment, is not quite ready to let it go. The theme to ponder and consider the merit, of course, is the idea that Federal Reserve Board Chairman Jay Powell is on a quest to normalize interest rates over the next year, and, just as important, it will hurt economic growth. Maybe the even bigger consideration is what it will do to the stock market? Over the last few weeks, especially during October, equities have sold off hard. Many are looking at the housing market and how higher interest rates have dramatically slowed the demand for existing and new homes, down nearly 10% year over year. Extending this idea, the urge to hit the sell button becomes more prominent if one considers other large inputs into the economy related to financing costs, you know, like new and used car financing, commercial real estate, credit cards, student loans, and private equity transactions. All are related to how much is paid for borrowing moolah, and given the enormity of these market segments, it is reasonable to at least consider the possibility. As an individual investor, the market drop has left plenty of stocks sold without thought, which should be music to the opportunist’s ears. After all, are we really able to change what the Fed is going to do and how other investors react to it?

In the market this week, heavyweights Johnson & Johnson, Morgan Stanley, Goldman Sachs, and Bank of America reported good numbers, along with Netflix. The market volatility has been pretty extreme, with a plus 500 day followed by a down 300 performance. As earning results have rolled in, the prevailing sentiment is to look at the report and find whatever area of the business which has a question mark and use that as a reason to justify why a lower multiple is the right number. If a company doesn’t report top line growth of 20% or more, margin expansion, a full pipeline of new projects, and guidance that implies the same thing in the future, right now, the stock gets sold. Pretty tough to get over that bar for most entities. There are time periods when this is how the investment community sees things whether you agree with the premise or not. As a result, you might see crazy things happen to specific stocks that you are quite interested in. Yes, the wind is blowing in a certain direction, and adjusting to it seems the prudent course. Next week, and the following one as well, will bring a deluge of more earning reports. It might be wise to pay attention to sentiment to see if it shifts, just like the wind.

Politically, with the midterms two weeks from Tuesday, the Senate possibilities seem better for Republicans. In the House chamber, Democrats smell blood with big fundraising successes and enthusiasm from the extreme left at an all time high. Speaking of high, Canada legalized pot this week, and investors sold that news after bidding up the current leaders into billion dollar valuations. In the middle east, the strongest Arab ally of the US (other than Israel), Saudi Arabia, demonstrated how difficult that region is with the murder of one of it’s strongest critics, a Washington Post journalist who wanted to marry a Turkish woman. When your best alternative in the region is Saudi Arabia, you know it’s a tough neighborhood, regardless of the strategic value of oil. On our southern border, with a caravan of nearly 4,000 potential immigrants from Honduras stopped near Mexico, it highlights the quest for people to get out of poorly run countries that have no regard for their citizens welfare. Capital flows where it is treated best, and retreats hastily from places that show no respect for it, Venezuela case in point. With the questions about the rule of law in Turkey, Saudi Arabia, South Africa, and others, it is more than reasonable for Jamie Dimon, Steve Schwartzmann, and Treasury Secretary Mnuchin to say, nope, I think I’ll pass on going to the Future Investment Conference in Riyadh. They, along with others, know which way the wind is blowing.

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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantee performance better than market indexes.