Well folks, the market is playing into its own irrationality perfectly right now - the S&P dropped 1.5% yesterday and is rebounding to the tune of 1.5% in the premarket at time of writing, spiking the $VIX to a value of 31! It has now held above 25 for a majority of the month of September meaning this has been the 3rd most volatile period this year, as such, read on for your daily dose of market inspiration and a guiding trade recommendation in these choppy waters!
Markets in Review
The Dow, S&P and Nasdaq are currently up 111, 137 & 162 bps as a flurry of economic data hits the playing field this morning. Some of the most influential are the core and durable goods order figures, a slew of housing data (home price index and new home sales) and lastly, the consumer confidence index; get updated on their staggered release this morning here. The S&P 500 was trading dangerously close to its 52 week lows of 3600 points as of yesterday’s close. One more bad trading day and the market, which has completely broken its previous price channel as of last week’s interest rate increase, could spiral even lower. That is what equities are bouncing on today - we don’t believe buyers are ready to give up this valuation as earnings growth has been at least satisfactory over 2022 and coupled with the broad decrease in the asset class’ overall price level, equities are somewhat attractive on a fundamental basis. This runs especially true when taking into account the S&P 500’s traditionally low 18.47 p/e ratio and the solid immediate growth catalyst such as Q3’s reporting period.
S&P 500 P/E Ratio
Trade of the Day - Long: CorpHousing Group Inc. (CHG-NASDAQ) | Timeline: 2 days
CorpHousing Group Inc. (CHG), which currently operates hotels under long-term lease agreements across the US, released earnings that were reflective of a winning business model. Net rental revenue rose 144% while the company has been able to pull themselves out of debt by their second quarter of being public. Aside from this recent release, CHG also just announced a 15-year lease agreement to manage a 60-unit boutique property. This is in line with their outlook of 1,200+ units scheduled to commence operations in Q4 2022, which would result in the company doubling net revenue within 6 months. Turning to the chart, investors have struggled since going public back in August as shares have lost about 60% since then. That said, a solid earnings report followed by a smart acquisition are catalysts this stock needs to reverse this bearish narrative, and following yesterday’s jump, the MACD and RSI are looking up and out of extremely oversold territory giving traders the opportunity to ride this reatracement.
The Reality of the New Cold War Summarized
National Security Advisor, Jake Sullivan
On Sunday, the United States stated that responses will be decisive if Russia utilizes nuclear weapons in Ukraine. For many, this conversation is a stunning awakening to the reality of the global game that we find ourselves in. For most, nuclear threats haven’t been a major factor in their lives since the Iraq WMD debacle of the early 2000’s, if not longer. However, as the Russians double down on their efforts to absorb Ukraine, these threats have once again become ingrained into the public psyche. We’ve seen the re-emergence of the iron curtain, in both physical, and digital form. Essentially, Russia has cut themselves out of, and has been barred from dealing with most of the world. In the West, social media sites have limited content sharing, Russian state media has been banned, and sanctions have been enacted. While Russia is suffering economically, and may be experiencing civil discontent, they still hold Europe’s fate within its grip. Many have claimed Vladimir Putin desires to rebuild the Soviet Union, if that’s the case he seems to have only rewound the clock back to the Cold War. Much like the original conflict, we can only hope that it will end without any nation deploying their nuclear arsenal.
Oil Producers on a Tightrope
Whether you’ve been staring at income statements, or prices at the pump it’s no secret that energy producers have been making record profits over the past few months. While one may be quick to associate their pricing schemes as nothing more than a cash grab, there are some details that should be considered before calling for nationalization or anything close to it.
For starters, the next 6-12 months are hard to plan. In one scenario, the world continues to emerge from the pandemic, and although economic conditions are weaker than usual, demand remains relatively consistent. In another, a full scale war breaks out between great powers. And in yet another, the world experiences a deep and prolonged recession, sending demand plummeting. Whether one, or all of these situations arise, the point that they illustrate is the difficulty of forecasting oil revenues for the next 12 months and beyond. The differences in outcomes from these scenarios mean that oil prices could land anywhere between $50, and $150 per barrel by this time next year.
In the mix, you have politicians, most of them hostile to the fossil fuel industry as a whole, with their hands out begging for cheaper prices. Whether that’s for their people, or for their approval ratings is yet to be seen. They make the argument that prices at the pump should reflect the cost of the product they’re selling, and that current efforts are unfairly impacting the consumer.
Quite frankly, first in the list of additional external variables to consider is that these companies dealt with years of reduced oil prices between 2015 and 2021. As such it’s reasonable to assume they want to have more cash on hand for improvements, expansions, acquisitions and dividends that weren’t possible in years prior. Yet another to consider is the increased cost of doing business going forward, as many Western governments turn their noses up at the prospect of “dirty” energy.
All in all, the morality of current elevated prices is extremely grey, and the correct path of action is highly debatable. What can’t be debated is the current speculation, volatility, and difficulty that exists within the market.
Goldman and BlackRock Sour on Stocks as Recession Risk Rises
Goldman Sachs Group Inc. and BlackRock Inc. are turning more bearish on equities for the short term, warning that markets are yet to price in the risk of a global recession. (Full Story)
3 charts showing that we’re not repeating the housing bubble
Mortgage rates have surged to their highest level since October 2008. Meanwhile, Tuesday’s release of the FHFA House Price Index and S&P CoreLogic Case-Shiller Home Price Indices are likely to confirm that home prices remain near record highs. (Full Story)
Vanguard Is Liquidating a US-Listed ETF for the First Time Ever
The $39.7 million Vanguard U.S. Liquidity Factor ETF (ticker VFLQ) will be liquidated in late November, the firm said in a press release Monday. The fund “has not gained scale since its 2018 debut,” Vanguard said. (Full Story)
Ford Seeks New Trial After $1.7 Billion Jury Verdict in Truck Rollover Lawsuit
Ford Motor Co. is asking a Georgia court for a new trial, after a jury reached a $1.7 billion verdict against the auto maker last month involving a truck rollover accident that left two people dead. (Full Story)
How Donald Trump got his Deutsche Bank loans
Deutsche Bank has emerged as the star witness in New York attorney general Letitia James’ case against Donald Trump and the Trump Organization. (Full Story)
Solar Panels Piling Up in Warehouses in Energy-Starved Europe
Tens of thousands of solar panels are sitting unused in warehouses across Europe just as the continent struggles with an unprecedented energy crisis. (Full Story)
Chart of the Day - S&P Returns Over the Years…
“Corrupt politicians make the other ten percent look bad.”
- Henry Kissinger
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