Why stock market investing is so bizarre right now: Morning Brief

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Monday, October 22, 2022

Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.

Each Saturday, I have rituals of sorts.

First, I do two workouts — one in the morning and one in the afternoon. Two, I relax by waxing my car. And three, I rewatch a bunch of the on-camera content I produced from the week. Call it the obsessive pursuit of constant improvement. Did I miss a question to a top executive? Was I too harsh on a company’s quarter? Did I smile when I should have been intensely serious? All questions I debate.

During this weekend’s analysis, I realized I used the word bizarre a ton when breaking down corporate earnings and the general start to the earnings season.

This image was created by Yahoo Finance using the Dall-E image generator. (Open AI)

Just look at a few of the things we’ve been covering on Yahoo Finance:

Bank of America CEO Brian Moynihan CEO tells me consumer spending is up 10% through October. What recession?
American Express CEO Stephen Squeri tells me in a fired up phone chat the market misunderstand his quarter and guidance, and he sees no recession on the horizon.
Snap’s stock gets pummeled on a continued ad slowdown (and terrible execution by CEO Evan Spiegel), which is being caused by the global economic slowdown.
Generac posts an earnings warning and says there is too much generator inventory in the sales channel. Bring on the power-saving discounts!
Whirlpool — known for its impressive execution — slashes full year guidance and has inventory levels also running too high for the current economic environment.
Verizon posts lackluster subscriber additions because consumers are balking at the company’s recent price increases. CEO Hans Vestberg struck a more cautious tone on the business — in my view — in an interview with Yahoo Finance’s Brad Smith.
AT&T CFO Pascal Desroches tells me consumers are trading up to higher phone plans and that it added a solid number of new subscribers in the third quarter.
Netflix shares get major love by investors for a somewhat comeback quarter — with everyone overlooking a $1 billion projected sales hit this year from the stronger dollar.
P&G CEO Jon Moeller tells me he doesn’t see a recession even as his company continues to push through price increases on everything from Tide detergent to Gillette razors.
Alcoa’s quarter sucked.
I wasn’t too keen on WD-40’s quarter, either.

The read from all of this: It’s bizarre times for investors because it’s bizarre times for publicly traded companies.

Interest rates are on the rise. Supply chain inflation is still around in a big way. Some companies are doing great in this environment — others not so much. There truly is a lack of a clearly defined narrative at the moment for investors to rally around (or avoid). And oh yeah, the market could ignore corporate earnings entirely and get smashed to pieces by one word uttered by a Federal Reserve member on TV.

So what to do? UBS chief investment officer Mark Haefele provided a good framework for evaluating these bizarre times, making the case the markets can’t mount a sustained advance until these conditions change:

“First, the latest US inflation and labor market data suggest that interest rate cuts remain far off, even if the Fed is likely to stop hiking rates in the first quarter of next year. Core consumer price inflation is at its highest since 1982, the Fed has consistently conveyed that it is more willing to ‘overtighten’ policy than risk not doing enough, and the labor market is tight.
Second, consensus earnings forecasts, which look for 5% growth globally in 2023, do not appear to factor in the potential negative consequences of a period of tight monetary policy. Numerous leading indicators are pointing down. And China remains a source of near-term risk as it attempts to resolve issues related to COVID-19 and the property market.
Third, the continued rise in interest rates also means that valuations, despite falling in absolute terms, do not yet fully discount a bear case, especially in the US. The sell-off in equities can be almost entirely explained by higher interest rates, while lower growth expectations are not yet priced into stocks.”

On that note, Happy Wealth Building in what could be another bizarre week.

What to Watch Today

Economy

8:30 a.m. ET: Chicago Fed National Activity Index, September (0.00 during prior month)
9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, October Preliminary (51.0 expected, 52.0 during prior month)
9:45 a.m. ET: S&P Global U.S. Services PMI, October Preliminary (49.6 expected, 49.3 during prior month)
9:45 a.m. ET: S&P Global U.S. Composite PMI, October Preliminary (49.5 during prior month)