The Asset Guidance Group Monday Outlook for the Week Ahead Starting October 24, 2022

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Here’s The Asset Guidance Group Outlook for the Week Ahead… 

The week kicks off with flash PMIs from the U.S., UK, and Eurozone as investors look for insights into recession risks. Several GDP reports arrive
as well, adding to the slate of growth specific data, with the U.S. expected to return to positive territory after two straight negative quarters.
Monetary policy statements will be coming in all week, with reports from the BOC, BOJ, and the ECB. The ECB, like the Fed, is standing firm in its
rate hiking policy to try and curb inflation and is expected to hike 50bps but may even stretch to 75bps. Earnings season continues with some of
the largest names in the  market like AAPL, AMZM, MSFT, GOOG, META,
and XOM reporting. Later in the week, U.S. durable goods orders are released as well as the Core PCE Price index, giving further insight into
the state of inflation. Some housing data will also arrive with U.S. pending home sales and new home sales. [1]

International:

Almost all major Western indexes finished the week positively as well.  Canada’s TSX rose 2.9%, while the United Kingdom’s FTSE 100 gained 1.6%.  On Europe’s mainland, France’s CAC 40 and Germany’s DAX rose 1.7% and 2.4%, respectively.  Asian indexes, however, did not follow along. China’s Shanghai Composite fell -1.1%.  Japan’s Nikkei declined -0.7%.  As grouped by Morgan Stanley Capital International, developed markets finished the week up 3.5%, and emerging markets added 3.1%.

Commodities:

Precious metals finished the week in the green.  Gold rose 0.5% to $1656.30 per ounce, while Silver rallied 5.5%.  West Texas Intermediate crude oil ticked down -0.7% to $85.05 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, gained 1.5%. 

U.S. Economic News

The number of Americans filing for first-time unemployment benefits fell last week, even as the broader economy is showing definitive signs of slowing.  The Labor Department reported initial jobless claims fell by 12,000 to 214,000 in the seven days ended October 15.  Economists had expected new claims to total 230,000.  Analysts view the number of people applying for jobless benefits as one of the best barometers of whether the economy is getting better or worse.  New filings have been slowly creeping higher over the past month, but remain at very low levels signaling the labor market remains tight.  Meanwhile, ‘continuing claims’, which counts the number of people already receiving benefits, rose by 21,000 to 1.39 million—still near a 50-year low.  However, most analysts aren’t expecting claims to remain so low much longer.  Chief economist Rubeela Farooqi of High Frequency Economics wrote in a note, “We expect layoffs to rise gradually over coming months as demand slows in response to aggressive Fed tightening.”

The sentiment of the nation’s homebuilders fell for a record tenth month in a row this month, a situation that is both “unhealthy and unsustainable”, according to the National Association of Home Builders (NAHB) chairman Jerry Konter.  The NAHB reported its monthly sentiment index fell 8 points to just 38 in its latest reading.  Outside of the pandemic, the latest reading is its lowest since August of 2012.  For perspective, the index at this time last year was at 80.  All three gauges that make up the headline number fell.  Current sales conditions fell by 9 points, while sales expectations for the next six months fell by 11 points.  The measure of prospective buyers fell by 6 points.  All four regions of the country posted a drop in builder confidence, led by the South and West.  Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand.

Sales of existing homes fell again, as the downturn in housing continues to gather steam.  The National Association of Realtors (NAR) reported existing-home sales fell 1.5% to a seasonally-adjusted annual rate of 4.71 million in September.  It was its eighth consecutive monthly decline, the first time that’s happened since 2007.  The decline was in line with economists’ forecasts.  Outside of the pandemic, the level of sales activity was at its lowest since September 2012.  Compared with the same time last year, home sales were down 23.8%.  As expected, prices continued to come down as well.  The median price for an existing home fell to $384,800 from $389,500 in August.  Expressed in terms of a months-supply metric, there is currently a 3.2-month supply of homes on the market.  Before the pandemic, a five to six-month supply was generally considered a ‘balanced’ housing market.

Factory activity in the New York region pulled back this month—the third consecutive negative reading.  The New York Federal Reserve reported its ‘Empire State Business Conditions index’, a gauge of manufacturing activity, fell 7.6 points to -9.1 in October.  Economists had expected a decline to just -5.0.  In the details of the report, the index for new orders remained unchanged at 3.7, while the shipments index plunged 19.9 points to -24.1.  On the inflation front, the prices-paid index rose 9 points to 48.6.  Richard Moody, chief economist at Regions Financial stated the U.S. factory sector is under pressure from falling orders, thinning backlogs, and right-sizing of inventories.  Firms reported they are not expecting conditions to improve over the next three months.

Similarly, the Philadelphia Fed reported its manufacturing gauge remained weak as well recording its fourth negative reading in five months.  The Philadelphia Fed reported its gauge of regional business activity ticked up to -8.7 from -9.9 in the prior month.  The reading was far below economists’ expectations for a reading of just -0.5.  New orders rose just 2 points to -15.9, while shipments remained unchanged at 8.6—its lowest reading since May 2002.  The measure on the business outlook for the next six months fell sharply to -14.9 from -3.9. 

The Federal Reserve’s ‘Beige Book’—a collection of anecdotal reports from each of its member banks, showed that inflation eased a bit in early fall, but higher interest rates and a slowing economy spurred more talk of recession.  Some key points from the report–“Price growth remained elevated, though some easing was noted across several districts,” the Beige Book said.  In addition, the declining cost of fuel, commodities and freight costs also raised expectations among businesses “for price increases to generally moderate.”  Yet other businesses said high inflation was still pushing up wages and would continue to do so.  Worries about recession have increased, especially in the Boston, Chicago and Philadelphia regions.  “The outlook turned more pessimistic as recession fears spread,” the Boston Fed said. [2]

Random Thought/Image of the Week

Social media and “tech” companies who rely on advertising dollars to be profitable have been under considerable pressure lately—to put it mildly.  SNAP was the first major advertising-dependent social media company to report earnings this week, and it was a bloodbath.  SNAP shares plunged 26% following its report to its lowest price since 2019—just $7.88.  Even the biggest of all social media companies – Facebook – has been caught up in the carnage.  Now calling itself by the widely-mocked name “Meta”, Facebook is down 67% from its high of 13 months ago, which takes it all the way back to where it was in 2016.  As one pundit put it, “Zuck sure has meta mess of Facebook!”  (Chart by wolfstreet.com). [3]

Structured Note Values

  1. XLE/XOP Lowest, XLE Pricing Value 3/25/22: 78.75, Current: 86.93, Delta +10.39%; XOP Pricing Value 3/25/22: 138.60, Current Value: 147.59, Delta +6.49%
  2. Lower of GDX/GDXJ; GDX Pricing Value: 4/29/22: 34.99, Current: 24.34; Delta -30.44%; GDXJ Pricing Value 4/29/22: 42.95, Current: 29.85 Delta -30.50%
  3. Lower of GDX/GDXJ; GDX Pricing Value: 5/26/22: 32.39, Current: 24.34 Delta -24.85%; GDXJ Pricing Value 5/26/22: 39.67, Current: 29.85, Delta -24.75%
  4. ARKK Pricing Value 7/15/22: 44.11, Current: 33.99, Delta -22.94%
  5. SPX Pricing Value 7/18/22: 3863.16, Current 3583.07, Delta -7.25%
  6. RTY Pricing Value 7/18/22: 1744.37, Current: 1742.24, Delta -0.12%
  7. NDX Pricing Value 7/18/22: 11,452.42, Current: 10,859.72, Delta -5.18% [4]

Chart of the Week: 

Gold futures (/GC) started last week off heading lower just like most of the last eight months, but rumors of the Fed slowing down in its rate hikes gave it a major boost on
Friday. It appears as though
the downward momentum was
already weakening, with the
chart setting up clear bullish
divergences on both the MACD
and RSI indicators. Friday’s low was nearly the same as the low from a month earlier, so if that support holds and gold rallies through the recent high at $1736, it would form a double bottom reversal, but it’s still got work to do to get there. Click here to view chart [5]

Sources: [1] tdainstitutional.com; [2] [3] [4] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Bloomberg.com; [5] tdainstitutional.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

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