👉 The Investing Week Ahead: 11/6/23

So what does that mean?

There has been a years-long calling for “raising rates until inflation is conquered.” While that’s the Fed’s plan — the effects of interest rates are very lagged and cannot be pinpointed.

Currently — the expectation is for one more rate hike in early 2024, and very small rate cuts beginning by the end of 2024. We would not be surprised if that last rate hike was skipped and the rate cuts came a bit sooner than expected.

Regardless of the cuts, how do I play this with stocks?

Well… that’s the hard part here. Throughout the last few years, rate increases have been bullish for stocks (because inflation is going down). However, we’ve all heard of the phrase “Don’t fight the Fed.” With potential rate cuts coming in the next 12-18 months, companies will have the opportunity to operate in a looser financial environment — which is theoretically bullish for stocks.

We believe that we are not in a soft landing, and that the true effects of the most aggressive rate hikes in history are just now arriving.

So stocks will go down for sure then?

That’s not what we’re saying either. While the beginning of Fed rate cuts often leads to a stock market plummet — it doesn’t always happen:

What we’re saying is that you should ask yourself why rate cuts might come earlier by the Fed? Especially if inflation isn’t defeated.

It might be because the Fed’s job isn’t only to defeat inflation, but also to protect the stability of the financial system as a whole. As investors, we need to keep a constant eye on if new forms of economic / financial destabilization are emerging.

It’s really all about how many things “break” over the coming months (if anything).

What We’re Watching:

Uber announced two major benchmarks during its last quarterly report — its first quarter of free cash flow over $1B and its first GAAP operating profit. The number of Uber monthly active platform users reached 137M people — an increase of +12% YoY.

Analysts will be looking to see if Uber can beat revenue expectations after it fell short last time around.

Disney’s most recent earnings report was highlighted by a rare quarterly net loss after recording $2.65B in one-time changes and impairments. Disney+ also saw a -7.4% decline in subscribers. Parks and experiences have been helping keep the P&L statement afloat — with a +13% revenue increase to $8.3B last quarter.

Analysts will be looking to hear more about the $8.6B purchase of Comcast’s remaining stake in Hulu.

“Buffett earlier this year brushed off Fitch Ratings’ downgrade of US credit from the top AAA grade to AA+, telling CNBC on August 3 that Berkshire bought $10 billion worth of US Treasuries that week after doing the same a week prior.

“The only question for next Monday is whether we will buy $10 billion in 3-month or 6-month [Treasury notes],” Buffett said at the time.”

— Krystal Hur and Parija Kavilanz, CNN Business

The timing of Elon Musk’s release of xAI’s Grok system came just a couple of days ago — almost certainly with the hope of stealing some of OpenAI’s thunder.

What We’re Watching:

The last report on consumer credit saw its first decline since 2020 — a sign that the U.S. economy could be cooling. We’ll be on the lookout for words of affirmations during this week’s report.

This one might sound boring — but it’s actually pretty dang important.

The Fed Senior Loan Survey is one of the ultimate gauges for how tight lending conditions are at banks. This only comes out four times each year — and the last release (July) revealed that banks were being much more selective about extending credit.

The last few years have seen one of the sharpest increases in bank loan standard tightenings… ever. We’ll see how the last quarter of bank activity shaped out soon.