👉 The Investing Week Ahead: 12/11/23

The above chart isn’t a historically reliable indicator — but more of a testament to how much deeper the Fed has been placed under the magnifying glass.

What We’re Watching:

After September’s earnings report, shares of Oracle dropped -9% due to unimpressive guidance and worries that the company will be too dependent on the success of its Cloud division. Nevertheless — the stock is up +39% YTD.

Adobe’s last earnings report saw marginal beats on both its guidance and Wall Street estimates. The primary focus was a complete overhaul of adding generative AI capabilities to its suite of content creation and marketing tools. Some analysts have shifted more cautious on Adobe — largely due to UK regulators hating on their proposed acquisition of Figma.

The most recent Costco earnings report saw strong grocery sales keeping the company ripping — with discretionary items seeing an expected dip in purchasing momentum. Investors are interested to see if Costco can keep its momentum of having +8% YoY membership growth — surpassing 71 million paid household members last quarter.

4 out of those 11 sectors saw net profit margins shrink YoY for Q3. 

Intel has been a ‘comeback kid’ over the past year or so — and investors are cautious if their growth story has the legs to make it the distance. The semiconductor landscape is ultra competitive, and there will be a lot of eyes on this event.

This is paired with the -64% drawdown in the Chinese real estate market so far in 2023 — which followed a -81% decline from 2021-2022.

China’s economic slowdown has been severe — with impacts coming rom Xi Jinping’s emphasis on national security, members of Congress encouraging a widespread breakaway from Chinese investment, and an overall downturn in demand for its manufactured goods due to slowing global growth.

We’re not sure what to think about Wall Street shying away from Chinese investment. Blackstone and BlackRock were among the corporate underwriters of Xi Jinping’s November dinner in San Francisco — and Ray Dalio was listed as an individual underwriter too. The big boys clearly still care about this relationship.

What We’re Watching:

Last month’s inflation reading improved consumer sentiment in the U.S. (above) — while still seeing +3.7% YoY Headline CPI and +4.1% YoY Core CPI.

This week’s reading could let us know if we should shift our forward-thinking to the next difficult problem — dealing with deflation.

How could deflation be bad? Don’t we want that?

Well — yes we do. The danger is in the rapid changes over a small amount of years. Deflation can encourage consumers to postpone their purchasing decisions while waiting for prices to drop further. It also — more importantly — causes a deterioration in the financial situation of borrowers that overpaid and often cannot exit their investments at a profit.

“Every serious deflation I've looked at is preceded by an asset bubble, and then it bursts.” — Stanley Druckenmiller

“Deflation is coming.” — Elon Musk in June 2023

“Deflation can be particularly dangerous when a financial system is shaky, with household and corporate balance sheets in poor shape and banks undercapitalized and heavily burdened with bad loans.” — Ben Bernanke

Another consideration is increased inventories for companies that can no longer sell their products at previously forecasted margins. This often leads to reduced investments, decreased production, and layoffs. This is one of the reasons why we tell readers to pay attention to unemployment.

All-in-all — the Fed seems to be on track with its goals. These deflation considerations aren’t the focus of the day — but we wanted to break it down for you because you likely will be hearing more about this over the coming quarters.

What an important meeting the Fed has this week — which will absolutely set the tone for Q1 2024.