👉 The Investing Week Ahead: 1/30/23

Guidance Matters:

Remember — even if a company’s results are lackluster, stocks can still soar based on forward-looking guidance.

The difference between operational issues that are going to be here for another 6 months versus 9 or 12 months can often be the difference between massive swings to the upside or downside.

When expectations have been lowered and earnings revisions pile in toward the downside — GUIDANCE during recessionary times is often the most important part.

Let’s see who’s in the queue.

The Big Boys are Up to Bat:

The Nasdaq-100 is considered the preeminent tech-heavy stock index. 

Last week, Microsoft (MSFT) warned that sales growth from its important Azure cloud-computing business will slow by -4 or -5 points.

Intel (INTC) gave one of its most dreary forecasts ever — predicting that its gross margin would be down 14.1 points from the same period a year ago.

International Business Machines (IBM) projected weaker-than-expected profitability.

However… the Nasdaq-100 was still up +4.7% last week — nearly double the return of the broader S&P 500.

It’s now up to the next set of heavyweights to show us under the hood. Below are so thoughts in anticipation of the reports:

We’ll also be looking to see the current state of the cloud infrastructure development for both Amazon and Google — especially after Microsoft Cloud drove the tech giant’s revenue in its report last week.

However, MSFT clearly signaled that the cloud business is expected to slow (as mentioned above).

Signals are mixed and we want more data.

Chaotic Week for Policymakers:

Does Spain’s inflation directly impact ours?

Not necessarily, but this was an unwelcome start to a week in which major decision-makers are waving their wand. The ECB and BoE are expected to lift rates by half a percentage point, to their highest levels since fall of 2008.

“After a slow December, a return to ‘normal’ would be welcome. With inventories improving, and more fleet activity likely, we are expecting an increase in January new-vehicle sales activity. 

Though some dealer lots across the country have ample inventory, some Asian brands continue to have extremely limited availability.

One of the key questions for the market this year is whether some brands – particularly American ones – will be forced to increase incentives to keep supply from getting too high.” — Charlie Chesbrough, Senior Economist @ Cox Automotive

Alliances Forming:

The numbers are staggering that have been sent to Ukraine (2022 data of shipments from the U.S. shown above).

It’s a complex topic and the loss of life is devastating, but the clearly emerging visuals of alliances forming is pretty dang frightening.

Just check out this WSJ excerpt from Saturday:

“The U.S. is trying to persuade Mozambique, an African country long friendly to Moscow, to use its new seat on the United Nations Security Council to condemn Russia’s invasion of Ukraine.

The American ambassador to the U.N., Linda Thomas-Greenfield, visited the southern African country this week, telling the government that neutrality wasn’t an option when a big power invades a smaller neighbor in violation of a U.N. Charter that Security Council members are bound to uphold.”

Things feel like they’ve shifted toward a ‘you’re with us or you’re against us’ mentality. 

We’re very interested to see how this unfolds, and we’re hoping it’s more peaceful than expected.

What We’re Watching:

The three Fed Funds forecasts shown above are based on the following:

In other words — the above chart shows how different projections are when compared to the Fed’s words throughout Q4’22.

Jerome Powell’s speech on Wednesday should provide us with clarity if the market ‘calling their bluff’ has been correct.

Key thing to look out for — will things be “higher for longer?” The new base case from the market is two more 25 bps raises and rates starting to be cut around summertime.

Will anything more severe than that cause investors to worry?

The above graph from Morgan Stanley (MS) shows the pretty well-correlated relationship between S&P forward EPS and the unemployment rate.

This week, we get a full look at the employment situation from both the Bureau of Labor Statistics (BLS) and ADP’s jobs report.

Currently, the unemployment rate is expected to rise marginally from 3.5% to 3.6%. Everyone is watching to see if this seemingly immovable number will ever rise.

If you weren’t aware, Warren Buffett’s Berkshire Hathaway (BRK.A) is the largest shareholder of American Express stock. 

This Top 10 list of heavy hitting shareholders was pleased to see a +15% dividend increase last week — and I’m absolutely looking further into American Express as a position in the dividend growth portfolio: