Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Monday, Oct. 7. The Bottom Line segment of today’s podcast starts at (2:21) and Stocks on the Contrarian Radar©️ feat Pfizer (PFE 0.00%↑) at (4:30) for listeners who want to skip ahead.
State of Play
The jobs report on Friday produced a welcome surprise, signifying continued strength in the US labor market. Stocks rallied as a result and bonds sold off. As we eye our board of indicators for signs of direction at 0655, it looks like we could be in for a little risk-off:
Stock index futures are pointing to a lower open, led by tech. The Nasdaq is down 0.6% with S&P 500 futures down 0.5%;
In commodities land, the major move is in oil, with WTI crude up 2.7% to trade north of $76/barrel. Copper is unchanged;
Bonds are continuing to move lower. The 2-year yield is up 7 basis points to an even 4% whilst the 10-year is up 3bps to 4% as well. So the yield curve is once again flat. The reason for this spike in yields (and drop in prices, as the two more inversely to each other) is Friday’s jobs report. If jobs are plentiful, the Fed will not need to cut rates. That’s bad for bonds;
Cryptos are moving a bit higher with Bitcoin up 1.5% to trade close to $63,000.
Today’s Known Events
There is very little on today’s calendar. Consumer credit at 1600. This is expected to print at $11.8 billion, which is well below the $25 billion from a month ago. This gauge is notoriously volatile and then it’s hard to take anything meaningful from it. Generally, Americans going into debt is good for the global economy because it means they are continuing to buy stuff (they don’t need). Until they take on too much debt and can’t keep up with the payments. Where are we on that scale? Nobody knows for sure.
Other than that just a couple of Fed speakers:
Fed Governor Michelle Bowman is apparently participating in a discussion at the Independent Bankers Association of Texas, at 1300. Bowman is a full FOMC voting member;
Minneapolis Fed President Neel Kashkari is apparently due to speak but your host could not find confirmation of this. Kashkari is not an FOMC voting member this year anyway so who cares;
Atlanta Fed President Raphael Bostic is due to participate in some kind of discussion at 1800 tonight. Bostic is a full FOMC voting member but he has already spoken since the last Fed meeting.
The Bottom Line
So a quiet start to the week but don’t get too comfortable because we have the return of earnings season. Traditional curtain-raiser Delta Air Lines (DAL 0.00%↑) opens the proceedings on Thursday morning. Friday we’ll get big banks JPMorgan (JPM 0.00%↑) and Wells Fargo (WFC 0.00%↑) and the world’s largest asset manager (right?) Blackrock (BLK 0.00%↑).
You’ll probably hear a bit about Thursday’s inflation print as well but that can pretty much be safely ignored at this point. The Fed — and the market — have moved on from inflation. The inflation dragon has been slayed. The Fed won, inflation lost. The bigger question now is whether and by how much the economy is going to slow — or if we will have the ‘no landing’ scenario that appears increasingly priced in. Earnings, not inflation readings, should tell us more about that though any employment data is obviously crucial as well. Thursday’s initial jobless claims is the only reading we get on that front this week.
Stocks on the Contrarian Radar©️
Pfizer (PFE 0.00%↑) is up 3% overnight on a Wall Street Journal report that activist investor Starboard Value has taken a stake worth ~$1 billion in the company. As you can see, Pfizer stock clearly needs the help. If you look at the five-year chart, PFE is back below its pre-Covid levels:
Pfizer’s performance is particularly awful if you hold it up to Novo Nordisk (NVO 0.00%↑) and Eli Lilly (LLY 0.00%↑), which have successful weight loss drugs Ozempic and Zepbound, respectively. Here’s the 12-month chart:
The reason is quite simply that LLY and NVO have successful weight loss drugs while Pfizer does not. Can an activist investor change that? One would think that it’s not lack of trying that has prevented Pfizer from developing a weight loss drug. Maybe a shake-up in the executive ranks can change that? Starboard’s plans are unclear beyond reportedly approaching up two former Pfizer execs.
The market reaction has been pretty muted overnight which begs the question if there is substantial upside in Pfizer stock that is waiting to be unlocked? From a valuation standpoint, PFE is not particularly cheap trading at 21x forward earnings, 2.7x forward sales, and almost 9x forward cash flows.
The Contrarian is long PFE and has been for awhile. But he sees no reason to add to his holding at this point. Not investment advice. Do your own research, make your own decisions.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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