Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Oct. 26. The Bottom Line segment of today’s podcast starts at (5:36) for listeners who want to skip ahead.
State of Play
Stocks sold off pretty steeply yesterday, with tech seeing the worst of it. In fact, the Nasdaq officially entered corrections territory (defined by a drop of 10% from the high). After the close Meta (META 0.00%↑) initially brought some good cheer by beating earnings estimates before the conference call reversed that too over prospects of weaker ad sales. As of 0650 we are looking at risk-off as a result:
Stock index futures are pointing to a lower open, led by tech. The Nasdaq is down 0.9%, sinking further into correction territory (but off of the lows of the overnight session). S&P 500 futures are down 0.6%;
Bonds are so far not affected by the tech selloff. The 10-year yield is unchanged at 4.96%, admittedly higher than it was yesterday. The 2-year yields 5.13%;
Commodities are mixed. WTI crude oil is down 1.5% to trade around $84/barrel. Copper is up 0.6%;
Cryptos aren’t doing anything. Bitcoin is unchanged at $34,400.
Known Events
Another big day for earnings awaits. These are coming out fast and furious:
United Parcel Service (UPS 0.00%↑) reported mixed earnings and appears to have lowered guidance “to reflect global macroeconomic uncertainty”;
Hershey Co (HSY 0.00%↑) beat on top- and bottom-line estimates and reaffirmed its outlook;
Northrop Gruman (NOC 0.00%↑) beat on top- and bottom-line and raised its sales outlook;
Southwest Airlines (LUV 0.00%↑) missed top- and bottom-line estimates.
Altria (MO 0.00%↑), Royal Caribbean (RCL 0.00%↑), MasterCard (MA 0.00%↑), Hasbro (HAS 0.00%↑) and Hertz Global (HTZ 0.00%↑) are due out before the open as well. So are several others (too many to list).
After the close we’ll hear from Amazon (AMZN 0.00%↑), Intel (INTC 0.00%↑), Chipotle (CMG 0.00%↑), and Ford (F 0.00%↑) among others.
There’s also a bunch of economic data out this morning:
The European Central Bank decides on interest rates at 0815. The ECB is expected to keep its key rate at 4.50%. That’s mostly the domain of currency traders but if the ECB decides to tighten (or provide hawkish enough rhetoric) then it could lead to concerns the Fed will have to follow suit, which would be bad for Treasuries.
We then get our first look at third quarter GDP at 0830. Economists expect 4.3% growth after a 2.1% print last quarter. There’s a price index component of this as well, which is a gauge of inflation. That is expected to come in at 2.5% after seeing 1.7% last quarter. Friendly reminder that this is a trailing indicator capturing a three-month period that is already behind us.
Durable goods orders are out at 0830 as well. The expectation is for an increase of 1.5% month-over-month for the headline figure after just 0.2% last month. The core figure, which excludes transportation items, is expected to come in at 0.2% MoM after 0.4% MoM last month.
Seeing how it’s Thursday we also get initial jobless claims at 0830. These are expected to come in at 209,000 after 198,000 last week. The four-week average is 206,000.
Pending home sales are out at 1000. The expectation here is for a decrease of 1.3% month-over-month versus a drop of 7.1% last month.
The Bottom Line©️
What to make of the tech sell-off? With Meta yesterday everything was positive and moving along until the CFO said ad sales were going to be soft this quarter. That small datapoint led to a massive reversal. It didn’t help that Snap (SNAP 0.00%↑) reported similar ad sales expectations earlier in the week. With Twitter reportedly losing advertisers, the whole thing points to a broader slowdown in ad spending as it can’t all be going to TikTok — and there aren’t any other outlets for ad dollars (right? The Contrarian at least can’t think of any).
Stock markets are forward looking indicators and investors continue to look for any clues that the economy is slowing. A drop in ad-spending could be one such indicator. It would lead to layoffs of marketing staff, layoffs on Madison Avenue, and take a toll on the services sector from where it could spread elsewhere.
There have yet to be any clues of broader job losses though. Initial jobless claims are still low and by all counts the labor market is point to full employment. That may be why this is isolated to tech so far. That situation could soon change of course as selling begets selling.
It’s hard to justify this as a buying opportunity for tech just because the sector has run up so much this year and so much of it moves on momentum. But if you have reason to believe the whole thing is an overreaction then maybe there is justification to buy the dip. It’s ‘just’ a correction, after all. These are normal, even healthy. Or so the argument goes…
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Nasdaq Correction