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PCE Deflator, Much Earnings
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Current time: 0:00 / Total time: -9:37
-9:37

PCE Deflator, Much Earnings

Tech futures are sinking after disappointing earnings from Microsoft and Meta, but plenty on the calendar to potentially change sentiment…

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, Oct. 31. Happy Halloween! The Bottom Line segment of today’s podcast starts at (2:43) followed by Stocks On The Contrarian Radar©️ feat SMCI 0.00%↑ at (3;49) for listeners who want to skip ahead.

State of Play

Microsoft (MSFT 0.00%↑) and Meta (META 0.00%↑) reported disappointing earnings after yesterday’s close and both stocks dropped overnight. That is clearly weighing on sentiment as we eye our board of indicators for signs of direction at 0645:

  • Stock index futures are pointing to a lower open with tech leading the drop. The Nasdaq is down 1%. S&P 500 futures are down 0.7%;

  • Cryptos appear to have followed tech and are now unchanged around $73,000;

  • Commodities aren’t doing much. WTI crude oil is up 0.5%. Copper is unchanged. Silver is moving lower, to the tune of 1.3%;

  • Bonds aren’t doing anything. The 2-year yields 4.16% whilst the 10-year yields 4.27%.

Earnings

Another busy day awaits.

The main event is once again after the close when we’ll hear from Amazon (AMZN 0.00%↑), Apple (AAPL 0.00%↑), and Intel (INTC 0.00%↑).

This morning has some big names as well, however: Uber (UBER 0.00%↑), MasterCard (MA 0.00%↑), Roblox (RBLX 0.00%↑), Norwegian Cruise Lines (NCLH 0.00%↑), Altria (MO 0.00%↑), ConocoPhillips (COP 0.00%↑), and Estee Lauder (EL 0.00%↑) are all due to report before the open at 0930.

Economic Data

It’s a busy day here as well:

The PCE Deflator, the Fed’s preferred inflation gauge, is out at 0830. Economists who were surveyed expect a monthly increase of 0.2% versus 0.1% recorded last month. Core PCE, which excludes food and energy, is expected to print at 0.3% month-over-month versus 0.1% at the previous reading.

At the same time we’ll get initial jobless claims. The expectation here is for 229,000 new claims, effectively identical to the 227,000 recorded last month and below the four-week average of 238,000.

The Bottom Line

So a lot of moving parts. Inflation is maybe not quite dead yet so that will be closely watched. Earnings will certainly have an effect as well. Perhaps some of the tech-y names like Uber and Roblox can salvage sentiment for tech here. More likely that will have to wait until Amazon and Apple earnings after the close.

The election is getting closer and we recorded the third in our three-part election special yesterday. That is available to you (premium subscribers) exclusively at this time. The guest had some disconcerting things to say about how this all might go down:

Stocks on the Contrarian Radar©️

Super Micro Computer (SMCI 0.00%↑), at one point an AI darling almost on the level of Nvidia (NVDA 0.00%↑), yesterday got bludgeoned to the tune of 33%. Quick maths tells you that corresponds to a third its stock value. The loss wipes out all of SMCI’s gains for the year:

TradingView chart

The catalyst for yesterday’s sell-off was an announcement that the company’s auditor had resigned, citing ‘integrity’ concerns. There had been some rumblings around SMCI for awhile, with short-seller Hindenburg Research voicing concerns and management delaying its annual report.

Short sellers aren’t always right. But sometimes they are. This would appear to be one of those instances.

The auditor’s resignation on these grounds effectively makes the stock immediately uninvestable because it casts into doubt every single financial statement the company every produced. So it really isn’t even worth going through the valuation. Who knows how much of it is true? Is any of it? Worth pointing out that this was the second auditor to resign in the last 18 months…

Markets hate uncertainty more than they hate bad news. This latest development means there is nothing but uncertainty surrounding this company for the foreseeable future.

Might this all present a buying opportunity? Sure, but you’re going to need to be a better accountant than Ernst & Young (and have the same access) to work that out. To The Contrarian that looks an awful lot like playing Russian Roulette. With five bullets.

What this also does is shine an unwelcome spotlight on the accounting practices of other tech shops, especially those trafficking AI products. No surprise then, that AI chip stocks sold off yesterday as well. So did some (though not all) of our ‘undiscovered 7’. It also gives The Contrarian pause before adding to any of these names. A lot of that is surely unfair. These can’t all (or even most) be crooks. But it introduces uncertainty. And uncertainty, well, you know…

(Not investment advice. Do your own research. Make your own decisions).

Housekeeping

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Discussion about this podcast

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The daily podcast discusses the major market activity and economic data release schedule for the day ahead, with a contrarian bent. Also includes regular podcast episodes a day (or more) early and without ads or announcements.