14.11.2022 Are Stock Bulls Still In Control?

Bulls are hoping to extend the recent rally that helped indexes regain significant ground last week. The S&P 500 gained nearly +6% last week while the Nasdaq was up over +8% and the Dow climbed just over +4%.

Bullish bias 

Indexes are still sitting on some sizable losses, although bulls are feeling more optimistic about a year-end rally thanks to inflation showing a meaningful pullback, which is in turn boosting hopes for a less aggressive Fed.

Bulls are also saying the weaker US dollar is a nearby tailwind for stocks, which might be the case. Bears, however, think the sizable pullback in the dollar might be a “canary in the coal mine” or some type of signal that perhaps things are going to get much worse than anticipated for the US economy.

China 

Investors are also cautiously optimistic that China is beginning to move away from its “Zero Covid” policy. Officials on Friday shortened quarantine times for both travelers and those that have been in close contact with Covid patients. They’ve also relaxed some risk guidelines, such as what qualifies as “high-risk,” and seem to have narrowed parameters for lockdowns and quarantines. However, officials also insist that they are not moving away from strict controls designed to contain outbreaks, pointing to China’s massive population as well as a lack of medical resources versus developed countries in the West.

It’s not clear how the loosened controls are going to impact China’s economy or manufacturing sector but we will likely find out soon. I have to imagine if the Chinese economy is actually going to reopen and bounce back, oil prices will more than likely start heading even higher, meaning US energy stocks could still have more room to run.

I’m being a bit cautious on the Chinese optimism as Covid case counts in several major Chinese cities are again on the rise. Beijing, Guangzhou, and Zhengzhou are currently seeing record Covid numbers, and some government officials inside China are talking about possible extreme restrictions on movement and perhaps more factory lockdowns.

Data to watch 

Investors will also be paying close attention to reports out of the G20 meeting today where US President Joe Biden and China President Xi Jinping are expected to hold talks on the sidelines. Wall Street is hoping for signs of lessening tensions between the two countries on both the business and geopolitical fronts. Any indications that the US might consider easing China sanctions or signs of greater cooperation regarding semiconductors or other technologies the US deems “sensitive” could be bullish for stocks.

Investors would also like to see signs that China is willing to put more pressure on Russia to end its war in Ukraine. Any discussions regarding Taiwan will also be of high interest to investors though insiders doubt the highly sensitive subject will be brought up. 

Here in the US, investors are bracing for retailer earnings due out over the next couple of weeks and that most expect will include some very disappointing results. Investors are particularly concerned about inventory overhangs that started showing up in Q2 earnings results and have even heavily influenced US GDP (gross domestic product) for two straight quarters now.

Companies that are still struggling to solve excess inventory problems are likely going to be punished by investors that are running out of patience. Investors are also anxious to hear forward guidance and any insights into consumer spending trends. Advanced Auto Parts, Home Depot, and Walmart kick off the retail releases on Tuesday. Today’s earnings highlights are SoftBank and Tyson Foods. There is no economic data today.

Are Stock Bulls Still In Control?

Wishing you a great week!