Elections = Volatility
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In Today’s Newsletter:
Watch List: Things to keep an eye on this week
Tweet: Can the government declare bankruptcy?
Headlines You Missed
TikTok: Brazil In Chaos
Atomic Habits: Chapter 9: The Role of Family and Friends in Shaping Your Habits
Quote of the day:
“Life can be much broader once you discover one simple fact: Everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it… Once you learn that, you'll never be the same again.” —Steve Jobs
Weekly Watch List
Last Week
U.S. equity markets rose on Friday following a stronger-than-expected jobs report but fell for the week after the Federal Reserve conducted its sixth consecutive interest rate hike this year, raising borrowing costs to their highest level since 2008. For the week, the Dow fell 1.4%, the S&P 500 shed 3.3%, and the Nasdaq tumbled 5.6%. Treasury yields rose, with the yield on the 10-year note at 4.2%, while two-year yields climbed above 4.7%, as the inversion of the yield curve deepened.
Inflation
On Thursday, the Bureau of Labor Statistics (BLS) will release its Consumer Price Index (CPI) for October. Economists are projecting consumer prices rose 0.7% from a month earlier, accelerating from a 0.4% gain in September. On an annual basis, prices likely rose 8% from a year ago, decelerating slightly from an 8.2% gain in September. Core inflation, which takes away food and energy costs, likely rose 0.5% from a month earlier. Year-over-year, core inflation is expected to hit 6.7%, accelerating from 6.6% in September and reaching a new 40-year high.
Midterm Elections
The stock market is setting up for another volatile week as midterm elections prepare to dominate headlines. Most early polls are pointing to Republicans at least winning the US House and maybe the Senate, ending Democrats’ complete control of Congress and bringing in a period of gridlock. Gridlock can be positive for the markets as this reduces the uncertainty of laws being pushed through without a fight. Historically, the quarters after elections are considered extremely bullish for the markets. This is due to investors knowing what policies will be in place based on the elected officials.
Some of the stocks/industries I will be watching are energy, weed, health care, and technology. These industries will be heavily impacted based on how the election goes this week.
Maryland, Arkansas, Missouri, North Dakota, and South Dakota are all voting on legalizing marijuana. If these states approve the law change it will cause positive movement across the board for weed stocks. If these states fail to change the law the weed stocks will turn negative. If Republicans take control of Congress, federal legalization will most likely not happen.
Healthcare will be under the spotlight as Democrats are pushing for lower drug prices while Republicans tend to be more favorable to the drug industry. The Inflation Reduction Act has allowed for Medicare to negotiate drug prices from pharmaceutical companies. Pfizer, AbbVie, Eli Lilly, and Merck could all see negative impacts from these changes.
Assuming Republicans win control of either the Senate or House, energy policy is unlikely to see a major change. While the Biden administration’s recent threat to impose a windfall tax on oil producers initially sent companies including Phillips 66, Exxon Mobil and Chevron lower, such a proposal is likely to be blocked by Republican lawmakers. Democrats recently passed a landmark climate law that includes generous long-term subsidies for clean-power installations. This is positive for companies like NextEra Energy and rooftop-solar installer Sunrun.
Major US technology companies, from Alphabet to Meta, have long been a target for potential regulation. And indeed, the White House is planning a post-midterm push for antitrust legislation through Congress before a predicted Republican takeover in January. The GOP has made it clear that they won’t support the bills if they retake control of either chamber of Congress. For tech investors, the midterms also bring focus to the research and development tax break put in place during the Trump administration. Under that legislation, firms with large R&D spending could fully deduct those costs during the year in which they occurred as opposed to having to write them off over the span of five years. “The R&D tax credit change, if reversed, we feel would be positive for the information technology sector,” said Michael Taylor, an analyst at Wells Fargo. “If the tax credit is not reversed, a higher corporate tax bill could potentially weigh on the earnings and performance of the affected companies.”
Monday
Activision Blizzard, BioNTech, Diamondback Energy, Tata Motors, Take-Two Interactive Software, Palantir Technologies, Alliant Energy, SolarEdge Technologies and Viatris report earnings
Consumer Credit Change
Tuesday
Walt Disney, Occidental Petroleum, Constellation Energy, DuPoint, Alcon, Lucid, Fidelity, and Norwegian Cruise Line report earnings
NFIB Business Optimism Index
China Inflation Rate
Wednesday
TC Energy, Southern Copper, Rivian Automotive, Roblox, and The Trade Desk report earnings
Thursday
AstraZeneca, Becton Dickinson, NIO, Toast, Aegon, Celsius, U.S. Foods Corp, Ralph Lauren, Dillards, Weibo, and WeWork report earnings
U.S. Inflation Report
Friday
Mitsui, Mizuho Financial and Embraer report earnings
U.K. GDP Growth Rate
U.K. Industrial Production
Germany Inflation Rate
What are you currently investing in? Are you still buying during this bear market or are you sitting on the sidelines waiting for the market to turn around?
What companies do you think will beat or miss earnings?
Would love to hear any of your predictions for the market and economy in the comment section!
Tweet Of The Day: Can the government declare bankruptcy?
Headlines You Missed
Wowza: Gallery Furniture owner Jim “Mattress Mack” McIngvale won $75m on the Houston Astros’ World Series win — the largest legal payout in sports betting history. Here’s a great video of him absolutely losing his mind during a go-ahead moment.
Meta layoffs? The company, which has a headcount of ~87k+, could move forward with large-scale layoffs as soon as this week.
Elon Musk reportedly plans to cut ~3.7k jobs at Twitter, about half the company, in an effort to cut costs.
Record breaker: The 2022 US midterm elections are projected to cost $16.7B+, making them the most expensive midterms ever.
OpenAI released the DALL-E API for public beta, allowing companies to now integrate the AI-image generator into their products. The API will charge per image.
Huge: Apple is now worth $2.307T, just ahead of Amazon, Alphabet, and Meta’s combined value of $2.306T.
TikTok Of The Day: Brazil In Chaos
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Book Review: Atomic Habits
Executive Summary: An atomic habit is a regular practice or routine that is not only small and easy to do but is also the source of incredible power; a component of the system of compound growth. Bad habits repeat themselves again and again not because you don’t want to change, but because you have the wrong system for change. Changes that seem small and unimportant at first will compound into remarkable results if you’re willing to stick with them for years.
Here is a link to a free online PDF of the book in case you want to follow along:
Atomic Habits
Chapter 9: The Role of Family and Friends in Shaping Your Habits
The culture we live in determines which behaviors are attractive to us. We tend to adopt habits that are praised and approved of by our culture because we have a strong desire to fit in and belong to the tribe.
We tend to imitate the habits of three social groups. Each group offers an opportunity to leverage the 2nd Law of Behavior Change and make our habits more attractive:
Imitating the Close: we pick up habits from the people around us. To build better habits, join a culture where your desired behavior is normal behavior. If you are surrounded by fit people, you’re more likely to consider working out to be a common habit
Imitating the Many: whenever we are unsure how to act, we look to the group to guide our behavior. Most days, we’d rather be wrong with the crowd than be right by ourselves
Imitation the Powerful: we are drawn to behaviors that earn us respect, approval, admiration, and status. If a behavior can get us approval, respect, and praise, we find it attractive. We are also motivated to avoid behaviors that would lower our status