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Market Observations for October 20th, Stocks to watch

On Tuesday the market, as measured by the broad indices, continued its upsurge, making a 5 day gains streak, the biggest since August. S&P 500 and the Dow gained .74% and .56% respectively closing nearly 1% off their historical his. The Nasdaq added .71% to its market value. The week is empty in terms of big macroeconomic indicators and news, and the earnings reports are the main driving power of investors’ and traders’ sentiment. The inflation, supply chain disruptions, slow pandemics recovery, higher energy prices, less favorable monetary policy in the coming months are highly neglected at the time being, as these factors and risks are already priced in the different asset classes. Moreover, as of Tuesday, 82% of companies, already having released their Q3 reports surpass analysts’ expectations, and total expected earnings rise for the season is estimated to be at more or less 30% /Factsheet/. The resilience, adaptability and competitive drive of US companies is firmly proven with digits this quarter, regardless of all of the negative factors listed above. First, the Covid pandemics promoted working processes efficiency, second, higher prices are easily passed to consumers, which in turn increases companies’ margins. The labor market and consumer sentiment in the US are also pretty favorable at the time being.

Oil commodity futures retreated a bit to USD82.52 and USD84.54 for the WTI and Brent respectively. As a healthy correction from the unstoppable rally was expected during the week, any news concerning piling up inventories, alternative or renewable energy solutions, would most probably trigger a bigger slump. Sector regulators and world policy makers are also closely watching the surging energy prices and are set at their best negotiation skills to boost supplies and calm down the rally.

The Cboe Volatility index /BATS:VXX/ is at its lowest since August, reflecting the lack of confusion and nerves on investors’ minds. The 10year and 30 year Treasuries, however resumed their his, reaching 1.64 and 2.09% respectively. It is a natural relationship with the pending tapering of the bond-buying program, scheduled to start in November, and reconfirmed in recent Fed comments. The Governor Christopher Waller, however reassured that interest rate hikes are probably “still some time off”.

Looking at the stocks having reported yesterday as the biggest market movers, WMT gained 2.1%, after Goldman Sachs projected a 40% price increase for the leading US retailer. JNJ also raised its profit forecast, and NFLX was the biggest star, reporting after market close. PG exhibited a decent financial performance for the last quarter but shed off 1.2% from its market cap on concerns for the future, as whether it will be able to pass on the higher inputs and transportation prices to consumers.

As it could be seen from the yesterday market picture, the least favored sectors are consumer defensives, the techs are again positively perceived, in spite of the higher 10yr yields, and the financial and insurance sectors are flourishing in such a macroeconomic environment:

The streaming industry is interesting to watch right now with Netflix /Nasdaq:NFLX/ beating analyst expectations for new subscribers, coming at 4.4m, versus the 3.84 expected. The “Squid Game” also helped boosting the company’s results. Presented below is a list of video streamers, traded on the Nasdaq, with decent liquidity and very favorable fundamentals and market multiples:

The Wednesday session in Asia was boosted by a rally in Chinese technology firms like Alibaba, and the short term liquidity boosted by the Chinese central bank, fighting the debt crisis of big real estate developers like Sinic Holdings Group Co and Evergrande.

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