Image Source: Pexels Clenching-up – is what big-cap-led markets should be doing more of around now; but are resisting the ‘Rocktober’ tendencies. Aside the cap-weighted and thus pricey S&P (dominated by a so-called ‘magnificent seven’ not 493 ‘other’ stocks) gives an impression of strength beyond that exhibited by broader lists.Earnings resilience, or at least stability, matters; but so does the handful of big companies that can help hold ‘matters’ together. Convoluted reflections about a handful of Fed-heads, or even whether Chairman Powell’s statement last go round was too dovish or timid, really aren’t at the heart of this.The Chairman said future moves were data-dependent (states the obvious); a pause in rate cuts wouldn’t be too traumatic (only an interim and anyway due shakeout); while the inflation data is somewhat higher (we’ve always said this was just slowing the pace of inflation in some sectors, not a deflation). Plus, it is impossible to talk about ‘real’ lower prices when you have Oil at high levels; and that could go higher depending on Middle East events.
As to Hurricane Milton; the only blessing is that it came along two weeks after Helene, so nobody in coastal areas had yet rebuilt or repaired damages in the needed significant ways. The ‘turtleneck’ speed of insurance companies likely assisted claims not being settled yet for Helene; so an overarching pattern will exist. This might actually benefit insurance companies as in a home or car as destroyed 2 weeks ago and ravaged again, is still one repair or replacement.I don’t mean to minimize the ‘Milton’ situation; in some places it was tougher (surprisingly parts of the Gold Coast on Florida East Side got slammed with tornadoes; a lot more so than water or hurricanes per se). Here not much; at least for me the respite in a new hotel was an extra precaution not needed; but that’s good. Nothing more than a leaf blower needed around my property. I realize it’s truly a mess for the folks I met from St Pete and Sarasota; most at the hotel are still there and in no particular rush to get back to their ‘lakes’.Of course they will or must; to at least sort things out and then find what we’re calling STR’s … Short Term Rentals while repairs are made. Probably a good time to own those; however most insurance carriers disdain that and after this you’ll see both higher property tax (unless limited by Homeowner exemptions) and higher insurance rates, if coverage is even available. Better building code trends were in-force these few years; but not as strong as Miami. It’s coming.
So I’m not particularly worried about a tougher Fed, especially since I know it was ‘Government work’ that inflated the last Jobs Report (massaged or not we can’t say). I am concerned about the Middle East, where Israel has delayed a more drastic response to Iran; Turkey makes noises about Lebanon (instead of working as a NATO member for peace and stability) .. where normal people would like to help Lebanese (Christians were a majority until displaced by the Muslims, and you see what that did for the Country, which had been a Nation where people of different faiths go along).And by the way that’s partially key to this; getting along regardless or religion .. whereas Islamists proselytize. So do all who treat Islam as a ‘lifestyle and/or legal system’ .. that makes them cultists, and the groups cult-like, rather than religion; at least seems like that. Norway and Sweden are in various stages of deporting Muslims that don’t assimilate; and people get it, as Europes locals were trying to be compassionate, not to be overwhelmed by foreign cultures. I think the United States at least starts to get this challenge; and might matter, it seems when we get to an Election soon; although nobody wants to be candid.
Market X-ray: it’s less the level of interest rates; but the correlation to growth and the reason for yields going up or down. It’s inconclusive now; despite some Fed-heads proclaiming the rate cut was too strong to start the new cycle (I thought they might do less also; but not so significant as some thin; and after all the Jobs number was ‘managed’).Sure, ‘higher rates for longer’ would be a renewed problem; though unlikely. I’d not focus much on valuation as a timing tool now; but rather seasonals; overdue shaker for the big-caps, and maybe even the impact of ‘tariffs’ on prices next year; although not truly an Election issue since both sides tend to advocate that and more focus on domestic production.For now; Oil prices or what happens (or not) in the Middle East, truly matters.
Today was a decent consolidation; really overdue for more of a shakeout. We might have had that today, with ‘breadth’ negative; but with Nvidia higher, that mitigated the pressure. Ditto with AMD although with a bit of pressure, before Lisa Su spoke after the Close of trading. NVDA has 10x AMD’s market-cap, but you don’t know how successful the latter will be with their new AI chip. For the most part I’d expect both companies to be successful; Nvidia’s new chip is too much (power and price) for mundane home devices or gaming computers (that is a realm of AMD’s that probably will be retained… really both of them).Anyway CPI came in a bit higher than consensus; hawkish comments from Mr Bostic (Atlanta Fed); and well it was time to retreat a bit anyway. But not much and the hurricane’s relatively benevolent finish left Florida as a survivor, but at the same time calls attention to everything we’ve forewarned about changes, as relates to insurance, to property tax, to sea level; and who gives a darn if it is climate change, global warming or not. Coastal real estate remains troubled and many people are unwilling (even if they have some money) to pour all the funds needed in housing. Such homes have become ‘like boats’ .. old saying is that a ‘boat is boards that you pour money into’ (well fiberglass now; but the saying is valid for boats, and increasing for Housing, with cars chasing it all).
Besides listening to Lisa Su, I monitored AEHR Test Systems Call (a perfect day to be done with the storm concerns and no damage so focus back to tech stocks plus other situations). I was not impressed by AEHR’s result; though it was clear they feel they made their numbers. The focus was on their capacity to have the best (I thought only?) Silicon Carbide mass wafer testing solution, and expanding into wider areas, including AI processor testing and more.As to AEHR CEO Erickson reiterated previous guidance. Shares are up near $2. after the Close on the report, so guess I’m among less impressed than the others who follow it. I will continue monitoring; but not interesting in paying up for it, and we’ll see how they do next year. I’d rather see them do over 70 mil. I thought the ‘reiterating prior guidance’ was sort of bush-league as the was the revised-lower guidance from before. So I’m unimpressed; maybe another time so thinking this pop (there are a fair number of shorts) gets faded very soon.
For sure they are aiming at the huge ‘data-storage’ market, and I sense toning down the EV aspect (primary market for SiC chips in inverters); since that’s a longer term prospect, as any of the automakers will reluctantly acknowledge. I think the overall demand for Ai is not satiated as some thing (maybe for a few major hardware makers); with the ‘Application Software’ aspect barely started.Microsoft, Meta, Oracle are not the only providers. Palantir, BigBear.ai and of course SoundHound.ai are other (almost purer) AI plays than the big-caps leadership. But there are others of course. Everybody is trying to get an angle in the Ai space; so I’m glad that BBAI is both military ‘and’ commercial; and I am pleased SOUN may be making inroads into ‘banking conversational Ai).
Bottom-line: many uncertainties prevail. Senior Indexes are at high levels at the same time it’s a bit too soon to get excited about ‘tax-selling time’ bargains although in some cases I do not expect to see lower lows for several stocks in the AI Application Software category; which isn’t narrowly-defined as such.Q3 earnings in-earnest start tomorrow with JPM and we’ll see the reactions as the Banks start; Wells, Blackrock and a couple more on the docket too.
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