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Bull Trader USA

Investing Club: What’s on our radar for next week

Traders work on the floor of the New York Stock Exchange on Nov. 5, 2021.

Spencer Platt | Getty Images

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

The S&P 500 pulled back during this holiday shortened trading week, largely attributable to a Friday sell-off resulting from renewed COVID fears following news of a new “heavily-mutated variant” discovered in South Africa. While the economically sensitive Dow Jones Industrial Average was the hardest hit on Friday, the Nasdaq was the main underperformer this week thanks to a rotation out of high flying tech heading into the Thanksgiving holiday.

Our strategy

While some of the action we saw on Friday felt very knee-jerky in nature with shutdown plays like Zoom Video (ZM) and Peloton (PTON) catching an almost automatic bid while the energy and financials names were tossed aside, it is too early to make a call on the market one way or another as not enough is known about the new variant. Moreover trying to gauge sentiment on a half day, when volume is lower than normal can be futile as there is simply not enough broad market participation.

For this reason, though we did provide some thoughts earlier today on where we think members should be looking for opportunity, we opted to stay on the sidelines on Friday and preserve cash until we have more actionable information from the scientific community.

Under the hood this week, consumer discretionary, communication services and technology lead the index to the downside with most sectors in the red following Friday’s sell-off. For the week, and energy actually gained on the period despite Friday’s sizable losses because of a pop earlier in the week.

What we learned this week

Here is a quick look at some of the broader market measures we like to keep an eye on: The dollar index held around the 96 level. Gold pulled back to around the $1,800 level. WTI crude prices were hit again on Friday, falling to around the $70 per barrel level. And the 10-year Treasury is hovering around the 1.5% level as COVID fears struck the market.

Within the portfolio we heard from American Eagle Outfitters (AEO). Here’s our breakdown of the results.

In addition to earnings, we received a few notable macroeconomic readings this week.

On Monday, the National Association of Realtors reported that existing home sales increased 0.8% in October, better than the 1.8% monthly decline the Street was expecting. With October’s reading, sales are down 5.8% from the year ago period. Inventory remains a headwind for the housing market with the inventory of existing homes standing at 2.4 months at the end of October, down from September’s 2.5-month level and well below the 6-month level many view as balanced between supply and demand. As for a affordability, which suffers from the lack of supply, the median existing home price in October was $353,900 (+13.1% YoY). Lastly, adding to the affordability dynamic, according to Freddie Mac the average 30-year, conventional fixed mortgage rate was 3.07% in October, up from 2.9% in September.

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On Tuesday, IHS Markit Group reported that the Flash U.S. Composite PMI Output Index for November registered at 56.5, down from 57.6 in October and marking a 2-month low for the index. Similar to ISM PMI numbers, any reading over 50 represents expansion of the manufacturing sector, while anything below 50 indicates a contraction. However, IHS Markit data is collected from a different panel of companies than those used to source ISM data. Additionally, this “Flash” data is based on roughly 85%-90% of expected survey data – data used in this report was collected between November 12 and November 22.

Driving the headline number, the Flash U.S. Services PMI Business Activity Index pulled back to 57.0 (from 58.7 in October), missing expectations of 59.0, while the Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) advanced to 59.1 (from 58.4 in October), matching expectations. Additionally, the Flash U.S. Manufacturing Output Index increased to 53.9 in November (from 52.1 in October).

Releases for the rest of the week all came on Wednesday due to markets being closed on Thursday and closing early on Friday.

To start, we learned that new orders for manufactured durable goods fell 0.5% ($1.2 billion) in October to $260.1 billion. The reading missed expectations for a 0.2% advance. Excluding transportation equipment, which can increase monthly volatility because of the higher price tag for airplanes and automobiles, new orders increased 0.5%in October. Excluding defense equipment, new orders were up 0.8% in October.

Importantly, new orders for core capital goods (non-defense capital goods, excluding aircraft), which are tangible goods used in the manufacturing process (not sold to consumers) and therefore used as proxy for business confidence and investments, decreased 0.5% in October, missing expectations for a 0.5% monthly advance. Shipments of core capital goods advanced 1.5% in October, well ahead of expectations for a 0.5% advance.

Additionally, the Bureau of Economic Analysis (BEA) reported its second estimate that real gross domestic product (GDP) increased 2.1% in the third-quarter of 2021, a slight miss versus expectations for 2.2% advance. This follows a 6.7% increase in the second-quarter. Additionally, the core personal consumption expenditures (PCE) price index — an important metric to monitor as the core PCE price index is the Fed’s favorite proxy for inflation and can therefore provide insight into future rate actions — increased 4.5% QoQ, a deceleration from the 6.1% QoQ gain seen in the second-quarter. On an annual basis, the core PCE price index was up 3.6%, an acceleration from the 3.4% YoY advance seen in the second-quarter.

The BEA also reported that personal income increased 0.5% ($93.4 billion) in October, better than expectations for a 0.2% advance. Disposable income (DPI) ticked up 0.3% ($63.0 billion) and personal consumption expenditures (PCE i.e., personal spending) advanced 1.3% (214.3 billion) on the month, ahead of the 1.0% expected. When adjusting for inflation, real DPI fell 0.3%, real PCE increased 0.7% and the PCE price index increased 0.6% in October. Lastly, on an annual basis the core PCE price index — again, the Fed’s preferred measure of inflation — advanced 4.1% YoY, in line with expectations and a notable acceleration versus the 3.7% annual rate seen in September.

Also Wednesday, the Census Bureau reported that new home sales of single-family houses increased 0.4% MoM in October to a seasonally adjusted annual rate (SAAR) of 745,000, below expectations for a 800,000 SAAR. Despite the October advance, sales were down 23.1% versus the year ago period. Additionally, the median sales price for new homes in October was $407,700, while the average sales price was $477,800, that’s up from $405,700 and $457,200, respectively, in September.

Lastly, the U.S. Department of Labor reported that in the week ending Nov. 20, initial jobless claims were 199,000, representing a weekly decline of 71,000, and was well below estimates for 260,000. Moreover, this was the lowest level of initial claims since November 15, 1969, when it was 197,000. The prior week’s reading was revised higher to 270,000, up from 268,000 previously reported.

Importantly, the four-week moving average, used to smooth out weekly volatility, came in at 252,250, representing a decline of 21,000 from the previous week’s revised average of 273,250 (revised up from 272,750 previously reported). This represents the lowest level for the moving average since March 14, 2020 when it was 225,500.

What we are watching ahead

Looking ahead, earnings season continues next week, within our portfolio we will be hearing from Salesforce on Tuesday, after the closing bell; and from Marvell Technology (MRVL) on Thursday, after the closing bell.

Here are the earnings in the week ahead we’ll be monitoring:

Mon 11/29

Open: Frontline (FRO), Li Auto (LI)

Tues 11/30

Open: Baozun (BZUN), Hello Group (MOMO), Jinko Solar (JKS)

Close: Salesforce (CRM), Ambarella (AMBA), Box (BOX), Hewlett Packard Enterprise (HPE), NetApp (NTAP), Zscaler (ZS)

Wed 12/1

Open: Patterson Companies (PDCO), Royal Bank of Canada (RY)

Close: C3.ai (AI), CrowdStrike (CRWD), Descartes (DSGX), Elastic (ESTC), Five Below (FIVE), Okta (OKTA), PVH (PVH), Semtech (SMTC), Snowflake (SNOW), Splunk (SPLK), Synopsys (SNPS), Veeva Systems (VEEV), Zuora (ZUO)

Thurs 12/2

Open: Dollar General (DG), GMS (GMS), Kroger (KR), SecureWorks (SCWX), Signet Jewelers (SCWX)

Close: Marvell Technology (MRVL), Asana (ASAN), Cooper (COO), DocuSign (DOCU), Domo (DOMO), Ulta Beauty (ULTA), Ollie’s Bargain (OLLI), Verint Systems (VRNT)

Fri 12/3

Open: Big Lots (BIG), Dole plc (DOLE), Genesco (GCO), Hibbett (HIBB)

Close:

On the macroeconomic front, in addition to keeping an eye on the geopolitical sphere, we will be watching out for the following releases (all times ET):

MONDAY

10:00 Pending Home Sales

10:30 Dallas Fed Index

TUESDAY

9:00 FHFA Home Price Index

9:00 S&P/Case-Shiller home prices

9:45 Chicago PMI

10:00 Consumer Confidence

WEDNESDAY

8:15 ADP Employment Survey

9:45 Markit PMI Manufacturing SA (Final)

10:00 Construction Spending

10:00 ISM Manufacturing

14:00 FED Beige Book

THURSDAY

08:30 Jobless claims

FRIDAY

08:30 Jobs report

9:45 Markit PMI Services

10:00 Durable Orders

10:00 Factory Orders

10:00 ISM Non Manufacturing AEO, CRM, MRVL

The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.

(Jim Cramer’s Charitable Trust is long AEO, CRM, MRVL.)

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