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What a week!
Elon Musk showed us a flying car.
Inflation came in hot.
And my portfolio got smoked.
But... Michael Dell might have handed us a big new idea.
Let's dig in.
Red October for Tech
It's been a rough month for tech.
QQQ is down 4.1%, while SPY is down just 0.1%. Meanwhile, DIA is up 1.9%.
But bizarrely, every S&P sector is up aside from Tech and Communications.
And Communications might as well be tech because it includes names like Meta (META) and Alphabet (GOOGL).
If we did deeper into the QQQ's, 55 of 101 names are up in October.
Sounds decent.
But the average winner is up 6.3%, while the average decliner is down 11.1%.
That's because the decliners list is dominated by beaten-up AI names like SanDisk (SNDK), Nebius Group (NBIS), and CoreWeave (CRWV).
Speaking of beaten-up AI names...
Did Michael Dell Tell Us to Buy Micron?
A Friday Wall Street Journal article about Dell (DELL) included an interesting little nugget from company founder Michael Dell.
When speaking about the memory supply crunch, he said "It’s gonna get worse."
Was he telling us to look at Micron (MU), which is trading at 5x forward earnings?
Supply shortages favor sellers like Micron. And the longer the shortage, the better for Micron.
However, it's not easy to feel confident when the AI trade is taking the elevator down...
Our own JR Romero is a big Micron fan. Here's why:
Earning Season Is Going Okay, But Could Be About to Go BOOM
According to FactSet, 9% of the S&P 500 has reported earnings. 84% of companies have beaten estimates.
However, Q3 earnings are now tracking to grow by 29.0%, slightly below the 29.4% expected last week.
This is because earnings beats are smaller than expected, and are being offset by lower estimates in the Health Care sector.
However, we are about to get a bunch of big tech earnings reports which have the potential to shift sentiment.
Starting with...
Meta Is Key to AI
Earnings season heats up big time next week, especially in tech.
Meta (META) is the biggie, especially when it comes to AI.
The market is desperate for reassurance that AI infrastructure spending can keep growing. Because that spending has been key to earnings growth.
So consider Meta's capex guidance a major market catalyst. The higher, the better. (duh)
Yes, we have important companies like Netflix (NFLX), Tesla (TSLA), and Lam Research (LRCX) reporting, but Meta is the big one.
Sentiment Is Neutral
The latest AAII Sentiment Survey shows that 38.7% of investors are bullish.
That's pretty much in-line with the long-term average of 37.5%.
By 41.6% of investors said they were bearish, which is above the 31.5% historical average.
Plus, CNN's Fear & Greed Index is at just 18/100, indicating Extreme Fear.
So it looks this market's short on joyous participants.
Rate Hike Expectations Subject to Change
Even with hot CPI and PPI reports this week, expectations for the October 28 FOMC meeting haven't changed much, according to the CME's FedWatch Tool.
The market is pricing in a 17.2% chance of a 25 bp rate hike, down from 27.7% last week.
And the market expects an 88.2% chance of at least one hike by year-end.
Not a big change from last week.
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