Week ahead. Trading & investing ideas in Oil, defence, & stingy pre-Christmas spending. Plus CPI is ahead & earnings season kicks off
We cover why the oil price could continue to rebound from last week's 8% sell-off, with energy companies to watch, which have been upgraded by analysts. Plus, why look at domestic stingy pre-Christmas spending beneficiaries' stocks, and glance at defence companies that could rally amid the strikes in Israel. Plus, what to watch amid US inflation being released. And finally, US earnings season kicks off; three big banks and US consumer spending giants will reveal how much pain the US consumer is in.
---
Trading and investing ideas. Oil, defence, & stingy pre-Christmas spending
Oil slicks up 4% after Hamas attacks. Why oil could recover from its 8% drop
The oil price has already gained back 4% of last week's 8% drop for several reasons. Many are thinking the oil price could head to higher as supply is thinning and demand is picking up. Firstly, China returned to work after its longest public holiday in the second half of 2023. The Mid-autumn festival saw a consumption and travel boom, with Macao recording its highest ever arrivals and hotel occupancy on record. Plus the Hamas attacks on Israel caused traders to be concerned about potential supply disruptions, with Iran reportedly being behind the attacks. And, all this is at a time when the US oil strategic oil reserve is at its lowest level since 2022.
If you are interested in investing in an oil business, it's worth noting that Wall Street has seen the most earnings upgrades in energy companies ahead of US earnings season kicking off this week. Also recall the upgrades to energy companies come after the oil price jumped about 28% last quarter, which will boost energy companies' earnings.
The following US energy giants were all upgraded by analysts; Phillips 66 $Phillips 66(PSX.US)$, Diamondback Energy $Diamondback Energy(FANG.US)$, Hess $Hess Corp(HES.US)$, Marathon Oil$Marathon Oil(MRO.US)$, Devon Energy $Devon Energy(DVN.US)$, Chevron ConocoPhillips $ConocoPhillips(COP.US)$, Valero Energy $Valero Energy(VLO.US)$ and Occidental Petroleum$Occidental Petroleum(OXY.US)$.
Pre-holiday season investing ideas to boost your Christmas spending kitty
Given US and Australian consumers have run out of savings, fuel prices are up, along with electricity bills, families will likely be traveling domestically or upgrading cars and home entertainment ahead of Christmas. It will probably be a stingy Christmas. So, consider what companies' earnings could grow from now to Christmas and thus potentially their share prices. Potential beneficiaries may include;
- Pool and spa bath pump business GUD Holdings $GUD Holdings Ltd(GUD.AU)$. Its shares are already up 56% YTD.
- Camping boating, fishing, car parts, outdoor wear business, Super Retail Group$Super Retail Group Ltd(SUL.AU)$, parent of BCF, Supercheap Auto, Macpac, etc. Its shares are up 9% YTD
- Australia's largest car dealership business, Eagers Automotive$Eagers Automotive Ltd(APE.AU)$. Its shares are up 31% YTD.
- Holiday Tourism park business, Ingenia Communities $Ingenia Communities Group(INA.AU)$, its shares are down 9.3% YTD.
Separately, also think about potential beneficiaries of Black Friday sales (24 November).
What if geopolitical tension picks up? What defence stocks should you watch?
Firstly if markets correct (fall 10% for example), remember, to stay calm. Some of the most successful investors have made most of their money in bearish markets, as they can buy quality businesses at cheaper prices. Over time, quality stocks have also been able to historically ride out many market storms and deliver compounding returns to investors.
However, it is worth considering what companies could benefit from an escalation in military action. Recall that most countries spend 2% of their national income on defence. But in times of duress, spending on defence rises, and thus defence companies shares have historically rallied in times of tension and war like conditions. Here is a list of the US's biggest defence companies to consider.
Source: Bloomberg, moomoo
Also explore defense ETFs, such as iShares US Aerospace and Defense ETF, ($Ishares Trust U.S. Aerospace & Defense Etf(ITA.US)$), that gives investors exposure to the world's largest defense manufacturer, military aircrafts and other defense equipment. The ITA ETF.
----
And lastly, with reference to potential investing and trading ideas, amid war-like-tension picking up, if you are looking for overall market pullbacks, to buy the dip into long-term growth themes, we think it's worth considering investing in EVs and AI And chips. Here is why in a 60-secondvideo, featuring stocks and ETFs to consider.
----
What is happening on Wall Street this week?
US earnings season gets underway with banks and consumer spending companies reporting this week
-JPMorgan Chase $Jpmorgan Chase & Co(JPM-C.US)$ is expected to have outdone Citigroup $Citigroup(C.US)$ and Wells Fargo's $Wells Fargo & Co(WFC.US)$ profitability when the three banks report quarterly earnings this week. The focus will be loan loss provisions, meaning how much these banks have put aside for people defaulting on their debts. Loan provisions are expected to increase given there is a possibility of a US recession as early as next year, amid slower economic growth and higher interest rate pain. Ultimately this will weigh on banks' profits and net interest income growth.
- PepsiCo $PepsiCo(PEP.US)$ , Walgreens Boots Alliance $Walgreens Boots Alliance(WBA.US)$ and Domino's Pizza's $Domino's Pizza Enterprises Ltd(DMP.AU)$ results this week will underscore the diminishing spending power of American consumers, who are holding less cash than they had before the pandemic. Pepsi $PepsiCo(PEP.US)$ for example, is expected to see earnings growth slow to 9.4% growth, after two quarters of double-digit gains. This is because consumers are shopping for cheaper alternatives to Pepsi's $PepsiCo(PEP.US)$Gatorade, Doritos, Mountain Dew, Lipton Tea, Lays and Red Rock Deli chips.
----
What's on the economic horizon?
US inflation to slow, a Fed speaker warns another hike is needed, IMF downgrades global growth
- This week's release of the US inflation for September, which the Fed will look at, will likely show US inflation has continued to slow, but interest rates need to stay higher for longer, as price rises are still above the Fed's target. That's not ideal for US companies carrying high debt, especially at a time when households have less cash than they had before the pandemic, and when overall company earnings are slowing with economic growth.
- This comes at a time when the IMF cut its forecast for global growth to 3% for this year and next, the IMF sees 1.8% this year for US growth and 1% next.
- Fed speaker Michelle Bowman reiterated her call that interest rates will need to rapidly increase further to return inflation to the Fed's 2% goal. She said inflation is still "too high" and rising energy prices could have reversed some of the Fed's progress.
- The US consumer price index (CPI) print for September (released October 12) is expected to show inflation rose 0.3% month on month. Core inflation growth (which the Fed looks at) is expected to show prices fell to 4.1% YoY growth, down from 4.3%. What is alarming is beneath the surface, the rise of energy prices and goods prices. Consumers are paying higher fuel and used-car prices, and these pressures are likely to be reflected in September's data.
For more on US earnings and economic news, click here.
Invest in your financial future.
& Stay safe.
________
The information is general in nature and has been prepared without considering your financial objectives, situation or needs. Consider the appropriateness of this information in light of your personal circumstances before making investment decisions.