CWS Market Review – November 7, 2023

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Seven Up Days in a Row

The stock market is suddenly hot again. The S&P 500 rose for its seventh day in a row today. This is the longest winning streak in two years. Over those seven days, the index has gained 6.3%. The S&P 500 is now above its 50- and 200-day moving averages.

Six-day rallies are pretty common but getting to a seventh up day has historically been a challenge for the market.

I urge investors to remain skeptical of sharp upticks in a bear market. The stock market loves to fool investors by convincing us that things are safe. Then, once we take the bait, we get slammed by another downdraft.

Interestingly, economically cyclical stocks have been lagging during this mini bull run. In particular, materials, energy and industrial stocks have not joined in the fun. That usually happens when the economy is weak or perceived to be losing strength.

Here’s an interesting chart. This shows the S&P 500 (black) compared with the S&P 500 Industrials (blue) and S&P 500 Materials (green).

Notice how the two cyclical sectors have lagged the S&P 500, and it’s gotten worse in recent days. These rotations typically end once the Fed starts lowering rates. That may not be too far away.

Clorox Soars on Earnings Beat

Last week, I highlighted Clorox (CLX) for you. I told you that it was about to report earnings after the close on Wednesday.

In the earnings report, the company said it made 49 cents per share for its fiscal Q1. That was a massive earnings beat.

Wall Street had been expecting Clorox to report a loss of 22 cents per share. The company was hit with a nasty cyberattack which scared investors. Its business was hit hard but it will survive.

On Thursday, the stock soared as much as 11% during the trading day before closing with a gain of 6.6%. Clorox has continued to rally since then. On Friday, Monday and today, Clorox gained another 7.7% combined. Add it all up and that’s a 14.9% gain in just four trading days.

Clorox slashed its full-year earnings guidance to a range of $4.30 to $4.80 per share. The old range was $5.60 to $5.90 per share. That stings, but Clorox will move on and remain profitable.

I wish I could take credit for having predicted the big gain for Clorox, but that’s not accurate. Instead, I told you to steer clear of Clorox and to wait and see if the company has addressed its problems. Again, the key is to determine how fixable a company’s problems are. With Clorox, the problems seem to be fixable.

So I won’t take credit for the big gain, but I will stand by the strategy of waiting for good stocks to falter. It’s not hard, but it requires patience and discipline. Clorox is about as blue as a blue chip can get. It’s raised its dividend for 21 straight years.

An analyst at Citigroup said, “Clorox’s reduced FY24 guidance looks conservative, and that it expects Clorox to fully recover from the cyberattack by the end of FY25, adding that a 30% selloff since August makes the stock compelling.” I agree.

WeBroke

Of course, just because a stock is down doesn’t mean it’s cheap. It only means that it’s less expensive than it was before. That brings me to the sad story of WeWork (WE), the office space-sharing company. WeWork filed for bankruptcy today. That wasn’t unexpected.

The WeWork story is almost comically inept. Apple TV made a miniseries about it with Anne Hathaway and Jared Leto.

Few companies have gone from superstars to bust in such a short time. At one point, WeWork was worth $47 billion. The company tried to go public, but the offering was canceled.

It filed “sloppy” filing documents. In its S-1 document, WeWork wrote, “We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness.”

I’m not kidding you. It really says that.

WeWork eventually went public in 2021. The company’s CEO, Adam Neumann, received a lot of attention for his unorthodox management style. Two years ago, WeWork was going for $400 per share. Before trading in WeWork was halted, it got down to 85 cents.

WeWork was a celebrated tech startup, but in reality, it was a real estate company that got tangled up in too many expensive lease agreements. The company rented office space, then retrofitted it and subleased it to startups and freelancers. At one point, WeWork was the largest tenant in Manhattan.

As long as interest rates were low, the idea worked. Once rates started to rise, then things changed. Soon, the company hemorrhaged money. A few months ago, it announced a 1-for-40 reverse stock split. The stock is down 98% in this year alone. So much for the world’s consciousness.

Not a Great Jobs Report

Last Friday, we got the October jobs report from the Labor Department. According to the government, the U.S. economy created 150,000 net new jobs last month. That was below expectations for 170,000 new jobs, and the gain was nearly half the gain we had in September.

The unemployment rate increased to 3.9%. That’s its highest level since January 2022. Here’s a look at the unemployment rate. Note that historically, when the unemployment rate goes up by a little, there’s a good chance that it will go up by a lot.

The broader U-6 unemployment rate increased to 7.2%. The labor force participation rate declined slightly to 62.7%.

Right now, the most important stat is wages, and that’s not looking very good. Last month, average hourly earnings rose by 0.2%. That was 0.1% less than expected. Over the last year, average hourly earnings are up 4.1%. Unfortunately, inflation has taken a large bite of that.

From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000). Leisure and hospitality, which has been a top job gainer, added 19,000 as well.

Manufacturing posted a loss of 35,000, all but 2,000 of which came because of the auto strikes. Transportation and warehousing saw a decline of 12,000 while information-related industries lost 9,000.

The important takeaway from this report is that it will take some heat off the Federal Reserve. The futures market currently thinks there’s less than a 10% chance that the Fed will hike next month. How things have changed! One month ago, the odds were at 36%. Futures traders now think the odds are in favor of the Fed cutting rates in less than six months. If that’s right, we could be in store for a sector rotation soon.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Posted by on November 7th, 2023 at 10:25 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.