Market FIRE Commentary: Week of 10/10/2022

Happy Columbus Day! In the spirit of Christopher Columbus, now is definitely the time to stay courageous and fearless when spending time in the stock market, in the face of continued economic weakening, highly elevated inflation, and downward adjusted earnings revisions.

This week is expected to be a chock full of updated macroeconomic and company-specific data that will influence the stock market, as earnings season for the prior quarter begins. Last week the market came off of oversold levels ever so slightly last week with an early-October bounce, followed by a partial retrenchment. This week, another short-term bounce could come from any evidence of materially diminished inflation or earnings resilience by large banks, as well as from any moderating but not plummeting consumer confidence or retail spending. Bad news on these fronts will readily cause another leg to the downside for the markets. The overall direction continues to be projected to be downward, until sustained evidence of lowered inflation and at least a path towards lower interest rates at some time in the intermediate future. Some kind of recession also appears to be likely in the near future (if we are not already in a recession), though such recession may be brief in duration given the strength of the labor market and corporate balance sheets.

The release of economic data this week is expected as follows (per the Wall Street Journal):

Wednesday, 10/12/2022: Labor Department releases Producer Price Index (PPI) report for September, which is the first major inflation data point for the week; Federal Reserve release of minutes from September meeting; quarterly earnings report from PepsiCo.

Thursday, 10/13/2022: Labor Department releases Consumer Price Index (CPI) report for September – this is the “big one” for the month, which should set the tone for stock market trading for until mid-term elections in November; quarterly earnings reports from BlackRock, Delta Air Lines, Domino’s Pizza, Progressive, and Walgreen’s Boots Alliance.

Friday, 10/14/2022: Commerce Department releases Retail Sales Report for September; University of Michigan releases preliminary reading of consumer sentiment for October; Commerce Department releases manufacturers’ and trade inventories for August; quarterly earnings reports from Citigroup, Morgan Stanley, PNC Financial Services, UnitedHealth Group, and Wells Fargo.

Stock Market FIRE investors may consider using this week to buy back profitable covered call options that are nearing expiration and rolling over other covered call options nearing expiration. On any short-term rally, there may be opportunities for selling new covered call options for holdings that have RSI’s of at least 40 (meaning anything not right at the edge of oversold conditions). Additionally, Market FIRE investors should consider applying some of the premium generated from recent call sales to purchase additional shares in attractively valued companies with reasonably strong longer-term prospects, such as travel stocks, commodity companies, energy exploration firms, discount retailers, and select profitable technology companies.

This is not individualized investing advice and is offered for informational and educational purposes only. Investors should conduct their own research and seek individualized advice from registered investment advisors before acting on any investment recommendations or commentary.

Happy trading, and happier investing!