The market exhibited a subdued performance on Monday, with little volatility. The day began with a slight decline following Moody’s USA downgrade, which was not unexpected, given similar actions by S&P and Fitch in the past. The market saw a rebound, as outlined in the pre-opening ‘X-ray’ just before the opening bell.
Concerns about earnings, particularly in the retail sector, were prevalent across the board. However, our optimism about this sector has been limited, reflecting issues related to consumer credit utilization. Similar concerns were seen in the projected decline of airline stocks, attributed to a contraction in shoulder-season flying, not solely driven by fuel costs.
A noteworthy development was Boeing’s orders, not only for 787s but also for the previously slower-selling 777x. This reflects executives’ concerns about longer flights impacting the future, possibly related to geopolitical tensions (China/Taiwan). These orders favor aircraft with longer-range capability, such as the 777x. Despite concerns about specific aircraft models, the aerospace industry faces challenges.
The market remains relatively stagnant, hovering around the S&P 4400 area with neutral breadth. It awaits the Consumer Price Index (CPI) report and, to a lesser degree, the San Francisco meeting between POTUS and Xi Jinping scheduled for Wednesday.
The ongoing geopolitical situation, while less influential, could still impact the market if it escalates into new conflicts. However, the focus remains on potential conflicts involving Hezbollah in Lebanon or attacks on U.S. facilities in the region by various players, including Iran.
Regarding the Middle East, reports about Chinese warships approaching Israel are somewhat exaggerated. This involves a limited naval presence, including a frigate, a Corvette, and supply ships, which have been stationed in Djibouti for some time. The situation does not currently pose a significant threat.
Less reported but significant stories include the replacement of Britain’s Home Secretary over remarks related to the Palestinian London March on Armistice Day and discussions about Hamas at the University of Arizona. Additionally, Ukraine’s crossing of the Dnipro River and Russia’s apparent broad retreat are noteworthy.
Erosion of forward earnings revisions is a prevalent topic, making the S&P appear slightly less overpriced on a broad basis. Mega-cap stocks, however, remain relatively expensive.
If the CPI report aligns favorably, the market will likely consolidate, potentially rallyingally. Keep an eye on developments in the ongoing geopolitical landscape.
Don’t overlook: There were four additional attacks on U.S. Forces by Iranian proxies since the recent USAF airstrikes in Syria. This situation could escalate, warranting attention and potentially signaling a need for a warning to the regime in Tehran.