Boeing is cleared for takeoff

Stocks closed out last week with an impressive rally on no real news… paving the way for traders’ hidden hopes for a continued rally. This week’s numbers will meet up with those hopes… and they will… hopefully, be in line.

Moody Moody’s! Newsflash: Washington DC is dysfunctional. Newsflash: the Government spends a lot of money it is not currently in possession of. Newsflash: even if the Government stops increasing its spending, its costs are still going higher… and higher. Newsflash: Moody’s Investors Service doesn’t think that any of this is cool, and it has cut its outlook for the US.

Ok, so let’s unpack all those newsflashes. Can we safely go ahead and agree that newsflashes 1 and 2 are not really… um, flashy at all? “Disfunction” is typically the first word that comes to the minds of most folks when asked about their thoughts on the legislative branch. No news there. On newsflash 2, we are all well-aware of the Government’s bloated debt. If you are unsure, come visit us in New York City and check out our legendary debt clock in Bryant Park. It used to be in Times Square after being installed in 1989 when folks were really, really nervous about the national debt. They had every reason to be nervous about the national debt, which, at the time, stood around $2.7 Trillion. The clock was installed on February 20^th, 1989. Inflation was around +4.7%. which was elevated from its low of around +1.1% in 1986. The 1980s started off with inflation at +14% and 2 recessions which resulted from inflation fighting, and no one was interested in reliving that, so folks were a bit… put off by the rising national debt. That sign, which displayed each US family’s share of the debt, brought home the point. Ok, the history lesson is over. Where are we today? Well, I feel like this is one of those moments where a picture may be worth a thousand words… or maybe 33 trillion words. Have a look and then follow me to the finish.

If you didn’t pick it up, the debt swelled from $5.7 Trillion to $33.7 Trillion in the years since the infamous sign was first erected. If you look closely at the chart, you will notice that its growth has accelerated since 2020. The first bump is the result of the massive spending on the pandemic rescue. That being behind us now, one would expect the rate of growth to slow, but alas, it has not. On the contrary, it has accelerated once again. That brings us to newsflash 3.

With all that debt and with the government taking on more debt not to just pay bills, but to also pay off older debt, the government’s budget is very sensitive to interest rates. That’s right, as investors are celebrating Treasury Bill yields just under 5.5%, the Treasury is fretting, because it must pay those high yields! So, the best intentions of the Fed, raising interest rates to give consumers and corporations pain in order to fight inflation, has exacted a huge amount of discomfort on its sister organization, the Treasury Department. Step back for a second and realize that this scenario is no different than it would be for you if you were borrowing money for a car, home, or any variable rate loan. The major difference is that there is no one to deny the government’s loan application. That brings us to the final newsflash.

Moody’s cannot deny the government’s loan requests, but it can lower its credit rating. Not unlike average consumers and corporations, a lower credit rating usually means that they will have to pay higher rates to borrow money. In the case of the Treasury, wouldn’t that just compound the problem even more? The answer to that is simple… yes! So, is the final newsflash really a newsflash, or is it even a surprise to you? Probably not, and probably not to the market either, but it does bring us back to newsflash 1. You know, the one about disfunction on Capitol Hill. Lawmakers will be wrangling in coming days to approve a budget and avoid a government shutdown. We have been down this path before, and it usually ends with… another newsflash. Stay tuned.

NEWSFLASHES IN THE PREMARKET

Tyson Foods Inc (TSN) shares are lower by -2.96% after the company announced that it beat on EPS but missed on Revenue estimates. The company provided full-year guidance which was above analyst expectations. Tysons forward PE is 16.54x, which is lower than the median 18.75x of its peers. Dividend yield: 4.08%. Potential average analyst target upside: +24.7%.

The Boeing Co (BA) shares are higher by +3.37% in the premarket after it announced that it secured a $52 billion contract with Emirates. Additionally, news that China is considering ending a freeze on purchases from the company are propelling spirits higher. In the past month, 53% of analysts have modified their price targets, 0 up, 14 down, and 12 unchanged. Potential average analyst target upside: +24.7%.

FRIDAY’S MARKETS

NEXT UP

• NY Fed 1-Yr Inflation Expectations (Oct) posted +3.67% in September, and analysts will be looking to see whether the outlook is improving or otherwise. The Fed watches this rather closely. Last Friday’s Michigan Sentiment series included rising expectations for inflation.
• Fed Governor Lisa Cook will speak this morning.
• The week ahead: Consumer Price Index / CPI, Retail Sales, Producer Price Index / PPI, housing numbers, regional Fed reports, Industrial Production, and a number of critical earnings releases. Please download the attached economic and earnings calendars for times and details. Also, take a look at my attached daily chartbook for insights (that is included every day, in case you missed it).