Place all your chips on red

Stocks rallied yesterday in a low volume session as optimism over a less-pessimistic Fed, fed the rally. More job cuts announced by HP adds to the ongoing narrative from earnings season and will, at some point, help the Fed in its efforts to fight inflation.

There are no sure bets… none. Lionel Messi is unarguably one of the greatest football / soccer players that ever graced the pitch. The 5’7” 150-pounder (3 ½ stone for you anglophiles) has won 7 Ballon d’Or (golden ball awarded to player of the year by FIFA) awards, more than any other player since the award was first bestowed by the France Football magazine in 1956. Not surprisingly, Messi, referred to many as The Little Magician, is the captain of Argentina’s national team, who won gold at the 2008 Olympics and topped the Copa America in 2021. He IS a true magician with the ball and the Argentine is currently skippering his national team in the World Cup, making this his 5^th time at the sport’s biggest tournament. Yesterday, Argentina took the pitch against 51^st ranked Saudi Arabia in its first match-up of the World Cup’s Group C stage. Fans tuned in to watch Messi in what should have been an easy win for the No. 3 ranked team. If you were to place a bet prior to the match, even with limited knowledge or interest in the sport, you were likely to have joined the crowded bet in favor of Argentina… come on, of course, you would have. It was a no-brainer.

I am not a betting man, but I am a student of probabilities, statistics, odds, and such. I had to check in on what the sportsbooks were making on the matchup, out of curiosity. The prediction was for a 4 to 0 (nil in soccer-talk) in favor of Argentina. If you read my intro paragraph, you should not be surprised yet. As such, the “moneyline” was Argentina -700 to Saudi Arabia +2000. That means if you bet $700 dollars and won, you would walk away with $100. Not a great return, because it appeared to be a very low risk… a no-brainer. Now, if you seek diamonds in the rough, you would have liked the +2000 number on Saudi Arabia. You could walk away with $2000 on your $100 bet, if you took Saudi Arabia for a win. Sounds lucrative, but a long shot, for sure.

It seemed that, not too long ago a fellow I respect walked into my office and told me how Meta was a no-brainer investment after the stock had fallen nearly -50%. It was obvious to me that this gentleman, who is usually quite diligent, was heavily weighting his “buy” decision on Meta’s performance in 2020 and 2021, when it was still Facebook. Looking back on that, it would seem that an investment in Meta was, indeed, a no-brainer. Even professional analysts liked the stock and on average had around a $330 price target as the stock was trading below $200. Don’t get me wrong, I am not picking on Meta, which is a fine company. Like all companies, good and bad, there are certain times that are challenging, and it is up to management to prove that it has the metal to usher the company through the tough times back to its former position of greatness, dominance, and… um, EPS growth, as it is, after all, a growth stock. Wouldn’t you know it, just weeks ago, my friend was in town, and he stepped into my office for a quick chat. After initial niceties were exchanged, he jumped right in. He said, “have you seen Meta?” I was unsure how to respond so I gave him a nod, knowing that he was going to continue talking, so I listened. He remarked that the stock had hit $150 and that he thought it a good “buy” at that level. He must have forgotten our conversation from months earlier and quite literally said it was a “no brainer.”

Yesterday, the Argentinian National Team took to the pitch behind a 36-game winning streak dating back to the summer of 2019! Spirits were high. There was no question “if” Argentina would win, but rather, “by how much.” It didn’t take long for the Argentines to draw first blood. Messi, himself, in the 10^th minute scored from a penalty kick. You might have thought, “oh boy, the no-brainer is going be a blood bathe for the opposing team,” and tuned into a home-renovation show which may have proven to be more exciting. If you did, you would have missed perhaps, one of the biggest upsets in recent World Cup history. Saudi Arabia put up a strong defense against Argentina’s ball dominating offence. Not only did they fend off many attempts on goal, but they managed to score 2 goals of their own. That is right, Saudi Arabia, the 51^st ranked team, beat Argentina, the 3^rd ranked team, captained by Lionel Messi. So much for the no-brainer.

What can we learn from this? In stocks, it is goodbye to the era of “good buys”, there is no such thing as a no-brainer investment, and that there is merit in a carefully picked, diverse portfolio which needs to be actively monitored. Buying the dip has gone the way of the coin toss, for now at least. A final word about Meta. It cannot be discounted and despite its recent challenges, has lots of potential for the future. Of the professional analysts that cover it, 63.9% of them rate it a “BUY”, 29.5% of them rate it a “HOLD”, and 6.6% rate it a “SELL”. According to those analysts, the company has a 12-month price target which is +29.8% higher than its current price… despite losing -67% over the last twelve months. It will take patience because the company does not pay a dividend, while a 6-month Treasury T-bill will yield you around 4.68% annualized and getting principal back is a no-brainer. Pictured below is Leo Messi receiving his 7^th Ballon d’Or and a picture of Messi right after yesterday’s game. Pay attention… do your diligence… there are no sure bets… none.

YESTERDAY’S MARKETS

Stocks rallied yesterday on hopes that today’s FOMC meeting minutes will provide clues on when the Fed will pivot… bets were placed. The S&P500 rose by +1.36%, the Dow Jones Industrial Average climbed by +1.18%, the Nasdaq Composite Index jumped by +1.36%, and the Russell 2000 Index advanced by +1.16%. Bonds gained and 10-year Treasury Note yields gave up -7 basis points to 3.75%. Cryptos advanced by +2.84% and Bitcoin added +3.19%.

NEXT UP

• Durable Goods Orders (October) are expected to have grown by +0.4% for a second straight month.
• Initial Jobless Claims (Nov 19) is expected to come in at 225k, slightly higher than last week’s reported 222k claims.
• S&P Global Flash Composite PMI (Nov) may have eased to 50.0 from 50.4.
• New Home Sales (October) are expected to have slipped by -5.5% after sliding by -10.9% a month earlier.
• FOMC Meeting Minutes from its November 2^nd meeting will be released at 2:00 PM Wall Street Time.
• Markets are closed tomorrow for Thanksgiving and will reopen Friday. I will give the market note the day off on Friday to allow the writer’s fingers a chance to be thankful.
• Next week: We will get more housing numbers, Consumer Confidence, GDP, JOLTS Job Openings, Fed Beige Book, PCE Deflator, and monthly employment situation. You may still have turkey and pie on your mind, but it will be an important week for economic numbers, so check back on Monday for calendars and details.