THE END OF THE SHUTDOWN
In case you missed it, on Wednesday the longest shutdown in US history came to an end, forty three full days without a functioning federal government. And this is not just a political event. It is something that affects daily life, the economy, and of course the markets. When we say daily life, we mean cancelled flights, delayed pension payments, and thousands of public services that came to a standstill.
Historically, markets tend to rebound strongly after a shutdown. According to Canaccord Genuity data:
+3.3 percent on average three months later
+7.8 percent after six months
+11.5 percent after one year
After the 2018 shutdown, which lasted thirty five days, the S&P rose twenty four percent in twelve months. And this was not random. Once uncertainty fades, optimism returns, bringing back risk taking and investment activity.
And let us not forget that we are now entering the November to April period, which is traditionally the most bullish stretch for the markets.
TWO STOCKS TO KEEP AN EYE
STARBUCKS
In recent years, one stock that has disappointed many investors is Starbucks.
The entire consumer sector is under pressure and Starbucks is no exception.
The new CEO is doing everything he can to steer the company back to growth.
And in the latest quarter, we finally saw the first positive sign, as comparable sales increased for the first time in a while.
However, profit margins keep shrinking, with operating margin sitting at only 8 percent.
Also, the stock does not seem to be a bargain, since it trades at an EV/EBIT above 40.
Will the company manage to return to its previous profitability levels and the stock to its upward trend?
EXXON MOBIL: MORE BULLISH THAN EVER
Over the past three months, my favorite Exxon Mobil stock has climbed by 10.5 percent.
And it has done so even though oil prices are at a four year low, at 59.6 dollars per barrel.
This shows that the market values the company’s strength regardless of the oil commodity cycle.
Exxon continues to generate strong cash flows from Guyana and the Permian, even at lower prices, which makes it stand out in the sector.
On top of that, Exxon offers a juicy dividend yield of 3.5 percent (possibly higher) and maintains an excellent balance sheet.
INVESTMENT OUTLOOK
Yes, the shutdown is over. All good? Yes and no. The problem was not only the halt in government operations. It was also the loss of trust. And that does not get restored with a signature. So we should expect volatility. Many data releases will never be published, and the Fed must make key decisions in December against the backdrop of a possible rate cut.
Posted Using INLEO