Analysis: AMD

In today's Action Alerts PLUS Daily Rundown, Bob Lang discussed what the jobs report means for both the market and the Federal Reserve amid Friday's selloff. 

He also reviewed the decision to exit Advanced Micro Devices (AMD) .

BOB LANG: Good morning Action Alerts Plus subscribers.

It's Friday, October 7, 2022. It's time for our rundown. As usual, lots to cover.

But first off, if you missed the monthly call yesterday, Sarah, Chris, and I talked about the positions in a portfolio. A lot of the things I related to markets, the economy, and so forth. I encourage you to go back and look at your emails or look on a website and listen in to our monthly call. Good hour worth of conversation about our portfolio and about Action News Plus and maybe some changes that we're going to be making into the future. So go listen in.

So today we saw the jobs report released before the open at 8:30 Eastern time this morning. And it came in fairly strong. 263,000 new jobs created in September, which showed good strong job growth. But the unemployment rate dropped from 3.7 down to 3.5%. This tells us that the job market remains rather tight, which is against what the Fed has been talking about what they want to see in order to loosen up on their rate hikes.

The wage growth, as well, too was up about 5%. Another hot number. This is not going to inspire the Fed to ease up on a hawkish policy. Rather, this report will likely embolden the committee to continue on their campaign to snuff out inflation. In fact, I looked at the Fed funds futures this morning and going out to March of 2023, it's starting to price in the 5% rate on the Fed funds futures.

So we're currently at 3%. We heard from the Fed a couple of weeks ago that they're looking to end the year at 4.4 to 4.5%. So pricing in another 50 basis points on top of that in early part of 2023 is not going to be good for the equity bulls. Yesterday, of course, we heard from two Fed speakers who explicitly told us that they will not cut rates in 2023. I repeat, they will not cut rates in 2023 next year. And they are not going to pivot.

I think it's time that we all stop listening to people out there who are preaching this notion and this narrative that the Fed is going to pivot it at some point in time and they're trying to predict when that is going to happen. Because the Fed is in charge of what's going on here and they are the ones who are creating monetary policy. So when it's time to pivot the Fed will signal that. I think it's a mistake to try to listen to other people and try and read into the tea leaves that the data is distributing out on a regular basis.

The results really come at a time where the market is very choppy. We had a strong market on Monday and Tuesday, of course, and we've given back quite a bit of that over the last couple of days. The oscillators are starting to turn down here. And after a brief move higher in the week, the recent bear market rally is probably over.

Price oscillators, which is something that I follow, will turn down on the S&P 500 on a close below 3,700. We're currently at about 3675, 3680 right now. So we closed below 3,700. It just tells us that there's going to be more downside to come on the markets. We are loaded with lots of cash. We have those inverse ETFs to use as a defensive part of our portfolio right now.

And in late news last night, we heard from AMD. Unfortunately, a name that we have in the portfolio and they announced a shortfall in revenue last night. We cut the name today entirely, after cutting it a little bit last week and reduced it from A2 to A3. Having sold Nvidia much earlier at much higher prices as well too, this really helps a little bit but not much. We didn't see this coming but we are aware that during earnings season there are going to be some earnings warnings coming out. And especially now probably much more prevalent than before because the economy is starting to soften.

We'll keep our eye on the name though and looking for an opportunity. But it's not in the near term future. Taiwan Semi, a competitor, all came out with really decent guidance and earnings today. But Samsung, the flip side, came out with poor guidance and poor earnings reported today this morning. So again, all in all we needed to make a move and cut this name off before we see some more downside on AMD.

So that's going to be it. Have a great day everyone. Have a great weekend. And we'll see you back here on Monday.