CHRIS VERSACE: Good morning Action Alerts Plus members. It's Thursday, September 29. Despite yesterday's rally, we are seeing stocks give back a hefty portion of yesterday's bounce higher. Candidly, we would characterize that move as one with little conviction given a relatively low level of trading volume, more stocks setting new lows rather than new highs, volatility remaining elevated, and Treasury yields once again rebounding today. As members know, we've been on a cautious path with the portfolio. And what we learned this morning is keeping us there as it adds to our thoughts that the coming weeks will indeed be challenging ones for the market.
So what did we learn? Well, these developments include H&M, the world's number two fashion retailer announcing a huge, huge cost cutting effort following the report that its earnings were weaker than expected due to, guess what? Soaring input costs and slower consumer spending.
Now, this is just the latest example of consumers pivoting their spending amid higher inflation and food costs. And while we don't mean to be cheeky with members, we rather doubt this is going to be the last we'll hear of this in the coming weeks. Also this morning, preliminary September inflation data out of the eurozone continues to run hot.
On a somewhat positive note, Spain's preliminary estimate of consumer price inflation dropped to only 9% year-over-year in September-- granted moving very, very far away from the 10.8% it saw in July, but still at extremely elevated levels. Also to the preliminary September inflation rate for Germany, clocked in at plus 10% year-over-year-- up from 7.9% and well ahead of the expected reading of 9.4%. This tells us there's a very high probability that we will see the European Central Bank continue to follow in the foot of the Fed's footsteps. And by that, we mean going bigger for longer.
On top of it all, we've got another round of geopolitical tension that we can add to the mix, as Russia announced it will annex four areas in Ukraine tomorrow. And the EU is preparing another round of sanctions while inflation continues to soar in the eurozone. On top of it all, we're also starting to hear that OPEC may be discussing production cuts at its meeting next week.
To sum it all up, this simply adds to the renewed certainty ahead of the market. And we continue to see it being a headwind for stocks. And it also adds to our concerns about the September quarter earnings season and the guidance that we're likely to get from companies in the coming weeks about the back half of 2022, as well as the start of 2023.
In terms of the AAP portfolio, we're going to continue to walk the prudent path. But we're also continuing to look for opportunities among more defensively positioned stocks, particularly dividend payers. And we expect to have something to share in that defensive space with members in the very near term.
Thanks for joining us. We'll be back with you tomorrow with the next "Daily Rundown."