CHRIS VERSACE: Good morning, Action Alerts Plus members. It is Tuesday, October 18. The stock market is continuing to rally. But even as we enjoy the gains, we have to keep in mind this is likely just the latest bear market rally. We've seen several over the last few months. And with technical indicators pointing to the next level of resistance for the S&P 500 at 3,900, we could see the rally continue a little bit further.

However, we have to remember, we are only in the early innings of the September quarter earnings season. And the headwinds that have plagued the market, especially those of the last few months, are poised to continue. A Bloomberg survey of 42 economists shows the probability of a recession over the next 12 months now stands at 60%. That's up from 50% a month earlier. And if we look at the Wall Street Journal's latest survey of economists, it puts the probability of a recession in the next 12 months at 63% up from 49% according to its July survey findings.

Now, the drivers behind these rising probabilities are the ones that we've shared with members in recent weeks. And they are the ones that have kept us on the cautious path with the portfolio. One of the big issues we see ahead is the mismatch between that rising probability of a recession and consensus expectations for earnings, especially those for the S&P 500 in 2023.

A few months ago, we flagged the downside risk-to-earnings for the second half of the year. And yes, they have started to come in. However, we see similar risks for 2023. And with the consensus forecast calling for 7.6% year over year growth for the S&P 500 earnings, we continue to see me more downside ahead, especially if those recession probabilities continue to increase.

Moving through the next few weeks of the September quarter earnings season, there will be a greater focus on 2023 and its expectations. And we strongly suspect this risk that we're identifying will come into focus. As that happens, market volatility will continue, leading us to keep our inverse ETFs in play, and our plan continues to be to strategically put some of the portfolio's cash to work using our current shopping list that we've shared with members.

One of those on the shopping list is a new edition of the portfolio, Lockheed Martin, which also reported its September quarter results earlier today. Earnings came in better than expected and the company guided its 2022 revenue largely in line with expectations. We remind members that Lockheed recently boosted its quarterly dividend of $3 per share. And alongside the earnings report from this morning, it also announced that it has upsized its buyback program to $14 billion with $14 billion specifically targeted for the current quarter.

We see that supporting the shares, but it also speaks to the company's ability to generate cash. Lockheed is going to host a conference call at 11:00 AM ET this morning, and we'll have more after we've digested that call. As it relates to what the company could say and what we want to hear and learn about on the earnings conference call, we want to understand what the pattern of converting its backlog into revenue will be over the coming quarters. And that backlog stood at $139.7 billion exiting September.

We also want to hear an update from Lockheed on what it sees as the next US national security budget. Some estimates are putting that around $1.5 trillion. But with the ongoing Russia-Ukraine war, and the White House continuing to voice its support for Ukraine, as well as the rising tensions and China's intent on Taiwan, in our view, the outlook for defense spending continues to be very favorable.

We see that pointing to further backlog increases in the coming quarters for Lockheed, driving comfort, not only with revenue forecasts but also fueling potentially additional dividend increases and further buyback programs. Again, we'll have more about Lockheed and what we're going to do with the shares, if we're adding or raising our price target, after we digest the earnings call. Thanks for joining us today. That's today's Daily Rundown. We'll be back with another edition tomorrow.