π Week in Review: 10/16/22
BlackRock has added +$248B in net-inflows YTD, UnitedHealth Group is printing money, and nuclear war might be on the table..
Our stance has not changed.
We remain bearish and are not interested in meaningfully adding to positions at this time. With one of the largest intra-day reversals ever on Thursday, we saw a perfect example of how the markets can operate during times of recessions, chaos, war, etc. β with extreme volatility:
As an ultra-quick highlight reel as to why weβre still bearishβ¦
Inflation β Zero sign of a change and Core Inflation reached its highest YoY change in four decades.
Bond Market β Currently having its fourth worst year in the last 322 years.
Unemployment β The US unemployment rate is at its lowest level in 50 years. If the Fed is intentionally crushing demand (and the economy), we need to see a cooler labor market until they consider a pivot. Itβs our belief the Fed will continue to raise rates until we see the unemployment rate rise, at least to some extent. More on this at the end of the post.
World War β A former US Secretary of Defense and CIA Director recently wrote an article for Politico in which he stated that intelligence analysts believe that the probability of nuclear weapons being used in Ukraine has risen to 20-25%.
Thereβs rumors that China is urging citizens to leave Ukraine immediately. NATO will be conducting βroutineβ nuclear training exercises. At the same time, Russia will be carrying out large-scale nuclear force drills as well. Ohβ¦ and North Korea keeps firing missiles near South Korea (+ one over Japan!), and the US is becoming increasingly involved in trying to keep the peace. South Korea also just announced that they expect North Korea to conduct a nuclear test βat any time.β
Our goal isnβt to be fear-mongers β that doesnβt help anything. However, itβs genuinely shocking that most people we talk to on a day-to-day basis donβt realize that we could already be in the early innings of World War III.
From our humble viewpoint, the stock market could only rise if the Fed pivots its policies and nuclear war is averted entirely. Both of those donβt seem possible in the short-term (3-6 months), and frankly there are more important things going on than buying stocks right now.
Week in Review β Too Long, Didnβt Read:
BlackRock collected +$248 billion in net-inflows YTD, UnitedHealth Group is doubling down on value-based healthcare, earnings estimates across the board are down -6%, Netflix announced ad-supported subscription, FOMC minutes tell us a lot about the Fedβs biggest fear, and inflation remains elevated.
Key Earnings Announcements:
BlackRock collected +$65 billion in net-inflows during Q3, Taiwan Semiconductor is cutting their CapEx spend, and UnitedHealth Group continues to rake in the profits.
BlackRock (BLK)
Key Metrics
Revenue: $4.3 billion, compared to $5.1 billion last year
Operating Income: $1.5 billion, compared to $1.9 billion last year
Profits: $1.4 billion, compared to $1.7 billion last year
Earnings Release Callout
βBlackRock generated industry-leading long-term net inflows of $248 billion in the first nine months of 2022, including $65 billion in the third quarter. We once again saw strong growth in bond ETFs, with $37 billion of net inflows.β
My Takeaway
This is interesting β despite a very challenging backdrop and macroeconomic uncertainty, BlackRock reported +$65B of long-term net inflows driven primarily by fixed income buyers and iShares ETFs. This translated into a +3% bump in annualized organic asset growth. During the first nine months of 2022, BlackRock experienced net inflows of $248B.
Their Aladdin business delivered record sales during the first 9 months of 2022 β quarterly technology services revenue increased +6% YoY, while annual contract value was up +10% YoY. Wall Street is expecting this momentum to continue into 2023.
Bank of America expects BLK to outperform the broader market as the firm continues to take profitable market share through its secular businesses (ETFs, fixed income, alternatives, etc.) However, Seeking Alphaβs Quant Rating has BlackRock at a βSell,β and has been rated a sell since $677.
No position.
Taiwan Semiconductor (TSM)