Down 3% in two days? Here’s how to handle Spooktober’s sell-off.

Spooktober Starts With a Scream

According to my daughters, October is “spooky time!”

Given how this month started off, they are more right than they know.

It’s only the second day of the month, and both the Dow Jones Industrial Average and the S&P 500 Index are down roughly 3%. If that’s not spooky, I don’t know what is.

The sell-off is the direct result of a couple key pieces of economic data — leading indicators that reinforce recessionary fears.

First, the Institute for Supply Management’s Manufacturing Purchasing Managers Index hit a 10-year low yesterday. But it was more than that. The index came in at 47.8% for September … readings below 50% indicate contraction in the market.

Analysts are putting the blame squarely at the feet of the U.S.-China trade war. “We have now tariffed our way into a manufacturing recession in the U.S. and globally,” quipped Peter Boockvar, Bleakley Advisory Group’s chief investment officer.

Second, the IHS Markit Purchasing Managers’ Index for Germany also pointed toward recession. The reading came in at 41.7 in September, down from 43.5 the month prior. It was yet another decade low.

Finally, today we have news that hiring in the U.S. is slowing. Automatic Data Processing (ADP) said that private-sector jobs rose a modest 135,000 in September. Economists were expecting an increase of 152,000. ADP also revised its August estimates lower.

Mark Zandi of Moody’s Analytics said that businesses are growing more cautious, and that “if businesses pull back any further, unemployment will begin to rise.”

The Takeaway:

The ADP report is seen as a precursor to this Friday’s nonfarms payroll report from the U.S. Department of Labor. The signs don’t look good.

A slowdown in hiring by itself is nothing to get too worked up about. I mean, we’re at historically low unemployment as it is. It has to go up sooner or later. It happens, often due to seasonality.

It’s a sustained rise in unemployment that you have to worry about. So far, there has been little proof to back speculation of a sustained rise in unemployment. And then manufacturing data began to weaken.

As a result, Friday’s payrolls report will be more closely watched than usual. Economists project that the U.S. economy added 145,000 jobs last month. The unemployment rate is expected to hold steady at 3.7%.

After the past couple of days of poor data, I imagine that the market won’t take too kindly to the economy missing jobs estimates … or rising unemployment.

The key thing to remember here is to not panic. We’re not in a recession yet, but we can certainly see one from here.

What you need is a steady hand to help guide you through the storm and the resulting choppy economic waters. Banyan Hill expert Ted Bauman can do just that.

Not only is Ted an experienced sailor (seriously, drop him a line and ask him about boats sometime), but he’s also the editor of the widely read financial newsletter, The Bauman Letter.

To find out how Ted can chart you a course to endless income, sign up today for The Bauman Letter.

Great Stuff, The Good, The Bad and The Ugly

The Good: Raise the Roof

Lennar (LEN) tops earnings expectations

Throw your hands in the air … and hold that beam in place for me, would you?

Lennar Corp. (NYSE: LEN) just raised the roof on the homebuilding sector. The Federal Reserve’s reversal on interest rates has been good for homebuilders, providing an unexpected rise in profits for Lennar.

Ahead of this morning’s open, Lennar said that earnings rose 14% on revenue that gained 3% year over year. Both figures were expected to fall. What’s more, new orders jumped an unexpected 9%, and Lennar’s backlog of home orders slipped 2%.

That last point is important, because analysts were concerned about a glut of new-home inventory amid rising interest rates.

Surprise! Now neither issue is a concern for Lennar.

In a call with investors, CEO Stuart Miller said: “We continue to believe that the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable.”

Nobody’s told Stuart about the plunge in manufacturing data yet, have they?

For now, at least, LEN shares appear poised to extend their recent rally, which could gain momentum if the Fed cuts interest rates again.

The Bad: The Name’s Suisse, Credit Suisse

Credit Suisse (CS) scandal imitates 80s spy movies

It may sound like the plot of a James Bond film, but it was more akin to Austin Powers.

Swiss banking giant Credit Suisse Group AG (NYSE: CS) — Swiss, Suisse? I smell a clue! — hired private investigators to follow and spy on its former head of wealth management, Iqbal Khan.

Why? Because after feuding with CEO Tidjane Thiam, Khan left Credit Suisse and headed to Swiss rival UBS Group AG (NYSE: UBS).

Then, in what I can only imagine are scenes out of some 1980s spy film, Khan confronted his pursuers in the streets of Zurich, Switzerland. The confrontation lead to a chase by car and foot, with Khan eventually calling for police.

Then, last month, the contractor hired to investigate Khan turned up dead, having taken their own life. Credit Suisse’s board launched an investigation into the spying scandal and met to discuss the results. They ultimately pinned the surveillance deed on Pierre-Olivier Bouee, the bank’s chief operating officer.

In a statement, Credit Suisse said: “The Board of Directors considers that the mandate for the observation of Iqbal Khan was wrong and disproportionate and has resulted in severe reputational damage to the bank.”

That’s the understatement of the year right there.

The Ugly: Look at This Photograph

GoPro's (GPRO) new cameras

Every time I do, it makes me laugh.

Two new cameras? GoPro Inc. (Nasdaq: GPRO) stock rallied nearly 40% in the past month due to hype about two new cameras?

Oh … and their accessories. You can’t forget the accessories!

This morning, “action” camera maker GoPro unveiled the Hero8 Black camera, the GoPro Max camera and a set of accessories — the Media Mod, Display Mod and Light Mod.

The Hero8 Black has improved video stabilization, four digital lenses and wind noise suppression enhancements. The Max, meanwhile, also has four lenses, is waterproof up to 16 feet — No, Timmy, you can’t take the GoPro in the hotel pool! — and has 360-degree video capabilities and onboard photo-stitching etching software.

I really want to say “Oooh!” and “Aaaah!” but I can’t help but see GoPro the same way I see Fitbit Inc. (NYSE: FIT). In short, everything the company makes is made cheaper or better by one of its competitors. And, what do you know, Fitbit recently said it’s looking for a buyer.

When it first came out, GoPro made a name for itself in the extreme sports market. At the time, it was the only game in town. Now, everyone and their mother makes an active sports camera with all the same features — often for less. What’s more, modern smartphones have very similar features.

I guess I don’t get why you’d pay more for a GoPro. And neither do investors. The stock is a shadow of its former $80 self, and it’s rarely traded out of the single digits in the past two years. I don’t see two new cameras changing this anytime soon.

Great Stuff's Comic Corner

Charles Schwab (SCHW) snaps profits for TD Ameritrade (AMTD)

It’s a race to the bottom for online brokerage firms.

After Charles Schwab Corp. (NYSE: SCHW) announced it was doing away with commissions on stocks and exchange-traded funds yesterday, TD Ameritrade Holding Corp. (Nasdaq: AMTD) quickly followed suit. Is E-Trade Financial Corp. (Nasdaq: ETFC) next?

Great Stuff Picks: The Sun Also Rises

Solar power at a bargain-basement price? Sign me up!

The solar sector is hot this year, and the bears are getting burned. And it’s no wonder. There is a global push to move away from fossil fuels and reduce emissions, and it’s one that started long before Greta Thunberg began her crusade.

Roughly 185 states, representing 88% of global greenhouse gas emissions, have signed on to the Paris Climate Accord. That means that countries and businesses worldwide are making the switch to more sustainable energy sources.

That also means increased demand for the hottest alternative energy technologies, such as wind and solar.

Taking a look at projections for these markets reveals that the global wind power market is expected to rise to $170 billion by 2024.

That looks nice and all, but global solar power is expected to dwarf that figure two years earlier — coming in at an estimated $422 billion by 2022.

You know you want a piece of that action … and you can have it at a discount, no less!

SunPower SPWR

SunPower Corp. (Nasdaq: SPWR) is up more than 85% so far this year, driven by increased global demand forecasts, falling solar panel costs and rising oil prices.

The company’s solar panels are highly regarded in the industry. So much so that Sony Pictures Entertainment recently signed a deal to install SunPower panels on its historic studio lot in Culver City, California.

What’s more, with Tesla Inc. (Nasdaq: TSLA) solar panels setting fire to stores across the nation, SunPower is poised to take up the slack. In fact, SunPower is expected to grow 52.8% this year and 155.9% in 2020!

Now, you may have seen SPWR stock taking a nosedive in recent weeks. The shares are down some 31% after peaking in the midst of the Saudi Arabian oil facilities attack. The subsequent dip in oil prices gave SPWR investors who got in at the beginning of the rally an excuse to sell. This is normal for a stock with SPWR’s momentum.

That sell-off has left SPWR oversold and trading near psychological support. In short, the shares are ripe for a rebound.

To recap, we have:

  • A global green energy movment.
  • A $422 billion solar market.
  • A respected name in the industry.
  • 9% growth projected in 2020.
  • A heavily oversold stock.

The bottom line: Buy SPWR.

Until next time, good trading!


Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing