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It seemed like the perfect storm for a mini sell off. Federal Reserve members took center stage on Thursday espousing a hawkish interest policy on the heels of escalating tensions in the Middle East. Meanwhile in Washington, it is an ongoing debacle of epic proportions. It could spark additional regional geopolitical scrums as the US presents itself as a Disunited States. It is only a matter of time before we see North Korea lobbing more missiles across the Sea of Japan or worse the whole Pacific Ocean. We pray they are not dumb enough to put fissionable material in the nose cone only to have it go off course and pollute another nation state.

And of course, we continue to worry about China. Between real estate defaults hurting domestic finances and a diminishing supply of advanced AI chips, it begs the question are they ready to step foot in Taiwan? Probably not but it is not out of the question.

On the other hand, oil producers from here to Texas are benefitting from the rising tensions in the middle east. It is far too difficult to even hazard a guess on how producers in that region react to the Hamas generated tragedies. But the mere thought of production cutbacks is putting domestic oil production on a pedestal. Last week, Exxon Mobile announced an acquisition of epic proportions that may have some difficulties getting past regulators, but it is not stopping Chevron from looking around for more production assets.

We have contended for years that that government regulations and activist shareholders are hampering new oil field projects, so energy companies, flush with cash, are going to plan B. If you cannot drill reserves…buy them.

And it is happening in Canada too where our industry environment is in tatters thanks to government regulations. Ok tatters is not quite the right word, we have some of the best managed oil companies in the world but the Federal regulatory environment continues to play havoc in our industry. Tourmaline for example has just announced it plans to acquire Bonavista Energy for 1.45 billion. Earlier this month Suncor agreed to pick up Totalenergies remaining oilsands assets in their Fort Hills project giving Suncor 100% ownership. I won’t say discount, but this asset should add 61,000 BPD and contains 675 million barrels of proven and probable reserves. It should be noted the Fort Hills project has had operational difficulties so maybe Totalenergies is getting out at a good time.

Turning to next week, investors will need to digest Q3 US GDP with expectations of 3.8% to 4% on Thursday, plus the critical Personal Consumption Expenditure Prices index aka the preferred inflation stat followed by the US Fed on Friday. Economists on average expect a 0.3% jump versus 0.4% in August. A hot number will not be good for markets…Trick or Treat.

On the other hand, it’s a big earnings week, with Meta, Microsoft, Amazon, and Alphabet reporting. This week two other “Magnificent 7” reported earnings and the results could not be more different. Tesla sinking 15% while Netflix gained 13%. As a rule of thumb, those that disappoint on any metric right now will be punished.

On the other hand, Wall Street behaves in an illogical way. As each earnings season approaches, the C Suite of most companies talk down any numbers so by the time the actual earnings get released, they surprise to the upside. It is part of the pre-quarter window dressing that money managers engage in ahead of quarter end. Sell the dogs and load up on your winners.

In total, and if you are interested, https://finance.yahoo.com/calendar/earnings/?from=2023-10-22&to=2023-10-28

Provides you with a list of the companies reporting along with estimates and next week over 1500 companies report.

Plus, you can access a similar list for Canadian names because we have 140 odd names reporting including the rails, Teck Resources, forestry, some of our favorite oil companies and Fortis. In general, we think results will beat expectations putting some support under stock prices.

Bottom line, October looks to follow its usual pattern with volatility in the first half and a recovery in the second half. Caveat Emptor.

Stay safe and Happy trading.

Steve Bokor and the Ocean Wealth Team.

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