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This Week on Wall Street
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| Technology fills the earnings calendar this week, on both the hardware and the software side. Dell reports Tuesday and Broadcom Wednesday, with Palo Alto Networks, Snowflake and a handful of other software names spread across the same three days. The hardware reports speak to AI demand directly: server orders, backlog, and how much of the buildout is still ahead. The software reports answer a different question, which is whether that spending is reaching the companies selling into the same customers rather than only the ones supplying the equipment. Two things get attention on those calls: whether customers are widening their contracts or holding them flat, and how per-seat pricing holds up when more of the work is done by an agent rather than a person. The weekend also pulled the Middle East back into focus, as U.S. forces struck Iranian rocket launchers on Larak Island inside the Strait of Hormuz and Iran answered with strikes on American bases in Jordan. Crude opened the week higher, and Treasury has signaled that new secondary sanctions on Iran's trading partners will arrive weekly, beginning with banks. That cadence keeps a recurring source of headline risk in front of energy prices for weeks rather than days. |
| The Fed meets on September 15 and 16, and futures now price a quarter-point increase as more likely than no change. Chair Kevin Warsh used his first Jackson Hole address on Friday to say that better summer inflation readings do not tell him the underlying trend has improved, and that the committee has work to do if it does not. Bond markets moved on that reading. The awkward part is the labor market, which has been the softer half of the picture. Payrolls fell outright in July, hiring has slowed through most of the year, and the committee has been divided enough to produce multiple dissents. Friday brings the August jobs report, the last major labor reading before the Fed meets. Consensus looks for a gain of about 58,000 with the unemployment rate holding near 4.1%. A firmer number would let the inflation argument stand on its own, while a softer one puts the two halves of the Fed's mandate more visibly in conflict. |
| A different lens on regional performance is return on equity, which measures profit against the capital shareholders have tied up in a business. It answers a narrower question than valuation does: not what investors will pay for a dollar of earnings, but how much earnings a dollar of equity produces. Two levers move it. Companies can earn more on the assets they hold, or they can hold less equity against the same earnings, which is where buybacks and balance sheet structure enter. U.S. index composition helps as well, because software and pharmaceutical businesses need less capital to produce a dollar of profit than banks, utilities or heavy industry do. What stands out this year is that international developed large caps have outpaced the S&P 500 while that profitability gap has stayed wide, which means the move has come from valuation and the dollar rather than from earnings power catching up. Whether the leadership holds is therefore a question about margins outside the U.S., not about multiples. |
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The Profitability Gap Behind the Valuation Gap
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| The U.S. line sits near 21%, close to the top of its own range and about double Japan's. Canada, Europe and emerging markets cluster in the low to mid teens, where they have sat since the last recession. Outside Japan, the regions converged only once in the past three decades, in the years just before the financial crisis. Levels are read from the source chart and are approximate. |
| Source: The Daily Shot |
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Economic Releases This Week
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| Monday | None |
| Tuesday | JOLTS Job Openings, ISM Manufacturing |
| Wednesday | ADP Employment |
| Thursday | Initial Jobless Claims, ISM Services |
| Friday | Jobs Report |
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Stories to Start the Week
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What is Newton?
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Our Newton model determines the highest probability of future price direction using advanced algorithmic and high-order mathematical techniques on the current market environment. It scores securities over multiple time periods on a 0–20 scale (0 worst, 20 best). Trend and level both matter. A name moving from 18 to 16 still signals a strong level, with slight exhaustion in the trend.
▼ 0–8 declining
▬ 9–13 neutral
▲ 14–20 strong
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| Equities |
Trend |
This Wk |
Last Wk |
| Foreign Developed | ▬ | 13 | 10 |
| Large Cap | ▬ | 11 | 9 |
| Emerging Markets | ▬ | 9 | 10 |
| Small Cap | ▬ | 9 | 8 |
| Mid Cap | ▼ | 8 | 7 |
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| Fixed Income |
Trend |
This Wk |
Last Wk |
| Floating Rate Bond | ▬ | 9 | 12 |
| Corporate Bond | ▬ | 9 | 9 |
| High Yield Bond | ▬ | 9 | 8 |
| Long-Term Bond | ▼ | 8 | 8 |
| Intermediate Term Bond | ▼ | 7 | 9 |
| Short Term Bond | ▼ | 5 | 11 |
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| Sectors |
Trend |
This Wk |
Last Wk |
| Financials | ▬ | 12 | 9 |
| Technology | ▬ | 12 | 8 |
| Consumer Cyclical | ▬ | 12 | 8 |
| Health Care | ▬ | 9 | 15 |
| Materials | ▬ | 9 | 6 |
| Energy | ▼ | 8 | 13 |
| Communications | ▼ | 8 | 5 |
| Industrials | ▼ | 6 | 6 |
| Consumer Defensive | ▼ | 5 | 9 |
| Real Estate | ▼ | 5 | 9 |
| Utilities | ▼ | 2 | 6 |
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| Market Segments |
Trend |
This Wk |
Last Wk |
| Large Value | ▬ | 12 | 12 |
| Large Growth | ▬ | 12 | 8 |
| Small Growth | ▬ | 12 | 8 |
| Mid-Cap Value | ▬ | 11 | 11 |
| Small Value | ▬ | 10 | 8 |
| Mid-Cap Growth | ▬ | 10 | 7 |
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Notable Newton Moves This Week: No read reached the strong band this week, and the movement was largely a swap between offense and defense. Technology, Consumer Cyclical and Financials all improved to 12, Large Growth and Small Growth made the same jump from 8, and Foreign Developed rose to 13 to take the top equity spot. The reversals concentrated in defensive and rate-sensitive reads, with Health Care falling from 15 to 9, Energy from 13 to 8, and Consumer Defensive and Real Estate both from 9 to 5, leaving Utilities lowest at 2. Short Term Bond was the sharpest single move, dropping from 11 to 5.
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Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.
Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This newsletter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Waterloo Capital to be reliable. The letter may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon information in this letter is at sole discretion of the reader. Please consult with a Waterloo Capital financial advisor to ensure that any contemplated transaction in any securities or investment strategy mentioned in this newsletter aligns with your overall investment goals, objectives and tolerance for risk. Additional information about Waterloo Capital is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary report which are accessible online via the SEC's Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 133705. Waterloo Capital is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice.
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