5320 Northshore Drive,
North Little Rock, Arkansas 72118
contact@sowellmanagement.com
You should receive a confirmation email shortly. Don’t forget to reserve your room through the unique Sowell hotel reservation page. You can extend your stay at the Sowell Summit reduced room rate.
WEEK AHEAD
October 28- November 1, 2024
With equities taking a breather from last week’s modest decline, our technical signal stays bullish. For now, our signals remain fully committed to the market and will digest the upcoming market events.
The U.S. stock market posted its first weekly loss since the Federal Reserve’s recent interest rate cut, ending the streak of weekly gains that followed the central bank’s pivot. For the week ending October 25, 2024, major indices faced downward pressure, as a combination of rising bond yields, mixed corporate earnings, and geopolitical tensions weighed on investor sentiment. The S&P 500, which had rallied in the weeks following the Fed’s decision to lower rates, finally succumbed to selling pressure declining by a modest 0.96% (YTD gains of +23.14%).
Despite initial optimism that the Fed’s rate cut would provide a tailwind to equities, particularly growth stocks, higher-than-expected bond yields continue to temper that enthusiasm. The 10-year Treasury yield flirted with the 4.25% level, spurring concerns about rising borrowing costs. This upward pressure on yields continues to surprise investors in the strength of the economic data as overall bonds also returned a loss of 0.92% (YTD gains of +2.03%). The latest IMF forecasts the U.S. will continue to drive global growth on the strength of the U.S. consumer by raising its 2024 U.S. GDP growth forecast to 2.8% (while cutting China’s growth forecast by two-tenths of a percentage point to 4.8%). In addition to bond market dynamics, gold prices rose to $2,747, indicative of the geopolitical risks with the Middle East conflict and the upcoming U.S. elections.
A packed week lies ahead of earnings, among which six of the Magnificent Seven prepare to unveil their earnings, offering a glimpse into the health of the corporate giants that have defined this market cycle. These reports will be swiftly followed by fresh data on the economy and jobs, setting the stage for how Wall Street judges the strength of the broader economic landscape. With just nine days until the U.S. election and the Federal Reserve’s November 7th meeting looming, the major indices will be closely watched as growth, inflation, and interest rates remain the key levers of investor confidence.
The question on everyone’s mind: Will the coming election shape the future in ways we can’t yet predict? As the days tick down, the market will weigh the possibility of lasting change—both in politics and policy.
“Politics doesn’t lead society. If you look at the big moments of social change, they happen with a formula. The cultural change happens first, civic change happens next, and then political change.”
— New York Times Columnist David Brooks, PBS Newshour: Why the Presidential Race is Deadlocked, October 25, 2024
“SAVE” Sink or Swim
Spirit Airlines has been navigating bankruptcy risks for a while now, with high debt levels and rising costs, including fuel and wages, putting pressure on its finances. With debt deadlines closing in, Spirit looked like it might face a financial crash landing, and its stock price once dropped below $1.50. However, the airline managed a crucial lifeline by entering an agreement with U.S. Bank. It effectively bought itself more time by extending the refinancing deadline on its 2025 notes from October 21 to December 23. This agreement provided Spirit with some breathing room and helped its stock price recover slightly, reaching around $2.50 on the 21st.
Although Spirit has cleared an immediate hurdle, it’s just the first step on its challenging path to survival. After two failed merger attempts with Frontier and JetBlue, rumors have emerged that Frontier might be interested in another shot at joining forces with Spirit. “Frontier Airlines is exploring a renewed bid for Spirit Airlines,” The Wall Street Journal reported Tuesday. In response, Spirit’s stock price climbed back above $3 on October 23, marking about a 60% gain over the past five days. Yet concerns remain. The two previous failed attempts might hint at Spirit’s struggles to stay competitive and profitable, and analysts are wary that any new offer might come at a lower acquisition price. However, if the pieces fall into place this time, the merger could bring Spirit the stability it has been searching for.
Meanwhile, Spirit isn’t just sitting back. It has its own plans “to return to profitability.” Determined to cut costs and steer back on track, the airline has rolled out a bold new plan involving expense reduction, job cuts, plane sales, and flight trims. These initiatives are expected to save Spirit around $80 million, with cost-cutting measures set to start early next year. Additionally, Spirit will sell 23 aircraft to G.A. Telesis, an aircraft maintenance services company, for approximately $519 million to boost its liquidity.
Long story short, the airline finds itself at a pivotal altitude. It has gained momentum over the past week, sparking some optimism among investors that it might finally emerge from the shadows. As it navigates these challenges, its stock will likely continue on a volatile path, keeping any related investment highly risky. Yet, if Spirit can steer through this turbulence, it may be cruising again. For now, the airline is counting on these bold moves to guide it out of financial headwinds, though only time will tell if this course correction brings smoother skies or another round of bumpy air. One thing’s certain—the flight is still in progress, and all eyes are on where it will land. Will Spirit finally achieve a smooth landing? Passengers are buckling up to find out.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.