The Week Ahead – Squid Game

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

**SPOILER ALERTS**

I binge watched the runaway Netflix hit Squid Game over the weekend. Apparently, this iconic series was the most watched Netflix original show ever. While definitely not for everyone, I thoroughly enjoyed it. For those of you who have not seen it, several hundred people compete in a series of high-stakes playground games. It is incredibly gruesome and dark, as the competitors risk their very lives to win a life-changing amount of cash. There are several main characters, but the protagonist (number 456) is a bit of an anti-hero. While tragically flawed, you cannot help but root for him to win. Under immense, existential pressure, he makes decisions that sometimes feel wrong, but because he stays true to his moral code, he ends up winning. Many of the other main characters try to cut corners in order to survive, which ultimately leads to their undoing.

Most of the year has felt like the Federal Reserve (Fed) is playing the squid game Red Light / Green Light with markets. With inflation running well-above expectations and the Employment Cost Index (ECI) coming in at the highest level since 1982, it is going to be a challenge for the Fed to maintain its promise to stay on hold until we reach full employment. Stocks are taking it all in stride, hitting another all-time-high on Friday, as ultimately earnings are what drive the market. Despite global supply concerns, more than 80% of reporting companies thus far have over-performed earnings estimates from Wall Street analysts. Indeed, many companies have blown through estimates by more than 15%. It turns out that inflation, for the right reasons (strong growth), is actually good for corporations with strong pricing power. We are now expecting earnings to increase a whopping 46% year-over-year.

I cannot help but see the Squid Game as an allegory, and make some parallels to investing. The ultimate winner was not the smartest, the strongest nor the most cunning; but he was the most disciplined, and stuck to a code even when it could have meant death. Investors need a code as well: remain diversified, maintain a long-term perspective and recognize the danger of speculative bets (shortcuts). If investors can stay the course using a long-term game plan, the odds of winning the stock market squid game are overwhelmingly in their favor.

Vehicle sales appear to have rebounded somewhat to a 12.8 million pace in October. The chip shortage is still weighing down production and sales, although that headwind is probably easing. Construction spending likely posted another modest gain for September. We expect the jobs print to be +500k in October and the unemployment rate to remain unchanged at 4.8%. Average hourly earnings likely climbed 0.4%.

Data deck for November 1–November 5: