Archive for June, 2022

• Morning News: June 30, 2022
  Eddy Elfenbein, June 30th, 2022 at 7:08 am

  Saudi Arabia Walks Oil Policy Tightrope Between Biden and Putin

  As OPEC Plus Nears a Milestone, Focus Shifts to Russia and the U.S.

  Four Charts Reveal Seismic Shifts in Global Energy Within One Lifetime

  Gas Prices Test American Appetite for New Cold War With Russia

  Powell Says Fed Must Accept Higher Recession Risk to Combat Inflation

  Grocery, Restaurant Executives See Inflation Altering Consumer Spending

  America’s MBAs Are the Latest Skeptics of Capitalism

  Home Listings Surge in Turnabout for Supply-Starved US Market

  Highest Mortgage Rates Since 2008 Housing Crisis Cool Sales

  A U.S. FCC Commissioner Urges Apple, Google to Boot TikTok from App Stores

  Crypto Crash Widens a Divide: ‘Those With Money Will End Up Being Fine’

  JPMorgan Says Crypto’s Deleveraging Cycle Won’t Last Much Longer

  How to Botch the World’s Biggest Bitcoin Hack

  Inside Didi’s $60 Billion Crash That Changed China Tech Forever

  Flying Coach Can Be Uncomfortable, but Flat Beds Are Coming

  Spirit Air Board Pushes Shareholders Meeting on Frontier Bid for Second Time

  John Visentin, Xerox C.E.O., Dies at 59

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• Market Update for June 29, 2022
  Eddy Elfenbein, June 29th, 2022 at 12:49 pm

  The stock market is down a bit this morning but nothing too serious. Bitcoin briefly dropped below $20,000.

  The Q1 GDP report was revised downward to -1.6%. That’s for the first quarter which began nearly six months ago and ended three months ago. We’ll get the initial report on Q1 GDP towards the end of July.

  Yesterday, Loretta Mester, the head of the Cleveland Fed, said she would support another 0.75% increase at the July meeting if the economic conditions warranted it. Traders are strongly leaning towards the idea of a 75-point hike.

  A few items I saw:

  Morgan Stanley lowered its price target on Upstart (UPST) from $88 to $19. In October, it was at $400 per share.

  Bed Bath & Beyond (BBBY) is down 20% to about $5 per share. The company just reported terrible results. Sales plunged and the CEO was shown the door. Years ago, this used to be a favorite of mine. How things have changed!

  From Bloomberg: Jupiter CEO Quits $68 Billion Firm to Sit at the Beach and ‘Do Nothing’

• Morning News: June 29, 2022
  Eddy Elfenbein, June 29th, 2022 at 4:08 am

  G-7 Bid to Cap Russian Oil Price Faces Hurdle of Global Enforcement

  West’s Challenges in Tackling Russia Exposed at G-7

  ECB’s Chief Economist Sees Double-Sided Risk Of Spiraling Inflation And An Economic Slowdown

  UK Economy Faces Double Threat of Inflation Surge, Recession Risk

  Fed’s Williams Sees Another Large Rate Rise in July as Possible

  Copper Crushed as Funds Turn Negative on Recession Fears

  Can Regulators Catch Up to Crypto?

  Bankman-Fried Warns: Some Crypto Exchanges Already “Secretly Insolvent”

  As Prices Skyrocket, Coupons Are Harder to Find Than Ever

  This Is What Happens When Tech Executives Start Believing Their Own Hype

  Byju’s Said to Offer More Than $1 Billion for 2U to Expand in US

  F.T.C. Accuses Walmart of Facilitating Consumer Fraud Through Its Money Transfer Business

  Rural Counties Are Booming, But Can It Last?

  Disney Board Renews Bob Chapek as C.E.O.

  Pinterest CEO Is Stepping Down, Google Commerce Executive to Take Top Job

  Creative Artists Agency Acquires ICM in Deal that Could Transform Hollywood Representation

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• CWS Market Review – June 28, 2022
  Eddy Elfenbein, June 28th, 2022 at 7:56 pm

  (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

  The Stock Market Appears to Be Calming Down

  The stock market may be chilling out from its convulsions of recent weeks. That’s a welcome change. I can’t say whether this new-found calmness will last. As we know, Wall Street can change its mind on a dime.

  The S&P 500 fell by 2% today, but a lot of today’s damage was in the tech sector. Here’s an interesting stat that I think sums up the recent market. Three times in the last eight sessions, the S&P 500 closed up or down by less than 0.3%. Yet in the 18 sessions prior to that, every single daily change was more than 0.3%. On Wall Street, the storms can be brutal, but they often pass quickly.

  

  I’ve also talked a lot about the divergence between risky, highly-volatile stocks and more conservative, stable stocks. During the big market drop, those two groups were diametric opposites, and it was risky stocks feeling the most pain. Lately, however, the distance between those two groups has calmed down as well.

  The market reached its recent low on June 16 when the S&P 500 closed at 3,666. While the market has recovered a little since, it hasn’t been a strong jerk to risky stocks as it’s been in previous bear market rallies.

  If the market is uncertain, that’s largely due to the economic outlook also being uncertain. Tomorrow, the government will update its report on Q1 GDP. The last report said that the U.S. economy contracted at an annualized rate of 1.5% during the first three months of the year. That report led many analysts to conclude that a recession is imminent. The Atlanta Fed’s GDPNow tool expects Q2 growth of just 0.3%.

  I don’t think that’s right. There were some technical reasons for why the GDP report was so low, and I don’t expect that to continue into Q2. Still, I don’t want to brush off the possibility of a recession. My disagreement is about time. I think the odds of a recession are low for right now, but a recession is very possible next year or in 2024. Higher rates from the Fed will slow things down, but it will take some time.

  Consumer Confidence Falls to an 18-Month Low

  Today we got some troubling economic news. Consumer confidence fell to an 18-month low. (Personally, I’d like to see this reported as consumer humility rose to an 18-month high, but that’s me.) I can’t say I’m surprised. Consumers are facing higher prices and shortages.

  The consumer confidence index for June dropped to 98.7 from May’s revised reading of 103.2, which was adjusted downward by more than 3 points.

  Driving down the overall level was a steep decline in consumers’ expectations for the next six months. The expectations index fell from 73.7 to a reading of 66.4 — the lowest level in nearly a decade, according to the report.

  This isn’t the only bit of info suggesting that consumers aren’t happy. Last week, the University of Michigan’s Consumer Survey fell to its lowest level since they started collecting data in 1952.

  I’ve also noticed a change in trends underlying the market. As I mentioned earlier, the risky stock/stable stock dichotomy has cooled down. It may have been replaced by a new dichotomy which is the gap between cyclical stocks and non-cyclicals.

  Let me explain. Over the last few days, economically cyclical stocks have badly lagged the market. Energy stocks in particular have done poorly although that’s after a very robust rally this year.

  But we’ve seen similar behavior in other areas. Recently, the S&P 500 Materials Index lagged the S&P 500 every day for 12 straight days. The S&P 500 Industrials only lagged for six days in a row. Financials stocks have also been sluggish.

  Here’s the S&P 500 Materials ETF divided by the S&P 500 ETF:

  

  That isn’t merely underperforming. It’s underperforming an already bad market. So what’s been leading a downward market? The answer has been healthcare and consumer staples. These stocks haven’t been doing well in an absolute sense, but they’ve been outperforming a falling market.

  This suggests to me that Wall Street is also forecasting if not a full recession, then at least a period of slow growth. I should caution you that Wall Street is usually thinks about six to nine months ahead, so there’s little reason to fear the economy is hitting the skids right now.

  Actually, the upcoming earnings season should be another good one. Analysts recently raised their estimates for Q2. Wall Street now sees earnings growth of 5.41%. That’s up from the prior forecast of 5.25%. (Wall Street expects profits for energy stocks to triple!)

  We won’t get the next jobs report until next Friday, July 8. However, the housing market is still doing well despite higher mortgage rates. Today’s Case-Shiller report said that home prices are up 20.4% in the last year. That’s down a bit from the 12-month period ending in March.

  If there is a bright spot, it’s that we’re entering the best time of year for stocks. At least, historically speaking, July and August have been great months for stocks.

  A few years ago, I took the entire history of the Dow Jones Industrial Average going back to 1896. I further sliced the data to find what the Dow’s average year looks like. Historically, the summertime has been for the bulls. The Dow has rallied from June 29 until September 6. Nearly half of the Dow’s annual gain has come during that brief period.

  Of course, that’s an average over a very long time period, so it shouldn’t be mistaken for a prediction. But we can say that the summer has historically been a good time for stocks.

  Nike Drops 7% After Earnings — Is it a Buy?

  I’m a big fan of Nike (NKE) but the stock rarely goes for an attractive price. This may be one of those rare chances.

  The stock has been doing poorly for the last several months. Nike peaked at $179.10 in November. Today, it reached a 52-week low of $102.75 per share. Whenever a good stock is in the dumps, I want to take a close look.

  Despite the poor performance of the stock, Nike said yesterday that it beat earnings for fiscal Q4. The sneaker folks made 90 cents per share which exceeded estimates of 81 cents per share. Sales dropped slightly to $12.23 billion, but that also topped estimates by $170 million.

  What happened after Nike announced the earnings beat? The shares dropped 7% today.

  

  Nike is facing several problems. Their business got hit hard in China by the lockdowns there. Sales in North America fell by 5%. Nike is trying to alter its business by selling more directly to consumers while bypassing wholesalers. Last quarter, direct sales rose by 7% while wholesale sales fell by 7%.

  One problem area is that Nike’s inventory rose by 23% last quarter. Some of that is due to the supply chain problems. The CFO said they’re not seeing “signs of a pullback” from consumers. Nike is also facing higher costs and longer shipping times, just like everybody else.

  The stat that I’m watching is Nike’s gross margin. That fell last quarter to 45%. Wall Street had been expecting 46.6%. When you lose your gross margin, that tells you that you have a problem with pricing. Part of the gross margin erosion is a result of the weakness in China. I’d include problems with logistics and freight costs.

  Nike said they expect fiscal Q1 sales to be flat to up slightly. They said they expect full-year revenue growth in the low double digits. That’s not that good.

  One analyst described the report as “messy.” That sounds about right. Nike also has the problem that other companies had in that their products were popular during Covid, but now there’s less of a need to buy Nikes again. Still, Nike’s business in doing well in Latin America, Europe and the Middle East.

  I was most impressed that Nike announced an $18 billion share buyback program over four years. That’s a clear vote of confidence from management. Nike has a market value of roughly $162 billion. It may also suggest that Nike is near the end of its large-scale reinvestment program of the last several years.

  Going into the earnings report, Wall Street had expectations that were simply too high. There have been several price target cuts in the last 24 hours. Nike closed today at $102.78 per share. Wall Street expects earnings for the current fiscal year of $4.28 per share. That’s followed by $5.06 and $5.96 for the fiscal year ending in May 2025. Bear in mind that Nike has often traded for more than 30 times trailing earnings.

  I’m calling Nike a cautious buy right now. There are certainly some problems with its business, but they’re fixable. Nike has one of the strongest brand names in the world. Six months from now, Nike might be a candidate for our Buy List.

  Bear markets are unpleasant, but if you’re patient, at least they can give you some bargains.

  That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

  – Eddy

  P.S. Two quick items.

  I recently had a fun chat with Michael Gayed. You can listen to it here.

  Don’t forget to sign up for a premium subscription: $20 per month or $200 for the whole year!

• Morning News: June 28, 2022
  Eddy Elfenbein, June 28th, 2022 at 7:08 am

  Cyber Pirates Prowling Ship Controls Threaten Another Big Shock

  G7 Agrees to Explore Cap on Russian Oil Price

  Widow-Maker Trade Sweeps Tokyo’s Financial Markets Once Again

  Lagarde Plays Down Recession Risks, Says ECB is Ready to ‘Move Faster’ on Rates If Needed

  Central Banks Should Raise Rates Sharply or Risk High-Inflation Era, BIS Warns

  Larry Summers Nailed Inflation. But Is He Right on What Comes Next?

  ‘Uncomfortably High’: What Economists Say About the Chance of Recession

  Less Takeout, More Produce Swapping: How Inflation Is Altering People’s Behavior

  Goldman Sachs and Wells Fargo Boost Shareholder Payouts

  Facing a Surge in Demand, Retailers Limit Emergency Contraceptive Purchases and Deliveries

  Elon Musk Has Twitter’s Data, but Getting Answers on Spam Accounts May Be Tougher

  Netflix Disrupted Entertainment With Binge Viewing. Now Can It Avoid Disruption Itself?

  Nike Earnings Top Wall Street’s Expectations, Despite Inflation in the U.S. and Covid Lockdowns in China

  Can You Blame Poor Countries Like Mine for Turning to China?

  Credit Suisse is Fined for Helping a Bulgarian Drug Ring Launder Money

  EY Pays $100 Million SEC Fine Over CPA Ethics Exam Cheaters

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• The Stock Market Continues to Chill Out
  Eddy Elfenbein, June 27th, 2022 at 11:19 am

  The stock market is up modestly today. As I write this, the S&P 500 is up 0.22%. I think this is a continuation of the “chilling out” theme I’ve discussed. Those big daily changes seem to have gone away, for now. Of course, they can return at any time.

  Energy is the big outlier today. The XLE is up over 3% today while the rest of the market is mostly flat.

  The stock market traditionally gets a nice lift at the middle of the year. June 29 has been the historic turning point. Nearly half of the Dow’s average annual gain has come between June 29 and September 6.

  There’s no guarantee, but that’s the long-term average.

  Not much econ news this morning. Pending home sales rose by 0.7% in May.

  I recently had a fun chat with Michael Gayed. You can listen to it here.

• Morning News: June 27, 2022
  Eddy Elfenbein, June 27th, 2022 at 7:05 am

  Morgan Stanley’s Big Bear Sees Temporary Respite From Selloff

  A $2 Trillion Free-Fall Rattles Crypto to the Core

  The Flamboyant Absurdity of a ‘Late’ or ‘Behind the Curve’ Federal Reserve

  Russia Pushed Into Historic Default By Sanctions

  Russian Gas Cuts Threaten World’s Largest Chemicals Hub

  Oil Giant Finds a Climate Bargain Doing Deals in Some of Mexico’s Poorest Areas

  How A Massive Refinery Shortage Is Contributing to High Gas Prices

  A Shale Booster Shot: ‘Re-Fracs’ Rise as Cheap Way to Lift U.S. Oil Output

  The Quest to Beat High Gas Prices

  Tesla, Ford and GM Raise EV Prices as Costs, Demand Grow

  Icons of Italian Automotive Style Struggle to Go Electric

  How Elon Musk Helped Lift the Ceiling on C.E.O. Pay

  Meme Stock Investors Bet on Bankrupt Revlon Being the Next Hertz

  Amazon’s Prime Day Isn’t Quite the Blockbuster It Once Was

  The Former Electrical Engineer Leading Disney’s Streaming Strategy

  Air Travel This Summer Is Expensive, Messy—and Booming

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• Morning News: June 24, 2022
  Eddy Elfenbein, June 24th, 2022 at 7:01 am

  In Russia’s War, China and India Emerge as Financiers

  China’s Quest for Iron Threatens West African Ecosystem

  Recession Trades Mount as Powell Triggers Rush to Defensives

  Fed Confronts a ‘New World’ of Inflation

  Stocks Temper Their Inflation Expectations on Copper Pounding

  The Strange Art of Asking People How Much Inflation They Expect

  How to Start Investing, Even in a Bear Market

  The SPAC Era Comes to a Whimpering End

  Government to Cancel $6 Billion in Student Loans for Defrauded Borrowers

  FDA Orders Juul e-Cigarettes Off the Market Over Safety Concerns

  The Controversial Economics of Abortion Law

  Hackers Steal $100 Million by Exploiting Crypto’s Weak Link

  As Midterms Loom, Elections Are No Longer Top Priority for Meta C.E.O.

  McDonald’s Tightens Restaurant Ownership Rules as It Looks for New Franchisees

  Netflix Lays Off 300 Employees as Bad Year Continues to Hit Company

  Ken Griffin Moving Citadel From Chicago to Miami Following Crime Complaints

  Accounting Firm EY Grapples With Partner Pay, Bear Market in Breakup

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• Morning News: June 23, 2022
  Eddy Elfenbein, June 23rd, 2022 at 7:08 am

  Europe’s Economy Slows Sharply as Recession Risks Grow

  Korean Currency falls to 13-Year Low Amid Global Recession Fears

  Inflation Surge Earns Monetarism Another Look

  Jerome Powell Takes a Pounding

  How Singapore Got Its Manufacturing Mojo Back

  Companies Brace for Impact of New Forced Labor Law

  Wall Street’s Hiring Frenzy Eases As Worries Grow Over Economy, Market Slump

  What’s A Reverse Currency War and Who’s Fighting One?

  Wall Street Gets Ready to Rumble Over Stock-Trading Rules

  High Energy Prices Could Sink U.S. Stocks During Earnings Season

  Can Crypto’s Richest Man Stand the Cold?

  Should You Buy Now, Pay Later? Tread Carefully.

  Big Changes to 401(k) Retirement Plans Get Closer With Senate Vote

  Bridgewater Builds a $10.5 Billion Bet Against European Companies

  Cost of Owning a Home Surges Above the Cost of Renting One

  Vapers Who Fear Juul FDA Ban Are Rushing to Hoard E-Cigarettes

  7-Eleven Franchisee Who Rebelled Against Company Loses in Court

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• Morning News: June 22, 2022
  Eddy Elfenbein, June 22nd, 2022 at 7:07 am

  One Price Dodging Inflation: China-to-U.S. Shipping Rates

  First Pineapples, Now Fish: To Pressure Taiwan, China Flexes Economic Muscle

  Finding Alternative Route for Ukraine’s Grain Exports Isn’t So Simple, Experts Say

  World’s Largest Truck Maker Says It’s Facing Enormous Supply Chain Pressure

  The World’s Bubbliest Housing Markets Are Flashing Warning Signs

  Britain’s Inflation Crisis Deepens, Fueling Strike Action

  High Gas Prices Hit Demand as Drivers Cut Back at the Pump

  Biden to Call for Three-Month Federal Gasoline Tax Suspension

  Biden Administration Targets Removal of Most Nicotine From Cigarettes

  Big Returns for Investing in Fine Wine and Whiskey? It Was Fraud, U.S. Says

  Once-Hot NFT Collections Tank Alongside Cryptocurrencies

  When You Should’ve Bought Bitcoin, and When It Became a Terrible Idea

  Corporate America Looks for Leeway on U.S. Climate Disclosures

  U.S. Tech Companies Yank Job Offers, Leaving College Grads Scrambling

  Microsoft Plans to Eliminate Face Analysis Tools in Push for ‘Responsible A.I.’

  A 30-Year-Old Heir Is Leading the Makeover of Tiffany’s

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