The week ahead 04/03/2023
Americans just took another punch.
Over the weekend, eight OPEC+ producers sent a shockwave around the world — unifying to cut oil production by -1.16 million barrels per day.
This adds to Russia’s existing cut of -500K barrels per day from its own production, which was announced in February.
Oil prices have soared over the last few days as a result:
“The anticipated increase in oil prices for the rest of the year as a result of these voluntary cuts could fuel global inflation, prompting a more hawkish stance on interest rate hikes from central banks across the world.
That would, however, lower economic growth and reduce oil demand expansion.” — Victor Ponsford of Rystad Energy
Heading into midterm elections, our Strategic Petroleum Reserve (SPR) was drained to fight inflation…
… and we promised that we would be filling it up for relatively low prices…
And now even Japan has broken the rule set by G-7 nations to not buy Russian oil at above a $60 / barrel price cap.
“The concession shows Japan’s reliance on Russia for fossil fuels, which analysts said contributed to a hesitancy in Tokyo to back Ukraine more fully in its war with Russia.
While many European countries have reduced their dependence on Russian energy supplies, Japan has stepped up its purchases of Russian natural gas over the past year.
Japan is the only Group of Seven nation not to supply lethal weapons to Ukraine, and Prime Minister Fumio Kishida was the last G-7 leader to visit Ukraine after Russia’s invasion.” — Peter Landers, WSJ
TAKEAWAY: The United States is currently ‘on the outside looking in’ when it comes to global energy politics. Gas prices for those summer road trips are likely to rise.
Key Earnings Announcements:
We’re focused on the snacks and the booze this week.
Monday (4/3): SAIC
Tuesday (4/4): Acuity Brands, DLocal Ltd., MSC Industrial Direct Co.
Wednesday (4/5): Conagra Brands, Simply Good Foods
Thursday (4/6): Applied Blockchain, Constellation Brands, Lamb Weston, Levi Strauss & Co., RPM International, WD-40
Friday (4/7): MARKET CLOSED FOR GOOD FRIDAY
What We’re Watching:
Conagra Brands (CAG) — The company has seen sales grow by +$0.2B, +$0.5B, and +$0.7B over the last three years. As they fully commit to their self-proclaimed “Accelerate” phase, we’re interested to see if Conagra Brands can keep the pace — while also keep its adj. operating margin of 17%.
Constellation Brands (STZ)
Constellation Brands argues that its diversified portfolio allows it to capture consumers like no other brands in the space.
Their beer business has an operating margin of nearly 40% and has had over 50 consecutive quarters of growth — meaning the number of cases that are sold to retailers by a distributor. We’re excited to learn more about this business, which is frankly a bit more complicated than meets the eye.
Investor Events / Global Affairs:
If McDonald’s is laying people off… maybe things are going to get pretty bad?
McDonald’s Layoffs Coming
McDonald’s Corp. (MCD) has temporarily closed its U.S. offices to prepare for expected layoffs throughout the company.
The company will have a broader restructuring — which we will get more details on soon. McDonald’s leadership asked employees to cancel all in-person meetings with vendors and other outside parties at its headquarters.
“During the week of April 3, we will communicate key decisions related to roles and staffing levels across the organization.”
McDonald’s employs over 150,000+ people around the world.
Tech has been dominating 2023 thus far — leading almost all of the index gains. Tech forward P/E is up +25% YTD, while Tech’s 2023 EPS growth forecast has been cut from -2% to -8% YoY.
Tech’s P/E has risen so rapidly that it now trades at nearly a +40% premium to the S&P 500 — even higher than the pandemic bubble peak in 2021.
What about pre-Powell money printing and interest rate-dropping?
Tech traded at just a 4% premium to the market.
We might begin to see technology companies cool down as we exit Q2.
On Sunday, Tesla reported its Q1 vehicle production and deliveries.
Total deliveries Q1 2023: 422,875
Total production Q1 2023: 440,808
The Q1 numbers saw a +36% increase in deliveries YoY. FactSet was expecting to see deliveries of 432,000 vehicles — which is why TSLA shares took a hit Monday morning.
Regardless, Tesla’s stock is up over +80% YTD. Perhaps you remember this callout from January… 😉
“We want to be very clear about something — Tesla gets way too much hate. I’m actively building a position in both my taxable brokerage account (as shown in the Portfolio Tracker) and retirement accounts.”
World Wrestling Entertainment (WWE) and Ultimate Fighting Championship (UFC) Set to Merge at a Combined $21B+
WWE has agreed to merge with UFC as a part of a deal with Endeavor Group (EDR). The two will now be combined under one publicly traded company that the Endeavor Group controls.
Endeavor will own a 51% stake, while WWE shareholders will have the remaining 49%. The deal values WWE at $9.3 billion and UFC, which is owned by Endeavor, at $12.1 billion.
Major Economic Events:
The economic calendar gets the spotlight this week — with the Jobs Report, PMI results, Consumer Credit, and even a new member in NATO.
Monday (4/3): Construction Spending, ISM Manufacturing, S&P Manufacturing PMI (final), Speeches by Fed Gov. Cook and St. Louis Fed President Bullard
Tuesday (4/4): Factory Orders, Job Openings, Speech by Cleveland Fed President Mester
Wednesday (4/5): ADP Employment Report, ISM Services, S&P U.S. Services PMI (final), U.S. Trade Balance
Thursday (4/6): Speech by St. Louis Fed President Bullard
Friday (4/7): Consumer Credit, U.S. Jobs Report + Unemployment Rate
What We’re Watching:
S&P Manufacturing PMI — Released this morning — it’s signaling recession. As this chart shows, this is the 16th time the ISM has been 46.3 or lower.
Unemployment Rate — Will it remain beneath 3.7%?
Finland to Officially Join NATO — On Tuesday, the 31st member of the world’s largest military alliance is expected to be confirmed.
Which stocks moved the most last week.
Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.
Back in 2010, Google wanted to acquire Groupon (GRPN) for $6 billion.
They said no, and instead went public with a market cap of nearly $18 billion. After losing -99.4% of its value since IPO, the company now sits with a market cap of less than $130M.
A member of the Groupon Board of Directors — coming from Pale Fire Capital and its 22% of Groupon shares outstanding — will be taking over as CEO.
If you’re starting your investing journey or are interested in buying T-bills yielding 5% or more, consider visiting Public.com.
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.