“The market is likely to keep pushing real rates higher & the Fed won’t stop it until something breaks. A Fed that has lost confidence in their forecast ability can’t tell the market it is pricing in too much until data sharply slows. An overshoot seems inevitable.” — Bank of America
Result #1 of Heightened Rates & Inflation — Workers Cut :
Result #2 of Heightened Rates & Inflation — Demand Drops:
Result #3 of Heightened Rates & Inflation — The Market is Upside Down:
The market is a complete mess. If you need help interpreting this last graphic — when the number in the right-most column is negative, it means that we have an inverted yield curve. During these times, yields on longer-term debt drop below yields on short-term debt of the same credit quality — one of the sacred indicators of a recession.
Investors are moving money away from short-term bonds and into long-term ones. Why? Because the market as a whole is becoming more pessimistic in the near future.
As treasuries rise, so does the cost of capital for corporations & consumers. In other words — the cost of borrowing is increasing relative to the last 30 years. Companies that are publicly traded are all but guaranteed to take hits to their bottom lines.
Key Earnings Announcements:
As one earnings season ends, another is just around the corner. Q3 earnings seasons ‘unofficially’ begins this week!
Thursday (9/29): Bed Bath & Beyond, CarMax, Micron, Nike, Rite Aid
Friday (9/30): Carnival Corp, CinCor Pharma
Retail Sales in Question:
With so many of these stocks falling under the discretionary items and retail sales categories — analysts are hesitant to dive in if the earnings reports turn out to be negative.
Let’s take Nike (NKE) for example. Nike has an incredible business model, appeals to all class levels of consumers, and has compounded capital at or near 20% for decades.
However, when a company sells shoes for an average of ~$100 and US retail sales look questionable….
…paired with the lowest US personal spending trends YTD…
… then it’s hard to be overly bullish on a stock that hit a 40x forward earnings multiple last November. We remain sitting on the sidelines, but will be reporting back on Nike, Micron (MU), Jefferies (JEF), and CarMax (KMX).
Investor Events
Amazon and Tesla are bound to make headlines, despite the market panic.
Tesla (TSLA) AI Day
Scheduled for this Friday, September 30th — Tesla AI Day is flourishing with anticipation of the Optimus robot being on display at the event. The company is also expected to provide updates on the Dojo Chip, which the company built for its vision of “pure machine learning.” Lastly, expect CEO Elon Musk to speak toward the future of robotaxis and how Tesla will continue to grow its Full Self-Driving (FSD) technology.
Tesla remains one of the most difficult stocks to value.
On one end — this is a brilliant company. Despite setbacks of production in the Shanghai Gigafactory, Berlin production has already surpassed 1K cars per week to offset it. Production in the Austin location is also set to surpass 1K / week soon. With a LTM EBITDA margin at ~21% and over $18B in cash balance in Q2 — there’s a lot to be happy about with Tesla’s growth, despite new competitors popping up each quarter.
On the other end — Tesla trades at a nearly 65x PE multiple and still has a market cap over $862 billion. While still being up +10% over the last 12 months, it seems like the risk / reward of buying Tesla stock is less than stellar. Hoping to grow a position if it gets hammered in the coming months.
Amazon (AMZN) Product Event & Next Prime Days
This Wednesday, September 28th — Amazon is launching its biggest product event of the year. Fans expect to see upgrades to popular devices such as the Echo Dot and Ring Video Doorbell. We’re excited to add to Amazon positions, but see more downside ahead. In our humble opinion, analysts that are smashing the buy button simply aren’t accounting enough for the 25% of Amazon sales that come internationally. That’s of the entire business — including Amazon Web Services (AWS). Demand in America is sure to decrease as rates continue to rise, but many overseas will struggle just to keep the heat on this winter. We’re excited to be greedy on Amazon — just not yet.
Mark your calendars. Amazon also just announced that Prime Fall Deals will take place October 11-12.
Major Economic Events
There are TWENTY TWO speeches by Fed leadership this week, to go along with key metrics like Consumer Confidence & Spending. We’ll be sure to circle back with any highlights in the next Week in Review.
Monday (9/26): Fed President Speeches: Atlanta, Boston, Cleveland, & Dallas
Tuesday (9/27): Consumer Confidence Index, Durable Goods Orders, Jerome Powell Speech on Digital Finance, New Home Sales, US Home Price Index
Wednesday (9/28): Jerome Powell & Fed Gov Bowman Speak at Community Banking Conference, Pending Home Sales Index
Thursday (9/29): GDP Revisions, Jobless Claims, St. Louis Fed President Speaks
Friday (9/30): Consumer Spending, Disposable Incomes, PCE Price Index, Richmond Fed President Speech on Inflation, New York Fed President Speech on Financial Stability
“The public’s expectations about future inflation can play an important role in setting the path of inflation over time. Today, by many measures, longer-term inflation expectations appear to remain well anchored. That is broadly true of surveys of households, businesses, and forecasters, and of market-based measures as well. But that is not grounds for complacency, with inflation having run well above our goal for some time.” — Fed Chair Jerome Powell
“Be fearful when others are greedy, and greedy when others are fearful.” —Berkshire Hathaway CEO Warren Buffett
Perhaps you’ve glossed over the economic events sections of the Week in Review in the past. This is your friendly reminder that paying close attention to economic conditions is how we’ve gotten to a place of preserving capital, and also how we intend on compounding our money for the coming years.
During this time of mass chaos, it’s time to start feeling greedy — but also remembering that your patience needs to remain for the short-term.
THIS WEEK — read what the Fed leadership says, get a gauge on consumer spending / debt, see how the housing market is acting, and make a plan for your investments. Especially for our younger readers — the last thing you want is to look back at a time of opportunity and feel as if you missed the mark. The economy is screaming out that great buying opportunities are coming sooner or later.
Events-Driven Winners
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.
Thanks to LevelFields for reminding us that CEO changes can result in very opposite results. It’s often lost in translation how important management teams are when you buy into a stock. As you make your portfolio plans (as mentioned above) — be sure that doing some research on a company’s leadership team is a part of that process. For example, young founders that have had questionable decision-making in the past can often be a red flag.
If you’re starting your investing journey or want to change to a cleaner, social-focused investing platform, 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.
