The week ahead 12/05/2022
The mad dash to the end of the year is officially underway, and the ‘Fed Whisperer’ has spoken once again. Nick Timiraos of the Wall Street Journal has risen in popularity due to his quick (and generally accurate) forecasting of FOMC moves.
This morning, he decided to drop another market-mover:
“Federal Reserve officials have signaled plans to raise their benchmark interest rate by +0.5 percentage point at their meeting next week, but elevated wage pressures could lead them to continue lifting it to higher levels than investors currently expect…
A smaller +0.5-point increase would mark a new phase of policy tightening as they calibrate how much higher to lift rates. Policy makers expect price pressures to ease meaningfully next year, but brisk wage growth or higher inflation in labor-intensive service sectors of the economy could lead more of them to support raising their benchmark rate next year above the 5% currently anticipated by investors.” — WSJ
This matches up well with why we reminded you to remain ‘risk-off’ during yesterday’s Week in Review:
“Finally, the labor market, which is especially important for inflation in core services ex housing, shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2 percent inflation over time. Despite some promising developments, we have a long way to go in restoring price stability.” — Fed Chair Jerome Powell on Wednesday (11/28)
The fact that investors still react so emotionally to the probabilities of +50 basis point hikes vs. +75 basis point hikes shows just how fragile the stock market still is. We expect the focus to shift toward acceptance that the Fed will keep rates elevated for quite some time, and intense scrutiny of Q1 earnings. It’s hard to imagine Q1 and Q2 earnings being a thing of beauty across the board…
Takeaway: Keep stacking cash if possible. Deploying it will be very fun in 2023.
Key Earnings Announcements:
Focused on Academy Sports & Outdoors, Costco, Lululemon, and SentinelOne.
Monday (12/5): GitLab, SAIC
Tuesday (12/6): AutoZone, MongoDB, SentinelOne, Signet Jewelers, Stitch Fix
Wednesday (12/7): Academy Sports & Outdoors, C3.ai, Campbell’s Soup, GameStop, HashiCorp, Ollie’s, Rent the Runway, Sportsman’s Warehouse, Vera Bradley
Thursday (12/8): Broadcom, Brown-Forman, Chewy, Ciena, Costco, Docusign, Lululemon, Manchester United, Restoration Hardware, Vail Resorts
Friday (12/9): LI Auto
What We’re Watching:
SentinelOne has been able to grow their quarterly revenue from $18M at the start of 2020, to now $100M+ just last quarter. They’ve reported tripled-digit ARR growth for six consecutive quarters — all while expanding their margins. We’ll be looking to see what they report for… Total Customers (+60% last report), Customers w/ >$100K ARR (+117% last report), and Net Retention Rate (137% last report).
Academy Sports & Outdoors (ASO)
You’ve heard us talking… we love Academy Sports & Outdoors as a long-term play. In 2021, the company had Revenue of $6.8B (+19.1% YoY), Net Income of $671M (+117% YoY), and a Diluted EPS of $7.12 (+87.9% YoY). More to come on ASO tomorrow in a separate post!
Costco has officially been named the Yahoo Finance 2022 Company of the Year — and can you argue otherwise? For the fiscal year-ended Aug. 28, Costco posted a +14.4% overall same-store sales increase, a 93% renewal rate for U.S. members, the addition of 7.3 million members, and a slight increase in net profit margins (a win in the hyper inflationary environment).
With a market cap of nearly $219B and still being up +166% over the last five years, this doesn’t seem like the ideal time for building a larger position. But boy are we hoping that we get the chance.
Investor Events / Global Affairs:
Enter to win $500 from MoneyLion, Lowe’s needs to keep up with Home Depot, and let’s see if Southwest Airlines truly has the strongest net cash position in the industry.
MoneyLion (ML) Investor Day
Last week — MoneyLion kicked off its Holiday Campaign to honor hardworking Americans. We wanted to share this with all of you because it’s the easiest giveaway entry we’ve ever seen. Simply follow MoneyLion’s social media accounts (Instagram, TikTok, or Twitter), like their holiday video post, and tag a friend in the comments that deserves a holiday bonus. Here’s a link to the website with more information. Might as well nominate someone you know! Here were last week’s winners.
This week — MoneyLion will be hosting its Investor Day in New York City, where they are expected to reinforce their focus on profitability and bolstering the company’s growth through unique enterprise and marketing strategies.
Lowe’s (LOW) Investor Conference
This Wednesday (12/7), Lowe’s will hold an analyst day event. The company is expecting to address the ‘elephant in the room’ that underlying housing fundamentals are weak — and give insights into how big of an impact that might be to Lowe’s in the short-term.
JPMorgan expects Lowe’s to reiterate full-year guidance to help close the operating margin gap with Home Depot. JPM also sees Q4 comparable sales and margin outperformance as potential catalysts heading into a likely turbulent time in the markets.
Southwest Airlines (LUV) Investor Day
You know what we always say — we hate investing into airlines and cruise lines. The margins are tough, the variables are plentiful, and there’s generally always better places to put your money. However, we love to have our convictions tested!
During Southwest’s 2021 Investor Day, the company claimed to have the strongest net cash position of all major air lines (shown above). We will most certainly be assessing the results of its 2022 Investor Day this Wednesday (12/7).
There’s big time drama going into this event. The Southwest Airlines Pilot Association will be holding an ‘Informational Picket’ at the event to “let investors and management know that the mistreatment of its employees to reward shareholders is not acceptable at the LUV airline.”
Major Economic Events:
Consumer Credit needs to drop and Chinese Manufacturing Orders DID just drop (in a big way).
Consumer Credit Over the Years
Monday (12/5): Factory Orders, ISM Services Index
Tuesday (12/6): Trade Deficit
Wednesday (12/7): Consumer Credit
Thursday (12/8): Continuing & Initial Jobless Claims
Friday (12/9): Producer Price Index (Final), Real Domestic Debt Growth, Real Household Wealth, UMich Consumer Sentiment (Early), Wholesale Inventories Revision
What We’re Watching:
Consumer Credit (Depicted Above)
As interest rates continue to soar and savings rates continue to be as low as possible — watching Consumer Credit is important. Throughout the Great Recession, credit took a long, downward plunge. In the most recent quarter, which ended in September, consumers’ overall credit card balances increased by +15% — the largest year-on-year increase the New York Federal Reserve has measured in more than 20 years. In aggregate, balances are nearing $1 trillion, not adjusted for inflation, for the first time ever.
“Unemployment being low is still a major contributor to delinquencies not going so high,” said Michele Raneri, VP at TransUnion. We’re watching how much the inability to make credit payments may increase with the rise of the unemployment rate.
US Manufacturing Orders in China Have Collapsed
According to CNBC, there may be some early evidence of demand being impacted in the US. Logistic managers are preparing themselves for delays in the delivery of goods from China as a result of canceled sailing of container ships.
Asia-based global shipping firm HLS warned clients about the climate of the ocean transport business, predicting a -2.5% decline in container volumes and +5-6% increase in capacity in 2023.
“The unrelenting decline in container freight rates from Asia, caused by a collapse in demand, is compelling ocean carriers to blank more sailings than ever before as vessel utilization hits new lows.” — Joe Monaghan, CEO of Worldwide Logistics Group
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.
DoorDash (DASH) Laid Off 1,250 Employees:
With 8,600 corporate employees at the end of last year, DoorDash realized it was about time to shrink its headcount. The company recently announced the slashing of 1,250 jobs. You may remember that DoorDash went public at the end of 2020 and had a wildly successful IPO — soaring +80% over its initial listing price. We have fond memories of riding out some of those gains (and exiting) with some of you.
If layoffs impact you personally — please remember that it doesn’t mean you are inadequate. They are happening across many sectors and are likely to continue. Recessions lead to the best workers, the best companies, and the greatest measures of strength. Hold the line and keep moving forward! We’re always here to help in any way possible.
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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.