Stocks dipped yesterday as disappointing news from Walmart overshadowed the markets. The housing market is showing definite signs of a slowdown.
Feeling good, Louis! If you don’t know that quote, it’s OK, but if you do, you are probably chuckling right now. It is from the 1983 movie Trading Places, in which character Billy Ray (Eddie Murphy) toasts his unlikely partner Louis Winthorpe III (Dan Akroyd) after the duo foils a Duke brothers plot to use inside information to corner the frozen orange juice concentrate futures market for a profit. This morning’s note is not about that but rather about feeling good, feeling confident (though I do suggest you watch the movie if you haven’t seen it). I talk a lot about consumer confidence. Why? Let me start by repeating ONCE AGAIN (I want the concept to stick) that consumers make up more than 2/3 of the US GDP. When consumers are confident, they consume, and that consumption helps the economy grow…and vice versa. Tomorrow, we are going to learn how well the economy performed in the last quarter when the BEA releases its GDP report. If the number comes in with a negative number, the US is in a technical recession. Nobody knows for sure what the number will be (economists are expecting +0.40%) but the expectation is low enough so that a slight deficit could push it into negative territory. Forget about what the number says and never mind how we define a technical recession. Just know this: we would like to have a healthy economy which is growing at a reasonable pace…but not too fast so that inflation continues to be a problem.
Let’s just focus on what we know. For an economy to be healthy consumers must spend money, therefore a confident consumer is what we would like. Are you confident in the current state of the economy? Are you confident about the future state of the economy? I know your answer, but I would like to see something more quantifiable, like a survey. Well, we are in luck, because there are at least 2 highly looked-after monthly numbers that attempt to quantify consumer confidence. One is the University of Michigan Sentiment, and the other is the Conference Board Consumer Confidence indicator. The former has been around since 1977 in one form or another and last month it made headlines by clocking in the lowest sentiment reading in its history. Concession, this month’s was ever so slightly higher. The later, Conference Board Consumer Confidence, was released yesterday and it came in at 95.7, which was below estimates and below the prior month’s reading of 98.4. What can we learn from that?
Well, the number itself is not necessarily relevant (unlike a diffused weighted index which indicates growth or decline), but its direction can tell us something. Foremost, it is clear that confidence is declining, and if you have been following along, you know that declining confidence is not good. Does that mean a recession is imminent? Not necessarily, but it has certainly declined prior to recessions in the past. In fact, as you will note from the following chart, since the number began to be compiled in 1966, there have been 7 recessions not including the pandemic recession. In each of those cases, confidence declined noticeably just prior to a recession. You can see it here quite clearly and you can also see how far confidence has declined since last summer.
Does this spell doom and gloom, then? Once again, not necessarily, there is some sliver of hope in yesterday's release. The number consists of two sub-categories. Respondents are polled on present situation and future expectations. I am sure you won’t be surprised that confidence in the present situation dropped to 141.3 from 147.2 in June as things are a bit dicey with inflation, the Fed, and the volatile markets. What may also surprise you is the expectations about the future only showed a small decline to 65.3 from 65.8. While that is hardly an upbeat outlook, consumers may be less concerned about the future – perhaps they are expecting a successful soft landing. We can only hope that confidence turns around, because…well, you know about confident consumers. Perhaps I should have started with a quote from the famous US Football coach Vince Lombardi who once said, “confidence is contagious – so is lack of confidence.” Stay confident.
WHAT’S SHAKIN’
Alphabet Inc (GOOG / GOOGL) shares are higher by +3.70% in the premarket after it announced earnings after yesterday’s close. The company missed EPS estimates by -12.70% but it beat Revenue targets by +20.08%. Though it was partial miss, investors were braced for the worst given recently poor reports from its competitors. Investors were further relieved that the company described its ad revenues as being strong, the opposite of what was feared leading up to the announcement. The company did however report that its YouTube and cloud-based revenues were down. Potential average analyst target upside: +37.7%.
Enphase Energy (ENPH) shares are trading higher by +9.67% in the premarket after it announced that it beat EPS and Revenue estimates by +25.82% and +4.80% respectively. The company has seen a surge in demand from European customers in response to the current energy crisis, prompting it to raise revenue guidance for Q3. Potential average analyst target upside: +15.7%.
Garmin Ltd (GRMN) is trading lower by -9.26% in the premarket after it announced that it missed revenue targets by -9.09% while beating EPS estimates by +2.86%. The company further lowered its full year Revenue and EPS guidance. Dividend yield: 2.85%. Potential average analyst target upside: +42.3%.
ALSO, this morning: Hilton Worldwide Holdings (HLT), Owens Corning (OC), Boston Scientific (BSX), Automatic Data Processing (ADP), Bristol-Myers Squibb (BMY), American Electric Power (AEP), Humana (HUM), Old Dominion Freight Line (ODFL), Kraft Hienz (KHC), and Wast Management (WM) all beat on EPS and Sales. Bunge Ltd (BG), Tempur Sealy (TPX), T-Mobile (TMUS), and Sherwin-Williams (SHW) disappointed on both fronts.
YESTERDAY’S MARKETS
Stocks fell yesterday after Walmart warned of shifting consumer demand and lower earnings. The S&P500 fell by -1.15%, the Dow Jones Industrial Average dropped by -0.71%, the Nasdaq Composite Index declined by -1.87%, and the Russell 2000 Index pulled back by -0.69%. Bonds slipped and 10-Year Treasury Note yields gained +1 basis point to 2.80%. Cryptos slid by -6.6% and Bitcoin gave up -5.35%.
NXT UP