May 08, 2023

No meat in Tyson’s latest earnings report

Stocks rallied on Friday after a strong showing from the US labor market. The move was confounding to many who had become accustomed to good is bad.

Paradigm shift? I know that I am not the only one who stared at the screens early Friday morning as the Bureau of Labor Statistics released its monthly jobs report and uttered the profane phrase that starts with an “Oh” and ends with a “t!” We were fresh on the heels of what was hoped to be the last Fed hike. This last one was supposed to be the one that got a bit of muscle, so it would have to end. The Fed hinted as much, and futures markets have factored in rate cuts with high probability by September.

Futures and swaps markets don’t just factor things in lightly. There has to be a strong consensus. In other words, these are traders who are putting their money where their mouths are, and their bets are pointing to lower rates by the end of the year. Those traders have witnessed inflation appear to enter the slow lane and they are counting on the trend to continue. Additionally, who can possibly miss the steady stream of headlines announcing layoffs. Never mind the banking sector’s super-confusing, unhealthy, healthy situation. Economic numbers are not necessarily ugly, but they certainly aren’t pretty either. The hypothesis that the Fed couldn’t possibly continue its aggressive hiking and possibly start cutting given these very basic facts, seems well, feasible. So then, what happens when the Government reports that the labor market last month did… um, rather better than expected? Well, rational investors would expect stocks to take a spill. Strong labor markets according to the Fed’s favorite economics theories (see last Friday’s note), should be bad for inflation. Inflation is the reason why the Fed was forced to throttle the economy back.

As happens more often than not, the market did exactly opposite of what most people expected. I have told you, the markets are errant, and they rarely do what is convenient for traders. Yes, stronger than expected labor markets caused a rally in stocks last Friday. So, I, like most of my colleagues scratched my head and searched for the good news that caused stocks to rally, and I couldn't find any. Until I realized that the answer was right in front of my face. The growing nervousness of a recession/financial crisis 2.0 was allayed by strong economic numbers. Let me be clearer on that. Good for the economy is good. No one wants a recession and the stronger-than-expected number on Friday lessens the likelihood of one. Beyond that, while the number was better than expected, last month’s payrolls number was revised significantly downward leaving the average of monthly payroll additions still far lower than last year’s average. That all means that the number was healthy but by no means a banger. This could be a paradigm shift from “good is bad” to “good is good.” It will take more than that to get the reversal. We have some important inflation numbers this week and they will clearly have to show a continued trend of disinflation. Finally, blowout, positive economic numbers won’t be welcome by the “good is good” bulls who should really change their name to “good-ish is good-enough”… for now, at least.

WHAT’S SHAKIN’ THIS MORNIN’ ☀

Tyson Foods Inc (TSN) shares are lower by -7.12% in the premarket after the company announced that it missed EPS and Revenue estimates. The company lowered its full-year guidance which was below analysts’ expectations causing shares to fall. Dividend yield: 3.16%. Potential average analyst target upside: +13.4%.

Fortinet Inc (FTNT) shares are higher by +3.31% in the premarket after the company was upgraded to BUY from NEUTRAL at BofA and got an upward price revision from Citi. In the past 30 days, 50% of analysts have changed their price targets, 14 up, 1 down, 13 unchanged, and 2 dropped. The company announced earnings and sales beats last Thursday. Potential average analyst target upside: +15.2%.

LAST FRIDAY’S MARKETS

Stocks rallied last Friday after a strong jobs report eased recession fears. The S&P 500 gained +1.85%, the Dow Jones Industrial Average climbed by +1.65%, the Nasdaq Composite Index rose by +2.25%, and the Russell 2000 Index advanced by +2.39%. Bonds declined and 10-year Treasury Note yields added +5 basis points to 3.43%. Cryptos added +3.43% and Bitcoin climbed by +2.22%.

NEXT UP

No numbers today but later this week we will get key inflation data along with University of Michigan Sentiment. Still lots more earnings to go as well. Please refer to the attached earnings and economic calendars for details.

Minneapolis Fed President Neel Kashkari will speak today.

The Fed will release its Senior Loan Officer Opinion survey today which would normally not get any attention, but given recent issues in the banking sector, the release will certainly get some consideration.