NIKE continues to get trampled by soft retailer earnings

Stocks logged a mixed close yesterday as weak retail earnings overhung the markets. Tech shares kept the Nasdaq in the green as investors continued to reposition.

Friends in need. I try not to have a geographical bias. However, one cannot argue that Wall Street happens to be in lower Manhattan, which just happens to be in the US. There are many great global companies that trade on many well-organized bourses around the globe. Still most eyes are on the US, its stock markets, and its economy when it comes to investing.

In recent weeks, the Chinese economy began to display some cracks not often seen. The reason for that is that the government does a good job at keeping economic data… um, smooth. Still, casual observers can easily derive a more realistic view of how things are really going. We can watch sales figures from retailers that have a large Chinese customer contingent. A good example might be how we have witnessed Tesla cut prices on its Chinese offering recently. Tesla, unlike most automakers is typically quick to adjust its prices to gain or maintain market share in the increasingly competitive EV space. So, if Elon is cutting prices, it is likely that demand is soft.

We can also observe the actions of the PBC, the Chinese central bank, as well as other government agencies which work together to keep things running smoothly. For instance, you may hear that an agency or a minister has “asked” certain banks to charge less for loans. I am always a fan of the polite approach . In the case of those, so-called, asks, those lenders always seem to comply. Perhaps they, too, appreciate the politeness. Anyway, those asks, have recently been on the rise and they are a form of monetary easing. In other words, officials have detected weakness in, say, the construction development sector, and hoped that more relaxed lending could keep things buoyant. China was expected to experience a significant uptick in economic activity after the government relaxed its aggressive lockdown protocols. Though it did get a strong uptick in the short term, its seems that growth has been stalling a bit. News of this has weighed heavily on markets across the globe, even on US stocks. One cannot ignore that China is the second largest economy in the world and most US companies have exposure to it, not only in the supply chain but also as an end customer. Though the market has not been fixated on Chinese economic woes recent sessions, the challenge, I can assure you, has not gone away, and we will surely hear more from this on coming days and weeks.

Turning our sights to the Eurozone, it too has been experiencing some economic challenges lately. The economic block, like the US, is under the grip of inflation and the ECB has been not too far behind the Fed in an aggressive tightening campaign which has certainly had an impact on economic activity in the region. As this is flash PMI (purchasing managers index) week, we can get a nice glimpse into what purchasing managers are expecting around the Eurozone and in the US. WHILE YOU SLEPT, we learned that the Eurozone Composite PMI declined to 48.6 from 48.9. Remember that numbers below 50 indicate economic contraction. That very same number peaked at 54.4 in April and has been on the decline since. To give you some reference by looking back 10 years, that index was above 50 from late 2013 until March 2020. After bouncing around a bit that year, the PMI returned to growth mode (>50) in early 2021 and remained there until last summer. Knowing this you should be thinking that the continued decline of the PMI and numbers below 50 may cause some drag beyond the Eurozone, and it likely will. To be even more direct, remember how a few days back I highlighted everyone’s favorite stock Apple and its reliance on China as a customer (it’s OK if you missed it, but now you know). Wouldn’t you know it, Apple’s second largest revenue source is from… wait for it… Europe. I won’t just pick on Apple. Microsoft, another fan favorite gets more international revenue than it does revenue from the US. Think of that !

Later this morning, we will get flash PMIs from the US, and while those can certainly impact the markets, I am reminding you that those are not the only ones we should be paying attention to. Did you know that venerated Detroit company General Motors gets almost as much revenue from vehicle sales in China as it does in the US? You do now. Stay focused… don’t fall asleep at the wheel.

WALL STREET AT DAWN

Analog Devices Inc (ADI) shares are lower by -6.49% in the premarket after the company announced that it missed EPS and Revenues from last quarter. Further the company provided soft current quarter numbers that were below analysts’ estimates. Dividend yield: 1.94%. Potential average analyst target upside: +16.6%.

NIKE Inc (NKE) is down by -3.66% in the premarket. That is the second time this week that the company has found its way into my report. Last time it was a week earnings announcement by Dick’s Sporting Goods and this time it is due to an EPS and Revenue miss along with a cut forecast and dividend pause by Foot Locker. Potential average analyst target upside: +18.5%.

YESTERDAY’S MARKETS

NEXT UP

• S&P Global Flash Manufacturing PMI (August) is expected to come in at 49.0, same as July. Services PMI may have retreated to 42.2 from 52.3.
• New Home Sales (July) is expected to have grown by +0.9% after falling by -2.5% in June.
• NVIDIA will announce earnings after the closing bell.