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Monday, August 1, 2022
This earnings season feels toxic: seemingly one word away from everything falling apart at any given time.
And that underlying volatility, friends, is why it’s a terrible time right now to be an investor.
Even when you think you have all your ducks in a row, a company can surprise you given inflation and growth dynamics that feels out of step with July’s bullish move in markets.
Just take a look at what top executives have told Yahoo Finance Live over the past two weeks:
“Mid-quarter, we saw a very sharp economic swing, U.S. inflation and, Europe/Ukraine, and China, and COVID, but it was also combined with misses in our inventory and understanding our customers. They created very sharp shifts. In ten years, we haven’t seen customers move inventory positions that rapidly. So, major inventory corrections.” —Intel CEO Pat Gelsinger
“I mean, we still have very strong consumer demand. We have a very tight labor market. We have strong consumer balance sheets, those characteristics are a little different than prior trade downs, or prior economic difficulties. On the other hand, inflation is very high. We had about $3.2 billion after tax of [inflationary] headwinds that we had to overcome in the year that we just completed, and will face a similar challenge as we head into next year. So that's the difficult part.” —P&G chairman and CEO Jon Moeller
"All year long, we started to see demand come down a little bit both in the U.S. and international markets. I would say what we saw in the second quarter just confirmed it’s more than a short-term dip. That's why in our earnings call you heard us talking about our recession playbook.” —Whirlpool CFO Jim Peters
By and large, what I am hearing underscores serious ongoing supply chain challenges brought on the by the ongoing COVID-19 pandemic, a consumer increasingly struggling with inflation while also worrying about future job loss, and smart executives unable to properly guide Wall Street amidst the turbulent backdrop (perhaps Roku was correct in yanking its full year guidance last week).
So how can an investor reasonably assess this type of commentary is coming from an Intel?
Being a former analyst, I can tell you that you could have studied profit margins and cash flow trends going back 15 years on Intel, combed the last 10 earnings call transcripts, and still would not have been able to predict the severity of the company’s profit miss and warning late last week. Intel’s stock finished Friday’s session down 9% as seven Wall Street analysts cut their ratings on the company.
As for P&G, the company warned it will see a $3.3 billion after-tax hit over the next twelve months due to inflation and currency swings. Did you expect that when you bought P&G shares six months ago? I venture no. P&G shares lost 6% on Friday’s session, a big one-day move for a consumer staple.
And in case you forgot, we are still only a few days removed from Snap shares crashing 39% on a terrifying quarter no one predicted.
Nevertheless, the S&P 500 rose 9.2% in July while the Nasdaq Composite ripping higher by 13%. JP Morgan strategists think the S&P 500’s P/E multiple of 16.9x is attractive relative to history. Can’t make this stuff up.
Despite the toxicity, the market is mostly focusing on the good. A decent quarter from Apple, ditto Amazon. The potential for a Fed pivot on the horizon.
However, the market should probably be paying more attention to the bad that is spreading throughout the fundamentals of Corporate America. Things seem to be getting worse, not better. Things seem to justify cheaper valuations for stocks, not higher ones.
Until the market fully grasps the situation, being an investor will be terrible. Double down on your research efforts and remember, studying chart patterns isn’t the end all be all.
What to Watch Today
9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, July final (52.3 expected, 52.3 during prior month)
10:00 a.m. ET: Construction Spending, month-over-month, June (0.3% expected, -0.1% during prior month)
10:00 a.m. ET: ISM Manufacturing, July (52.0 expected, 53 during prior month)
10:00 a.m. ET: ISM Prices Paid, July (73.5 expected, 78.5 prior month)
10:00 a.m. ET: ISM New Orders, July (49 expected, 49.2 during prior month)
10:00 a.m. ET: ISM Employment, July (48.2 expected, 47.3 during prior month)
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