The Weekend Edition #4
A quick look at the markets, consumer sentiment and diligence
Welcome to the fourth issue of the Weekend Edition.
Grab a cup of coffee ☕️, and relax while we take a quick look at what happened in the markets this week.
I will be short this week, in part because I’ve been busy and in part because I’ve been troubled, as I relate in my closing thoughts.
This week we cover:
Market Recap - a look at the major indices, winners and losers
Economic Data Update - A Tale of Two Charts
The Week Ahead
Closing Thoughts - The Diligence Dilemma
Let’s dive in ⬇️
Market Recap - 09 Aug - 13 Aug
It was Friday the 13th yesterday but, the markets all closed on a positive note. The 5-day return however, had the the Dow leading the indices while the Nasdaq retreated marginally. Other than the Russel 2000, the major indices are all at the top-end of their 52-week range.
The top gainer in the S&P 500 was Nucor ($NUE) with a +21% increase in price over the past week, closing at $126.17. The top gainer in the DJIA was Caterpillar ($CAT) with a +4.9% return over the past five days. Both companies are direct beneficiaries of the latest infrastructure bill.
On the tech side, winners were Microsoft ($MSFT) hitting an all time high on Friday at $292.9, while eBAY ($EBAY) topped the Nasdaq-100 with a +13% price increase over the past 5 days.
The week saw excellent earnings reports from Palantir ($PLTR), AirBNB ($ABNB) and of course, Disney ($DIS).
We also saw some not so excellent earnings from ContextLogic ($WISH), Aterian ($ATER) and AppHarvest ($APPH). Needless to say all three companies took a serious nosedive. Year to date, $WISH is down 60%, $ATER is down 76% and $APPH is down 49%. I fear we may be approaching a time when the rising tide has begun to subside and these boats no longer have what it takes to stay afloat.
The market has an uncanny way of weeding out companies that are not strong and often in very unforgiving ways. I think we may quickly be approaching a time when stocks don’t always go up.
A Tale of Two Charts
There were a number of Economic Data releases this week but, I thought the two most interesting of these were the JOLTs - the US Job Opening Data and the Consumer Sentiment Data.
The data shows that job vacancies increased by 590,000 in June, the highest change since 2000. The highest increase was in professional and business services followed by retail, accommodation and food services.
This is supported further by the initial jobless claims data came out on Thursday, which fell to 375,000 from 387,000 beating expectation.
The Core CPI Index (a measure for inflation) came out on Wednesday showing an improvement to 0.3% over the prior period’s 0.9% but, consumers still seem to think prices are out of control.
While last week’s optimistic jobs data and this week’s increased job openings data all spell out good news, Consumer Sentiment data that came out on Thursday doesn’t seem to suggest so.
Why this matters: The jobs data all point to an economic recovery with more businesses re-opening. However, as people fear the resurgence of Covid and the more scary Delta Variant, fewer people have a desire to return to work. Demand for labor is still higher than supply, suggesting that the recovery is slower than expected. Many were hoping to return to work as schools re-opened but, the fear of the virus spreading through the school system this week may have pushed this back.
Consumers have become fearful of the rising prices and most don’t want to make big purchases given the lingering uncertainty. All this could mean a slower Fed tapering than last week’s jobs data suggested.
The Week Ahead
Monday, 16 Aug - 13F filings for the June quarter are due. We get to see what fund managers bought and sold in the last quarter. Remember this is dated data but it’s fun to know anyway. The best place to track these - Whale Wisdom.
Earnings: We’re not done with earnings yet. Next week we have the big box retailers. These companies are the best source to learn about the consumer spending and prices.
Monday: Tencent $TME
Tuesday: WalMart $WMT Home Depot $HD
Wednesday: $NVDA Target $TGT Lowes $LOW Cisco $CSCO
Thursday: Estee Lauder $EL
Friday: Deere $DE
Closing Thoughts - The Diligence Dilemma
I had a theme prepared for this issue. But, I’ve been a little troubled this week, in part because of what’s been happening in the markets, with stocks tanking and people losing money. I read two articles that really got to me.
The first: How Millennial Investors Lost Millions on Bill Ackman’s SPAC. This is an article of how many retail investors lost money in the market “betting” on options. I’ve read stories like this before and it still bothers me immensely. This week I saw people on Twitter losing money on Aterian and even App Harvest.
We all talk about stocks - on Twitter, on a blog, in forums and in newsletters. And then what do we say… “this is not investment advice; do your own due diligence”. It’s as if saying these words absolve us from all responsibility. Are we really so naïve to think that someone will not be taking our views as recommendations? So, what’s the alternative? Keep sending the right message. I started this blog with the intention of sharing what I’ve learned and even though I haven’t been very regular, I will try to carry on.
I’ve often seen people become very confident after 6-12 months in the market. They seem to think that they can read balance sheets and get it right. After 17 years and hundreds of balance sheets, I still don’t always get it right. I’m still surprised by companies and, I’m still not quick to make recommendations.
The other article I read was by Jason Zweig. He argues that sometimes we get so caught up in our views, that we become blind. And often we’d rather hold on to bad investment than admit we were wrong. I think this is even more true if you have made a public declaration about the stock you’re backing. It makes it much harder to admit your error when you’ve pounded the table so vehemently. But, we need to let go of this. We need to stop letting our ego get in the way, for we may be hurting more than ourselves.
As an investment professional, it is my duty to uphold the integrity of capital markets and to act with diligence & competence. I know the same standards don’t apply to everyone but we can still try. To leave you with a paraphrased line from one of my favorite TV shows:
I can’t change the world but, I can change my little corner of it.
Here’s wishing you a happy weekend and safe investing.
Ayesha Tariq, CFA
There’s always a story behind the numbers
None of the above is Investment Advice. I may or may not have positions in any of the stocks mentioned. I have long positions in $NUE, $MSFT, $PLTR, $DIS as of the date of publication of this newsletter. I have no affiliation with any of the companies that are mentioned.