Nvidia stock closed at around $456 yesterday, up more than +300% year-to-date. Nvidia's results could make or break the outlook for other companies that are looking to artificial intelligence to fuel growth, including big tech behemoths like Apple, Alphabet, Amazon, and Meta. Earnings so far this week have included several key retailers which have raised more concerns about strained consumer budgets.
Dick's Sporting Goods yesterday delivered a surprise miss, with Q2 earnings about a dollar shy of Wall Street expectations. Dick's also cut its full year forecast. Company executives primarily blame organized retail crime, which they anticipate will get worse before it gets better. But the company also cited uncertainties ahead that they expect will put further pressure on consumers.
Meanwhile, Macy's beat on Q2 earnings but delivered what it called a "cautious" outlook, also pointing to continuing pressure on consumers that are "becoming more intentional on the allocation of their disposable income with an ongoing shift to services and experiences.” Macy's also saw an uptick in delinquent payments on its credit cards. Overall, a majority share of retailers in Q2 earnings season have warned about inflation weighing on consumer spending with electronics, clothing, and big-ticket items like furniture and appliances some of the weakest categories.
At the same time, discount retailers are reaping huge benefits from consumers seeking to stretch their dollars. Big names like Walmart, Ross Stores, and TJX all beat Q2 expectations and even raised their outlooks for the year.
Several key retailers report today, including Bath & Body Works, Foot Locker, Kohl's, Peloton, and Williams Sonoma. Analog Devices and Snowflake also report today.
Economic data today is pretty light with the PMI Composite Flash and New Home Sales for July. It's worth nothing that Existing Home for July, released yesterday, showed a more than -16% decline in sales.
Still, the median existing home price was $406,700, up +1.9% from a year ago and the first gain since January. The trade seems to be growing more eager to hear what Fed Chair Powell has to say during his Jackson Hole speech Friday morning.
Charles Schwab Plans Job Cuts as TD Ameritrade Merger Unfolds: The Westlake, Texas-based company did not specify how many positions would be eliminated but suggested that the layoffs will take place in the coming months. In Monday's filing, Schwab pointed to previously announced “incremental actions to streamline its operations to prepare for post-integration” in addition to cost synergies related to the integration of stockbroker TD Ameritrade, which Charles Schwab acquired for $22 billion in 2020. The job cuts and office reductions arrive as the company assesses its real estate footprint and works to lower its operating costs. In July, Charles Schwab reported net-income of $1.3 billion, down from $1.8 billion for the same period in 2022. At the time, the company said it was closing offices in five cities, Atlanta, San Antonio, San Diego, St. Louis, and Tampa by Oct. 1 and downsizing its real estate footprint in six other market. Source Yahoofinance
Ferrari CEO Says Nearly Third of New Buyers Under 40: Despite a waiting list of three years for some of its cars, Ferrari’s CEO, Benedetto Vigna, said the company has no plans to supercharge production to meet demand. The balance between growth and exclusivity has never been more critical to Ferrari. The company’s share price is up 44% over the past year, at a valuation higher than Ford or General Motors, creating pressure from shareholders to continue its strong sales and volume growth. Yet because the famous prancing-horse brand is built on scarcity — and owners who rely on limited production to maintain their cars’ value — Ferrari is also expected to keep a tight rein on production. For full disclosure, I've been long Ferrari stock (RACE) since its initial IPO and plan to remain a long-term investor. Source CNBC
US Home Affordability Reaches Historic Low: On Monday, the average 30-year fixed mortgage rate reached 7.48%, marking the highest level since the year 2000. Even prior to this recent surge in mortgage rates, housing affordability, as monitored by the Atlanta Fed, had already deteriorated beyond the levels seen at the housing bubble’s peak in 2006. Once this latest mortgage rate surge is factored in, August 2023 will become the worst month for housing affordability this century. While the current lack of housing affordability echoes the affordability conditions leading up to the 2008 housing crash, there are distinct differences that set the two periods apart. Unlike the years preceding the 2008 crash, the nation is not grappling with an excessive surplus of existing homes for sale. In fact, housing inventory levels are hovering at historic lows, with July 2023 witnessing a staggering 47% decline in homes available for sale compared to July 2019. Furthermore, the U.S. housing market in 2023 is not plagued by the risky mortgage products that contributed to the 2008 bust. In fact, the Pandemic Housing Boom was the opposite of the boom in the aughts: This boom was primarily led by households with high incomes, who because of low mortgage rates and remote-work policies were seeking out a new home. Source Fortune
IBM Getting Out of Weather Business: IBM said Tuesday it’s selling its weather unit, including The Weather Channel mobile app and websites, Weather.com, Weather Underground and Storm Radar. IBM will sell The Weather Company and its assets to Francisco Partners, a tech-focused private equity firm, for an undisclosed sum; as part of the deal, IBM will retain access to the company’s weather data, which it uses to power some of the AI models it sells to enterprise clients. IBM has reportedly been exploring a sale of its weather unit, which it says serves an average of 415 million people monthly, since at least April, as IBM seeks to focus on key drivers such as software, cloud services and AI. Source CNBC
Teamsters' Approval of UPS Deal Could Affect Other Stocks: More than 86% of United Parcel Service (UPS) Teamster union members voted to approve a new five-year labor deal. UPS and the Teamsters agreed to a new labor deal in July, but that was only a first step. Union leadership essentially recommends that members ratify a deal when they negotiate a new agreement, but it is the union membership that ultimately decides. Ratification removes a small overhang, reducing the chance for labor-related stock volatility. That’s a positive for shares. The larger issue investors will wrestle with now is higher costs. The deal Teamsters voted on included wage increases that will average roughly 5% to 6% a year. The Teamsters’ vote mattered for more than just UPS investors. General Motors, Ford Motor, and Stellantis are negotiating with the United Auto Workers. What the Teamsters did could affect negotiators on both sides. It shows that, to some extent, union members are willing to ratify deals with wage increases in the range of 5% to 6%. The auto negotiations will unfold over the coming weeks; the contract expires in mid-September. Source Barrons
Used Cars Selling Faster Than New Ones: New data from iSeeCars shows that used cars between one and five years old are selling at nearly the same pace as new cars right now, and they could soon be selling faster. The average used car was on the market for 49.2 days in July, compared to 52.4 days a year prior. New cars sat on dealer lots for just one day less—48.2 days, but that’s 25.7% longer than a year ago, when the average sale time was 38.4 days. Prices on both new and used cars were fairly steady compared to July 2022, with the average used car selling for $33,240 (a -3.6% drop in price), while new cars sold for $45,936 (a +3.8% jump). And the surge in interest in electric vehicles seems to be waning as well, with both new and used models now taking twice as long to sell as they did a year ago. Consumers are taking more time to buy and are seeking value outside mainstream models. They’ve also shifted away from electric vehicles, creating a backlog as dealers try to find EV buyers,” said iSeeCars executive analyst Karl Brauer. The shift in buyer habits comes as consumers are keeping their existing cars for longer periods as higher interest rates and high prices, compared to pre-pandemic times, make it a financial burden to purchase a new (or used) one. Source Fortune
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