Stock investors could be in for a rocky end to the week after a disappointing number from Apple and a couple of others. At the same time, bulls are hoping more dovish central bank talk will overshadow those let downs.

Reporting after markets closed yesterday, Apple and Google-parent Alphabet both missed on earnings and revenue. Notably, Apple’s overall sales for the holiday quarter were about -5% lower than last year’s, the first year-over-year sales decline since 2019. Meanwhile, Alphabet and its YouTube segment are suffering from the widespread decline in ad sales similar to other social media businesses like Snap. Amazon fared a bit better with Q4 revenue that exceeded Wall Street expectations but the company fell short on its forward guidance.

It's worth noting that Amazon's online store sales declined by -2% versus last year, indicating a weaker consumer. However, its advertising revenue surprised with a nearly +20% jump, bucking the trend of other online ad companies. Overall, tech earnings in Q4 have been underwhelming, a big change from quarters past when the sector's profits reliably soared by double digits. The sector's stock price gains have also outperformed the broader market for the past decade or so with investors willing to pay a premium price for future growth.

As of January 2023, the technology sector traded at 20.5 times forward earnings.

By comparison, the energy and financial sectors had forward price-to-earnings ratios of 8.1 and 12.9, respectively.

Bottom line, that math gets less attractive the lower tech's profits fall and the higher interest rates climb. Cigna, Regeneron, and Sanofi report results today.

Earnings on tap next week include Activision Blizzard, IDEXX Laboratories, Loews, ON Semiconductor, Simon Property Group, and Tyson Foods on Monday; AGCO, BP, Carlyle Group, Centene, Chipotle, DuPont de Nemours, Enphase Energy, Gartner, KKR & Co., Prudential Financial, Royal Caribbean, and Xylem on Tuesday; Avalon Bay, CME Group, CVS, Disney, Dominion Energy, Emerson Electric, MGM Resorts, O'Reilly Automotive, Penske Automotive, Robinhood, Uber, and Yum Brands on Wednesday; AbbVie, AstraZeneca, Cloudflare, Duke Energy, Expedia, Hilton Worldwide, Kellogg's, PayPal, PepsiCo, Siemens, S&P Global, TotalEnergies, and Unilever on Thursday; and Enbridge and Fortis on Friday.

On the central bank front, the Bank of England (BoE) and European Central Bank (ECB) both hiked interest rates by 50-basis points yesterday and both indicated at least one more rate hike to come.

While the ECB left the door open to rate hikes beyond the March meeting, the BoE made changes to its policy language that leads some to believe that BoE officials are laying the groundwork to pause their hiking cycle. Bulls see the decision as more evidence that the era of global tightening is nearing an end and think the US Fed will lead the way as soon as the second quarter.

Bulls hope to find more support for that argument in today's jobs data with the January Employment Situation expected to show payroll growth pulling back to +185,000 from +223,000 in December.

Importantly, investors will be scrutinizing the hourly wage gains component with consensus expecting the year-over-year increase to slow to +4.4% from +4.6% previously. The ISM Services Index is also out today.

Next week, data is pretty light with Consumer Credit and the Trade Balance on Tuesday; Wholesale Inventories on Wednesday; and Consumer Sentiment on Friday.

McDonald's Plans to Open 1900 New Locations in 2023: More than 400 of the new Golden Arches will be in the U.S. or in its internationally operated markets, including Germany, Canada, France, Australia, Canada, and the U.K. The remaining 1,500 will be in developmental licensee and affiliate markets, including 900 in China. The growth strategy marks the first time since 2014 that McDonald's has made a big push into growing its U.S. locations. But BTIG Managing Director Peter Saleh said he expects U.S. store openings to be a very small portion of the new stores. "The growth in the U.S. is still going to be rather nominal. At best, I think they're going to open about 100 stores." Source: WSJ

Nevada Sets Gaming Revenue Record at $14.8 Billion! Don't bet against Las Vegas as casinos across Nevada brought in $14.8 billion in gambling revenue in 2022, a new annual record, according to the Nevada Gaming Control Board. Last year’s total gaming revenue increased +10.5% from 2021, when the state set its previous record of $13.4 billion. The state’s gaming industry roared back to life over the last two years after suffering through the pandemic-induced recession and has posted 22 consecutive months of more than $1 billion in monthly revenue. Nevada had actually eclipsed the 2021 record by November 2022, but December was a record-setter as well, with casinos reporting $1.3 billion in revenue. The Las Vegas Strip set an all-time monthly record during the last month of the year with $814 million, which is up +25% compared to December 2021. Source: Forbes.

FedEx Laying Off 10% of its Officers and Directors: The layoffs come as shipping momentum slows after the Covid pandemic e-commerce boom where the package and shipping industry experienced a surge amid a spike in online consumer spending. But as inflation has shrunk consumers’ wallets, it has also eaten into FedEx’s profits. The company’s stock is off roughly -20% over the past year. After it reported a fiscal second quarter with sagging sales and profit due to global volume declines, FedEx announced it would cut $1 billion more in costs by parking planes and shutting down some of its offices. In 2022, the company reduced its U.S. and international flight time by -13% combined. Along with cost-cutting, FedEx’s path forward has also involved price hikes. The company raised shipping rates by 6.9%, which took effect this January, as another measure to offset a consumer slowdown Source CNBC

House Gets Younger, Senate Gets Older: The U.S. House of Representatives is getting younger – at least a bit – while the Senate’s median age continues to rise, according to a Pew Research Center analysis of the newly installed 118th Congress. The median age of voting House lawmakers is 57.9 years, down from 58.9 in the 117th Congress (2021-22), 58.0 in the 116th (2019-20) and 58.4 in the 115th (2017-18). The new Senate’s median age, on the other hand, is 65.3 years, up from 64.8 in the 117th Congress, 63.6 in the 116th and 62.4 in the 115th. The House’s median age has ticked down because newly elected, first-time members are predominantly in their 40s or younger. The Senate, for its part, has gotten older even though the median age of the eight new senators in the 118th Congress is far below that of the chamber as a whole (49.4 vs. 65.3). Another way to look at the age of the new Congress is through the lens of generation. In Congress overall, older generations – that is, Baby Boomers (born 1946-64) and the Silent Generation (1928-45) – constitute 54% of all members. This is only a slight edge over younger generations – Generation Z (born after 1996), Millennials (1981-96) and Generation X (1965-80) – who together make up 46% of members Source Pew Research

New York Investors are Snapping Up Colorado River Rights: With the federal government poised to force Western states to change how they manage the alarming shortfall in Colorado River water, there is one constituency with a growing interest in the river's fate that's little known to some: Wall Street investors. Private investment firms are showing a growing interest in an increasingly scarce natural resource in the American West: water in the Colorado River, a joint investigation by CBS News and The Weather Channel has found. For some of the farmers and cities that depend on the river as a lifeline, that interest is concerning. One New York-based investment firm called Water Asset Management has bought at least $20 million worth of land in Western Colorado in the last five years, making it one of the largest landowners in the Grand Valley. Andy Mueller, general manager of the Colorado River Water Conservation District, says he doesn't think the firm wants much with the land. "It's the water," Mueller says. "These are folks that have identified the drought as an opportunity to make money," he added Source CBS

Fifth Circuit Says Small Refiners Likely to Succeed on SRE Legal Challenge: Two small refineries will not be required to blend more ethanol to comply with their 2021 obligations in the Renewable Fuel Standard, after a federal appeals court issued a stay pending an appeal on EPA's retroactive rejection of small-refinery exemption requests for the companies. On June 3, 2022, EPA denied 69 SRE petitions for compliance years 2016 to 2021, based on what the agency said was a revised approach to exemptions. In its ruling, the U.S. Court of Appeals for the Fifth Circuit said San Antonio Refinery LLC and Calumet Shreveport Refining LLC were likely to succeed on at least one of their claims against EPA's change to the SRE program. The two refiners in question historically have received exemptions from the RFS. The court said several of their petitions were denied by EPA in June 2022. "While they certainly are not entitled to exemptions ad infinitum, TSAR and Calumet were entitled to have their pending petitions evaluated under consistent ground rules, i.e., in view of 'fair notice, reasonable reliance, and settled expectations,'" the court said. Source DTN

Whole Foods Asks Suppliers to Lower Prices: Whole Foods Market is asking suppliers to help the retailer bring prices down on packaged groceries as inflation moderates. The Amazon-owned grocer told suppliers at a recent virtual summit that it wants to bring down retail prices in its store aisles as companies’ own costs start to decline, according to a recording of the meeting viewed by The Wall Street Journal. After more than a year of price increases, shoppers have been cutting back on purchases, buying cheaper versions of groceries and seeking out deals across supermarket aisles. The company has worked over the past year to absorb rising costs, offer new promotions and work with suppliers to offset the impact of inflation for customers, a Whole Foods spokeswoman said. Whole Foods’ rate of price increases has been lower than the industry average, the spokeswoman said, adding that the chain has lowered prices on some items including cereal, bread and sparkling water. Some food companies have said food inflation is beginning to moderate, though the retail prices that consumers see have yet to drop across the board. Source WSJ

Three Roommates or Four Jobs Needed to Afford a Two-Bedroom Rental on Minimum Wage: Nationally, it takes nearly four full-time minimum wage workers to reasonably afford a two-bedroom rental. Affordability for minimum wage workers is tightest in Austin. There would need to be over five full-time minimum wage workers to afford a two-bedroom rental in Austin. Zillow analyzed the 50 largest cities in the U.S. looking at the local minimum wage compared to rent price increases and found workers in cities that have set higher minimum wages fare better, even where rent is more expensive than the national average. Of all the cities analyzed that have a minimum wage higher than $7.25 an hour, a two-bedroom rental would require an average of 2.5 full-time workers to be affordable. In cities with the federal minimum wage of $7.25 an hour, 3.5 full-time minimum wage workers are required on average to afford rent in a typical two-bedroom rental — even though typical rents are less expensive. A higher minimum wage on its own does not guarantee workers will be so easily able to afford rent. In San Francisco, despite minimum wage sitting at $16.99 an hour, far higher than most of the country, an individual worker would need to make nearly three times that — $49.01 — in order to afford a one-bedroom rental on their own. Source Zillow

Ford CEO Says $2 Billion Profit Left "on Table": Ford Motor Co., ramping up electric-vehicle production while struggling to make money on its plug-in models, posted fourth-quarter profit that fell short of Wall Street estimates, blaming poor execution and continued supply shortages. The automaker reported earnings of 51 cents a share, excluding some items, missing the 62-cent average of analysts’ estimates. On that basis, earnings before interest and taxes came to $2.6 billion, Ford said Thursday, shy of the $3.45 billion analysts expected. The results show Ford is struggling to balance the transition to electric cars from conventional vehicles. The company is counting on strong sales of traditional internal combustion engine models, such as F-Series pickups and Bronco sport utility vehicles, to pay for the $50 billion that Chief Executive Officer Jim Farley has committed to developing and building EVs. “We left about $2 billion in profits on the table that were within our control, and we’re going to correct that with improved execution and performance,” Farley said in a statement. As a result, Ford is expanding its cost-cutting efforts, and now looks to eliminate “considerably more than” the $3 billion in annualized expenses previously targeted by mid-decade. Additional job cuts will be part of that, Farley said. In August, Ford eliminated about 3,000 jobs, mostly in the US, and cut 3,000 more last month, mostly in Germany. Source Bloomberg

How Younger Generations Spend Their Money: Young people have always perplexed their elders. Today’s youngsters are no different; indeed, they are baffling. As they start spending in earnest, brands are trying to understand what these walking paradoxes want and how they shop. The answers will define the next era of consumerism. Their absolute numbers are formidable. The European Union is home to nearly 125m people between the ages of ten (the youngest will become consumers in the next few years) and 34. America has another 110m of these Gen Zs and millennials, a third of the population. The annual spending of households headed by American Gen Zs and millennials hit $2.7 trillion in 2021, around 30% of the total. In many ways youngsters’ shopping habits, like their lives, are defined by the “attention economy”—buying stuff online is far quicker and easier than a trip to the shops. The proliferation of social media means there are many new ways of attracting consumers’ eyeballs. The internet has also changed how the young discover brands. Print, billboard or tv advertising has given way to social media. Instagram and TikTok are where the young look for inspiration, particularly for goods where looks matter such as fashion, beauty and sportswear. According to McKinsey, by 2021 six in ten Americans under the age of 25 had completed a purchase on a social-media site. Some are following the Chinese model of “social commerce” by mixing live-streamed entertainment with the chance to shop. Source Economist

2 3 2023
"The Facebook" Launched On This Weekend in 2004: It was 19 years ago, Mark Zuckerberg and some of his fellow Harvard classmates launched “The Facebook” in his dorm room when he was only 19 years old. The site was originally built in order to connect Harvard students with one another. By the next day, over a thousand people had registered, and from that day forward the number of users exploded. It wasn’t until September 2006 that members of the general public (non-college students) were allowed to become Facebook users, but it didn’t take long for the concept to catch fire - by the end of 2006, the number of users skyrocketed to +12 million. Skip ahead to mid-2009, and Facebook surpassed MySpace as the number one social network in the U.S. Facebook users continued to steadily climb and the company finally went public in early 2012. They had an initial IPO price of around $38 per share, today the stock is trading at more than +$188 per share. Today Facebook is used by an estimated 2 out of 3 adults on this planet and as we have seen now has the power to influence global elections, trends in fashion, and so much more. It's crazy to think how far this company has come and the influence it has had on our world. Today, the company has changed its name to "Meta" and is rebranding as it invests more in AI and the metaverse. On a side note, Peter Thiel, the co-founder of PayPal, was the first major investor to back Facebook. Thiel, a luminary in the startup and venture capital world, saw the site’s potential and invested $500,000 into the young company in 2004. Thiel later sold that stake in the company for more than +$1 billion! Wow, what a great return!

2 3 2023-1
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