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Daily Market News: Oil gains on OPEC+ cut talks

What to watch Dollar General: Discount retailer Dollar General has added almost 40% to its share price in 2020, taking…
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What to watch

Dollar General: Discount retailer Dollar General has added almost 40% to its share price in 2020, taking its market cap past the $50bn mark. Along with other discount retailers, Dollar General’s gains this year have been driven by consumers stocking up on staples, and turning to cheaper options in the face of pandemic-induced economic uncertainty. The company beat earnings expectations substantially in Q1 and Q2, and will deliver its Q3 update on Thursday. Analysts are expecting an earnings per share figure of $2.02, and currently lean towards a buy rating on the stock.

DocuSign: Digital contract signing firm Docusign has enjoyed a huge 2020, with its share price up by almost 200% as companies and individuals have been forced to use such services in the absence of in-person meetings. Although the firm has competition from Adobe and other firms, DocuSign offers purer play exposure to digital signing services for investors. The company delivers its Q3 earnings on Thursday, where, similar to other firms that have enjoyed huge run-ups in 2020, investors will be looking for signs the company can convert the pandemic environment into lasting growth. Currently, 13 Wall Street analysts rate the stock as a buy or overweight, five as a hold and one as a sell.

Initial jobless claims: All eyes will once again be on initial jobless claim figures in the US on Thursday, and investors look to the metric for signs of the state of the US economic recovery. Last week, new unemployment claimants rose for the second week in a row, the first back-to-back increase since the summer.

Crypto corner: US lawmakers propose to regulate stablecoin issuance

Three Democrat members of the House of Representatives have proposed a law that would require all newly issued stablecoin assets to be federally approved.

The proposed law issued by Congresswoman Rashida Tlaib, Rep. Jesús “Chuy” García and Rep. Stephen Lynch, is called the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act.

The act would require issuers to have a banking charter and for new stable coins to be approved by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and other agencies. Stablecoin creators would also be required to have FDIC insurance or equivalent amount of US Dollars as a reserve for the coin.

While the proposing lawmakers have said the bill is designed to protect consumers, it has already been criticised by the cryptoasset community as a ‘huge step back’ for the financial technology.


All data, figures & charts are valid as of 03/12/2020. All trading carries risk. Only risk capital you can afford to lose.  

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

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Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About “Choiceful” Consumers Spending Less

Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About "Choiceful" Consumers Spending Less

Walmart shares hit…

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Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About "Choiceful" Consumers Spending Less

Walmart shares hit a new all-time high after the largest bricks and mortar retailer reported earnings that beat expectations despite providing guidance that was marginally softer, as choosy shoppers nevertheless kept buying in its stores.

Here is what the company report for the final quarter of 2023:

  • Adjusted EPS $1.80 (excluding impact, net of tax, from a net gain of $0.23 on equity and other investments) vs. $1.71 y/y, beating estimate of $1.65
  • Revenue $173.39 billion, +5.7% y/y, beating estimate $170.66 billion
    • Total US comparable sales ex-gas +3.9%, estimate +3.2%
    • Walmart-only US stores comparable sales ex-gas +4%, estimate +3.12%
    • Sam's Club US comparable sales ex-gas +3.1%, estimate +2.99%
  • Change in US E-Commerce sales +17%, beating estimate +15.5%
  • Adjusted operating income $7.25 billion, beating estimate $6.79 billion

Of the metrics reported, however, the most important one is that Walmart’s same-store sales (ex fuel), rose 4% YoY for US stores (of which net sales was 3.% and eCommerce added 17%). Wall Street was expecting 3.1% so the number was clearly a beat and was driven by "strength in grocery, health and wellness, offset by softness in general merchandise", and was the result of higher transactions (+4.3%) offsetting average ticket prices, which dropped 0.3% YoY. Still, the number is a far cry from the 8.3% comp sales a year ago.

In keeping with the noted softness in general merchandise, the world’s largest retailer delivered softer guidance for the current fiscal year, as it expects consumers to be selective in their spending:

  • For full-year 2025, WMT sees
    • Net sales +3% to +4%, slower than growth from the prior year, and adjusted EPS $6.70 to $7.12, slightly disappointing vs the median consensus estimate of $7.09
    • Capital expenditures approximately 3.0% to 3.5% of net sales
  • For Q1, 2025, WMT sees sees adjusted EPS $1.48 to $1.56.

Discussing the quarter, CEO Doug McMillan said that "we crossed $100 billion in eCommerce sales and drove share gains as our customer experience metrics improved, evenduring our highest volume days leading up to the holidays"

Commenting on customer "selectivity", CFO John Rainey said that “they are being choiceful" as consumers continue to spend less per trip but have been shopping frequently, adding that the company expects some resilience to continue for the rest of the year.

There was more good news: Walmart is gaining share in nearly every category, according to Rainey, with e-commerce among the factors driving growth as the company trims losses associated with handling online orders. Furthermore, while deflation is still a possibility, the company expects it to be less likely based on what it observed during the latest quarter.

That said, while grabbing more spending with low-priced groceries and other basics, Walmart has been cautious in recent months about the health of the consumer amid persistent inflation and higher interest rates. As noted above, US consumers have been buying cheaper products and seeking value, as they pull back from discretionary products like general merchandise. That has resulted in softer sales for some retailers, including Target Corp. and Home Depot Inc. Other big-box retailers are set to report their quarterly earnings in the coming weeks.

As Bloomberg notes, the recent moderation in inflation is another challenge for Walmart and other retail operators that have passed down price increases to consumers over the past few years. This has contributed to higher dollar sales for companies, followed by an uptick in revenue during the pandemic when people bought more groceries and home goods. Such increases are slowing overall, though inflation remains stubborn in some areas like groceries and shelter.

Similar to all of its major competitors, Walmart has been beefing up automation in warehouses and stores in recent years, while remodeling locations to make them more modern. Pickup and delivery businesses continue to expand, driving share gains among upper-income households and fueling growth of the Walmart+ membership program.

Separately, Walmart said it agreed to buy smart-TV maker Vizio Holding Corp. for about $2.3 billion. The deal would accelerate the retailer’s advertising business, called Walmart Connect, and help Walmart and its advertisers engage more with customers. Walmart has been expanding Walmart Connect and other nonretail businesses that have faster growth and better margins. The deal announcement confirmed a Wall Street Journal report from last week. Vizio shares soared 15% in Tuesday premarket trading.

As for WMT, the Bentonville, after the stock gained 16% over the past year, it jumped another 5.7% on Tuesday rising to a new all time high as investors were clearly satisfied with what they saw.

Full investor presentation below (pdf link)

Tyler Durden Tue, 02/20/2024 - 10:17

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Estimating US Recession Risk Using Economic Data For States

What are the choices for monitoring and estimating recession risk? Slightly lower than the number of stars in the universe. Ok, I’m exaggerating, but…

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What are the choices for monitoring and estimating recession risk? Slightly lower than the number of stars in the universe. Ok, I’m exaggerating, but not much. The good news: the search for robust, relatively reliable indicators narrows the field dramatically. But there’s always more to learn, in part because the supply of data sets is vast, increasingly so. Which brings me to another indicator that looks promising: state coincident indexes.

Every state’s economy is, in some degree, unique, although the gravitational pull of the national economy casts a long shadow. Tracking each state economy separately, and then aggregating the results, provides a different spin on the US business cycle compared with national indicators. Think of it as a bottom-up model vs. the standard top-down approach via US retail sales, industrial production, etc.

Conveniently, the Philly Fed publishes monthly coincident indicators for each state. Aggregating the 50 signals into a composite index provides a somewhat different view of the US business cycle vs. traditional top-down metrics. There are several ways to process the numbers – my preference, shown in the chart below, is a 3-month-change model. If a state’s 3-month change is negative (positive), the signal is negative (positive). Summing the negatives and positives provides a national profile. The current reading is 0.48 — in other words, 48% of the states are posting negative 3-month changes for their respective coincident indicator. As shown below, the composite reading maps fairly closely with NBER-defined downturns, and so the current signal is issuing a warning, albeit a warning that has yet to provide what might be thought of as passing the point of no return. But it’s close.

The readings vary from 0 (no negative 3-month changes) to 1.0 (all 50 states are reporting negative 3-month changes). A quick review of the historical record suggests that the US is on the verge of slipping into recession.

But before we ring the alarm bell, there are some caveats to consider. First, a similarly high reading 20-plus years ago turned out to be a false signal. The next couple of months will likely determine if a repeat performance is brewing, or not.

Second, no one indicator is flawless, as we’ve learned over the last couple of years – especially in recent history, when pandemic-related events have created no shortage of macro surprises.

Another reason to reserve judgment, at least for now: a range of other business cycle indicators tracked in The US Business Cycle Risk Report (a sister publication of CapitalSpectator.com) continue to show a clear growth bias. But as reported in this week’s issue, there are some nascent signs of softer economic activity and so it’s possible that the coincident state indicators are an early warning that the tide is shifting.

The most reliable methodology for estimating recession risk in real time is building an ensemble model that combines various modeling applications that are complimentary. Although any one model will excel at a given point in time, quite often the best-performing indicator changes through time. To minimize the risk that’s inherent in any one signal, The US Business Cycle Risk Report crunches the numbers on multiple indicators, which has proven to be close to optimal for balancing the need for timely signals that minimize false signaling.

Despite the caveats, the coincident state model adds another dimension to the mix and provides some complimentary input to The US Business Cycle Risk Report’s existing suite of indicators. Accordingly, I’ll be adding the composite state coincident data to the newsletter’s weekly updates.

The next batch of coincident state updates for January is scheduled for later this month. Meantime, I’ll be carefully reviewing the incoming data for fresh clues that support or reject the suggestion that trouble’s brewing via the state coincident indicators.


How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report


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Air Canada Says Freight Demand Beginning To Improve

Air Canada Says Freight Demand Beginning To Improve

By Eric Kulisch of FreightWaves

Air Canada expects the slow recovery in cargo volume…

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Air Canada Says Freight Demand Beginning To Improve

By Eric Kulisch of FreightWaves

Air Canada expects the slow recovery in cargo volume that began in the fourth quarter to quicken in 2024, aided by the addition of two more freighter aircraft, but doesn’t anticipate gains in pricing power, Mark Galardo, executive vice president for network planning and revenue management, said Friday.

The cargo division within Air Canada (TSX: AC) currently operates five converted and two factory-built Boeing 767-300 freighters. It is scheduled this year to receive two cargo jets converted from passenger configuration, but delivery of a third plane has been delayed until 2025 because of lingering supply chain and labor challenges faced by aerospace manufacturing companies, said Galardo on the company’s fourth-quarter earnings call.

The company nonetheless expects cargo capacity to increase 6% to 8% this year with the addition of the two freighters and more passenger aircraft that also carry cargo. The converted freighters are retired Air Canada passenger jets that are being retrofitted by aftermarket aerospace firms for carrying large containers in the main cabin area.

Cargo revenue fell 15% year over year in the fourth quarter to US$181 million on soft demand and lower yields, Air Canada reported. The three-month period represented an improvement from prior months as the downturn in freight transportation that gripped the air logistics industry for nearly 18 months began to ease. Full-year cargo revenue fell 27% to $253.7 million.

At the end of 2023, Canada’s flag carrier operated four more 767 freighters than at the end of 2022. Freighters were reintroduced at the company two years ago. Increased freighter operations to Central and South America and to Europe partially offset the year-over-year decline. Air Canada also enhanced its interline cooperation with Emirates SkyCargo, which allows customers to book interline cargo shipments through the Emirates SkyCargo flights, including between the Americas and Southeast Asia and India, through key European hubs. 

“We had a bit of a slower start in January, but as we look into February and beyond we’re starting to see volumes pick up and yields also pick up. And our 2024 assumption on cargo is more volume-driven than yield-driven. So we’re starting to see some positive indicators,” Galardo told analysts. “We’ve taken all the necessary measures to position ourselves to take advantage of the recovery. This includes strategically adjusting our freighter plan so that we can keep focusing on proven overall results for the long term and on maximizing cargo network value for our entire fleet.”

Air Canada in late September canceled an order with Boeing for two 777-200 production freighters because of the reversal in airfreight demand following the pandemic-fueled boom for air transport that lasted until early 2022. It then ordered 18 787-10 Dreamliners, including two that were swapped for the 777 freighters. Management, at the time, reiterated its commitment to operating freighters, saying that it needed to take a more measured approach to fleet expenditures and keep more cash available for other purposes.

Air Canada expects another leap in cargo business when the 787-10s begin entering the fleet in late 2025. But ongoing safety and manufacturing problems at Boeing could upset the delivery schedule. Production flaws have previously prevented customers from receiving Dreamliners on time.

“As we eventually receive the larger 787-10s, taking advantage of global cargo flows through our hubs will become an important lever for further diversifying revenue streams,” said Galardo. 

Air Canada performed well on cargo against its peers during the fourth quarter. Delta Air Lines and American Airlines saw cargo revenue slide 24% during the period, and Korean Air said its cargo sales fell nearly 29%. The percentage change in revenue at Air Canada was on par with the 14.8% decline at United Airlines. On a total dollar basis, Air Canada cargo revenue was less than that of the other carriers. The three major U.S. airlines are much larger than Air Canada but also do not have a dedicated cargo fleet. Delta was the closest to Air Canada at $188 million in revenue.

Overall, Air Canada generated $3.9 billion in revenue, up 11% from the prior year, during the final three months of 2023. But earnings before interest, taxes, depreciation and amortization of $386.4 million came in below expectations. On an adjusted basis, the company lost $32.6 million versus a loss of $162 million the year before. Higher wages, maintenance costs and flying volumes pushed expenses up 8%. Inflation is expected to increase costs another 4.5% to 5% in 2024, offset in part by productivity gains.

Tyler Durden Tue, 02/20/2024 - 06:30

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