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Ford Cruises & Facebook Becomes Meta

Ford and Facebook both rose yesterday, along with Amazon and Tesla, to help the S&P 500 brush off Wednesday’s late-day decline. For the day, the index rose nearly one percent. Ford helped boost the market’s mood, jumping over 8% as they smashed earnin

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Ford and Facebook both rose yesterday, along with Amazon and Tesla, to help the S&P 500 brush off Wednesday’s late-day decline. For the day, the index rose nearly one percent. Ford helped boost the market’s mood, jumping over 8% as they smashed earnings estimates for the third quarter. In addition, Facebook is trying to improve upon its tarnished image by changing its name to Meta. (I guess MySpace and ZuckBook were already taken.) Effective December 1st, FB will trade as MVRS.

More importantly, GDP weakened to 2.00% in the third quarter, well below estimates of 2.70%. While the first estimate gets matched to economists’ estimates, we will likely see the subsequent two calculations track lower toward the Atlanta Fed’s 0.2% forecast. PCE, the Fed’s preferred inflation gauge, rose 5.7%, above estimates, but less than last quarter’s 6.1% inflation rate.

This morning, futures are being dragged lower by earnings misses in both Apple and Amazon. Starbucks also is pulling back on disappointing results.

What To Watch Today

Economy

  • 8:30 a.m. ET: Personal income, September (-0.3% expected, 0.2% in August)
  • 8:30 a.m. ET: Personal spending, September (0.6% expected, 0.8% in August)
  • 8:30 a.m. ET: Personal Consumption Expenditures Core Deflator, month-over-moth, September (0.2% expected, 0.3% in August)
  • 8:30 a.m. ET: Personal Consumption Expenditures, Core Deflator, year-over-year, September (3.7% expected, 3.6% in August)
  • 9:45 a.m. ET: MNI Chicago PMI, October (63.5 expected, 64.7 in September)
  • 10:00 a.m. ET: University of Michigan Sentiment, October final (71.4 expected, 71.4 in September)

Earnings

  • 6:00 a.m. ET: Chevron (CVX) to report adjusted earnings of $2.22 per share on revenue of $40.7 billion
  • 6:55 a.m. ET: Colgate-Palmolive (CL) to report adjusted earnings of 80 cents per share on revenue of $4.41 billion
  • 7:00 a.m. ET: Charter Communications (CHTR) to report adjusted earnings of $5.62 per share on revenue of $12.93 billion
  • 7:30 a.m. ET: Exxon Mobil (XOM) to report adjusted earnings of $1.56 per share on revenue of $71.78 billion
  • 7:00 a.m. ET: Newell Brands (NWL) to report adjusted earnings of 50 cents per share on revenue of $2.77 billion
  • 7:45 a.m. ET: AbbVie (ABBV) to report adjusted earnings of $3.22 per share on revenue of $14.21 billion
  • 8:00 a.m. ET: Royal Caribbean (RCL) to report adjusted losses of $4.06 per share on revenue of $697.77 million

Market At Extreme Overbought Levels

As shown in the chart below, the market has gotten well ahead of itself short term. Notably, despite the rally yesterday, the number of stocks trading above their respective 50-dma declined, and the MACD peaked. Historically, such has led to a short-term correction.

Liquidity Is Still Extremely Bullish

However, as we will discuss in this weekend’s newsletter (subscribe for FREE delivery), liquidity flows remain incredibly bullish. Global liquidity has now topped $1 trillion for the year, along with share buybacks which are now at a record. Given that buybacks have accounted for nearly all of the market’s net buying, there is no risk near term of a significant correction. However, such does not preclude short-term sell-offs and a pick-up in overall volatility.

Earnings Yield Warning

The graph below, courtesy of Nautilus Capital, shows that earnings yields on the S&P 500 are at the lowest levels since the early 1980s. The lower graph and table break historical readings of the earnings yield into quadrants. As the table shows, the lowest quadrant produces minimal positive returns versus double-digit returns for the other three quadrants.

Apple (AAPL) Earnings

Apple missed analyst expectations on revenue, with its iPhone, Mac, and Wearables businesses coming up short amid the ongoing chip shortage. According to Reuters, supply constraints knocked $6 billion off the company’s top line in the quarter. 

Here are the most critical numbers from the report compared to what Wall Street was expecting, as compiled by Bloomberg. 

  • Revenue: $83.36 billion versus $84.68 billion expected
  • Earnings per share: $1.24 versus $1.24 expected
  • iPhone revenue: $38.87 billion versus $41.60 billion expected
  • Mac Revenue: $9.18 billion versus $9.30 billion expected
  • iPad Revenue: $8.25 billion versus $7.16 billion expected
  • Services revenue: $18.28 billion versus $17.57 billion expected
  • Wearables revenue: $8.79 billion versus $9.27 billion expected

While the company missed on analyst expectations, quarterly revenue was up 29% year-over-year. Still, the stock was down 5% following the announcement. We hold a 3% position in the Equity Model.

Amazon (AMZN) Earnings

Amazon reported sales and earnings results that missed Wall Street’s estimates, reflecting a growth deceleration after the pandemic stoked a surge in online shopping last year and earlier in 2021. 

The company also flagged that it would see additional costs due to supply chain challenges in the fourth quarter. As a result, shares dropped by more than 4% in late trading. 

Here were the main metrics from Amazon’s report, compared to consensus estimates compiled by Bloomberg:

  • Revenue: $110.8 billion vs. $111.81 billion expected, $96.15 billion Y/Y
  • Earnings per share: $6.12 vs. $8.96 expected, $12.37 Y/Y

We hold a 2.5% position in the Equity Model.

Starbucks (SBUX) Earnings

Starbucks posted fiscal fourth-quarter earnings results that mostly missed Wall Street estimates. Still, the coffee giant reported a spike in active Starbucks reward members as the fast-food industry leans into digital to boost sales and drive customer loyalty.

According to the Bloomberg consensus estimates:

  • Revenue: $8.1 billion versus $8.22 billion expected
  • Adj. earnings per share (EPS): $1.00 versus $0.99 expected
  • U.S. same-store sales: 22% versus 24.13% expected
  • International same-store sales: 3% versus 4.3% expected

Weakness abroad appeared to be the biggest drag on the coffee maker’s results, as the Delta variant of COVID-19 took its toll on sales. Nevertheless, for the fiscal quarter that ended on October 3rd, 2021, comparable transactions in the U.S. increased by 18%, while the average ticket size went up 3% on record global revenues. 

Given the technical weakness and violation of our stop-loss, we will remove the position from the portfolio temporarily. We own a 1% position in the Equity Model.

Ford (F) Earnings

F reported earnings for the third quarter of 2021 yesterday after the close. GAAP EPS of $0.45 smashed the consensus estimate of $0.21, driven by “significant increases in semiconductor availability and wholesale vehicle shipments from Q2”. In addition, automotive revenue came in slightly above consensus at $33.2B (-4.3% YoY) versus expectations of $32.8B. Notably, F saw its North America EBIT margin improve to 10.1% from 7.6% in 3Q20.

Management increased guidance for FY21 adjusted EBIT to a range of $10.5B-$11.5B from the previous $9B-$10B. FY21 adjusted free cash flow guidance remains unchanged at $4B-$5B. F also announced that it reinstated its quarterly dividend at $0.10/share after suspending it in 2020, implying a forward yield of roughly 2.5%. The stock is trading 8.7% higher this morning following the upbeat earnings. We hold a 3% position in the Equity Model.

GDP

The good news is Q3 GDP, at 2%, is much higher than the Atlanta Fed’s 0.2% forecast. The bad news, it is decently below the consensus of economists forecast of 2.7%. Of concern, inventories added 2.1% growth to GDP. Without inventories, which in the long run contribute zero growth to GDP, GDP was flat. GDP got boosted by personal consumption expenditures (PCE) which rose 1.6%. We suspect GDP will be revised lower as PCE is likely overstating consumer economic activity. Durable goods and auto sales weighed heavily on GDP, primarily due to shortages and transportation problems. As these problems resolve themselves, GDP should benefit.

As we discussed last week:

“At the beginning of Q2, the Atlanta Fed pegged economic growth at 13.5%. By the time GDP got reported by the Bureau of Economic Analysis, it was just 6.5%. The Atlanta Fed has ratcheted down Q3, which will get reported later this month, to just 0.2%. So far, while hopes are for more robust economic growth in Q4, there is a high probability of disappointment.

For the bearish view, the implications of substantially weak economic growth are broad. Consumer sentiment will continue to remain weak, and increased inflationary pressures will further undermine consumption. The impact on earnings will leave the bulls disappointed.”

Bullish Bearish Market Case, Technically Speaking: The Bullish & Bearish Market Case

Q3 GDP Report Warning From the Atlanta Fed

One of the main reasons for the Atlanta Fed’s weak forecast is Real Final Sales. The Atlanta Fed expects this significant contributor to GDP to drop 1.6%.  As the graph shows, every time Real Final Sales has fallen below zero since the early 1950s; a recession has occurred.

An Odd Divergence

Economists have been racking their brains for the last nine months trying to pinpoint why there are still shortages of many goods. Yesterday’s inventory data and the graph below provide a clue. Retailer inventories fell 0.2%, while wholesaler inventories jumped 1.1%. The chart shows this is not just a one-month divergence but a trend existing for over a year. The most logical explanation is there are not enough truckers to deliver the goods from the wholesalers to the retailers. If this is the case, we should expect wholesale inventories to stabilize, resulting in fewer orders to manufacturers. The other explanation is that retailers purposely order less, keeping shelves semi-stocked, thus allowing them to charge more and pass higher costs and wages on to consumers.

The post Ford Cruises & Facebook Becomes Meta appeared first on RIA.

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Top 3 commercial real estate REITs to avoid amid a triple whammy

Commercial real estate REITs have been under intense pressure as the industry faces a tripple whammy of high-interest rates, work-from-home, and white-collar…

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Commercial real estate REITs have been under intense pressure as the industry faces a tripple whammy of high-interest rates, work-from-home, and white-collar layoffs. On Wednesday, the Fed decided to hike interest rates by 0.25% and signaled that more rate hikes were coming.

And recent data shows that the percentage of people working from home is still sharply higher than where it was during the pandemic. Worse, many large companies like Amazon, Salesforce, and Meta Platforms are laying off thousands of employees. 

Therefore, with debt maturities coming up, there are concerns that the industry will be in trouble for a while. Further, as I wrote in this article on the SCHD ETF, REITs are now competing with cash, with short-term bonds yielding over 5%. So, these are some of the top commercial real estate REITs to avoid during the sell-off. 

Boston Properties 

Boston Properties (NYSE: BXP) stock price has been in a strong sell-off in the past few months. It is trading at $49.63, which is about 63% below the highest level in 2022. This decline is mostly because of the cities where the company operates. 

It is mostly concentrated in places like New York, Los Angeles, San Francisco, and Seattle. These are some of the most troubled cities in the commercial real estate industry. In the most recent earnings statement, the company’s CEO said:

“Many of our clients are experiencing a slowdown in growth or reductions in top line revenue and as a result are focused on cost control including moderating headcount and space use.”

Therefore, in the near term, I suspect that the Boston Properties stock price will continue falling as investors embrace the new normal of high interest rates. In the long term, investors will likely buy the dip as the dividend yield become more attractive.

Kilroy Realty Corporation

Kilroy Realty Corporation’s (NYSE: KRC) stock price has also been in a freefall. It was trading at $29 on Wednesday, sharply lower than its 2022 high of $79. As a result, its forward dividend yield to 7%. 

The stock’s collapse is mostly because of the triple whammy facing the industry and the fact that billions of dollars are coming due. And like Boston Properties, the company’s operations are concentrated in high-risk cities like San Francisco, Seattle, and Austin. 

The only benefit for Kilroy is that it has staggered debt maturities, which meaning that it has more room to adjust its books. As a result, it has no debt maturities until December 2024, as the CEO noted:

“Net debt the fourth quarter annualized EBITDA remains about six times. And we have no debt maturities until December of 2024 and limited interest rate exposure with all of our debt fixed or subject to cap.”

Vordano Realty Trust

Vornado Realty Trust (NYSE: VNO) stock price has dropped lower than most commercial real estate trust stocks. It was trading at $13.80, down by over 72% from the highest point in 2022. This performance is mostly because Vornado is highly concentrated in New York, where occupancy rate remains low. 

Like Kilroy, Vornado has no maturities this year, with the next one coming in mid-2024. Still, because of its focus on New York, Vornado stock will likely continue falling in the near term. The other commercial REIT stock we recently recommended exiting was SL Green. It stock is down by over 10% since the article went live.

The post Top 3 commercial real estate REITs to avoid amid a triple whammy appeared first on Invezz.

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China’s Auto Industry Association Urges “Cooling” Of Price War, As Major Manufacturers Slash Prices

China’s Auto Industry Association Urges "Cooling" Of Price War, As Major Manufacturers Slash Prices

Just hours after we wrote about maniacal…

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China's Auto Industry Association Urges "Cooling" Of Price War, As Major Manufacturers Slash Prices

Just hours after we wrote about maniacal price cutting in the automotive industry in China, China's auto industry association is urging automakers to "cool" the hype behind price cuts.

The statement was made in order to "ensure the stable development of the industry", Automotive News Europe reported on Tuesday. 

The China Association of Automobile Manufacturers even went so far as to put out a message on its official WeChat account, stating that "A price war is not a long-term solution". Instead "automakers should work harder on technology and branding," it said. 

The consumer disagrees...

Recall we wrote earlier this week that most major automakers were slashing prices in China. The move is coming after lifting pandemic controls failed to spur significant demand in China, the Wall Street Journal reported this week. Ford and GM will be joined by BMW and Volkswagen in offering the discounts and promotions on EVs, the report says. 

Retail auto sales plunged the first two months of the year and automakers are facing additional challenges in trying to transition their business models to prioritize EVs over conventional internal combustion engine vehicles. 

Ford is offering $6,000 off its Mustang Mach-E, putting the standard version of its EV at just $31,000. Last month, only 84 of the vehicles were sold, compared to 1,500 sales in December. There was some pulling forward of demand due to the phasing out of subsidies heading into the new year, and Ford had also cut prices by about 9% in December. 

A spokesperson for Ford called it a "stock clearance". 

Discounts at Volkswagen are ranging from around $2,200 to $7,300 a car. The cuts will affect 20 gas powered and electric models. Its electric ID series is seeing price cuts of almost $6,000. The company called the cuts "temporary promotions due to general reluctance among car buyers, the new emissions rule and discounts offered by competitors."

Even more shocking is Citroën-maker Dongfeng Motor Group, who is offering a 40% discount on its C6 gas-powered sedan, now priced at $18,000. 

Kelvin Lau, an analyst at Daiwa Capital Markets, told the Journal that automakers are also trying to get rid of 500,000 vehicles collectively stored in their inventory, most of which are older vehicles that won't meet new emissions standards.

David Zhang, a Shanghai-based independent automobile analyst, added: “Some car makers have been seeing very few sales. At this rate, the manufacturers’ production and dealership networks will collapse.”

Tyler Durden Wed, 03/22/2023 - 18:00

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Cashless Society: Panera Bread Debuts “Frictionless” Palm Payment System

Cashless Society: Panera Bread Debuts "Frictionless" Palm Payment System

Amazon’s palm-reading payment technology was first introduced at…

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Cashless Society: Panera Bread Debuts "Frictionless" Palm Payment System

Amazon's palm-reading payment technology was first introduced at numerous Whole Foods locations in California, enabling customers to pay for their groceries by scanning their palms at checkout terminals rather than using cash or a card. Now Panera Bread is experimenting with Amazon's cashless payment system as the war on cash marches on. 

On Wednesday, Panera Bread announced plans to roll out a "contactless payment method" to several stores with additional locations in the coming months. The bakery-cafe chain has over 2,000 locations, and its loyalty program has 52 million members. 

"Panera is the first national restaurant company to use Amazon One as both a way for guests to pay and access their loyalty account with their palm," the company said. 

"Our philosophy has been centered around leveraging best-in-class technology to create a better Panera experience and using that to deepen our relationship with our loyal guests. Introducing Amazon One, as a frictionless, personalized, and convenient service, is another way we're redefining the loyalty experience," Niren Chaudhary, CEO of Panera Bread and Panera Brands, stated.

At the moment, dozens of Whole Foods locations and Amazon Go stores have integrated Amazon One contactless payment. 

By summer, Panera Bread might have at least two dozen stores equipped with Amazon's contactless payment system, as reported by Panera's Chief Digital Officer George Hanson in an interview with CNBC.

"We think the payment plus loyalty identification is the secret sauce that can unlock a really personalized, warm and efficient experience for our guests in our cafes," Hanson said. 

The adoption of contactless payment systems by corporate giants like Amazon and Panera Bread, both known for their massive loyalty programs, seems to signal a shift towards a cashless society.

Recall the pivot toward a cashless society was clear as day. Perhaps the coin shortage during the pandemic was a pilot test. And anyone who dared mention a looming cashless society was deemed a 'conspiracy theorist.' 

Just remember who is also shaping the world and influencing corporations and politicians away from a cash economy:

... and the rollout of contactless payment comes just before the Federal Reserve is set to activate its digital dollar in July. 

Tyler Durden Wed, 03/22/2023 - 20:40

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