🐻 Recession-omics

Tuesday, May 31, 2022 by Robinhood Snacks |
Money printer stopped going “brrr” (Matthias Kulka/The Image Bank via Getty Images)

Money printer stopped going “brrr” (Matthias Kulka/The Image Bank via Getty Images)

Money printer stopped going “brrr” (Matthias Kulka/The Image Bank via Getty Images)

Money printer stopped going “brrr” (Matthias Kulka/The Image Bank via Getty Images)

Last Week’s Market Moves
Dow Jones
33,213 (+6.24%)
S&P 500
4,158 (+6.58%)
Nasdaq
12,131 (+6.84%)
Bitcoin
$28,808 (-1.14%)

Hey Snackers,

Because hands aren’t enough, four engineering students have invented gluten-free edible tape to prevent your burrito from falling apart. Someone call Chipotle.

Stocks continued their roller-coaster moves last week, notching a major rebound after a big red plunge the week before. All three of the major market indexes gained over 6%, snapping their weeks-long losing streaks (seven weeks for the S&P 500 and Nasdaq, eight for the Dow).

Pride Month kicks off tomorrow. The month, chosen to commemorate the June 1969 Stonewall Uprising in NYC, is dedicated to celebrating and pushing for LGBTQ+ rights.

Bears

Moodier than a 13-year-old... the stock market right now. The S&P 500 went from flirting with a bear market (down nearly 20% from its record) to closing the week up 7%. After the plunge of March 2020 (FYI: the shortest bear market ever) stocks went full bull: the S&P doubled in value between March 2020 and January 2022. Then the plunge began.

  • Bad-news bear: The S&P is down 13% this year, while the techy Nasdaq is in a bear market, down 23%. Historically, most S&P bear markets were accompanied by recessions.
  • Driving it: Stubborn inflation and rising interest rates are leading to slower econ and earnings growth. Russia's war on Ukraine and China's Covid policy compound the situation.
  • But: Stocks rebounded after some strong retail earnings and consumer-spending data, plus less-aggro-than-feared rate-hike indications from the Fed.

The market ≠ the economy... yet the economy affects the market. Company valuations are tied to growth expectations. Those have fallen, both for companies and the economy. After lockdowns began, trillions in gov’t stimulus $$ boosted spending and record-low interest rates made borrowing cheaper. Now:

  • Stimmy withdrawal: The artificial demand boost is gone. High rates are making earnings expectations get “corrected” down. Many companies are reporting lower (but still relatively high) forecasts as inflation hits demand and profits.
  • Negativity intensifies: GDP shrank last quarter, and while the labor market is very strong, we’re seeing more layoffs and cost-cutting as corporate growth slows. The probability of a recession appears to be growing, while economic confidence is sagging.
THE TAKEAWAY

Recessions are hard to predict… even as they’re happening. The big Q is how severe the slowdown will be. That largely depends on whether the Fed can tame inflation without slamming the brakes on growth (raising rates too aggressively). On the plus side, there are signs inflation could be peaking. How long it’ll take to return to “normal” is another question.

Zoom Out

$7 of gas to commute… and tack on a $17 salad to the “return to work” bill. Restaurant food prices are up 7% from last year, but go-tos like Chipotle and Starbucks saw strong sales last quarter as Americans proved willing to splurge. Sack lunches aren’t much better: prices on staples from eggs to Cheerios have soared, driving revenue for grocers like Kroger and Costco. Yet consumers may be growing resistant: grocery leader Walmart said some are switching from gallons of milk to half-gallons and trading name brands for cheaper private labels.

Sunny with a chance of blackouts… Summer forecast: hot and unstable. Fuel shortages, supply snags, and the climate crisis could prevent the US power grid from squeezing out enough juice during an extra-hot summer. Much of the country could be in for rolling blackouts. Think: brief power outages that make it hard to work and kill the A/C. Blackouts might also hit Asia, Africa, and Europe, hurting people and productivity. India’s economy may lose $100B this year from lost output during outages.

Events

Slam-dunk szn… is coming to a head this week as the Boston Celtics prepare to face the Golden State Warriors in the NBA Finals. The second-most-watched US sports league sold out 59 consecutive games last month, rebounding after the number of paid fans at arenas had dropped 7% during the regular season. Postseason viewership is up 14% from last year — even without LeBron. That’s promising for the league’s bottom line: the NBA wants $75B (triple the current deal amount) from Disney (ABC, ESPN) and WarnerBrosDisco (Turner) to renew media rights in 2025.

It’s wine o’clock somewhere… Booze sales at restaurants have surpassed pre-pandemic levels, as Netflix-and-sip loses favor to neighborhood happy hour. It doesn’t mean people aren’t uncorking at home: online and D2C alcohol sales have maintained their lockdown-era gains. Last quarter, winemaker Duckhorn saw sales jump 18% as consumers bought budget bottles in stores and winery visitors spent twice as much as last year. We’ll see if the good times are still flowing despite inflated costs when Duckhorn reports Thursday.

ICYMI
  • Bullwhip: After years of supply woes, retailers like Walmart, Target, and Nordstrom now have too much inventory. Overflowing warehouses are bad for profits, but could mean inflation-cooling markdowns.
  • Comp: From Amazon to Coke, shareholders of America’s largest companies are showing unprecedented backlash to meaty exec pay, part of a broader movement seeking progress on environmental and social issues.
  • Ghost: Discovery ads aren’t worth as much as they used to be: Snap said it expected growth to slow as macro conditions “deteriorate.” Cue: investors ghosted Snap and other techies on ad-pocalypse fears.

What else we’re Snackin’

  • Vanity: Minivans, the vehicles famous for being the butt of soccer-parent jokes, are #trending again (even with Kim K). After years of declining sales, minivans are soaring in price thanks to summer road trips.
  • Phoney: In a win for the “right to repair” movement, Apple released its first DIY repair program for iPhones last month (think: no Genius Bar). But for some, the intimidating process has resulted in mishaps.
  • Juiced: Using a shared Google spreadsheet, die-hard Tesla fans are vying to visit as many fast-charging stations as possible — yet the race may never end as new ones keep popping up.

Snack Fact of the Day

Homosexuality is still considered illegal in more than one-third of countries

This Week

  • Tuesday: Earnings expected from Salesforce, HP, and ChargePoint
  • Wednesday: Pride Month begins. Earnings expected from Victoria’s Secret, NetApp, Chewy, MongoDB, and Weibo
  • Thursday: Jobless claims. Earnings expected from CrowdStrike, Hormel, Okta, Asana, The Duckhorn Portfolio, Samsara, Zumiez, Duluth Trading Co., and Lands’ End
  • Friday: Monthly employment numbers.
  • The weekend: World Environment Day on Sunday.

Authors of this Snacks own: bitcoin and ethereum and shares of Snap, Netflix, Amazon, Apple, Walmart, Tesla, Google, Starbucks, and Disney

ID: 2222523