Capital 19 Catch-Up

Disney Smashes Estimates As The Federal Reserve Appreciate Stabilising Inflation Numbers

Wall Street was in a tentative mood last week, with muted gains coming on most days as investors grappled with new inflation data, earnings reports, and progress on the newest infrastructure plans. Covid numbers also continued to rise, keeping economy watchers on their toes and governments on high alert.

The Dow inched higher on four of the week’s five sessions but still only managed a gain of just 0.8%. The benchmark S&P500 index was in a similar boat, making 0.7% over the five sessions with its largest moving day a 0.25% gain during the Wednesday session. The Nasdaq managed to gain in three out of the five sessions but was 0.1% lower by the end of the Friday session.

To start the week we had oil prices falling and reopening stocks in trouble as cases of the delta variant continued to grow across the country. Concerns were allayed on Tuesday, however, as the Senate passed the newest iteration of a $1 trillion infrastructure bill which will see $550 billion going into transportation, broadband, and utilities. This proved a big boost to the financial sector, energy stocks, and reopening names and will aim to boost the economy as recovery begins to slow from the pandemic reopening. Steel manufacturer Nucor (NUE) jumped 9.6% on the news, while Dow component and construction equipment maker Caterpillar (CAT) gained 2.5%.

Wednesday saw a relief rally in US markets as inflation data showed prices were stabilising across the country. The CPI for July reported costs rising 5.4% since last year, with economists expecting 5.3%. However, the closely watched Core CPI which excludes energy and food costs and is said to be a more accurate indicator rose by just 0.3% in the previous month, lower than the 0.4% expected and well down on the 4.3% in June.

The producer price index, which came out the next day, showed a rise of just 0.9%. That’s the price that manufacturers have to pay for labour and raw materials. The numbers backed up the Federal Reserve’s stance that the recent spike in inflation is only temporary. Brad McMillan, CFO from Commonwealth Financial Network wrote ” Inflation has, at a minimum, paused. For both the headline and core figures, the monthly and annual numbers were stable or down from last month. Based on that data, inflation is certainly not on an unstoppable increase. As we dig into the numbers, inflation is above where it has been but is showing signs of rolling over and returning to more comfortable levels.” That’s great news for the economy and the stock market.

In other data news, the weekly jobless claims continued to fall, hitting 375,000 last week, down from 387,000 the week before and matching estimates. While consumer sentiment surprised on the low side, falling to 70.2 in August when analysts were expecting 81.3. It was the lowest index reading for sentiment since 2011, with economists blaming the rising covid numbers and the cost of goods impacting on consumers.

Earnings season continued to move forward and we’ve now seen 90% of the S&P500 report their numbers to date. So far 88% have managed to declare a profit surprise to the upside. Thie week that success included Catch Up favourite Walt Disney (DIS) who smashed expectations on both the top and bottom lines as US theme parks returned to profit for the first time since the pandemic began. Revenue hit $17.02 billion Vs the $16.76 billion expected, while earnings came in at $0.80c per share compared to the $0.55c expected.

Revenue in the Parks, Experiences and Products segment jumped by 308% to $4.3 billion after domestic parks eased restrictions in April. Streaming subscribers over its Disney+, ESPN+, and Hulu business hit 174 million in the quarter with revenue up 57%, also to $4.3 billion. The House of Mouse hopes to have 230 – 260 million subscribers to Disney+ by 2024 by ramping up its spending in content and increasing penetration in countries such as India and Indonesia.

Tyson Foods (TSN) jumped more than 12% for the week after announcing its own earnings beat on Monday. The company also increased its 2021 revenue forecast thanks to strong beef demand from restaurants and hotels that are reopening from covid restrictions. This is despite food costs rising across the board with beef up more than 12% for the quarter, and chicken and pork up 16% and 39% respectively. Tyson has already raised its prices to customers which will also raise the cost for restaurant-goers if costs are passed on.

Shares of movie theatre owner AMC Entertainment (AMC) fell on Tuesday despite the company showing a narrower than expected loss. The meme stock has had a crazy ride over the last few months as Reddit investors sent valuations sky-high, but shareholders were left underwhelmed by the showing, despite all of AMC’s 593 domestic theatres being opened for business by the end of June. CEO Adam Aron said in a statement “AMC’s journey through this pandemic is not finished, and we are not yet out of the woods. However, while there are no guarantees as to what the future will bring in a still infection-impacted world, one can look ahead and envision a happy Hollywood ending to this story.”

In the week ahead we’ll see the retailers take on the earnings baton as Walmart (WMT), Target (TGT), Lowe’s (LOW), and Macy’s all report their numbers. We’ll also have the July retail sales on Wednesday, which combined would give us a vital insight into the economic recovery. Other companies to report earnings include my kids favourite Roblox (RBLX), as well as Home Depot (HD), Cisco (CSCO), Nvidia (NVDA), Foot Locker (FL), and Deere (DE). While on Wednesday the Fed will release the minutes from their last meeting, which will no doubt be a market mover.

Have a great week.