06 Sep Capital 19 Catch-Up

Jobs Numbers Come In Way Under Estimates As S&P500 Continues Longest Monthly Winning Streak Since 2017

A nervous week on Wall Street culminated in a disappointing jobs number on Friday. The heavy miss confused investors who couldn’t decide whether the poor data was bad for stocks because it showed a struggling economy, or whether it was good because it meant the Fed would have a strong reason to hold back on their bond tapering in September. In the end, the market decided to call it a draw in the final session which culminated in mixed weekly results for the major indices.

The Nasdaq was the standout in the week that closed out August and kicked off September. The technology-led index made an impressive 1.5% for the week, including a .21% gain on Friday when the other indexes had small losses. The S&P500 managed to scrape by with a 0.6% gain over the five sessions, while the blue-chip Dow couldn’t cling onto a weekly gain, falling 0.2%.

For the month of August, all of the majors came away with wins. The Nasdaq led the way again, making 4% after the FAANG stocks all outperformed. The S&P500 notched up a 2.9% gain for the month, after the utilities and real estate stocks picked up the slack. While the Dow managed to hold onto a 1.2% gain despite a small fall in the final week. The August gain for the S&P500 made it seven months of positive results in a row for the benchmark index. It’s the longest winning streak for the S&P500 since the ten week streak that ended in December of 2017.

Earnings were rough on a few former stock report subjects during the week. Video communications provider Zoom (ZOOM), which we agreed a few months ago had run its race share price-wise, fell almost 16% in the Tuesday session after beating estimates but showing slowing growth. This was inevitable of course, following on from a break out 2020 for the previous Wall Street darling, but I was actually impressed with the 54% increase in revenue, and guidance for another 31% in the next quarter. I still believe they have a massive future ahead of them but are still too expensive at the current price – even after the fall.

Fellow former stock report subject Chewy (CHWY) also disappointed investors, which saw the share price drop 9.3% on Thursday. The pet food providore has also seen slowing growth after benefitting from the pandemic shutdowns which saw revenue increase by 47% in the second quarter of 2020. Again, I was impressed with the 27% revenue improvement in the latest quarter, even though analysts were expecting a touch more. In the earnings call CEO Sumit Singh said he is still very bullish, adding “customer spending on our platform is at an all-time high. So what does that tell you? More customers. They’re spending more. They’re staying with us longer, and we continue to deliver very strong comps. Overall, we’re very pleased with the performance of the business and the way that the teams are operating amidst this difficult environment.”

We recommended Chewy back in June when the share price was around the $75 mark. It made a slow climb up to $95 in mid-August before falling back to where we started from. I still like it at the current price, and think the future is bright, as will be the future of the share price in the next few years. A fall of 10% has just brought it back to a great buying price for anyone that missed out last time.

Other earnings came from electric vehicle charging point provider ChargePoint (CHPT), who jumped 8.2% after beating estimates on revenue and on guidance. CEO Pasquale Romano said that the company’s strongest second quarter on record “demonstrates our continued growth and leadership in the electric revolution” where we “achieved record revenue, significantly grew our commercial, fleet and residential businesses, launched a charging integration with Mercedes, announced our agreement to acquire e-mobility technology provider has·to·be and acquired eBus and commercial vehicle management provider ViriCiti.” The share price is still down by more than 50% from January highs, however, and maybe one we have to look at as a future stock report subject.

The week culminated in some disappointing jobs numbers which has investors confused about where market direction will head next. The ADP private payrolls missed heavily on Wednesday coming in at 374,000 when analysts were expecting 600,000. This was a harbinger for the non-farm payrolls which came out on Friday showing only 235,000 jobs were created in August, down from the revised 1.053 million in July. The biggest hit was in the leisure and hospitality industries who added zero new jobs to the final number as the Delta variant spread across the country and closed down businesses again.

In normal times you would expect the market to fall heavily on such a bad miss. However, the market knows that the Federal Reserve is keeping an especially close eye on the jobs number as an indicator of when they need to start raising interest rates. With a result this terrible it will more than likely keep them from tapering bond purchases which were predicted to begin as early as this month. It certainly seems like even that will be put on the back burner until we see a rebound in next months figures. So, bad news is good news again, but this news was especially bad and the market just couldn’t rally off these numbers, finishing flat for the day.

Wall Street will have a whole three days to think it over as well, with the Labour Day long weekend meaning markets are shut for tonight. Everything will pick up again tomorrow evening. Meme stock GameStop (GME) and sporting fashion retailer Lulelemon (LULU) will report this week. As will Kroger (KR) and Analog Devices (ADI). The headline data moment will be the producer price index and core PPI for August which the Fed will be watching closely. Economists are predicting that both will pull back from the 1% they rose in July.

Have a great week.