Capital 19 Catch-Up

Wall Street Stumbles On Inflation Data and Missed Earnings From Some Big Names

The stock market had a harder time of it last week as the topic of inflation reared its ugly head again. Bond yields spiked and bank stocks had a fun time of it, however, the rest of the market struggled to make ground as big technology stocks tumbled and some big names missed on earnings. Federal Reserve strategy is now high on the agenda for most in the markets as we await their plans for the first interest rate move in more than two years.

With a losing week had by all of the major indices, each snapped a five-week winning streak. Stocks have been cruising along since the end of October when the markets suffered heavy losses so a pullback was inevitable. The good news is the damage wasn’t all that bad. The Nasdaq suffered the most as technology stocks traditionally fare badly when news of inflation rises occur. The tech-laden index dropped 0.7% for the week and was closely followed by the Dow losing 0.6%. The S&P500 was the best of the three, dropping 0.3% over the five sessions.

The week started with some good news as the House finally passed a $1 trillion infrastructure package late Friday which was then passed to President Biden to sign. Such a bill, which will upgrade critical transportation and utility infrastructure has been long overdue and will be a massive boost to the US economy. It will also go some way to fixing supply issues that have concerned Wall Street since early 2020. Biden will be signing the bill soon with another bill focussing on a worker safety net and the climate to follow shortly after.

The good news for readers of the Catch Up was the $7.5 billion that will go towards building EV charging infrastructure. The funding is expected to be a major boost towards the transition to energy-efficient vehicles over the coming years. Many of our recent stock reports have revolved around this exact industry. None more so than our September 10 pick ChargePoint (CHPT) which, as we noted, is the largest online network of independently owned EV charging stations in the world. The share price was up almost 12% on Monday and is up almost 30% from our buy date just a few months ago. The passing of the bill will also provide positive benefits to the carmakers that have turned their focus to EV’s such as Ford (F) and GM (GM) – also Catch Up stock report subjects.

Stocks had their biggest falls in the Tuesday and Wednesday sessions as two important inflation figures were released. On Tuesday the Producer Price index came in at 0.6% month over month, which was as expected but historically high. Then on Wednesday, the Consumer Price Index came in hot, hitting 6.2% year on year when economists were expecting a 5.9% increase. It was the largest increase seen in more than three decades with many blaming supply chain issues and labour shortages. Bond yields surged on the news as did bank stocks, while technology stocks fell away. Expectations for the first Fed rate rise since December 2018 is now anticipated to be in July 2022.

Earnings couldn’t help pull the market out of its funk this week, as it has done for the last month or two. Some big names struggled in the third quarter with one of our faves PayPal (PYPL) performing particularly badly. The online payments provider saw revenue rise 13% to $6.18 billion in the quarter, which was slightly lower than the $6.23 billion forecast. More importantly, however, revenue guidance was for $6.85-6.95 million in the fourth quarter when the market wanted to see $7.24 billion.

Paypal is currently in the process of moving away from its former parent eBay who is moving to its own payments system. Payments from eBay now account for less than 4% of PayPal’s total revenue. Crucially, they now have a deal with Amazon through their Venmo owned app which will have a major impact on revenue going forward. PayPal dropped 10.5% on the earnings release and looks to be a great “buy the dip” opportunity at the present time with the share price back where it was a year ago.

Disney (DIS) is another who has attained Catch Up favourite status over the years and is now back at last year’s prices. The “House of Mouse” dropped 7.5% on Thursday after it missed earnings on both the top and bottom line and also added fewer streaming subscribers than expected. Disney added another 2.1 million users to its Disney Plus service, taking its total to 118.1 million users, while it boasts 179 million across its suite of streaming services including Disney plus, ESPN plus, and Hulu.

Disney is still suffering from delays in film and television production during the pandemic period, which although resumed is still playing catch up and impacting distribution windows. The good news is Disney has a bumper crop of releases coming in the fourth quarter according to CFO Christine McCarthy who stated “Q4 will be the first time in Disney+ history that we plan to release original content throughout the quarter from Disney, Marvel, Star Wars, Pixar, and Nat Geo, all in one quarter. This includes highly anticipated titles such as Ms Marvel and Pinocchio.”

Other earnings misses came from vegetarian meat producer Beyond Meat (BYND) who dropped 13% on Thursday as it reported revenue falling 13.9%, and vaccine maker AstraZeneca (AZN) dropped 6.5% as it beat on revenue but missed on earnings. Recent stock report subject Coupang (CPNG) also fell 7.7% as it missed estimates thanks to rising infrastructure costs and covid related spending. The good news for the Korean online delivery service is that active customers continued to grow, reaching 16.8 million. That makes it the 15th quarter in a row where users have grown by more than 20%. Keep a close eye on this one. It’s likely to skyrocket as soon as its fortunes turn.

In the week ahead, earnings season puts the spotlight on the retailers with many of the big hitters reporting numbers. None more so than Walmart (WMT) who is always a great indicator of the strength of the US consumer. Fellow retailers Target (TGT), Home Depot (HD), Tyson Foods (TSN), Lowes (LOW), Macy’s (M), Footlocker (FL) and Kohl’s (KSS) will also report. Outside of the retailers, we’ll also see numbers from Warner Music (WMG), NetEase (NTES), and Workday (WDAY). We’ll also have the October retail sales coming out on Tuesday.

Have a great week.