Meat Margins Shrink - The world’s biggest meatpackers are signaling an end to record-high profits in the beef market as drought in the US forces ranchers to reduce herd sizes. Pricier meat could push food inflation beyond the record breaking level of 11% year over year.
Coal Profits Soar - Bad energy policy has left Europe unprepared for winter shortfalls and buying record breaking amounts of coal for heat and energy. Profits at Glencore doubled to $10B over last year while thermal coal prices have increased 8x from 2020.
Winners and Losers
Bed Bath & Beyond ($BBBY) leaped ~65% since last week as the meme stock frenzy went back to risk-on. AMTD Digital ($HKD) plunged ~93% in a wake-up call to greedy traders hoping for an easy win, and Nielsen Holdings ($NLSN) soared 20% last week after WindAcre accepted the buyout of a consortium of private investors led by Elliott and Brookfield.
Lowe’s ($LOW) EPS is forecast to rise by 8.7% year-on-year at $4.62, with revenues estimated at $28bn, 2.5% above last year’s quarter. The focus is mostly on guidance as higher interest rates weigh on the housing sector.
BJ’s Warehouse Club ($BJ) is anticipated to report a $4.6bn in revenue growing 10% year-on-year, but with a lower EPS of 78 cents. Markets are likely to focus mostly on membership guidance as inflation has put pressure on subscription models.
Cisco ($CSCO) is expected to report EPS of $0.82 on $12.8bn in sales, below last year's results. The focus is likely going to be on the company's pivot towards subscription software and away from legacy hardware – despite the latter being the source of cash flow.
Markets finished up last week. The Dow Jones Industrial Average climbed by 2.9%, the S&P 500 finished up 3.3%, while the NASDAQ gained 3.1%.
Last CPI and PPI inflation data moved lower. After a huge upside suprise in June, markets welcomed the lower-than-expected CPI headline and core readings at 8.4%. However, inflation remains elevated compared with almost any period in history.
Headline PPI came in at 9.8% year-over-year, versus an expectation of 10.4%, and well below last month's 11.3% reading, benefiting from lower energy prices. Producers generally are also benefiting from relieved supply chain pressure, thanks to better delivery times and (slightly) lower shipping-container rates. But, China's escalations in Taiwan include a planned blockade of key ports and waterways which would worsen shipping conditions again.
Remember that midterm elections are only three months away. A Senate flip from one side to the other could bring more market volatility after the normal summertime lull pushes this rally forward. Historically, markets tend to do well in the six to 12 months after midterm elections, regardless of which party wins or who is in power at the time. And markets generally tend to prefer a "gridlock" outcome (split branches of government by party), as this poses less risk for corporations around the passing of new or restrictive legislation.
The average 12 month return before midterm elections is 0.3%, while the 12 months after return 16.3%.