winners and losers

Renesola ($SOL) trended 19% lower through the week without any major events, ahead of its earnings release next week. The announcement of new lockdowns in China has weighed on the solar sector.

Daktronics ($DAKT)  plunged 28% after reporting results, despite posting the highest conversion rate since the pandemic. The better topline results were offset by increased costs and concerns over the supply chain since the company's facilities in Shanghai were shut down last quarter.

Genesco ($GCO) crashed 31% following disappointing results, with only one of its brands posting net losses. The cut to annual guidance didn't help investor optimism, either.

looking ahead

Apple ($APPL) will host its annual product launch event on Wednesday, revealing the  highly anticipated iPhone 14 and related products like AirPods.

GitLab ($GTLB) is forecast to report earnings on Tuesday, after falling last week when JPMorgan downgraded its estimation for the company. Sales are expected to be up 8% over the prior quarter to $94.4M, but post an unchanged loss of -$0.23/shr.

GameStop ($GME) is expected to report slightly better earnings compared to the prior quarter, but lower than last year's. At $1.3B, sales are expected to have a minor decline, with a focus on guidance for the rest of the year, and in particular the situation of stocking up ahead of the critical final quarter of sales.

Kroger ($KR) is expected to report earnings of $0.79 on $34.3B in sales, an improvement over the prior year. Oppenheimer most recently upped its forecast, but follows upgrades from Morgan Stanley and Deutschebank, with private equity boosting shares. Analysts cite the company's ability to maintain margins through the inflationary cycle.

market wrap‚Äć

Markets declined notably last week. The Dow Jones Industrial Average fell 3%, the S&P 500 lost 3.3%, and the NASDAQ fell 4.2%. Oil dropped 6.5%, quoting $87.02 for front month contracts.

Markets are still pricing a 75 basis-point (0.75%) rate hike at the September FOMC meeting and a terminal fed funds rate close to 4%, with expectations of Fed rate cuts removed from mid-2023 forecasts. The Fed is committed to raising rates, and keeping them elevated, until inflation comes down in a meaningful way.

Notably, the labor report for August still reflected a relatively resilient labor economy, with the unemployment rate ticking just modestly higher to 3.7%, although this may continue to soften in the months ahead as Fed rate hikes continue. Prior to Powell's speech at Jackson Hole two weeks ago, markets had been pricing Fed rate cuts starting in mid-2023; however, expectations now call for a Fed pause. The dot plot, a highly watched assessment of FOMC participants’ rate expectations, indicates no pivot until 2024.

fed dot plot (blue dots indicate median projection)
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source: cme fedwatch

Markets are now entering the historically volatile months of September and October with a Fed poised to move rates higher and implement quantitative tightening programs. Expect bond yields to also move higher, putting downward pressure on equities.

Midterm elections will be held on November 8th, and history is on the side of markets in midterm years. In the twelve months prior to election day, market performance can be volatile. In the year after midterms, market returns average 15% regardless of which party wins.

Keep in mind that the average bear market lasts about 13 months, and we are nine months into one already. These periods have historically been followed by nearly four year bull markets with average returns of 150%. Investors should look for inflation to moderate much more before entering markets in full force.

Foreign capital is also still flooding into US markets. With rates remaining negative in some countries, dividend-yielding blue-chips and commercial real estate are becoming the preferred vehicle for capital preservation. If you were a foreign millionaire, would you rather buy 2% bonds with 8% inflation, or stock in nearly-invincible companies with 4% dividend yields and growth prospects?

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Posted 
Sep 5, 2022
 in 
Weekend Wrap
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