🔥 Booming!

Roll Your Clock Backwards… Daylight Savings Time Change Sunday

Weekly Summary:

It was nothing short of a booming 🔥 week for the stock market, the S&P up 2% (4,697.53), Dow up 1.42% (36,327.95), and the Nasdaq up a whopping 3% (15,971.59). For those who are keeping count, that’s seven consecutive days in the green for the S&P and the 64th close at an all-time high.

Yet who would’ve thought that the first week of November would end up being so strong? Especially after last week where some of the heaviest companies on wall street’s indexes reported sour earnings (that’s Apple and Amazon) directly as a result of supply chain and labor problems we’ve exhausted our jaws talking about.

There’s a reason for this though. The rally we’ve seen in the stock market all year isn’t being led by mega-companies such as Apple (up only 13.85% YTD) or Amazon (up only 8% YTD). So their earnings miss, while being informative, wasn’t about to take the heat out of the market. Instead, the rally is rather evenly distributed across many public companies making it a bit more robust.

So why the boom this week??… Clarity and ease.

This week was all about elections and the Fed.

Most of this week’s rally came during the second half of the week after Republicans handed Democrats major defeats or near defeats in states Joe Biden won handily.

So, markets rallied because Republicans won?

NO, markets rallied because the interpretation is that this will cause gridlock in Washington and the market loves gridlock. Why? Because gridlock means nothing changes and political risk goes down. The same would likely happen if wins were the other way.

Adding clarity into the mix, Wednesday Fed chair J. Powell announced plans to reduce the stimulus the Fed has been pumping out to keep interest rates low. The big win here was the timeline since interest rate hikes wouldn’t take place until the stimulus is over and the stimulus is now set to end next summer…meaning it’s unlikely we’ll have many if any interest rate hikes next year which is 👍 for stock prices.

The Major Headlines:

🛬 Grounded… American Airlines Cancels 1,900+ Flights

Who knew wind could cause big logistics problems?? Last weekend American Airlines had to cancel some 1,900 flights representing 20% of its total flights. The culprit, wind gusts at American’s main hub Dallas-Fort Worth.

The airline’s CEO said wind gusts slowed arrivals to the hub which snowballed into not having pilots and flight attendants in the right spots for other flights -likely exacerbated by thin staffs as a result of COVID.

A closer look: American Airlines is the 3rd airline this fall to cancel a significant number of flights as a result of issues being compounded by staff shortages, Southwest and Spirit being the others.

🥤 Paying Big Bucks, Coke Pays What for BodyArmor?

Name your favorite… Gatorade, Powerade, or BodyArmor? This week Coke announced it would buy the remaining 70% ownership stake in BodyArmor for…wait for it… $5.6 billion. That’s a lot of dough for a sports drink but the sports drink industry is big business with roughly $8.4 billion spent on sports drinks last year.

The move: If you can’t beat them, buy someone who can! It’s no secret Coke’s Powerade has struggled to compete with Pepsi’s Gatorade who owns 63% of the sports drink market. BodyArmor on the other hand hasn’t struggled, the startup has grown to 18% market share against bigger better-funded rivals.

🎖 Veteran-Focused Black Rife Coffee Going Public Via SPAC

Expensive coffee, aesthetics, and a cause… formula for a coffee shop? Maybe. One thing is for certain though, it’s the intangibles that make a coffee brand.

For Black Rifle Coffee (BRC), this equates to a focus on veterans, the veteran community, and sleek firearm-themed branding. All in all, these intangibles have led BRC to $160 million in annual sales and lured the interest of special purpose acquisition company (SPAC) SilverBox Engaged Merger Corp valuing the company at $1.7 billion. It’s not clear yet when the merger will be complete.

-Joe Rogan, Black Rifle Coffee Interview

💵 Fed to Slow Money Printing Spree

Okay, okay…we will print a bit less funny money now.

Why are they doing this?

Wednesday, the Federal Reserve announced that it would begin reducing asset purchases by $15 billion/month beginning later in November. Currently, the Fed is printing $120 billion/month to purchase Treasurys (government debt) and mortgage-backed securities (think home loans).

When COVID-19 hit, the Fed began this program to keep borrowing costs low so that consumers, businesses, and the government would have easier access to money. The idea was, with easy access to money people and businesses could continue to spend and keep the economy afloat.

Well, spend they did which helped the super-fast recovery of the US economy but this also brought in a new problem… inflation.

Currently, inflation is 4.4% the highest it’s been in 30 years, and showing no signs of slowing down. That’s bad news for anyone who likes buying things.

Concerned that inflation could become persistent instead of “transitory”, the central bank is rolling back the support its been giving to the low-interest-rate environment.

🏛 Holy Virginia…Republican Wins Governor’s Race

It was a big week in local and state politics that no doubt left democrats a bit worried about the 2022 midterms. Here are some of the results:

• In Virginia, a state easily won by Joe Biden in 2020, incumbent Democrat governor Terry McAuliffe lost to the republican challenger Glenn Youngkin.
• New Jersey, also a state easily won by Biden in 2020, Democrat governor Phil Murphy found himself in a too-close-to-call situation with republican challenger Jack Ciattarelli. Eventually, Phil Murphy was declared the winner.
• Minneapolis: voters rejected any idea of reducing the number of police by double-digit margins. As it stands according to the city charter, the city must maintain a minimum number of police officers tied to the population.

Why does this matter? Election results this week provided a hard gauge of where voters are at going into next year’s midterm elections, and with it, the future of President Biden’s agenda.

Other Tidbits:

The New Meme Stock…Avis Budget Group –See Article

Chegg Earnings… Ouch –See Article

Name a Worse Dream…Stranded in Disneyland –See Article

A Few Earnings From This Week

Square

Earnings in line $.37 vs $.37 est

Biggest revenue source is bitcoin, saw a slowdown in bitcoin revenue as bitcoin volatility was lower. Gross payment volume was up 43% but decreased use in debit cards and average transaction size (more, smaller payments).

Expects Cash App growth to flatten and expanded Cash App access to teens between 13 and 17 an area Square believes will become more prevalent as cash transactions become less relevant. Also, big focus on developing new open development financial platforms focused on bitcoin.

Mosaic

Earnings Miss $1.35 vs $1.48 est

-Down 5% on the week

Earnings miss sure but it’s been a good year to be a fertilizer company… EBITDA best in a decade. Mosaic reports Q3 Potash fob price $290/tonne vs Q3 2020 $170/tonne representing a gross margin increase of 273%. MAP Q3 Brazil delivered $622/tonne vs Q3 2020 $366/tonne gross margin increase of 202%. DAP Q3 fob $605/tonne vs Q3 2020 $307/tonne with huge gross margin increase from $11/tonne to $198/tonne.

Raised regular dividend by 50%.

Uber

Earnings Miss $-1.28 vs $-.33 est

-Down 7% on the week

We finally made money…at least when we make adjustments.

Uber’s first-ever adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) profit comes in at a whopping $8 million which is far better than the $507 million loss it booked in Q2. Yet factoring in the “ITDA” of EBITDA its net earnings were a loss of $2.4 billion of which $2 billion came from revaluing Uber’s investment in China’s ridesharing business Didi.

Bright spot: ridesharing is up 67% YoY, delivery is up 50% YoY with consumers continuing to use delivery even after restrictions are lifted.

Zillow

Earnings Miss $-.95 vs $.16 est

-Up 8% on the week

Zestimate’s are crap…well, essentially. That’s the point Zillow CEO Rich Barton got to in the earnings call this week where he announced the company will shut down its iBuying division and lay off 25% of its workforce. “We’ve been unable to accurately forecast future home prices.. by much more than we modeled as possible”

Lost $422 million on iBuying in Q3, bought 9,680 homes sold 3,032, expects impairments of $240+ million in Q4. Internet, Media, and Technology business revenue grew 16% to $480 million w/ gross profits of $130 million.

Peloton

Earnings Miss $-1.25 vs $-1.07 est

-Down 31% on the week

Gym pics proved a serious problem… how else are you supposed to show people you work out??

Revenue growth was only 6% this quarter vs 250% last year. Sales of its bikes and treads fell 17% and gross margin came in at 12% vs 39.4% YoY due to massively increased spending on marketing along with price cuts on its bike.

Projected revenue is cut by $1 billion

The bright spot: connected fitness users are growing, up 87% YoY to 2.49 million with the expectation of 2.8+ million next quarter.

-Down 37% on the week

With that, have a great weekend!

Originally published at https://speckandcompany.com on November 6, 2021.