Dead Cat Bounce | The Daily Peel | 10/17/22

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Market Snapshot

Friday’s follow-through rally proved to be short-lived as markets reversed aggressively after the open

While investors initially seemed to take solace in a clearer Fed rate path, that was quickly diminished as key economic data soured sentiment.

The University of Michigan inflation report showed 1-year inflation expectations of 5.1%, outpacing the 4.7% surveyed last month. Additionally, Retail Sales disappointed to the downside as consumers bear the brunt of higher costs.

All of this led to a drop in the S&P of 2.73%, while the Nasdaq fell 3.08%, and the Dow declined 1.34%.

Weekly declines for the S&P totaled 1.52%. The NASDAQ fell 3.3% for the week, while the Dow gained 1.15%. 10-year Treasury yields surged above 4% for the first time since October 2008.

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Let’s get into it.

Monkey Meme of the day

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There’s a Lot Going On

What's Ripe

Nutanix ($NTNX) — Nutanix rose sharply on Friday after a report was released that it is exploring a sale after receiving interest from a range of strategic buyers and private equity firms.

Analysts across the street estimate that the cloud solutions company could fetch a premium of 30-40%, which is a standard acquisition premium for software companies.

$NTNX ended Friday up 24.59%.

Delta Airlines ($DAL) — In a positive update for the airline industry, Delta kicked off earnings season with soaring quarterly results.

Despite widespread fears concerning rising fuel prices and hiring challenges in the industry, Delta’s revenue jumped significantly above its 2019 comparison, and the company expects revenue to be up 5-9% for the year. The bright spot was international travel revenue, which rebounded 97% compared to 2019.

$DAL stock rose 2.4% on the day

What's Rotten

Tesla ($TSLA) — Tesla’s stock took a hit on Friday as the company’s issues continued to pile up.

• Vehicle deliveries disappointed in Q3 due to logistical issues facing automakers this year
• Analysts fear that as the company raises costs to fight inflation, it will dampen demand
• Tesla still faces disruptions at its Shanghai Factory due to C-19 lockdowns in the region

$TLSA was down 7.53% on Friday and is down 50% from its high reached in November.

Apple ($AAPL) — As Apple readies itself for a new product launch, the Company is losing ground against the labor movement.

Retail workers at a store in Oklahoma City voted to unionize, the second Apple store to do so, raising the prospects of further gains in different cities.

In response, Apple said that it supports an “open, direct and collaborative relationship” with workers.

By the end of the day, $AAPL was down 3.21%.

Thought Banana

Consolidating Power — After ongoing talks lasting months between two of the biggest grocery chains, Kroger officially announced that it will acquire Albertson’s for $24B in an all-cash deal. The regulators should have a field day with this one.

U.S. antitrust regulators like the Federal Trade Commission aim to protect the public from unfair business practices and anti-competitive mergers. This, in practice, means they wait for a deal to be announced and then come up with every reason under the sun to block the deal.

Kroger says that the merger will provide them with scale, improving their supply chain and leading to lower prices for consumers. That is their pitch to regulators.

As we have all witnessed during the pandemic, supply chain woes have hit the grocery industry pretty hard, with items sometimes out of stock. A more reliable supply chain combined with lower prices would definitely be a win for consumers.

On the flip side, grocery unions in 4 states and several politicians have been vocal about their opposition to the deal. The primary reason? Currently, over 60% of the grocery industry is controlled by just 6 companies. Some people worry that if the deal were to go through, it would further consolidate power into fewer hands, creating a monopoly.

Kroger CEO assuaged investors’ fears, stating that he is confident that both sides will be able to reach an agreement. Kroger also plans to address FTC concerns by selling off over 500 companies, which would reduce their overall market share.

Analysts forecast that if the deal obtains regulatory approval, it could potentially close in 2024. Otherwise, Kroger faces a $600mn termination fee.

It will be interesting to watch how this story unfolds.

Wise Investor Says