Dow-abunga | The Daily Peel | 10/18/22

Market Snapshot

Stocks started the week on a tear, continuing their recent trend of wild swings.

The specter of a global recession is as real as ever, but investors are starting to see some value after an awful year. Several earnings reports have been better than expected.

This week we’ll see how Goldman, J&J, Netflix, and Tesla fared in the quarter and their expectations for the balance of the year.

At the close, the Dow jumped 1.87%, the Nasdaq gained 3.43%, and the S&P rose 2.65%.

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Let’s get into it.


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Macro Monkey Says

Hoping For Upside Surprises — The American stock market has taken it on the chin this year, and the global picture for 2023 is gloomy at best.

But with shares of high-quality companies trading at (relatively) bargain levels, earnings surprises to the upside have been popping up all around.

  • The bar is so low for earnings that even slight EPS beats can send shares rocketing higher
  • However, these sharp moves go both ways—a 3% gain one day can be entirely reversed the next
  • For example, Bank of America shares spiked after beating estimates, even though its profit was down in Q3

A key reason behind the earnings pessimism is a sense that rate hikes haven’t fully made their way through the economy yet.

The Fed keeps hiking, but effects from prior hikes aren’t showing up in earnings for certain industries. That could mean big drops next year once sales reflect all of the Fed’s moves.

Sharp volatility will likely become the norm in the near future, which could present opportunities for traders.


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What's Ripe

Roblox ($RBLX) — In September, Roblox showed strong growth across its DAU, engagement hours, and bookings on a YoY basis.

The growth was impressive compared to last year but shrunk compared to August, presumably because kids are back in school.

But investors liked the engagement they saw and the monetization opportunities that could follow.

$RBLX was up 19.86% by the end of the day.

U.K. Pound (GBP/USD) — The Truss administration probably wishes it could redo its first few weeks.

After an awful reaction to its tax cut proposals, newly-installed Treasury chief Jeremy Hunt announced Monday that he’d be doing a U-turn on those policies.

The pound rallied on the prospect of fiscal policy that might actually make some sense.

GBP/USD was up 1.51% by the end of the day.


What's Rotten

Fox Corporation ($FOXA) — Rupert Murdoch’s Fox and News Corp split back in 2013.

Now, the 91-year-old billionaire is looking to recombine them, and investors aren’t too keen on the idea.

But traditional media faces a bleak future, and this could be a hail mary at squeezing out more growth from both assets.

$FOXA ended the day down 9.41%.

Cano Health ($CANO) — CVS is axing its purchase plans for Cano, sending shares through the floor.

The healthcare provider specializing in senior care is growing its top line at a breakneck pace but has struggled to turn a profit.

Unless another buyer swoops in, it’ll have to find a path to profitability on its own.

By the end of the day, $CANO was down 42.53%.


Thought Banana

Generic Cheerios, Anyone? — Big brands in grocery stores rely primarily on marketing to persuade shoppers that they should pay more for their product versus the store’s generic option.

With inflation eating into budgets, those generic options are looking more and more enticing.

  • Private label products have been flying off the shelves as consumers look to save where they can
  • Big brands like Gillette and Campbell’s Soup have been struggling to convince buyers that their products are still worth the premium
  • Huge ad spending from those kinds of companies can persuade consumers but also forces higher-priced products

Procter and Gamble is one company that makes a living selling name-brand consumer products in grocery and convenience stores.

At its shareholder meeting last week, its CEO mentioned that it could maintain an edge by convincing buyers that higher-quality products save them money in the long run versus saving a buck on the generic version.

What consumers decide as they’re perusing the aisles could determine the winners and losers going into the end of the year.


Wise Investor Says

“What entrepreneurs crave in investors is conviction.” — Naval Ravikant



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