Gauge the Beige | The Daily Peel | 9/9/22

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Market Snapshot

The September edition of the Beige Book was released yesterday, reflecting the economic observations of the 12 Fed governors.

They see inflation and softening demand lurking over the economy, but things are generally not awful. Betting markets are putting the odds of a 75 bps hike in September at about 80%.

Stocks ticked up slightly on the news. At the close, the Dow gained 0.61%, the Nasdaq rose 0.60%, and the S&P advanced 0.66%. Bond yields were unchanged.

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Let’s get into it.

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What's Ripe

Gamestop ($GME) — Gamestop reported declining sales, widening losses, increased inventory, and a diminished cash pile in Q2.

In response, its shares rocketed higher.

In the stock market, all you need to do is beat expectations to be rewarded. Despite a tough quarter, $GME did just that.

It also announced a partnership with crypto exchange FTX that complements its new NFT marketplace. Apes rejoice.

$GME closed the day up 7.45%.

Lyft ($LYFT) — After a punishing year so far, $LYFT spiked Thursday on hopes of recovering ride-share demand.

Lyft will always be Uber’s little brother, but bulls think that the market is big enough for both players. Lots of analysts hold overweight ratings on the company, expecting it to reap big gains from a rebound in ridesharing.

After getting hammered since the year began, investors are now seeing value in Lyft.

Shares shot up 16.88% by the end of the day.

What's Rotten

Kraft Heinz ($KHC) — Whether it’s Jello, Heinz ketchup, or Kraft mac & cheese, $KHC probably has a brand under its umbrella that you love.

Investors weren’t showing much love to the company Thursday on fears of a dividend cut driven by inflationary pressures. Its brands are losing market share to cheaper and healthier alternatives, especially owned brands like Whole Foods 365.

Add to these challenges a high debt load resulting from its Heinz acquisition, and you have a tough outlook ahead.

$KHC finished the session down 3.38%.

Wayfair ($W) — Gotta love the OGs with a single letter as their ticker.

Remember when people just made up that Wayfair was helping traffic children through its products? Wild story.

Anyway, $W sank Thursday on concerns about its plan to issue new debt.

Just a few weeks ago, in its Q2 earnings, it reported that 5% of its employees would be laid off, which tanked the stock. Inflation is the main culprit.

This seems normal nowadays, but it’s worth just a quarter of what it was when the year started. Ouch.

$W ended the day down 3.73%.

Thought Banana

Grading the Teacher Shortage — With just about every school in session across the country at this point, parents and administrators are scrambling to address a shortage of teachers.

Hard to say I’m surprised by this, as just about every occupation and type of good has been tough to find over the past few years.

But while some shortages have an easy explanation (Sriracha is in short supply due to droughts hampering chili production), this one is a bit more complicated.

For starters, lots of districts have plenty of teachers. And some districts have plenty of teachers in a few schools but far too few in others.

So what’s going on?

In general, substitute teachers are the biggest hole to fill, followed by special ed, math, and science teachers.

The easy explanation is that, in an airtight labor market, teachers can hop to higher-paying jobs that may not have been available before, reducing the total pool of teachers.

But the easy answer may be too simplistic.

Math and science have been increasingly emphasized as important skills students ought to have, and more classes in these subjects have been added as a result. The same is true for special ed classes—more students are qualifying for these classes every year.

Combine these trends with a preference for smaller class sizes, and you get a much higher demand for teachers in these areas.

The teaching labor market isn’t the same as other professions because it’s mainly run by states and cities.

So while a private company could quickly increase the pay for in-demand positions, states have to jump through many more hoops, usually including drawn-out negotiations with teachers’ unions.

So is there a “catastrophic teacher shortage?” That’s probably going too far, as trends that started way before C19 have been building to this point.

Probably makes more sense to say that ‘vid exacerbated concerning trends in teaching. With less than half of teachers in 2022 saying the challenges of the job are worth it, compared to 75% in 2016, it’s clear that faculty have had it.

Makes me wonder if we need a wholesale reimagining of our education system, starting with elementary school all the way through college. If our current system can’t find enough teachers and leaves college grads with debt up to their ears, what are we even doing?

Wise Investor Says