Tension in the Tetons | The Daily Peel | 8/30/22

Market Snapshot

Markets melted down after processing JPow’s hawkish comments at Jackson Hole. His punchline? Expect short-term pain as the price of long-term price stability.

The question is, how much of that pain are people willing to deal with to bring inflation down?

Crude ticked up to nearly $97, and BTC is teetering on the $20k mark. Bond yields continued their upward march as stocks sank.

At the close, the Dow was down 0.57%, the S&P dropped 0.67%, and the Nasdaq sunk 1.02%.

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Let’s get into it.

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What's Ripe

Energy stocks ($XLE) — This sector ETF rallied as Crude prices rose Monday and on news that OPEC is increasingly indicating production cuts to keep prices high.

If Daddy JPow leaves the Tetons expecting to initiate a recession in an attempt to tame inflation, oil demand could dip. Producers are trying to get ahead of that curve.

Smaller energy players saw the biggest gains, but the big boys, including Chevron and Shell, were in the green as well.

$XLE finished the day up 1.51%.

Bath & Body Works ($BBWI) — Even if you’ve never bought anything from this retailer, you’ve definitely smelled the perfume clouds that pour out of its mall locations. Hard for me to stay in one of these stores for more than 5 minutes without coughing, but people like their stuff.

$BBWI has been hammered in 2022 due to the usual excuses CEOs cite in earnings calls–inflation, labor shortage, supply chain mess, yada yada. As a result, it’s down 46% YTD.

The bump it experienced on Monday was likely due to a “not as bad as it could’ve been” attitude. It beat Q2 sales and EPS estimates, although it had revised them down earlier this summer.

A retailer mainly reliant on mall traffic has a million headwinds in front of it, but investors are holding onto a glimmer of hope. $BBWI closed Monday up 2.17%.

What's Rotten

Domino’s Pizza ($DPZ) — After an epic rise last year, Domino’s has lost nearly a third of its value so far in 2022. Turns out $8 for a three-topping pie doesn’t crank out the same level of profit when inflation is rampant.

Bill Ackman just dumped his entire position in the pizza chain last week, citing a too-high valuation. I don’t see a need to panic, though. Domino’s has thrived despite the entire consumer food delivery model changing in the last decade or so.

As long as I can get a large sausage and pep for under 10 bucks, they’ll keep me as a customer.

$DPZ closed the day down 3.02%

Nvidia ($NVDA) — The world doesn’t have enough chips. $NVDA makes chips. How the f*ck has this stock gotten halved YTD?

Gaming chips are NVIDIA’s bread and butter, and since everyone already bought a new PS5 during lockdown, demand in that sector is sluggish.

It’s been particularly hammered in the last few weeks. In its Q2 earnings call, it told investors exactly what they didn’t want to hear: EPS missed, and guidance was revised down for the balance of the year. Womp womp.

This name has been a favorite among you apes, so we’ll see how it goes in Q3. $NVDA finished down 2.82%.

Thought Banana

Energy Security vs. Climate Change — For the last decade or so, Europe has been a leader in signaling the urgency of climate change mitigation to the world. The US has been a flake in climate agreements, the Middle East wants to sell every drop of oil it can, and China is much more concerned about pulling people out of poverty.

Net zero policies and renewable investments are absolutely necessary to avert a climate disaster, but if it makes your region energy insecure, you’ve got another problem on your hands. Those solar panels won’t do you much good when it’s snowing sideways in Berlin.

But wait, what about nuclear power? Can’t they just fire up the nukes when the sun is down and the wind is still?

Nope, Germany turned their back on nuclear after Fukushima in 2011. Since then, they’ve relied mostly on a blend of wind, coal, and nat gas to power their grid.

Renewable proponents have long talked about the benefits of shunning suspicious oil producers in the Middle East and Russia. The fracking boom brought the US closer to that reality, but Europe didn’t capitalize in the same way. Now, it’s come full circle, and the EU (especially Germany) is at the mercy of the Kremlin.

The energy vulnerability Europe now faces begs the question—would emissions have been lower if Europe hadn’t turned its back on oil and gas production in the last decade? If that were the case, maybe Gazprom wouldn’t be dumping CO2 into the sky just to spite their neighbors.

Even Elon, who obviously has an interest in hastening an electric transition, says oil and gas use needs to increase as a stopgap before a renewable-powered future. The amount of pain Europe experiences this winter will likely determine how the world is powered in the next decade or so until renewables can fully shoulder the load.

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