Yanking Up Yields | The Daily Peel | 9/21/22

Market Snapshot

Markets were in a sour mood going into the Fed’s September soirée.

The two-year is yielding a hair below 4%, which has put even more pressure on stocks.

It’s time now to wait and see what rates we get by EOD Wednesday. All ears will be tuned to JPow’s comments on global economic weakening.

At the close, the Dow dropped 1.01%, the Nasdaq sank 0.95%, and the S&P dipped 1.13%.

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Let’s get into it.

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What's Ripe

Lyft ($LYFT) — Rumors have been circulating about a possible acquisition of the #2 rideshare company in the U.S. Lyft popped Tuesday on the possibility.

Ridesharing continues to be an awful business that regularly loses money, but the race to market domination has continued, nonetheless.

Uber owns three-quarters of the market, so the path to sustained profitability for Lyft is unclear at best.

Both of them see driverless ridesharing as the golden goose that’ll unlock profits, but that’s a ways away. In the meantime, getting absorbed by a bigger player wouldn’t be the worst idea.

$LYFT finished the day up 3.88%.

Wynn Resorts ($WYNN) — Big news for gaming companies this week: Hong Kong looks to be on the verge of loosening quarantine restrictions that have dented tourism dollars.

Whales that come in for a few days and gamble huge stacks of cash are casinos’ bread and butter, which is why lengthy quarantine requirements have hurt the industry so badly.

Nearby Macau is essentially the Vegas of China, which stands to rake in huge gaming revenues from the reopening.

$WYNN ended the session up 2.90%.

What's Rotten

Ford ($F) — The big F delivered a FedEx-style sh*t sandwich this week.

It doesn’t even report earnings until the end of October, but it didn’t want to wait to give investors the bad news.

The head-scratcher comes from the reaffirmed full-year profit guidance—despite expecting half of the consensus $3bn in profit for Q3, it still thinks it can hit Wall Street’s FY number.

I guess we’ll see, but investors were calling Ford’s bluff Tuesday.

$F closed the day down 12.32%.

Chewy ($CHWY) — Chewy was battered after its earnings release a month ago showed a sharp slowdown in sales growth.

It’s had to raise prices to keep up with inflation, but pet owners are turning their nose at the increases.

It wasn’t all bad news, though. It managed to eke out a profit despite Wall Street expectations of a loss in the quarter and even expanded margins.

Pets may be part of the family, but when there’s belt-tightening during a recession, the pup loses out.

By the end of the day, $CHWY was down 8.71%.

Thought Banana

SPACtacular Collapse — With Chamath’s shutdown of his latest two SPAC funds this week, the 2nd era of SPAC mania looks to be over.

This wasn’t the first time these things suddenly got popular, then quickly collapsed. To be fair, once we had Shaq SPAC, we should’ve seen the bubble ready to burst.

Back in the ‘80s, they were called ‘blank check corporations.’ They quickly got a bad reputation for shaky visibility into the companies they were planning to buy and fell out of fashion in the ‘90s.

Then the IPO mania started. Everyone had a dot-com ready to hit the public markets, and Wall Street was more than happy to facilitate the transactions and rack up fees in the process.

Like fashion, these mechanisms go in and out of style on the Street. In 2020, when free money was raining from the sky, it made sense to raise a bunch of cash and figure out where to invest it later.

But most SPACs that swallowed companies in the last few years have performed terribly, along with the broader market. To make it worse, Nikola, which was once a SPAC darling, has been accused of fraud, bringing to light the transparency issues with this kind of public offering.

We’ll see if they come back in some future iteration, but SPACs will probably stay on ice until this market cycle has run its course.

At the same time, count me in for Shaq SPAC 3.0.

Wise Investor Says