Firing On All Cylinders | The Daily Peel | 3/7/22

Market Snapshot

Bad day to be a stock on Friday, unless, of course, you happen to be in the energy or utilities sector. They're sitting about as pretty as can be while the rest of the stock market and the world plunge further into chaos. Closing out last week, the Nasdaq lost 1.66%, while the S&P fell 0.79%, and the Dow dropped 0.53%

Let's get into it.

Banana Bits

Macro Monkey Says

Jobs - You wouldn't know it by looking at equity prices, but the U.S. economy continues to fire on all cylinders. In the latest iteration, on Friday, the BLS released February's jobs report. Apes, this one was a doozy.

678,000 workers were added to U.S. nonfarm payrolls last month. As if I even have to say it at this point, economists were very, very wrong in their prediction of 440k. Meanwhile, economists were also way the f*ck off on wage gains, estimating a 0.5% increase against the month's actual print of 0.03%. Better luck next time(?)

So what does this mean? Well, a lot, so let's take a look.

First and foremost, unemployment continues to tick downward, now sitting at 3.8% and rapidly approaching the Holy Grail-level of 3.5% seen immediately pre-pandemic. At the same time, participation in the national labor force added 300k Americans, which isn't exactly a whole lot, but it is a helluva lot higher than what we've been seeing the past few years. 

Still, even with that growth, labor shortages remain persistent. As of now, there stand 1.7 jobs available for every single eligible worker. Now, you would think that shortages in working bodies would drive wage increases, right? Wrong. Overall, wages grew much slower than economists had anticipated, at just 5.1% compared to last year. 

While slowing wage growth isn't ideal on the surface, it could be a sign of slowing inflation. Of course, take that with a truckload of salt as the one thing we've learned in the past two years is that nobody knows anything about anything. Secondly, the report confirms that literally 0 people care about C-19 anymore, hence the reduced fear in returning to the job market.

Despite all that positivity, markets couldn't have cared less. It seems that financial markets and the public at large have grown immune to good news. Sad to say but easy to believe, as we continue to watch gas prices soar and buildings get bombed in eastern Europe. Understandable, but a deep breath is good to take once in a while.

The Week Ahead - We're well past Q4's peak earnings szn, but the fun doesn't have to stop yet. And even if some days are slower this week, I'm sure Putin will keep things interesting.

Today: The treasury mints off fresh 3- and 6-month T-Bills to start the week, along with the latest update in consumer credit changes. Earnings drop for some mid, kinda boring companies like Ciena and Squarespace.

Tuesday: Tuesday's gonna be a lot more fun. Earnings are still coming from some pretty rando companies, like MongoDB, Bumble, and Dick's Sporting Goods. Econ data releases will take center stage, including updates on crude oil stockpiles, balance of trade data, and the small biz optimism index. Look out.

Wednesday: Wednesday marks one week until we're blessed with another concluded FOMC meeting. But until then, we can watch for a bunch of new housing data from MBA. CrowdStrike, Asana, and Oatly will dominate the earnings convo of the day.

Thursday: Get ready for Thursday because, amid war in Ukraine, we're getting updated inflation figures, jobless claims, and natty gas stockpiles (aka everything that's gonna move the sh*t out of markets to close the week). Adding to the fun, JD.com, Rivian, Blink Charging, Oracle, Ulta Beauty, Docusign, and many other big names drop their latest numbers.

Friday: Closing out the week, the University of Michigan releases key data, including consumer sentiment and inflation expectations. Bringing the week home, provided we're all still alive by then, will be earnings from companies like WeWork and Buckle.

Good luck, apes! We'll see you there.

 

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What's Ripe

Occidental Petroleum ($OXY) - 2022 has been a banner year over at Occidental Petroleum. After Friday's 17.5% gain, shares have already nearly doubled YTD.

While the firm is "firing on all cylinders" according to some analysts, this is really a story of the whole energy market. With crude prices sitting above $118, oil has been a generational trade this year. Still, even the best of the best on Wall Street can't agree on what to do with it, hence the headlines you see below.

Newmont ($NEM) - Same story, different commodity. Like the energy gang, precious metal stocks have been ripping as their respective underlying commodity prices shoot through the moon. 

Within that group, gold is up big. At nearly $2,000/oz, no one's been enjoying the rise more than gold producer Newmont, riding up another 5.1% on Friday.

What's Rotten

Airbnb ($ABNB) - If you're looking for a cheap place to stay for your weekend getaway in Moscow or Vladivostok, I'm sorry to say, but Airbnb cannot help you. 

Like a litany of other companies, Airbnb has chosen to suspend all Russian operations due to… y'know… their invasion of Ukraine, leading to its shares dipping 5.9%.

But, on the other side of the scale, users have been loading up on Ukrainian bookings. Not actually to use, but to support hosts in the beleaguered nation. 

See, there's still some good in the world.

Smith & Wesson ($SWBI) - Y'all staying strapped? Actually, I know you're not, and Smith & Wesson hates you for it. Shares in the firearm maker got absolutely rocked on Friday, losing 12.5% after the firm reported pistol-like earnings while Wall Street was expecting an AK-47. 

EPS came in at $0.65/sh on $30.5mn in quarterly sales, both down roughly 50% compared to the same quarter last year. The real headshot, however, was the 31% sequential dip in sales. I guess without lockdowns and empty grocery stores, people feel less of a need for guns. But we'll see if Russia and Vladimir Putin can change that.

Thought Banana

Weekend Recap - Okay, we've barely talked about Russia-Ukraine in this edition, and if you were thinking you'd finally got a break from all the war news, I hate to burst your bubble. 

Long story short, nothing supremely major occurred. The Russian military continued their assault on Ukrainian cities, commencing thus far with Putin calling on Ukraine to fully surrender. The Ukrainian defenses continued to hold up, defending major cities and ports and leaving no room for Russia to pull out a W… yet.

However, crude prices continued to absolutely skyrocket. At the time of writing, Brent contracts are trading for $128/bbl while WTI sits at $123. Both remain at multiyear highs, with much of the recent price jump attributable to the U.S.'s consideration of cutting off all Russian oil and gas imports. 

This would certainly be a bold move, but in order to do so without bankrupting half of the U.S. population, some changes would need to be made ASAP. For starters, despite the U.S. remaining the world's largest exporter of crude, we would need to take one of two major steps to ease the burden at the pump. 1) repeal bans against fracking, or 2) rescind the ban on the Keystone pipeline. 

Neither one is super likely to happen, as this would be little more than a direct alienation of a large swath of key Biden / Democratic voters. And keep in mind those midterms later this year are coming up quick. No one wants to be the guy or gal that says, "yeah, f*ck the environment," but at the same time, no one wants to pay $5/gal of gas.

Wise Investor Says

 

"The shock cycle:
- Assume good news is permanent.
- Oblivious to bad news.
- Ignore bad news.
- Deny bad news.
- Panic at bad news.
- Accept bad news.
- Ignore good news.
- Deny good news.
- Accept good news.
- Assume good news is permanent."
 

- Morgan Housel

 

Happy Investing,

Patrick & The Daily Peel Team

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