Podcast Summary
US Economy Adds 263,000 Jobs in September, Unemployment Rate Falls to 3.5%: The US economy added jobs in September, unemployment rate dropped, labor market remains strong, and the Fed may continue increasing interest rates due to these signs of economic health. Improve communication skills with the Think Fast, Talk Smart podcast.
The US economy added 263,000 jobs in September, despite being the lowest monthly number this year, the unemployment rate fell to 3.5%, and the labor market remains strong with high demand and wage growth. This report provides the Federal Reserve with more ammunition to continue increasing interest rates, as the labor market shows no signs of slowing down significantly. Additionally, the Think Fast, Talk Smart podcast, which is the Webby award-winning best business podcast, can help individuals improve their communication skills, an essential aspect of business and life. Whether it's managing speaking anxiety or harnessing nervous energy, listeners can learn from experts like neuroscientist Andrew Huberman, speechwriter Dan Pink, and psychologist Kelly McGonigal. So, whether you're focusing on your career or investing in the stock market, remember the importance of strong communication skills and the value of staying informed about the economy.
Industries facing unique challenges despite economic growth: Some industries like semiconductors face revenue shortfalls and supply chain issues, while others like consumer goods face pricing pressures. Investors should stay informed about these industry-specific challenges.
The employment market is showing signs of continued growth with industries like leisure and hospitality and healthcare returning to pre-pandemic levels. However, the semiconductor industry, specifically companies like AMD and NVIDIA, are facing headwinds and experiencing revenue shortfalls due to weaker demand and supply chain challenges. These companies, which are heavily tied to the PC market, are expected to face these challenges for the next several quarters. On the other hand, companies in the consumer goods sector, like McCormick, are experiencing pricing pressures but are confident in their ability to offset inflation and continue to grow, despite anticipating a tough year for sales and earnings. Overall, the economy is showing signs of resilience, but certain industries are facing unique challenges that investors need to be aware of.
Constellation Brands' Earnings and Cost Initiatives, McCormick's Stable Business, and Cannabis Industry's Potential: Constellation Brands aims to cut costs by $100M, reports Q2 loss in cannabis business, but remains optimistic about industry's future. McCormick offers a stable business with high dividend growth. Apple may consider a new production home, and a retailer could surprise during the holiday season.
Constellation Brands' earnings are expected to be between $2.64 and $2.69 for the year, a decrease from 2021 due to cost initiatives. The company aims to eliminate $100 million in costs by 2023. McCormick, with a market cap of $20 billion, has a stable business with a 2% yield, mid-20 price-earnings ratio, and a dividend growth rate of over 9% in the last 5 years. Constellation Brands reported a loss in Q2 due to underperformance in its Canopy Growth cannabis business. The cannabis industry requires a long-term perspective, and Constellation estimates the market to be worth $25 billion by the end of 2021, with potential for significant growth as more states legalize cannabis. Despite the challenges, Constellation's diversification in beer, spirits, and wine positions it well for future opportunities. The beer business grew sales by 15% and operating income by 25%, while wine and spirits maintained revenue but faced cost challenges. The Canopy Growth side of the business may face potential changes as the legal landscape evolves, and Constellation may choose to hang on to its position and grow slowly. Apple is reportedly looking for a new production home, and a surprising retailer may have an advantage during the holiday season. Stay tuned for more on Motley Fool Money.
Peloton's CEO Taking Drastic Measures to Improve Financial Situation: Peloton's CEO Barry McCarthy implementing workforce cuts, store closures, and potential sale of pre-core business to improve financial situation. Market cap $3B, operating loss $1.5B. Holiday season favorable, investors watching for strategic alternatives in Jan.
Peloton's CEO Barry McCarthy is implementing drastic measures to right-size the company's retail footprint and employee base in response to a slowing business. This includes another round of workforce cuts and the closure of several stores. With a market cap of $3 billion and an operating loss of over $1.5 billion in the last 12 months, McCarthy was hired to make tough decisions and improve Peloton's financial situation. The next potential move could be the sale of Peloton's pre-core business. On a positive note, the calendar looks favorable for Peloton with the upcoming holiday season and consumers' focus on health and fitness. However, come January, investors will be closely watching for any signs of strategic alternatives for the company. Additionally, Apple's reported plans to diversify its supply chain by producing AirPods and Beats headphones in India could potentially lower the risk of disruptions for tech companies.
Apple's investment in India's manufacturing and Macy's data-driven inventory management: Apple is expanding manufacturing in India for long-term supply chain reliability, while Macy's uses data analytics to effectively manage inventory and maintain sales
Apple is significantly increasing its manufacturing output in India, with exports projected to reach $2.5 billion this year. This shift is not just about cost savings, but rather ensuring a more reliable supply chain. India's incentives for manufacturing are attracting not just Apple, but other companies as well. Meanwhile, Macy's is leveraging data analytics to effectively manage inventory, which has helped them maintain sales despite industry challenges. These companies are adapting to the complexities of the global market in unique ways. Apple's expansion in India is a long-term investment, while Macy's data-driven approach to inventory management is enabling them to navigate current retail challenges. These examples demonstrate the importance of agility and innovation in the face of supply chain disruptions and evolving market conditions.
Fed's Necessary Response to Inflation: Rate Hikes: The Fed's rate hikes aim to combat inflation and reduce frivolous spending, making borrowing more expensive for non-essentials. Some deep value stocks, like Macy's, may still be worth considering despite market declines.
The Federal Reserve's repeated interest rate hikes throughout 2022 were a necessary response to combat inflation and reduce frivolous spending. The Fed has limited tools to influence the economy, and after stopping bond purchases and raising interest rates, they have few options left. These rate hikes have made borrowing more expensive for discretionary items, slowing down spending on non-essentials. However, the full impact of these rate hikes may not be felt yet, as it can take time for the policy to work through the system. Despite the S&P 500 and Nasdaq's significant year-to-date declines, some deep value plays, like Macy's, with a strong yield, cash generation, and a low price-to-earnings ratio, might be worth considering in the tough buying environment.
Market Sentiment and Fear Index: Despite high pessimism, market sentiment isn't as dire as past crises suggest. Fed's actions may cause further rate hikes, but market reactions are unpredictable. Stay cautious, not fearful.
The current market sentiment, as expressed by the VIX "fear index," is not as pessimistic as it was during past financial crises, despite feelings to the contrary. The Federal Reserve's actions in response to criticism and market conditions may lead to further rate hikes. The upcoming earning season is expected to bring negative news, but market reactions are unpredictable, and past crises provide important context. Despite widespread pessimism, the market may not be as dire as it seems, and investors should remain cautious but not overly fearful. The speaker emphasizes that market reactions are often driven by news and investor emotions, and nothing may be fully "baked in" to the market.
Earnings Season Brings Uncertainty for International Companies: International companies face challenges from strong US dollar and potential currency exchange issues during earnings season. Small caps, US-focused businesses, and oversold sectors may outperform.
The upcoming earnings season is expected to bring bad news for companies with significant international exposure due to the strong US dollar and potential currency exchange rate issues. This could lead to increased market pessimism and selling. However, businesses primarily focused on the US market may surprise to the upside, and small caps could outperform larger multinational companies as investors seek alternatives to reduce exposure to the dollar. The small cap sector is currently oversold compared to the broader markets, indicating potential for a resurgence. Large retailers, including Amazon, UPS, Target, and Walmart, have started announcing seasonal hiring numbers, providing some insight into holiday retail expectations. Consumer sentiment surveys indicate concerns about inflation and reduced spending, but large retailers with inventory to clear may offer significant sales to counteract this trend. As a consumer, I am also looking forward to finding these potential sales.
Retailers face inventory glut and lighter hiring due to credit crunch: Retailers face inventory surplus and reduced demand, leading to lighter hiring and profits or revenues. DraftKings may benefit from an exclusive ESPN partnership worth up to $1 billion.
The easy access to credit that consumers have enjoyed in recent years is drying up, leading to a potential inventory glut and lighter hiring numbers in the retail sector. Nike, for instance, has mentioned an inventory surplus, and retailers like Target are planning to hire fewer workers and bring in fewer goods in anticipation of reduced demand. This trend could result in lighter profits or revenues for retailers, but it may be a more preferable outcome compared to being stuck with excess inventory. Additionally, DraftKings is reportedly close to signing an exclusive partnership with ESPN, which could be worth up to $1 billion and include ESPN broadcasts being integrated with betting odds. While the terms of the deal are unknown, it seems that DraftKings would benefit more from this partnership than ESPN.
ESPN's new focus on direct-to-consumer services and sports betting: ESPN aims to capitalize on the growing popularity of sports betting through partnerships, while also maintaining its 22.8 million paid ESPN Plus subscribers.
ESPN is shifting its long-term strategy towards direct-to-consumer services, with a focus on sports betting, particularly in the mobile sector. This strategy makes sense given ESPN's vast data and content engine, as well as the growing popularity of sports betting. For instance, DraftKings has seen significant growth, with 1.5 million users compared to 1.1 million last year, and ESPN Plus ending the quarter with 22.8 million paid subscribers. ESPN could potentially benefit from this trend by forming partnerships, but not necessarily becoming the bookmaker themselves due to the added risk. Meanwhile, in the stock market, Dreamfinder Homes, a small cap homebuilder, is worth watching despite the risks involved in the homebuilding industry, such as recessions, rising interest rates, and access to land. Another strong performer, Alphabet (Google), is also worth considering for its diverse business offerings, including search, maps, entertainment, and YouTube, as well as its potential future profits from its cloud services business.
Investing in Alphabet's future growth areas: Despite market pessimism, Alphabet is investing in cloud computing, digital advertising, and potentially the metaverse, while maintaining a strong core business in search, making it an attractive long-term investment opportunity
Alphabet Inc. (GOOGL), the parent company of Google, is making significant investments in future growth areas, despite current market pessimism. These investments include areas like cloud computing, digital advertising, and potentially the metaverse, although the latter is seen as less certain. However, the speakers believe that Alphabet's core business in search remains strong and valuable, deserving of a premium multiple. They suggest taking advantage of near-term market pessimism and considering a long-term investment in Alphabet. The metaverse may be uncertain, but search is "forever," according to the speakers. In summary, Alphabet's diverse business portfolio, including its core search engine and future growth initiatives, makes it an attractive investment opportunity for those with a long-term perspective.
