Podcast Summary
US Economy Adds Strong Jobs in October, Fed Raises Rates: The US economy added more jobs than expected in October, triggering a 0.75% interest rate hike by the Fed. While other economic indicators are showing signs of a slowdown, the Fed isn't ready to pause rate hikes yet.
The US economy added 261,000 jobs in October, and the Federal Reserve responded by raising interest rates by 0.75% to a target of 3.75-4%. The Fed wants to see a slowdown in the economy, and while the jobs report was stronger than expected, other indicators like wage growth and job openings are starting to trend in the desired direction. However, Fed Chair Jay Powell indicated that it's premature to consider pausing rate hikes, which caused the markets to react negatively. Meanwhile, communication skills are essential in business and life, and the Think Fast, Talk Smart podcast offers valuable insights from experts on honing these skills. Whether you're working on your elevator pitch or preparing for an important meeting, strong communication skills can make a significant difference. So, listen to Think Fast, Talk Smart every Tuesday for practical tips and advice.
Fed Raises Interest Rates, Block Reports Strong Earnings: The Fed increased interest rates to 4.755%, impacting borrowing costs and potentially bringing the Fed closer to its desired terminal rate. Block reported better-than-expected earnings, with revenue up 17% and Cash App generating significant gross profit. The Fed's decision and company earnings continue to shape the financial landscape.
The Federal Reserve's interest rate has significantly increased to 4.755%, a marked jump from 0.4% a year ago. This increase will impact borrowing costs and potentially bring the Fed closer to its desired terminal rate. The market's reaction to the Fed's decision isn't solely based on the announcement but also on Chairman Powell's press conference and subsequent guidance. In the business world, Block (formerly Square) reported better-than-expected 3rd quarter results, with total net revenue up 17% to $4.52 billion. The company's evolution from a simple card reader to a diversified financial services business, including Cash App and the Square ecosystem, has eased friction in money transactions. The Cash App generated $774 million in gross profit, up 51% from a year ago, with 49 million transacting actives in September. The Afterpay acquisition remains a question mark for Block, with concerns about the high price paid and the balance sheet's increased goodwill. PayPal had a different quarter, with mixed results in the Buy Now, Pay Later (BNPL) space. Overall, the Fed's rate hikes and company earnings reports continue to shape the financial landscape.
PayPal and Etsy's Q3 Results: Resilience Amidst Economic Uncertainty: PayPal beat earnings expectations with revenue up 11%, payment volume up 9%, and active accounts increasing by 4%. Etsy reported a 0.7% increase in consolidated gross merchandise sales and an improving take rate, but a $1 billion impairment charge overshadowed the net loss. Both companies showed resilience in a challenging earnings season.
Despite PayPal's third quarter profits and revenue surpassing expectations, the company's lowered guidance led to a significant drop in share price. However, the quarter showed positive signs with revenue up almost 11%, payment volume up 9%, and active accounts increasing by 4%. PayPal's non-transactional expenses were managed well, and innovations like Venmo's integration with Amazon and Apple are expected to bring growth in the coming years. Etsy also reported a respectable Q3 performance, with consolidated gross merchandise sales up 0.7% and take rate improving. However, a massive impairment charge of $1 billion related to recent acquisitions overshadowed the net loss. Companies like PayPal and Etsy, with significant goodwill on their balance sheets, are susceptible to impairment charges during economic uncertainty. Overall, both companies showed resilience in a challenging earnings season and may present attractive investment opportunities.
Strong Q4 Performance for Starbucks with Focus on Personalization and Rewards: Starbucks reported strong Q4 profits, US same-store sales growth, and increased mobile ordering and delivery sales. Despite pressure from reopening headwinds, the company's focus on personalization and rewarding responsive sellers paid off, contributing to a 10% increase in share price.
Starbucks reported strong profits and higher revenue in the fourth quarter, leading to a nearly 10% increase in share price. The company's focus on personalization and rewarding responsive sellers is paying off, despite pressure from reopening headwinds in the home and living, and craft supplies categories. Same-store sales growth in the US was particularly strong, with a 10% increase in average ticket and a 1% increase in transactions. Traffic for stores is almost back to 2019 levels, contributing to an 11% revenue increase on a 13-week basis. Mobile ordering and delivery continue to be major contributors to sales, with mobile ordering accounting for 44% of sales mix and delivery accounting for 24%. Starbucks opened 763 new stores and now has over 35,000 total. Operating margins were lower due to investments in stores and people, but the rewards membership was up 5%. The guidance for the fiscal year 23 is strong, with comp growth of 7-9%, revenue up 10-12%, and an earnings per share (EPS) increase of 15-20%. However, the chip industry continues to face challenges, as seen in Qualcomm's lower guidance for the current quarter and implementation of a hiring freeze.
Tech Companies Report Mixed Results with Economic Headwinds: Qualcomm saw strong growth but updated guidance due to inventory levels and declining demand. Atlassian's guidance was disappointing due to free-to-paid conversion and slowing paid user growth. Uber reported a revenue increase but remains unprofitable. Investors are worried about macroeconomic trends and their impact on these companies.
While technology companies like Qualcomm and Atlassian reported encouraging financial results for the recent quarter, there are signs of headwinds on the horizon. Qualcomm reported a respectable quarter with strong growth in handsets, automotive, and Internet of Things sectors, but updated its guidance for the year due to elevated inventory levels and declining demand. Atlassian, on the other hand, saw disappointing guidance due to a decrease in the conversion rate of free instances to paid plans and slowing growth in paid user growth from existing customers. Uber, however, reported a more than 70% increase in revenue but continues to be unprofitable. These companies' financials highlight the impact of macroeconomic trends, such as slowing demand and supply chain issues, on their businesses. Investors are concerned about the sustainability of these trends and whether they will worsen in the future. Despite these concerns, the potential impact of these companies on the global economy and their ability to innovate and adapt make them worth keeping an eye on.
Uber's Mobility Business Thrives Amidst Recessionary Environment: Uber's focus on defensive sectors, recurring revenue, and continued investment in tech drives growth in a potentially recessionary environment.
Uber's mobility business continues to grow at an impressive rate, with gross bookings reaching $13.7 billion in Q2 2022, up 45% year-over-year. Trips grew by 19% to approximately 1.95 billion, or 21 million per day. Uber's focus on defensive and quality-focused sectors, such as food delivery and healthcare, is paying off in a potentially recessionary environment. The company's strong financial performance allows it to continue investing in areas like cloud computing, robotics, and cybersecurity, which are expected to drive growth in the long term. Uber's position as a verb in popular culture also helps it avoid heavy advertising expenses. For investors, a constant investment process and a focus on defensive sectors and recurring revenue business models are key elements of a successful recession playbook. Despite some fears of an earnings apocalypse, earnings season has not been as dire as anticipated, with some companies reporting strong results.
Focus on resilient companies in volatile market: Invest in firms with strong cash flows, high cash balances, and dividend growth. Healthcare and communication services sectors lead earnings growth. Be cautious of companies reliant on capital markets. Growth stocks may continue, but timing the market is risky. Monitor factors like inflation, interest rates, and the Fed's actions.
In this volatile market, investors should focus on resilient companies with strong cash flows, high cash balances, and the ability to increase dividends. Healthcare and communication services sectors are currently contributing the most to earnings growth. However, companies heavily reliant on the capital markets may experience profit margin shrinkage and lower stock prices. The growth stock phenomenon, particularly in tech-oriented companies, may continue as investors shift focus from tightening liquidity towards slowing growth. It's important to note that timing the market based on growth alone can be risky. The market should also focus on stability and monitoring factors such as inflation, interest rates, and the impact of the Fed's efforts to combat inflation. The housing market and other lagging indicators should be watched closely for signs of potential systemic risk. Overall, it's crucial for investors to remain informed and adapt their strategies accordingly.
Housing Market Slowdown and Investment Opportunities in Electric Vehicles and US Infrastructure: The housing market is experiencing a slowdown due to rising mortgage rates, but potential tailwinds in electric vehicles and US infrastructure offer long-term investment opportunities.
The housing market is experiencing a slowdown due to rising mortgage rates, but there are potential tailwinds on the horizon that could drive growth in sectors like electric vehicles and US infrastructure over the next decade. Mortgage applications have dropped significantly, leading to downstream implications for various consumer-driven sectors. However, if the market remains stable, this could be a positive sign. One of the most exciting areas for investment is electric vehicles, which have low penetration in the US compared to other parts of the world. The inflation reduction act and other legislation are expected to cause spending in this area, making it a promising investment opportunity. Another area to consider is US infrastructure, which has seen compressed valuations despite expected top line growth and market resilience. With a lot of spending going on in this area over the next 10 years, it presents an excellent opportunity for long-term investment. Overall, investors should focus on tailwinds that could increase adoption of new technologies and drive growth in various sectors.
Hershey's Strong Third Quarter and Parents' Sweet Treats: Hershey's strong financials and affordable, desirable products drive revenue growth. Consistent investing, even small amounts, can lead to significant returns over the long term.
Hershey had a strong third quarter with revenue up 13%, and they raised their full-year guidance. The candy maker's products continue to be in high demand due to their affordability and value. Parents, like Andy and Chris, may even be found sneaking a piece or two from their children's Halloween candy stash. For college students like Justin, investing early and consistently, even small amounts, in low-cost ETFs can lead to significant returns over the long term. Hershey's impressive financials and Justin's investment strategy demonstrate the power of consistent investing and the value of affordable, desirable consumer goods.
Diversify your portfolio for long-term wealth growth: Start young, invest in a diversified portfolio with index funds, consider companies like Ulta Beauty and The Trade Desk for potential investments, and take calculated risks to build a solid financial future.
Investing in a diversified portfolio, especially at a young age, is a smart move for long-term wealth growth. Justin's initiative to start investing was praised, with the suggestion to begin with an index fund like the Vanguard S&P 500 Index Fund (VOO) for immediate diversification. Ulta Beauty (ULTA) and The Trade Desk (TTD) were mentioned as potential investments, with Ulta's strong performance in the beauty retail industry and The Trade Desk's focus on connected TV advertising being notable reasons for consideration. The speakers emphasized the importance of taking calculated risks and building on a solid foundation of diversification for future financial success.
The Trade Desk's growth potential: Despite near-term headwinds, The Trade Desk is pursuing a massive market opportunity and is worth holding onto for significant growth.
Despite near-term headwinds, The Trade Desk is pursuing a massive market opportunity, and it's a company worth holding onto due to its significant growth potential. Chris, who owns the stock, expressed his confidence in the company and encouraged listeners to stay invested. He also mentioned his intention to add beauty product stocks to his watchlist. The overall sentiment of the discussion was positive, with both Chris and Rick expressing optimism about the future of The Trade Desk and the market in general. The show concluded with the usual sign-off, and listeners were reminded that they would tune in again next time.
