Daily Sector Snapshot — 8/9/22
Bespoke Stock Scores — 8/9/22
B.I.G. Tips – Q2 Earnings Triple Plays
Today we published our newest Earnings Triple Plays report. This season we identified 34 earnings triple plays that may be worth taking a closer look at.
What is a triple play? When a stock reports quarterly earnings, it registers a “triple play” when it beats analyst EPS estimates, beats analyst revenue estimates, and raises forward guidance. We coined the term back in the mid-2000s, and you can read more about it at Investopedia.com. We consider triple plays to be the cream of the crop of earnings season, and we’re constantly finding new long-term opportunities from this basket of names each quarter. You can track the newest earnings triple plays on a daily basis at our Triple Plays page if you’re a Bespoke Premium or Bespoke Institutional member. To read our newest report and see the triple plays that we think look the best right now, start a two-week trial to Bespoke Premium!
Inflation Still Top Of Mind for Small Business
While fewer respondents to this month’s NFIB small business survey reported that they observed higher prices, inflation continues to be a front and center concern. The percentage of respondents reporting inflation as their biggest problem has risen further to another record high of 37%. That completely erased June’s drop down to 34%.
While broad inflation is currently the most pressing problem, other inflation-related measures also rose in July. The percentage of firms reporting cost of labor as their single most important problem rose to 9%, although that is still below the record high reading of 13% at the end of last year.
While we often combine that reading with the percentage of responses reporting quality of labor as the biggest issue as a gauge of labor market health, the latter problem dropped 2 percentage points to net out the rise in cost of labor. On a combined basis, these two concerns are now tied with March at 30% for the lowest level since January 2021 (28%).
One other combined reading that we often check in on is the percentage of respondents reporting government requirements or taxes as their biggest issues. Over the past few decades, Republican administrations have usually coincided with lower readings whereas Democrat administrations would see a higher reading. With inflation concerns surging this year, a historically low share of businesses are concerned about government action. The combined reading fell to another record low of 16% in July with the entirety of that drop on account of a 3 percentage point decline in government requirements and red tape. Click here to learn more about Bespoke’s premium stock market research service.
Little Bounce from the Little Guys
Although the NFIB’s reading on the sentiment of small businesses remains near some of the worst levels of the past decade, this morning’s release did come in both better than expectations and slightly higher than last month. The Optimism Index climbed from 89.5 in June—the lowest level since January 2013—to 89.9. Outside of last month, that would still be worse than any month during the pandemic.
In spite of the modest bounce in the headline number, breadth across the report’s categories remains weak with the number of indices falling month over month twice as large as those that rose. Broadly speaking, employment indices are the main area of strength with Plans to Increase Employment, Job Openings Hard to Fill, Compensation, and Compensation plans each remaining in the upper decile of readings. Current Inventories is similarly at an elevated level relative to its historical range. Conversely, categories like Outlook for General Business Conditions and Sales Expectations are just off historic lows.
Over the past few months, one of the most eye-catching readings of this report has been the reported Outlook for General Business Conditions as it has dropped to record lows far the lowest points seen during prior recessions. This month that index saw some respite, but it remains well outside of the normal range of historical readings.
On reason for the historic drop and this month’s rebound appears to be inflation. As shown below, the two indices have generally been well-correlated to one another over the past couple of years as inflation has soared. That being said, fewer respondents to the monthly survey have been reporting higher prices, and along with that, economic outlooks have improved in tow.
As previously mentioned, one area of the report that has remained fairly strong concerns employment. However, that is not to say those readings have not peaked. Even though they are at historically strong levels and none set any sort of notable new low in the latest data, as discussed in today’s Morning Lineup, each of these indices has been rolling over after peaking late last year. Hiring plans have returned to levels consistent with the pre-pandemic years alongside the percentage of firms reporting cost or quality of labor as their biggest issues. While these too have rolled over, the indices tracking Compensation and Job Openings Hard to Fill have not seen as sharp of pullbacks.
One other interesting area of the report this month concerned inventories. Small businesses reported inventories have begun to build again while there has been a steep drop in the net percentage of responses stating that inventories are too low versus too high. That reaffirms the large negative impact that slowing inventory builds had on the latest negative GDP print. Click here to learn more about Bespoke’s premium stock market research service.
Market Reaction to CPI
Tomorrow, the all-too-important July CPI report comes out. Although the FOMC tends to focus more weight on personal consumption expenditures (PCE) instead of CPI, this release will give investors the first official inflation read of July. Depending on how this report comes in relative to expectations will therefore give a lot of insight into the direction/intensity of policy heading into the last four months of the year. A higher print (especially given the strength in last week’s nonfarm payroll data) would a higher likelihood for continued aggressiveness in rate hikes, while a weaker than expected print could cause markets to price in a more benign path moving forward. As of today, analysts expect headline CPI to increase 8.7% y/y, which would be a 0.4% decline from June’s rate.
Last month, analysts expected CPI to rise 8.8% YoY, but the print came in at 9.1%. Over the last twelve months, CPI has come in hotter than expected two-thirds of the time. Notably, CPI has not come in below expectations over the last twelve months but did match expectations one-third of the time. In terms of market expectations, over the last twelve months, the S&P 500 has averaged an opening gap of -49 basis points following a CPI print that was hotter than expected. That’s about twice the average gap lower of 25 bps following all higher-than-expected prints over the last ten years. The market tends to gap higher following an inline print, averaging a gain of 5.3 bps over the last twelve months and 9.8 bps over the last ten years. Click here to learn more about Bespoke’s premium stock market research service.
Following all CPI prints over the last twelve months, the S&P 500 has tended to gap lower but move close to the break-even level in the first half hour of trading. Following this initial bounce, the S&P 00 has tended to bounce around but remain in negative territory. The second half of the trading day has been much weaker, though, finishing the day down 60 basis points on the day.
Over the last twelve months, intraday performance has diverged based on the result of the report. When CPI matches expectations (three occurrences), the S&P 500 gaps higher but has surrendered those gains by about 10:30. However, following a bottom at about 11:00, stocks tend to pick up steam throughout the rest of the trading day. When CPI comes in hotter than expected, we see nearly the exact opposite. The S&P 500 gaps lower, but generally moves higher until about 10:45, when things take a turn weaker. The back half of the trading day has been notably weaker with stocks closing right near their lows of the day, booking an average decline of 93 basis points. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day – Treasuries Take a Walk on the Wild Side
Bespoke’s Morning Lineup – 8/9/22 – Small Improvement in Small Business Sentiment
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Somebody needs to do something — it’s just incredibly pathetic that it has to be us.” – Jerry Garcia
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Yesterday it was NVIDIA (NVDA), and today it’s Micron’s (MU) turn as the company lowered revenue guidance citing a challenging market in which customers were working down inventories. Today’s revenue warning is the second in just over a month. The last time MU lowered guidance on June 30th, it said sales for Q4 would come in at a range of $6.8 billion to $7.6 billion compared to analysts’ forecasts of $9.1 billion. This morning, MU is saying that revenues will come in at or below the low end of its guidance from June 30th. In other words, in the span of a month and ten days, MU has lowered sales forecasts by at least 25%!
Given the warning from MU, the negative tone in the futures market this morning has been most pronounced in the Nasdaq where futures are down more than half of one percent. Along with the weakness in equity futures, bond yields are modestly higher and crude oil is up over 1%. In economic data, Small Business Sentiment came in modestly better than expected, rising slightly from last month’s level, while Non-Farm Productivity was roughly in line with expectations and Unit Labor Costs were higher than forecast.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, yesterday’s raid on Mar-a-Lago, and much more.
As the S&P 500 looks to make a higher high and break its downtrend from its high over six months ago, the cumulative advance/decline (A/D) line has already crossed both milestones. As shown in the chart below, in addition to breaking the downtrend from its high right around the turn of the year, the S&P 500’s cumulative A/D line also just recently made a higher high. Even during Monday’s trading, while the S&P 500 traded fractionally lower, the A/D line was actually firmly in positive territory at more than +100.
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