The Market Is Experiencing Its Version of 'Groundhog Day'
There's a lack of new economic data, another Fed speaker, and the latest wave of less-than-market-moving earnings reports.
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* Another Groundhog Day for a market that remains short-term overbought.
* Vericast’s Restaurant Survey backs our boosting Costco’s price target last night.
* Arm’s outlook supports our views on AI-enables smartphones and these three holdings.
This morning we’re seeing another day like the others we’ve seen this week – modest movement in equity futures while bond yields, including those for 10-year Treasuries, inch higher. If you’re thinking this week is a bit like the movie Groundhog Day, we would agree with you given the lack of fresh economic data, another Fed speaker, and the latest wave of less-than-market-moving earnings reports.
That will change significantly next week when we get the April CPI, PPI, and Retail Sales data, but the road to that will include one more relatively quiet market day tomorrow.
While some may describe it as a period to digest, the market has been choppy and remains short-term overbought. This means we’ll take a measured approach with our shopping list, but with Coty COTY shares back near our cost basis, it’s a good pick-up point for newer members.
Alongside next week’s economic data, we’re about to undergo a shift to earnings reports to companies that rely on consumer spending. Comments collected so far this earnings season from the likes of Starbucks SBUX and others point to consumers being more selective and trading down.
According to Vericast’s 2024 Restaurant TrendWatch survey, restaurant food prices are climbing at a much higher rate than groceries, 5.1% annually versus 1.2%. The report goes on to share that survey respondents are trading down from restaurant meals to food from the grocery store to avoid the rising costs, with more than 71% of Gen Z and millennials doing so.
This helps explain Costco’s vibrant April sales report that led us to boost our price target to $830, and it also bodes well for PepsiCo’s PEP beverage and snacking businesses.
Despite the lack of market-moving earnings this week, this morning, the market is digesting the recent wave of reports from Uber UBER, Airbnb ABNB, and Arm Holdings ARM that fell short of market expectations.
Some of what we’re seeing, in the case of ARM shares, is the reaction to overexuberant stock price moves. Ahead of its earnings report, ARM’s shares were up more than 50%, suggesting the company needed to deliver not just a good quarter, but an outlook that contained an upside surprise.
That’s not what Arm delivered, and as impressive as the 47% increase in quarterly revenue was, guidance that only bookended consensus forecasts left the market wanting. However, there were several positive nuggets as it relates to our holdings. On its earnings conference call Arm did speak to AI-enabled smartphones shipping in 2H 2024 as well as acceleration in the premium smartphone market. That supports our thinking behind Qualcomm QCOM, Apple AAPL, and Universal Display OLED.
Coming up, we’ll have our thoughts on The Trade Desk’s TTD March quarter results that topped expectations with the company guiding June quarter revenue to at least $575 million vs. the $$567.1 million consensus.
At the time of publication, TheStreet Pro Portfolio was long COTY, PEP, QCOM, AAPL, OLED, TTD
