May 26, 2022

Has The Recession Been Cancelled? 🤔

Stocks are a day away from breaking a seven-week losing streak. 🤩 Here’s what you missed.

We received some optimistic news from the Congressional Budget Office, which estimates that GDP will grow by 3.1% in 2022 and that inflation has topped. Our main story covers that.

Together with yesterday’s Fed Minutes, today’s news has investors dipping their toes back into the market.

Here’s today’s heat map:

10/11 sectors closed green, led by consumer discretionary (+4.90%), communications (+2.43%), and tech (2.40%).

Leading the trending tab was $APYX, which received FDA 510(k) clearance for the use of the Renuvion Dermal Handpiece for specific dermal resurfacing procedures. Whatever that means, investors are stoked and sent the stock 52.43% higher. 📈

Several big names reported, including $BABA, $BIDU, $FTCH, $COST, and $ULTA. We outline how they fared below 👇

Meanwhile Dollar Tree (+21.86%) and Dollar General (+13.71%) rocketed higher on strong earnings reports, despite inflationary pressures. 🚀

Here are the closing prices:

S&P 500	4,058	+1.99%
Nasdaq	11,741	+2.68%
Russell 2000	1,838	+2.17%
Dow Jones	32,637	+1.61%

Economy

CBO Calls For Continued Economic Expansion

Today’s U.S. GDP Growth Rate estimate suggested a 1.5% contraction in the first quarter of the year, slightly below initial estimates of 1.4%.

So the big question remains, will the economy slip further in the second quarter, officially pushing us into a recession?

That seems to be the expectation:

Over 50% of Wall Street’s professionals think the Fed’s fight against inflation will lead to a recession. Eight out of ten small business owners believe the U.S. economy will enter a recession this year.

There has also been a significant uptick in companies citing a challenging macroeconomic environment as they cut costs, freeze hiring, and reduce forecasts.

Meanwhile, this week the Congressional Budget Office released upbeat estimates for the U.S. economy.

Here’s a CNBC summary of the CBO’s expectations for the U.S. economy through 2024:

Real GDP: 3.1% in 2022, 2.2% in 2023, and 1.5% in 2024.
Inflation (measured by CPI): 4.7% in 2022, 2.7% in 2023 and 2.3% in 2024.
Unemployment rate: 3.7% in 2022, 3.6% in 2023 and 3.8% in 2024.
Federal funds rate: 1.9% in 2022, and 2.6% in 2023.

They note that inflation will remain above the Fed’s 2% target through 2024, but price increases will not sustain their current pace.

The positive tone suggests the CBO thinks the Fed’s plan outlined in yesterday’s minutes will be able to orchestrate a soft landing. 🛬

Whether today’s rally is the market buying into that theory or if this is just a relief rally remains unclear. ❓

What is clear is that the two main concerns on everyone’s minds as we head into the slow summer trading season are inflation and a potential recession. 😰

Earnings

Earnings Highlights From The Day

Alibaba ($BABA) | EPS: $0.16 vs. $0.14 expected | Revenue: $32.2 billion vs. $30.8 billion expected | Link to Report

Shares of $BABA rallied 14.79% following the earnings beat despite the company waiving its 2022 guidance, citing COVID-19 risks. 📈

Macy’s ($M) | EPS: $1.08 vs. $0.82 expected | Revenue: $5.35 billion vs. $5.33 billion expected | Link to Report

Shares of the retailer rallied 19.31% today as the company beat on the top and bottom lines and raised its full-year profit outlook.

The company is being helped by strength in the higher-income consumer, which is lifting the sales of more expensive goods at its Bloomingdale’s business. This echoes comments we also saw from Nordstrom and Toll Brothers in their earnings reports this week. 🤑

Gap ($GPS) | EPS: ($0.44) vs. ($0.11) expected | Revenue: $3.48 billion vs. $3.46 billion expected | Link to Report

The company missed on the top and bottom line and cut its profit guidance for the rest of the year. It now expects to earn $0.30 to $0.60 per share, well below its prior range of $1.85 to $2.05.

Year-over-year same-store sales data was less than stellar. Gap (-11%), Old Navy (-22%), Banana Republic (+27%), and Athleta (-7%). 🔻

Like the store’s customers, investors are staying away with the stock -13.04% after hours. 📉

Costco ($COST) | EPS: $3.17 vs. $3.00 expected | Revenue: $52.60 billion vs. $51.71 billion expected | Link to Report

The company’s revenues topped estimates, but same-store sales missed expectations.

The stock trended all day heavily and is down 2.58% after hours as investors digest the full report. 📝

Other earnings movers included:

Farfetch ($FTCH) | EPS: ($0.24) vs. ($0.21) expected | Revenue: $514.8 million vs. $560.27 expected | Link to Report

Ulta Beauty ($ULTA) | EPS: $6.30 vs. $4.46 expected | Revenue: $2.356 billion vs. $2.123 billion expected | Link to Report

Dollar Tree ($DLTR) | EPS: $2.31 vs. $2.00 expected | Revenue: $6.90 billion vs. $6.762 billion expected | Link to Report

Dollar General ($DG) | EPS: $2.41 vs. $2.32 expected | Revenue: $8.8 billion vs. $8.71 billion expected | Link to Report

Want more EPS?? Check out Stocktwits’ earnings calendar! 📅

Bullets

Bullets From The Day:

🏠 Home listings jump as sellers fear missing out on red-hot housing market prices. As rising rates further hurt housing affordability, the market is beginning to soften in a big way. Pending home sales dropped 4% last month, and new home sales plummeted 16% as buyers pulled back. We may be seeing the start of some movement on the supply side. Homes for sale jumped 9% YoY last week as sellers fear they may have missed their chance to top-tick the market. CNBC has more.

🚜 Deere looks to an Apple-like tech model to drive growth. The tractor company wants to combine cutting-edge hardware with software and subscription models to drive future revenue growth. The company is investing heavily in automation to provide autonomous farming equipment and the valuable data generated by these machines during their use. High agriculture prices and a shrinking farm labor workforce leave the door wide open for the industry to make a high-tech push. Read more in Reuters.

🌎 SEC proposes new ESG rules, drawing backlash from both sides of the aisle. The SEC’s proposal looks to crack down on “greenwashing,” where fund companies raise funds under the guise of being ESG-focused but don’t invest in a way that reflects that commitment. Proponents of the new rules say it is important for investors to have consistent and comparable disclosures about ESG. However, industry critics are pushing back with their usual mantra, claiming that new regulations could reduce investor choice. Reuters has more.

🍔 Wendy’s has a new item for sale…the whole company??? Higher commodity and labor costs are pressuring the fast-food industry, and Wendy’s is feeling the heat. In a Tuesday filing with the SEC, Wednesday’s chairman Nelson Peltz said that the company is exploring a possible sale or merger for the burger chain amid its recent struggles to keep pace. Read more from CNN.