🔬Auto Giants Hit the Brakes
🔬Auto Giants Hit the Brakes
Plus: Port strikes cripple the east coast; Mid-East escalation shakes markets; and much more!
"Everybody wants to save the earth. No one wants to help mom do the dishes."
- P.J. O'Rourke
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
- George Soros
US equities closed lower on Tuesday amid geopolitical tensions and mixed economic data: Despite a weak day, equities ended off their worst levels, with major underperformers including Apple, Nvidia, semiconductors, and banks. Outperformers included energy, utilities, and Chinese tech, while Treasuries firmed slightly after a Monday selloff following dovish comments from Fed Chair Powell.
Economic data presented a mixed picture: The JOLTS report showed job openings were stronger than expected, exceeding 8 million, though hiring and quit rates declined. The ISM manufacturing index remained weak at 47.2, signaling contraction with deteriorating prices and employment data.
Company news featured earnings beats, upgrades, and cautious outlooks: McCormick & Co. raised its full-year guidance, while Acuity Brands reported strong margins. Notable upgrades included Ford and Clorox, while Disney and HP Inc. faced downgrades; Nike's earnings report is expected to provide more insight into its FY guidance.
Notable companies:
United Natural Foods (UNFI) [+30.7%]: They had a strong Q4 earnings and revenue beat, with solid volume trends and new business wins, even though their gross margins were a bit light.
Apple (AAPL) [-2.9%]: Barclays raised concerns about potential supply chain cuts and a projected 15% drop in global iPhone 16 sales year-over-year.
Acuity Brands (AYI) [+8.7%]: Their Q4 numbers were solid across the board, with record gross margins and a strong earnings outlook for next year.
More below in ‘Market Movers’.
Street Stories
Auto Giants Hit the Brakes: Stellantis Joins the Profit Warning Party
The automotive industry is facing a series of setbacks, with Stellantis NV becoming the latest manufacturer to slash its forecasts. The maker of Jeep, Fiat and Chrysler now expects its adjusted operating income margin to fall to a range of 5.5% to 7%, down from earlier double-digit projections.
The market’s reaction wasn’t kind.
In fact GM is the only automaker in the green this year, but when you consider it’s still off ~32% from December 2021 it’s much less impressive.
This announcement follows similar warnings from Volkswagen, Mercedes-Benz, and BMW. Factors contributing to the industry's woes include declining sales in China, costly recalls, and rising EV tariffs.
As a result, most car builders have seen their current year estimates progressively cut by Wall Street, but none so bad as Stellantis which has seen its estimates drop every time management opens their mouths.
Pro Tip: Stop talking
Stellantis plans to address its challenges by cutting production and increasing promotional spending. These moves reflect a broader industry trend of aligning production with softening demand amid economic uncertainties and the transition to electric vehicles.
And considering how much revenue has deteriorated in just the last year, that’s gotta mean a lot of cutting.
The market has reacted strongly, with automaker stocks plummeting. As the industry navigates these turbulent times, the coming months will be crucial for balancing inventory, maintaining profitability, and adapting to an evolving automotive landscape.
Seems like the only thing they got going for them is that they’re all priced like they are going out of business.
Mid-East Tensions Spook Markets
Iran's missile launch on Israel yesterday was nothing short of a geopolitical explosion. Following the killing of Hezbollah leader Hassan Nasrallah and an Iranian commander, Iran retaliated with a ballistic missile barrage.
…And yes, while Israeli and U.S. missile defenses were largely successful in intercepting the nearly 200 missiles, the broader impact is clear: escalating tensions in the oil-rich Middle East have already spooked markets, with the Dow dropping over 250 points and WTI crude oil prices spiking. Not to mention gold continuing its record pace despite inflation worries tempering.
The U.S. has swiftly pledged military support, with naval and air defense coordination already underway - Iran, meanwhile, warns of "crushing attacks" if Israel responds further. The market is heading for a bumpy ride as all eyes are on the next moves in this increasingly volatile region.
It’s times like these that safe-haven assets and portfolio insurance seem a lot less dumb to me…
Dock & Cover: Port Strikes Take Effect
~45K dockworkers at 36 East- and Gulf Coast ports decided to spice up their summer by going on strike overnight, marking the largest walkout since 1977. The hot topics? Wages and protection against those pesky job-stealing robots.
Analysts are playing "Pin the Tail on the Strike Duration," with guesses ranging from a few days to a few weeks. The White House could impose an 80-day cooling-off period, but Biden's been about as eager to do that as a cat is to take a bath.
Even a short strike could leave the economy feeling like it stubbed its toe on a cargo container. JP Morgan estimates daily economic costs at a cool $3.8-4.5B, primarily impacting container and auto trade. Bulk agricultural products, meanwhile, are sitting pretty.
Joke Of The Day
What do you call a dog with no legs? It doesn't matter, he’s not coming.
Hot Headlines
CNBC / Israel begins ground offensive against Hezbollah in southern Lebanon. The operation follows weeks of airstrikes, including the killing of Hezbollah leader Hassan Nasrallah. The situation risks expanding into a broader regional conflict, with Israel also carrying out airstrikes in Yemen and more recently, Lebanon.
Bloomberg / Apple readies new iPhone SE model that kills the home button. This update aims to strengthen Apple's position in the budget smartphone market, with the current SE priced at $429. The ‘gamechanger’ is that the new SE will also support Apple Intelligence, Apple's upcoming AI suite. I-GPT, or Apple-GPT?
CNBC / Japan’s next prime minister is a career dissenter, but experts doubt he can govern as one. Despite his criticism of negative interest rates, Ishiba may maintain accommodative monetary policies, as Japan’s 3% inflation and weak domestic demand suggest continued low rates - while market reactions have been mixed…If there’s one thing I know, it’s that markets crave certainty.
Yahoo Finance / American Dream costs $4.4 million, Investopedia says. This figure is up from $3.4 million last year, due to rising costs in housing, education, and healthcare…So, basically everything? Interesting, I thought inflation was down lol.
Yahoo Finance / Pfizer raises $3.2 billion by selling part of Haleon stake. Raising money to fund the next COVID vaccine efforts I see…
Yahoo Finance / CVS is exploring a potential break-up of its retail and insurance units, sources say. A melting share price and slashing of their guidance ain’t good but it’s their $58 billion in debt that they’re looking to fix with a financial solution such as a divestiture or spin-off. Oof, I’m old enough to remember when they bought that insurance business (Aetna) back in 2017. The IBankers are truly the only winners here.
Trivia
Today's trivia is all about the USSR - the political and economic powerhouse that shaped the 20th century!
In what year did the USSR officially dissolve, ending 69 years of Soviet rule?
A) 1989
B) 1990
C) 1991
D) 1992Which Soviet leader is widely credited with initiating the policies of Glasnost (openness) and Perestroika (restructuring)?
A) Joseph Stalin
B) Leonid Brezhnev
C) Nikita Khrushchev
D) Mikhail GorbachevWhat was the name of the economic policy introduced by Lenin in 1921 to revive the Soviet economy by allowing some private business?
A) Five-Year Plan
B) New Economic Policy (NEP)
C) War Communism
D) CollectivizationThe USSR launched the first artificial satellite, Sputnik, in what year, marking the start of the space race?
A) 1957
B) 1955
C) 1961
D) 1963
(answers at bottom)
Market Movers
Winners!
United Natural Foods (UNFI) [+30.7%]: They had a strong Q4 earnings and revenue beat, with solid volume trends and new business wins, even though their gross margins were a bit light.
Acuity Brands (AYI) [+8.7%]: Their Q4 numbers were solid across the board, with record gross margins and a strong earnings outlook for next year.
McCormick & Co. (MKC) [+2.2%]: They delivered a nice Q3 earnings beat, with good momentum in both segments and a slight boost to their full-year earnings guidance.
Alcoa Corp. (AA) [+1.6%]: Bank of America upgraded them to a buy, thanks to a bullish outlook on aluminum prices and strong demand.
Clorox (CLX) [+1.5%]: Jefferies upgraded them, noting improving sales growth and a positive outlook on their operating leverage.
Pinterest (PINS) [+1.2%]: They got added to Goldman Sachs' US Conviction List, giving them a nice boost.
Losers!
IGM Biosciences (IGMS) [-12.3%]: They're shifting focus to autoimmunity after disappointing cancer drug data, with the CEO and chief scientific officer stepping down and a workforce reduction coming, plus a downgrade from JP Morgan.
Signet Jewelers (SIG) [-7.9%]: Their CEO Virginia Drosos is retiring in November 2024, and J.K. Symancyk has been named as her successor.
HP, Inc. (HPQ) [-3.1%]: Citi downgraded them to neutral, citing concerns about a slower PC recovery and AI impacts being further down the road.
Apple (AAPL) [-2.9%]: Barclays raised concerns about potential supply chain cuts and a projected 15% drop in global iPhone 16 sales year-over-year.
CVS Health (CVS) [-2.1%]: Reports suggest CVS is considering separating its retail and insurance businesses, though nothing's finalized yet as they work with advisors.
Charles River Laboratories (CRL) [-1.5%]: Citi downgraded them to sell, pointing to pricing and volume issues and a shift toward clinic-focused customers, which could hurt future estimates.
Market Update
Trivia Answers
C) 1991 – The USSR officially dissolved on December 26, 1991, marking the end of Soviet rule.
D) Mikhail Gorbachev – His policies of Glasnost and Perestroika in the 1980s aimed to reform the USSR and led to its eventual collapse.
B) New Economic Policy (NEP) – Lenin introduced the NEP in 1921 to recover the economy after the devastation of the Russian Civil War.
A) 1957 – The USSR launched Sputnik 1, the first artificial satellite, into space, beginning the space race with the United States.
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