Amazon Earnings Disappoint Investors
In this issue of the peel:
Market Snapshot
Banana Bits
The Daily Poll
Will U.S. unemployment hit 5% or more by the end of the year?
Previous Poll:
Will the U.S. enter a recession before the end of 2025?
Yes: 46.39% / No: 53.61%
Macro Monkey Says
Canaries Leaving The Coal Mine
Finding a likable nerd to be the Chair of the Federal Reserve is hard enough.
Finding one that can also read vibes as well as a Miami nightclub bottle girl is damn near impossible.
Fed Chair JPow certainly checks off the first two boxes. But, his vibe-reading has been more like that of my dog when he decides we’re waking up at 5 am on Sunday.
There’s data dependent, then there’s too data dependent. July’s jobs report is the perfect case study for when too nerdy becomes a problem. Let’s get into it.
The Numbers
My parents always told me to take “everything in moderation.” And now, in reaction to the Fed’s extreme data dependency in making decisions, the labor market is moderating.
Last month, the U.S. added 114k non-farm payrolls. In English, 114k jobs were added in July.
That was well below the establishment economists guesstimate, and, at the same time, unemployment jumped to its highest level in 3 years at 4.3%.
To be clear—the U.S. is still in good condition. We’re coming out of a Goldilocks economic period, so almost any changes will be for the worse. But just because it’s “worse” doesn’t necessarily mean it's “bad.”
The truly bad part is simply the fact that blistering job and wage growth is over. It might take more than a pulse and two brain cells to get a job in the U.S. now, but there is some good news alongside this report.
For the past few months, respectable economists like Professor Jeremy Siegel and RenMac’s Neil Dutta have asked, "What is Powell waiting for?” to cut rates and loosen policy.
Now, they have their answer.
In addition to the slowing job creation, growth in average hourly earnings hit more than a 3-year low in July at just 3.6%.?
Wage growth is still outpacing inflation, which is great, but the signs of a problematic labor market are starting to pile up.
When hearing stories of others struggling to negotiate for raises, promotions, or in the search for a new job, workers across the U.S. are saying, “Me too.”
As a result, calls for the Fed to cut rates have reached their loudest levels since March 2020.
Now, the consensus expectation is basically that the Fed f*cked up by not cutting at last week’s meeting. According to the CME Group’s chart of dollar-weighted, market-implied odds for the next FOMC meeting, there’s an 80% chance of a 50bp cut.
The “smart money” in fixed-income markets is pricing this in as well. Yields across the maturity spectrum have cratered in recent weeks as worsening economic data suggests increased odds of a rate cut and potential other loosening maneuvers on the horizon.
Yields on both the 2 and the 10-year Treasury notes set fresh annual lows in response to Friday’s labor market data. The curve remains wildly inverted and has only grown more so in response to this weakening data.
The Takeaway?
Finance pros like to use real-world analogies to pretend a lot of what happens on Wall Street actually makes sense.
A favorite this year has been looking for “canaries in the coal mine,” referring to the old practice of miners bringing canaries into coal mines to detect an overabundance of carbon monoxide.
Now, there are no canaries in the coal mine of the U.S. economy… because they’ve all already left.
The beast of inflation has been killed. But, its rotting corpse is starting to attract bugs in the form of rising unemployment, weakening consumer spending, long-time lows in treasury yields, and long-time highs in the Volatility Index (VIX).?
Put your seatbelts on, apes. We’re getting the cuts we wanted, but like many contestants on Love Island or The Bachelor, they’re here for the wrong reasons.
What's Ripe
DoorDash (DASH) 8.35%
Trump Media & Technology Group (DJT) 7.39%
What's Rotten
Snap Inc (SNAP) 26.93%
Intel (INTC) 26.06%
Thought Banana
Earnings Spotlight: Amazon.com Inc (AMZN, 8.8%)
Here’s a business idea: a store that sells literally everything.
F*ck, wait, it already exists? Everyone’s always stealing my ideas before I have them.?
Anyway, it turns out this idea-thieving company just dropped earnings and its stock price, so let’s check it out.
The Numbers
The world’s sixth most valuable company delivered Q2 earnings of $13.5bn, or $1.26/sh, a 101% annual jump. Sales grew 11% to $148bn.
Despite the solid growth and easy beat on the bottom line, Mr. Market laughed at their $148bn in sales. He was expecting $148.5bn.
Revenue from North American e-commerce and Amazon’s Advertising segment both came in lighter than expected, acting as the quarter's greatest detractors.
North American consumers have been cutting their discretionary spending, of which Amazon is the primary sugar baby.?
Plus, sites like Temu and Shein have exploded in popularity recently, cutting into Amazon’s volume and starting a price war.
However, Amazon’s most important unit for growth—its legendary AWS cloud segment—did its job. Sales grew 19% to $26.3bn, beating the $26bn estimate.
Spitting in the face of this good news, Amazon finished up its Q2 report with guidance similar to the U.S.’s gold medal count so far this Olympics—weaker than expected.
The firm expects revenue between $154bn and $158.5bn, implying a midpoint of $156.25bn. That’s below the $158.24bn consensus expectation of what Amazon’s expectation would be in Q3.
The Takeaway?
Amazon just confirmed two of my least favorite facts to hear—American consumer spending is falling, and Big Tech valuations are as shaky as a tired gymnast’s arms.
Does anyone have a blue pill I can swallow to ignore this?
If not, get ready for similarly subpar results from other mega-retailers like Walmart and Target when they report later this month.
The tide of Big Tech valuations has gone out. Turns out everyone was swimming naked.
The Big Question: Will other retailers perform as poorly as Amazon in their North American units? Are you buying this dip?
Banana Brain Teaser
Previous
A grocer has 400 pounds of coffee in stock, 20 percent of which is decaffeinated. If the grocer buys another 100 pounds of coffee, of which 60 percent is decaffeinated, what percent, by weight, of the grocer’s stock of coffee is decaffeinated?
Answer: 28%
Today
What is the perimeter, in meters, of a rectangular garden 6 meters wide that has the same area as a rectangular playground 16 meters long and 12 meters wide?
Send your guesses to [email protected]
?
The framework I found which made the decision incredibly easy was what I called—which only a nerd would call—a ‘regret minimization framework.
Jeff Bezos
How Would You Rate Today's Peel?
?? Meh
?? Rotten AF
Happy Investing,
David, Vyom, Jasper, Ankit & Patrick
Sales Professional at Sun Solar Company.
3 个月Dammit