This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Monday, October 4, 2021
The weekend is always a good time to soul-search. Things tend to slow down just enough so you can think for a few minutes (or is this just me?).
So this weekend while I took a rare break to present my classic car at a local show, I popped down in one of those foldable camping chairs and pondered some of the things I have been spewing in these hallowed grounds and on Yahoo Finance Live.
A lot of you have emailed and tweeted that I have been too bearish on stocks this past month (despite the S&P 500 being down 4% from its Sept. 2 high). I carefully considered your views and heavily debated them, while people complimented me on how immaculate my car is and asked if it was for sale (it's not).
My conclusion after this weekend of soul-searching? I haven't been bearish enough. Sorry, but not sorry. When I see better trends in the market and the economy, trust me you will know it. But in the near-term, the grounds are planted with land mines that could potentially blow up your portfolio.
Let's take this Friday's jobs report, for example.
I would admit the market is still priced for a long-awaited strong re-acceleration in job growth. It's unlikely coming in this report, hence presenting a risk to stocks.
"Real-time indicators suggest September was another soft month for hiring. We forecast a 300k payroll increase, with risks tilted to the downside. Nearly all indicators we follow were weak in September," warned Jefferies Chief Economist Aneta Markowska.
Then there is the start of third quarter earnings season — my contacts continue to tell me it could be an ugly reporting season, full of misses and downward guidance. Bed Bath & Beyond's results last week shocked everyone (though I appreciate CEO Mark Tritton owning it during a phone interview). More BBBY-like quarters (blame supply chain dislocations and unpredictable market demand) and brutal market reactions lie ahead.
But other than that, it's OK to be cautious on the market from time to time. Nowhere is it written that you have to be out there buying stocks every single day. Sometimes it's OK to take profits or just sit tight on winners with solid fundamentals. Do a little soul-searching of your own this week ... you may find that I am not a delusional market watcher sucking on the tailpipe of his 30-year-old classic car.
Odds and ends
Will GM electrify investors?: Speaking of cars, I am off to Detroit this week for General Motors' two-day investor meeting. Expect a ton of live updates from yours truly when the event kicks off on Oct. 6. There are a couple things I anticipate from the in-person event. First, upbeat long term guidance — as in GM (GM) planting a flag beyond the semiconductor shortage ridden 2021. GM has to lift its stock (up 16% year-to-date vs. Ford, up 61%) and regain some of the narrative on Detroit's electrification shift that has been lost to rival Ford. Jim Farley, Ford's CEO, talked to me last week about the company's new electric investments. GM's ambitions are no less impressive — in August the company reiterated it would have 30 new electric models out by 2025. Now, GM has to really sell that sizzle — which includes sharing the margin potential from its budding EV fleet — in an effort to get the same stock price boost Ford is seeing because of its electric pivot. Secondarily, look for GM to share more details on what its electric vehicle lineup will look like. As of today, all we know is there's the Chevy Bolt (and its battery issues, as detailed by Yahoo Finance sister publication Autoblog), the Hummer and Cadillac Lyriq. GM has to share more with analysts and media — because truth be told, what EV makers Lucid and now Polestar have shared is darn impressive and catching the Street's attention. There is no reason why GM can't wow investors, and see its stock price rewarded accordingly.
Big food watch: Earnings season always begins for me with results out of snacks and beverage giant PepsiCo (PEP). Those results will hit Tuesday morning. To be sure, the sentiment around packaged goods companies — from food makers to toilet paper producers — hasn't been too good in recent months. The S&P Packaged Foods & Meats Index has underperformed the S&P 500 by a wide margin since mid-May. The entire sector is dealing with stubborn inflation in commodities and transportation and little room to push through major price increases. Further, the sector has seen top line growth slow as people have ventured out of their home again. Analysts are marking down their profit expectations for the rest of 2021 and 2022. That said, former long-time PepsiCo CEO Indra Nooyi told me last week how efficient the company is run. Missing financials is basically not allowed at PepsiCo. I wouldn't be surprised to see PepsiCo beat profit estimates yet again on a combination of (1) continued cost-cutting; (2) increasing exposure to fast-growing categories such as energy drinks; and (3) boost to snacks and soda business from increased mobility. Also, keep in mind what PepsiCo's veteran CFO Hugh Johnston told me following the company's recent Tropicana sale — this divestiture will be a nice tailwind to margins longer term. On the other hand, earnings day may not be super nice to Conagra Brands (CAG). The company's bread and butter business is frozen food, a category whose demand has cooled amid renewed consumer mobility. Note the stock was hit back in the summer as the company warned on rising inflation. Shares are down 7% year-to-date.
