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Monday, March 7, 2022
Where to go? What to do? What happens next? If X occurs, Y may not occur.
That’s the over-arching mood — one of outright confusion — on Wall Street as its machine-like workers log overtime to handicap the ongoing Russia-Ukraine war. I had one trader tell me he has been shorting oil in recent sessions, which by his own admission hasn’t worked well as prices have surged to nearly $120 a barrel (and maybe soon, $150).
Another person remarked to me they are still long bank stocks on expectations of higher yields and rising interest rates. Banks have been crushed (KBW bank ETF down 5%; JPMorgan down 9%) post Russia’s invasion of Ukraine as those in the know reason the financial system will soon to be stressed due to the West’s sanctions on Russia.
As support of that bearish trade, within the past five days ratings agency Moody’s has downgraded Russia’s debt to junk and on Friday, lowered Ukraine deeper into junk territory. Moody’s also said late Friday it’s halting commercial operations in Russia.
These actions are likely to have far-reaching implications across global markets. When will they? And what does that exactly look like? Nobody has any true idea and neither does Mr. Market as it’s only down 3% in the past month.
Then there are the derivative effects from the war, notably runaway prices for oil, gas, wheat, corn, etc. What impact will that have on the global economy? I don’t know and neither do a lot of my sources.
That’s not a knock on us, but really who the hell knows.
Here’s what the team at Deutsche Bank had to say which perfectly captures my vibe:
“The war in Ukraine has – similar to the COVID-19 crisis – once again turned economic forecasting into an extremely crude scenario exercise, where forecasts are largely driven by assumptions about variables, which are clearly outside the realm of economic analysis, and where even specialists are forced to frequently revise their assessments, given the new information they are analyzing day-by-day. This time the key “known unknowns” are, of course, the development of the war and the path of energy and commodity prices. The two are strongly correlated. The large price volatility in recent days seems to be more driven by market speculation based on the news flow related to the war, rather than changes in actual demand and supply, with the complete breakdown of Russian gas and oil deliveries being a distinct possibility.”
Encouraging!
I suppose the only thing we do know is that this Thursday’s Consumer Price Index (CPI) report will suck (again) for anyone who enjoys having a few extra dollars in their bank account.
Says Jefferies chief economist Aneta Markowska:
“Russia’s invasion of Ukraine has caused significant swings in commodity prices, which will no doubt exert upward pressure on inflation in the coming months. Higher oil prices will be passed through to consumers immediately, and are on track to add 0.3% to the CPI in February and 0.6% in March. The pass through from agricultural commodities to food prices is less certain and will take much longer, but it will nonetheless add at least 0.1% to the CPI in February and in March (and likely more later this year). This means that inflation will almost certainly hit 8% in March.”
So what DO we know?
Well, first we know the stock market opens at 9:30 a.m. ET every weekday. Second, we know the sun always comes up. Thirdly, we know you can buy stocks low in the pursuit of selling high. And lastly, we know Warren Buffett is a billionaire.
Other than all of that, we know not very much and that could bring headaches to the bulls quite soon. Happy trading!
Odds and ends
Stocks to watch: I tell anyone who asks, one of the most useful pages to bookmark on Yahoo Finance is our Trending Tickers page. The page surfaces the most visited ticker pages on our site. Now obviously there are reasons why one ticker page is more visited than another, such as company news or developing macroeconomic trends. These are the names traders are researching to buy, sell or hold for whatever reason and for our new investor friends out there, this is a stellar starting point each day to find new ideas.
Here is a snapshot into some of the top ticker searches on Yahoo Finance over the past 24 hours, with a quick dose of analysis.
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Walmart, Coca-Cola: The safety/inflation trade is alive and well in this generally uncertain market backdrop, and it doesn’t get any safer than Walmart and Coca-Cola (well it does, think cash and Krispy Kreme donuts but you know what I mean). Walmart’s stock is up 5.3% in the past week versus the 0.3% rise for the S&P 500 likely on the thesis surging gas prices cause consumers to trade down (Costco should be a bigger winner too with this thesis). Walmart CFO Brett Biggs recently told me he hasn’t seen consumers trading down but that was about 30 cents ago for unleaded regular. As for Coca-Cola, it continues to be a great COVID-19 reopening trade (shares are near a record high) as 40% of its business is tied to eating away from home (think Coke fountain sodas at McDonald’s or at a sports venue or at a bar). An added bonus right now for Coke is finally parting ways with board member Bobby Kotick, the embattled Activision Blizzard CEO, according to a new SEC filing. It’s confusing why this move took so long given Kotick was overseeing major cultural issues inside his own company for years. This has not been a top governance job here by such a storied company in Coca-Cola, bottom line. Nonetheless Kotick is gone soon.
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Conoco Phillips, Natural Gas: Energy continues to be one of the hottest sectors in the market (underscored by Berkshire Hathaway’s Warren Buffett unveiling a $5 billion position in Occidental Petroleum) as oil knocks on the door of $120 a barrel on the Russia-Ukraine situation. One-month performances: Conoco Phillips (+9.1%); ExxonMobil (+4%); Chevron (+17%); S&P 500 Energy Sector (+11%); Natural Gas (+16%). It’s hard to see the energy trade rolling over unless there are signs of consumer demand destruction, as CIBC Private Wealth U.S. senior energy trader Rebecca Babin said on Yahoo Finance Live.
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Mastercard, Visa, Starbucks: If any company is going to feel a pinch from higher gas prices it’s the likes of these three consumer discretionary names. Should consumers begin to retrench as gas prices break through $5 a gallon, that means fewer purchases on the charge card at the mall or grocery store. Starbucks’ inflation-driven (wages, energy, etc.) price increases are already making a morning trip there near impossible — rest assured $6+ iced coffees (I paid $6.25 on Saturday) are the first things to be cut if people are being forced to spend way more on petrol, meat, eggs, and dairy. All three of these stocks have sucked wind in the past five days of surging gas prices: Mastercard (-8.3%); Visa (-7.6%); Starbucks (-3%).
Chart to watch: Shout out to the team at Thinkum for its chart on cruise line bookings. “Page views are picking up for cruise lines in 2022. Carnival is leading with a 336.9% rebound year-over-year, followed by Norwegian Cruise Lines at 167% and Royal Caribbean at 94%. As Carnival and Norwegian go mask-optional for passengers this week, it looks like vacationers are eager to set sail,” Thinkum said.
Going on a post COVID-19 cruise this summer? I am curious on why you came to the decision, tweet me at @BrianSozzi with any insight (also interested in your pics of gas prices at your local station, so shoot those over, too).
Kohl’s investor day: It’s a big day for Kohl’s CEO Michelle Gass as the company’s key investor day (which it has been hyping for over a month) kicks off amid a heated activist battle with Macellum Capital Management. As a student of Kohl’s this past decade, I say this day flops and Macellum gets its board overhaul (or most of it).
Here’s what Macellum CEO Jonathan Duskin had to say ahead of the event:
“While management celebrated its success and made dismissive excuses about the company’s considerable loss of market share to its retail peer group, we see the fourth quarter fiscal year 2021 results through a different lens.1 We remain skeptical of Kohl’s’ future with the current board of directors and management configuration. The central issues in our mind remain: (1.) an inability to grow sales versus 2019 levels, (2.) gross margin gains that are looking increasingly one-time in nature due to dramatic deceleration and management’s plan to increase inventories, (3.) an inability to contain costs and (4.) poor capital allocation and balance sheet optimization. In advance of Monday’s analyst day, we believe there are several overarching questions that management must address.”
Miscellaneous: Here’s a nice WSJ profile on Hasbro’s Gamer-in-Chief (aka CEO) Chris Cocks. Hasbro’s new top dog arrives during an activist battle (we talked with the activist on Yahoo Finance Live — he wants the company split up) and potentially cooling toy sales. Here’s our chat with Cocks a few weeks before he was appointed CEO. WSJ also detailed the highest-paid player in baseball Max Scherzer (new $43.3 million a year deal with the NY Mets) playing an important role in helping to avoid the MLB season from being canceled. U.S. Labor Secretary Marty Walsh (and a baseball buff) told Yahoo Finance Live he is willing to step in and help broker a deal between the union and owners. Please help Marty, I need to go to a Yankees game this year and get my hot dog and light beer on (at a probably $50 inflationary price). Meanwhile, maybe you’ll see shares of AMC on the aforementioned Trending Tickers page on Yahoo Finance today. The latest Batman movie brought in more than $120 million in its box office debut. Not bad.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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