Here is what we saw:
Interest rates looked ok, the US Treasury yield curve is upwardly sloping and rates were coming down. Long Bonds yielding 3.08%. 10-year yields dropped further today during the trading day, now down to below 2.75%.
Fixed income: Corporate bonds fell, with more declines than advances. About 25:1 new lows to new highs, so the down issues kept falling lower. Investment grade bonds were the worst performing.
Crypto (specifically Bitcoin) was down this morning, and the EUR/USD hit a high we had not seen in a while, up to 1.075 (or thereabouts). The US Dollar is breaking down this week.
Pre-market equity movers (all lower that we saw) pointed to a decline in economic activity, including digital advertising. $SNAP Snapchat, indicated that April 2022 saw a significant decline in economic activity which impacted their revenues, and profits. That CEO letter of warning cost this stock 41.41% of its value, and the stock is trading at $13.20 as we write this. I wonder if the CEO saw that coming, or consulted with shareholders before making this disclosure in such an abrupt way.
We saw $ANF Abercrombie & Fitch fall in pre market as well.
$BBAI Big Bear AI fell, but that is a MEME stock so this could be an unrelated 'trading' situation.
Retail, including specialty retail, was almost universally down in pre-market and in early trading. Some of the retail names that have liquidity and solvency risk are significantly lower, potentially due to the recession risk. We think that shuttered stores and massive retail layoffs will just add to the recessionary dialog if this continues. In retail, companies that are a credit risk are a self-fulfilling prophesy. This is because stores need credit to stock inventory for holidays (think Thanksgiving and Christmas). Otherwise they have to pay for all merchandise in advance, which limits how full their stores will be. An empty store is an unprofitable store in most cases.
Companies that rely on digital advertising are also down today.
$AUTO Autoweb is an example of what happens to companies that seize the initiative, work to grow their business in a new area, but ultimately are chocked when capital becomes more expensive (as it did in 2021). Don't be surprised, high-yield debt became much more expensive in the 2nd half of 2021, and we are seeing the effects in 2022, almost a year later. Autoweb does not have the capital resources to maintain a used car business that bought (wait for it) either 100 or 1,000 cars in April.
There are many other capital constrained businesses that in hindsight squandered the money they earned or raised over the last 2 years of economic recovery. Companies like $TUP Tupperware, $FL Footlocker, $VRM Vroom and many more spent their cash, and now are facing creditworthiness risk. There are many more like this...we also see ~1,000 new lows in the corporate bond market. Debt is becoming much more expensive for companies without a liquidity cushion. This can quickly turn into massive high yield default and liquidation / BK. $AVYA Avaya Holdings Corp. had a tough quarter in their core business and has fallen significantly to $3.4250. This is an enterprise IT firm that sells innovative voice technology B2B. Back in the day this equipment and software was indispensable.
That said, we advise our clients to wait before buying stocks in companies where the stocks have already fallen significantly. We call them 'the downtrodden' and our tagline is FOMO is a cost effective strategy in this market. Stocks that are lower now will likely be lower in a week or two. We have been saying this for 8 weeks, and it is still true.
Global equity markets were lower overnight and into this morning.
The VIX was up, but not significantly. It is elevated, but not at 'panic' levels above 30.
Other stocks we discussed were $URBN, $AVYA, $COIN, $RWLK $CLF (now at $22.05), and $FLXS (now at $17.69). In all cases, we are looking for price targets to make a purchase.
Retail sales data came in from Census.gov (an advance reading for April 2022), found here. It showed rising prices, and actually house sales falling back to historically normal levels for April of 600k units. For us, the news is that prices have increased. "Sales Price The median sales price of new houses sold in April 2022 was $450,600. The average sales price was $570,300."
Hope you found this BLOG post enjoyable.
If you like it, and the video, please click the YouTube subscribe button and also sign up for our mailing list. Thank you for reading.