US stocks traded sideways as investors’ focus turned to the news – or rather lack of news, given the outcome was fully expected – of a further 25 basis-point (0.25%) rise in interest rates by the Federal Reserve.
The market’s assumption is that the Fed is ‘one and done’, meaning no more rate rises, but that overlooks ‘quantitative tightening’ – the unwinding of the central bank’s post-financial crisis policy of injecting liquidity into the market by swapping bad debts for Treasury notes – which is likely to keep real interest rates high as inflation subsides.
Meanwhile, hopes for a ‘soft landing’ for the US economy received a boost when the preliminary estimate for second-quarter GDP growth not only topped estimates at 2.4% against 1.8% but signaled an acceleration from 2% in the first quarter.
While private consumption declined, it appears businesses regained their confidence with spending on plant and equipment rising after two quarters of contraction.
TECH EARNINGS
The pressure has been on big tech companies to put up earnings to justify their soaring share prices this year, and so far, so good.
Microsoft (MSFT:NASDAQ), Google-owner Alphabet (GOOG:NASDAQ) and Facebook parent Meta Platforms (META:NASDAQ) carry huge implications for artificial intelligence, cloud computing and the tech sector broadly, so investors had their eyes fixed on the figures and guidance, and all three beat Wall Street forecasts in latest quarterly reports.
Dampening the mood a little is an acceptance that they will need to up investment if they are to stay at the bleeding edge of AI, although that also caught the attention of Nvidia (NVDA:NASDAQ) investors, seeing as it is the go to chips supplier for all things AI.
We’ll need to hear from Apple (AAPL:NASDAQ) and Amazon (AMZN:NASDAQ) – both 3 August – before calling a win for big tech this quarter, but the mood music is supportive for the rest of 2023. Nvidia reports later in August, on the 23rd.
COCA-COLA
Cost-of-living pressures have yet to significantly impact demand for fizzy sodas if the latest update from beverages behemoth Coca-Cola (KO:NYSE) on 26 July is anything to go by.
Shares in the soft drinks giant behind the Coke, Sprite, Fanta and Minute Maid were marked up 1.8% to $63.1 after it raised its annual revenue and profit forecasts off the back of forecast-beating second quarter results, as higher prices offset flat global unit case volumes.
CEO James Quincey said he was ‘encouraged that our all-weather strategy, working together with our bottling partners, has delivered strong second quarter results’, adding that ‘the resiliency of our business give us the confidence to raise our 2023 guidance’.
Atlanta-based Coca-Cola, which will continue to increase prices in the second half, is now forecasting full year organic revenue growth of 8% to 9% compared with a previous 7% to 8% increase. The beverages behemoth also upgraded its full year earnings per share growth forecast to a range of 9% to 11%, up from earlier expectations of 7% to 9% growth.
Coca-Cola and arch-rival PepsiCo (PEP:NASDAQ) have faced uncomfortable questions over aspartame, a sweetener used in drinks such as Diet Coke and Diet Pepsi, which was recently classified by the World Health Organization as ‘possibly carcinogenic’.
CHIPOTLE MEXICAN GRILL/MCDONALD’S
Burrito chain Chipotle Mexican Grill (CMG:NYSE) is something of an upstart in the US fast food industry. Joining the stock market in 2006 the company has enjoyed strong growth and that’s been reflected in a 320% advance for the shares in the last five years.
However, the latest quarterly earnings update on 26 July brought its momentum to a shuddering halt as the shares fell 9%. While earnings were just a touch ahead of expectations, sales came up short at $2.51 billion versus the $2.53 billion pencilled in by analysts.
The company reiterated its full-year forecast of same-store sales growth in the mid-to-high single digit range. However, Chipotle anticipates same-store sales growth in the low-to-mid single digit range in the third quarter.
It’s more storied peer McDonald’s (MCD:NYSE), which has been flipping burgers since the 1950s, showed how it’s done with its own numbers for the three-month period to 30 June, announced on 27 July.
Earnings per share came in at $3.17 versus the anticipated $2.79 while revenue was at $6.5 billion against the forecast $6.27 billion. Its budget-friendly dining options proving a winner with cost-conscious consumers.
TUPPERWARE
Welcome to the great meme stock comeback. Roundhill MEME ETF (MEME:NYSEARCA) is a great way to gauge market appetite as its performance mirrors the ups and downs of a basket of names considered to be meme stocks.
Shares in the ETF are up more than 50% year-to-date. Meme stocks are those that have gained popularity among retail investors through discussions on social media. Gamestop (GME:NYSE) was the poster child, but now it seems we have a new contender.Tupperware (TUP:NYSE) has gone up 379% since 20 July and its situation is classic meme stock territory.
Retail investors have been latching onto companies in trouble and bidding up their shares in the hope of making quick gains.
Targets are often ones which have been heavily shorted – if the share price starts to go up it can cause a short squeeze which in turn can accelerate the rate at which the stock rises.
The food storage container maker warned in April that it desperately needed new financing or it could go bust. There are now countless copycat products on sale around the world at cheap prices, meaning Tupperware needs to reinvent itself fast. Its containers were labelled as ‘miracle products’ but the company now needs a new miracle otherwise it could be toast.
