Investors seem remarkably relaxed – possibly even complacent – given the slew of bad economic news being thrown at the US market at present.
Both wholesale and retail prices are rising faster than forecast, mainly due to higher food and energy costs, with underlying inflation in consumer goods and services rising at the fastest rate in more than a year.
Although Fed chair Jerome Powell told the Senate this week inflation expectations were ‘well-anchored’, according the CME’s FedWatch tool bets on the next rate cut have shifted from September to December with some economists suggesting more bad news could cause the central bank to start raising rates again.
Trump’s fixation with tariffs isn’t helping – his latest ‘very big’ announcement is a plan to impose reciprocal tariffs on numerous trading partners he accuses of ‘ripping off’ the US.
In an echo of the Smoot-Hawley Act of 1930, the Commerce Department has been tasked with drawing up one-for-one levies on a country-by-country basis in what amounts to an all-out trade war.
The market, demonstrating its exceptionalism once more, paid no attention whatsoever and the Nasdaq gained 1.5%, almost hitting new highs, while volatility as measured by the VIX index actually fell.
However, as historians will know, the 1930 tariffs caused a two-thirds decline in global trade, helping trigger the Great Depression, and ultimately the US had to recant.
Whether this is just another negotiating tactic is unclear, but the fact the dollar tanked and gold rallied after the announcement suggests away from the equity market investors are erring on the side of caution.
COCA-COLA
Shares in soft drinks giant Coca-Cola (KO:NYSE) popped after the group served up (11 February) forecast-beating fourth quarter sales and earnings driven by rising global demand for its drinks.
Guided by chairman and chief executive James Quincey, Coca-Cola delivered revenue of $11.54 billion for the quarter to December 2024, ahead of the $10.68 billion Wall Street expected, while earnings of 55 cents beat the 52 cents analysts were calling for as Coca-Cola benefited from price increases and consumers buying smaller, more expensive packs of drinks.
Organic sales fizzed 14% higher, double the 7% expected, with global unit case volumes up 2% led by the US, China and Brazil.
Coke Zero sales bubbled up 13% as consumers continued to shift allegiance to no-sugar drinks, although Costa Coffee in the UK was called out as a performance drag.
The firm cautioned tariffs could have an impact on aluminium prices, so in order to reach its organic sales growth target of 5% to 6% this year it is looking at ways of expanding the availability of its plastic bottles.
MCDONALD'S
Fast food chain McDonald’s (MCD:NYSE) saw its shares rise this week despite missing fourth-quarter earnings estimates as investors welcomed a return to growth in same-store sales outside the US.
The company said global comparable sales increased 0.4% year on year, confounding consensus estimates calling for a decline, driven by the burger chain’s focus on discounted meals and promotions.
Chairman and chief executive Chris Kempczinski said: ‘“Accelerating the Arches’ continues to be the right strategy as we focus on growing market share. We’re playing to win, focusing on our customers with outstanding value, exciting menu innovation and culturally relevant marketing.’
In contrast to the international businesses, US comparable sales dropped 1.4%, impacted by lower customer spending, although the company said following an E-Coli outbreak in October it saw a recovery in the number of store visits.
Consolidated revenue for the quarter was flat year-on-year at $6.9 billion, while adjusted EPS (earnings per share) fell 4% to $2.83, coming up short of the $2.85 consensus forecast.
SUPER MICRO COMPUTER
GPs must be inundated by investors requesting betablocker prescriptions given the heart palpitations that come hand in hand with owning shares in Super Micro Computer (SMCI:NASDAQ).
The stock went vertical again this week, surging 50%-odd after the server maker whipped up excitement for future growth.
Telling the markets next year’s revenue (to June 2026) will be a third better than expectations, $40 billion versus $29.2 billion, tends to have that effect, even if the near-term guidance looked a little soft.
Before that, however, the $23 billion company will have to show investors it has sorted out its accounting issues.
It has yet to file its annual report for the fiscal year to 30 June 2024, or its earnings for the quarter to 30 September, with Nasdaq’s 25 February 2025 deadline looming large.
If it misses that window, the company faces being delisted. Better get that blood pressure appointment booked.
