US stock markets took a turn for the worse after Minneapolis Fed president Neel Kashkari threw a cat among the pigeons by introducing the possibility of zero rate cuts this year.
‘If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all’, Kashkari told journalists. ‘There's a lot of momentum in the economy right now.’
That was evident following Mondays’ (1 Apr) stronger than expected ISM manufacturing data, which signalled expansion for the first time in 18 months. The prospect of no cuts to official interest rates was a hard reality check for risk assets with US indices falling over 2% on the week. The small-cap Russell 2000, which has lagged the large cap indices this year, was the worst performer again, losing just over 3% over the past week.
Oil and commodity sectors were the best performers reflecting gains in gold and oil prices (1% and 3% respectively) on renewed geopolitical tensions. Investors will be keenly watching the latest Non-Farm Payrolls report for signs of labour market resiliency when it is released on Friday (5 Apr) at 1.30pm UK time.
TESLA
Subpar first quarter deliveries from Tesla (TSLA:NASDAQ) caught everyone on the hop and saw the share price spin 5% lower to continue a bloody start to 2024. Deliveries of 386,810 were 20% off the previous quarter and 15% shy of Wall Street expectations of 454,200 vehicles, based on the data compiled by Visible Alpha.
This is the first quarter-on-quarter decline in four years and shows the scale of the challenges ahead as a savage price war takes its toll. Even perma-bulls dealt out harsh realities, with Wedbush analysts saying, ‘while we were anticipating a bad Q1, this was an unmitigated disaster that is hard to explain away’.
That Tesla sold more EVs than China’s BYD (which sold around 300,000 vehicles) shows the depth of the market decline, as would-be buyers grapple with two years of cost-of-living pressures. Inflation may have been tamed but with mortgage rates, food prices and energy bills still far higher than they were a couple of years ago, it’s easy to see why a new car might fall down the list of priorities.
‘We view this as a seminal moment in the Tesla story for Musk to either turn this around and reverse the black eye Q1 performance’, said Wedbush, or face ‘darker days’ ahead that could disrupt the long-term Tesla narrative.
DISNEY
CEO Bob Iger may have won his battle for control with activist investor Nelson Peltz at the ‘House of Mouse’ but the market reaction to the victory provides food for thought. That Disney (DIS:NYSE) stock fell modestly on the news suggests some investors would have liked to see Peltz get the opportunity to shake things up at Disney with a seat on the board.
As it turned out all 12 of Disney’s nominees prevailed by a wide margin against those put up against Peltz’s Trian vehicle and fellow activist Blackwells.
The eventual succession plan remains a big issue for Disney, with Iger’s botched handover to Bob Chapek necessitating his return after less than three years. While Iger’s contract has been extended out until 2026, there is likely to be considerable focus on potential candidates to take his place in the months ahead.
In the meantime, Iger needs to deliver on promises of breakeven for the streaming operation this year, improve box office performance and fulfill planned investment in its parks and experiences arm. Quite the ‘to do’ list.
PVH
Fashion is a notoriously fickle business and as consumers move on to new brands, Calvin Klein and Tommy Hilfiger-owner PVH (PVH:NYSE) has been forced to rethink its labels look. Soft guidance for the first quarter and full year 2024 partly reflects the sale of Heritage Brands, PVH’s women’s intimates’ business, but the company also flagged a difficult demand backdrop.
This is particularly true in Europe where CEO Stefan Larsson warned ‘the macro has become more challenged’, sparking a 24% share price decline over the past week.
Fourth quarter results, including the key Christmas season, beat Wall Street estimates, but investors look forward, not backwards, and perhaps the 2% decline in Q4 2023 across North American for Tommy Hilfiger and Calvin Klein combined was a warning, where strong direct-to-consumer growth was offset by wholesale revenue reverses.
