US equity markets were firmly on the backfoot this week as bond yields moved relentlessly higher with 30-year bonds briefly breaching 5% for the first time since 2007. The cost of an average 30-year fixed rate mortgage touched 7.3% according to mortgage buyer Freddie Mac, the highest in a quarter of a century.
Investors were given a brief respite on Wednesday (4 Oct) following a weaker than expected ADP jobs report, which came in at 89,000 compared with 155,000 expected. Stocks rallied and bond yields fell back.
Stocks are not out of the woods yet though as investors eagerly await today’s non-farm payrolls report to see if they reflect the same weakness as the ADP data. The Bloomberg consensus forecast is that 170,00 jobs were created in September.
A slowing jobs market could be seen as good news by investors and reduce pressure on the Fed to hike rates further.
KELLOGG / INTEL
The past Wall Street week saw trading go live in a re-shaped Kellogg following the demerger of the snacks and frozen foods business into a separately listed company called Kellanova (K:NYSE). The much-loved cereal brands - Corn Flakes, Frosties, Special K, Rice Crispies – is now housed under the WK Kellogg (KLG:NYSE) entity.
The rationale for the split was to create ‘two stronger companies and create substantial value for shareowners’, according to Kellanona chief executive Steve Cahillane. The brass tacks for investors is that there are now two slightly different ways to play the old Kellogg brands business, with existing shareholders handed one share of WK Kellogg for every old Kellogg shares they previously owned.
Those old shares had not exactly covered themselves in value creation glory in 2023, trading near lows just ahead of the split, and the two new companies saw their stock prices tumble in the first couple of trading sessions - Kellanova losing 9% to $52.37, but WK Kellogg plunging 40%, according to stock market data, enough to put many investors off their Corn Flakes.
Also doing the splits is chipmaker Intel (INTC:NASDAQ), which announced it was jumping on the demerger bandwagon with a plan to spin-off its Programmable Solutions Group into a standalone business and float it in the next two to three years.
The firm will keep a majority stake in the business, which will be led by Sandra Rivera, currently Intel’s head of Data Center and AI operations, and supply it with its own chips, leaving Intel to focus on its core chip fabrication, design and photolithography technologies.
Last year the Santa Clara, California-based group demerged its self-driving technology unit Mobileye (MBLY:NASDAQ), currently valued at $32 billion.
APPLE
There are analysts that believe investors need to cool their heels when it comes to expectations for Apple (AAPL:NASDAQ), where there are some concerns about valuation and the iPhone 15 upgrade cycle. Over the past week, KeyBanc Capital Markets downgraded the world’s largest listed company, saying that the stock is trading near all-time high levels, but sales growth looks likely to drop off, according to analyst Brandon Nispel.
You can see his point. Forking out up to $1,199 for the latest Pro model is a big ask amid a stubbornly sticky cost-of-living crisis. There are also shenanigans in China, where reports have said iPhones have been blacklisted for workers in many government agencies, although Chinese authorities have denied this.
Teething overheating problems with iPhone 15s have not helped, although a software update appears to have found a fix, but at roughly $175, the stock remains less than 11% off July’s $196.45 all-time records, a point Shares made in early August when we recommended taking near-35% profits off the table on our Best Picks for 2023 idea.
2023 stock pick: Apple’s shares have become cheaper and it remains a cash-generating giant
Maybe Apple CEO Tim Cook reads Shares given his sale of 511,000 shares in the company over the past week, worth approximately $41 million. Cook took a 40% pay cut earlier this year, bringing his salary to $49 million for the year, reported Bloomberg, but like many top company executives, a large part of remuneration is paid in stock, so diversification of his own portfolio is the likely reason for the sale.
CONSTELLATION BRANDS
Beer, wine and spirits behemoth Constellation Brands (STZ:NYSE) was given a sobering experience over the past week as investors dumped the stock despite a forecast-beating second quarter (to 31 Aug) as its beer business delivered double-digit sales growth.
That Constellation also raised full-year 2024 earnings per share guidance to a $9.60 to $9.80 range, up from $9.35 to $9.65 previously, yet faced a 5% share price slump in response tells you a lot about how disappointed investors were with plunging (-14%) wine and spirits sales.
CEO Bill Newlands expects ‘solid growth acceleration and margin improvement’ from the wine and spirits unit in the second half, but his optimism clearly isn’t shared by many investors.
Constellation Brands’ quarterly revenue came in 7% up year-on-year at $2.84 billion, with earnings of $3.70, miles ahead of the $3.36 analyst consensus.
Constellation’s Modelo Especial, has now overtaken Bud Light as America’s top-selling US beer brand following a backlash over the latter’s social media tie-up with transgender influencer Dylan Mulvaney.
