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Black Friday Consumers, or NVIDIA? Global Week Ahead
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In the Global Week Ahead, U.S. retailers are gearing up for Black Friday.
This day marks the start of the shopping season that follows the Thanksgiving holiday.
Also from the USA, business activity data should gauge the temperature elsewhere
Across the pond in Europe, the U.K.'s budget update is in the spotlight
Over in Asia, the Japanese yen might get some breathing space
Down in Latin America, Argentina heads for a key presidential election
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Black Friday happens at the end of the week, after Thanksgiving, in the USA.
The crucial holiday shopping season kicks off with Black Friday on Nov. 24th at a time when investors are questioning whether the consumer-driven U.S. economy can remain resilient.
This year's Black Friday comes as Americans grapple with soaring interest rates and inflation that, while easing, remains above the Federal Reserve's 2% target.
Already, data for October showed U.S. retail sales fell, pointing to slowing demand, although the decline was less than expected.
There's also likely to be plenty of interest in chip company NVIDIA (NVDA - Free Report) , which releases its latest earnings report AMC on Tuesday, Nov. 21st.
It is the last of the results in the earnings season from the Magnificent 7 mega-cap companies, whose massive share gains this year have led equity indexes higher.
(2) What does the weak Japanese yen portend?
There's an air of inevitability about a weaker yen, even with the Bank of Japan increasingly hinting at an end to ultra-loose policy and greater investor certainty that the Fed is done tightening.
After pulling back from the brink of 152 per dollar at the start of the week, receiving a lifeline from cooling U.S. inflation data, the yen was back to the weaker side of 151 a day later. It's déjà vu for traders, who saw support from weak U.S. payrolls numbers on Nov. 3 last only as long as the weekend.
While gaping Japan-U.S. rate differentials do not bode well for the yen, the shift in policy directions should at least give forward-thinking markets some pause.
As long as that's not the case, pressure is on the Kishida cabinet since a weak yen is unpopular politically. And that means Tokyo is never too far from the intervention trigger.
(3) Flash November PMIs due out, globally.
Soft or hard landing? For sure, compelling arguments can be made for both.
The European Commission expects the Eurozone will avoid technical recession; Britain just sidestepped the start of one.
The forward-looking flash November PMIs due out globally should help investors assess recession risks and how quickly rate cuts will begin.
The Eurozone PMI is already below the 50 number, suggesting economic activity is contracting. It is the same in Britain, while the U.S. October manufacturing PMI contracted sharply.
Bond heavyweight PIMCO sees the probability of a U.S. recession within one year at 50%. Market pricing for rate cuts suggests traders reckon economic growth will slow fast enough for the Fed and European Central Bank to switch to easing mode.
And, of course, soft landing hopes could vanish fast, if inflation eases more quickly, and unemployment rises fast.
(4) New directions flow from new U.K. foreign policy leadership, and budgets.
U.K. politics has been dramatic, with Prime Minister Rishi Sunak having fired his interior minister, moved former leader David Cameron back into government and reshuffled other top roles.
Finance minister Jeremy Hunt will now change gear with his Nov. 22nd Autumn Statement, focusing on boosting growth ahead of an expected 2024 election.
Analysts predict the government, hamstrung by a stagnant economy and high debt, won't make big investment pledges.
Still, Hunt looks set to trim taxes for voters and businesses, offering some relief to the many Conservative lawmakers alarmed at the opposition Labor Party's big opinion poll lead. He could also downgrade near-term borrowing expectations, temporarily boosting gilts.
Natwest says the U.K. may issue 10% more debt in 2024-2025 than in this fiscal year — a development that would amplify long-term concerns about gilt market oversupply.
(5) Argentina elected a new president on Sunday.
Argentines elected a new president on Sunday in a race pitching center-left Peronist economy chief Sergio Massa against libertarian outsider Javier Milei.
Milei won 55.8% of the vote, against 44.2% for economy minister Massa, with over 99% of votes counted.
They offered two wildly different visions for South America's No. 2 economy: Milei offered ‘shock therapy’ for an embattled economy, one that has run out of FX reserves, with inflation running at over +140%, and facing a recession Pragmatist Massa had pledged a unity government, and more gradual change, to solve the crisis that had worsened on his watch
Milei’s campaign centered on a pledge to take a “chainsaw” to the state — slashing spending by up to 15% of GDP — and to dollarize the economy to stamp out inflation.
Investors are bracing for rocky times, with Argentina's crucial $44 billion IMF program on the ropes and international bonds priced at deeply distressed levels.
And there's more election-induced volatility ahead in emerging markets with Egypt, Taiwan, South Africa and India just some facing key ballots in coming months.
Zacks #1 Rank (STRONG BUY) Stocks
I noted three major Consumer Leisure/Revenge Travel stocks on our #1 list this week.
(1) Royal Caribbean Cruises (RCL - Free Report) : This is a $103 a share stock, with a market cap of $26.6B. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. Additionally, it has 50% investment in a joint venture with TUI AG, which operates the brand TUI Cruises.
The company’s cruise brands primarily serve the contemporary, premium and deluxe segments of the cruise vacation industry, which also includes the budget and luxury segments. These brands operate 64 ships. The ships operate on a selection of diverse itineraries worldwide that include roughly 1,000 destinations on all seven continents.
The company reports revenues under the following segments — Passenger ticket revenues (65.5% of total revenues in 2022) and Onboard and other revenues (34.5%).
Across the company’s five brands, nearly 5.5 million guests sailed in 2022. By the end of 2022, 64 out of 75 ships returned to operations, representing more than 85% of its worldwide capacity. The company’s bookings improved sequentially by 2022-end. As of Dec 31, 2022, the company had nearly $4.2 billion in customer deposits.
In the third quarter of 2022, the company unveiled a three-year financial performance initiative - Trifecta Program, thereby articulating longer-term financial objectives. The program emphasizes on financial coordinates, including Adjusted EBITDA per APCD, Adjusted EPS and ROIC. Under this program, the company expects to achieve a triple-digit adjusted EBITDA per APCD, exceeding the earlier record adjusted EBITDA per APCD of $87 in 2019.
The company also expects to achieve double-digit adjusted earnings per share, exceeding the earlier record adjusted earnings per share of $9.54 in 2019. The company anticipates achieving a return on invested capital in the teens in 2023.
(2) Sands China (SCHYY - Free Report) : This is a $27 a share stock, with a market cap of $22.7B. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Sands China Ltd. operates as a developer, owner and operator of integrated resorts and casinos in Macau and is a subsidiary of Las Vegas Sands Corp.
The company's assets include The Venetian Macao, The Sands Macao and The Plaza Macau.
It also provides human resources administration, travel and tourism agency, mall management, ferry transportation and leasing services, procurement, marketing and administrative services.
Sands China Ltd. is headquartered in Macau.
(3) Live Nation Entertainment (LYV - Free Report) : This is a $89 a share stock, with a market cap of $20.5B. I see a Zacks Value score of C, a Zacks Growth score of D, and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Incorporated in 2005 and headquartered in Beverly Hills, CA, Live Nation Entertainment operates as a live entertainment company. It operates through Concerts, Ticketing, and Sponsorship and Advertising segments.
The company has more than 580 million fans across all of its concerts and ticketing platforms in 46 countries. The company owns, operates, and has exclusive booking rights for or has an equity interest in 289 venues, which include House of Blues music venues, and prestigious locations such as The Fillmore in San Francisco, Brooklyn Bowl, the Hollywood Palladium, the Ziggo Dome in Amsterdam, 3 Arena in Ireland, Royal Arena in Copenhagen and Spark Arena in New Zealand.
The company operates via three segments:
Concerts (80.9% of total revenues in 2022): The segment promotes live music events in its owned or operated venues and rented third-party venues; operates and manages music venues; produces music festivals; makes related content; and provides management as well as other services to artists. The segment’s direct operating expenses comprise artist fees, event production costs, show-related marketing and advertising expenses, and other costs.
Ticketing (13.4% of total revenues in 2022): The segment manages the ticketing operations. This segment sells tickets for its events, as well as for third-party clients in numerous live event categories, like arenas, stadiums, professional sports franchises and leagues, college sports teams, amphitheaters, music clubs, concert promoters, performing arts venues, museums, and theaters via websites, mobile apps, ticket outlets, and telephone call centers. The segment’s operating costs include all center costs and credit card fees, along with other costs.
Sponsorship & Advertising (5.7% of total revenues in 2022): The segment sells international, national, and local sponsorships and placement of advertising. The segment’s direct operating expenses include fulfillment costs associated with its sponsorship programs and other costs.
Key Global Macro
During and after the Thanksgiving holiday, there are a number of PMI prints.
On Monday, there will be a People’s Bank of China (PBoC) policy rate decision. 3.45% is where that rests, at the moment.
On Tuesday, the Bank of Canada (BoC) core CPI for OCT is out. +2.8% y/y was the prior reading. The broad BoC CPI is at +3.8% y/y.
The Canadian New Housing Price Index is down -1.0% y/y thru OCT.
U.S. existing home sales thru OCT are out. The prior y/y change is -2.0%.
The FOMC minutes are out.
On Wednesday, volatile U.S. durable goods orders are out. The broad reading for OCT looks for -3.0% y/y, after a +4.6% y/y print in the prior mark.
Initial jobless claims in the U.S. are also out, a day early this week. Last week, we had a 231K number. Higher than recent prints, perhaps due to strikes.
On Thursday, the Thanksgiving Day holiday happens in the USA.
In Europe, the HCOB manufacturing PMI for NOV comes out. I see a 43.4 consensus call, after a 43.1 prior print.
On Friday, the Jibun Bank Japan manufacturing PMI comes out for NOV. I see a 48.7 prior print.
The USA S&P global manufacturing PMI for NOV also comes out. The prior reading was 50.
Conclusion
Zacks Research Director Sheraz Mian reassures us. Overall Q3 S&P500 earnings growth remains on track to be positive.
If this happens, this will be the first y/y earnings growth witnessed — after three back-to-back quarters of declining earnings.
In terms of the scorecard, Zacks has results from 468 S&P500 members or 93.6% of the index’s total.
Q3 earnings for these companies are up +1.5%
On +1.8% higher revenues
81.6% beat EPS estimates
A much lower 62% beat revenue estimates
To look at Q3 at 100%, we can combine actuals with estimates for still-to-report firms.
Then, total S&P500 earnings are on track:
To increase +2.8%
On +1.9% higher revenues
Exclude the Energy sector drag? Then, Q3 earnings would be up +8%.
So, in Q3, U.S. and global consumers kept on consuming (take note of the cruises, concerts, and gambling) — at a healthy pace.
That supplied the modest Q3 lift in U.S. company share fundamentals.
Now, we enter the peak Q4 northern hemisphere holiday shopping season.
Happy trading and investing!
John Blank Zacks Chief Equity Strategist and Economist
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Black Friday Consumers, or NVIDIA? Global Week Ahead
In the Global Week Ahead, U.S. retailers are gearing up for Black Friday.
This day marks the start of the shopping season that follows the Thanksgiving holiday.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Black Friday happens at the end of the week, after Thanksgiving, in the USA.
The crucial holiday shopping season kicks off with Black Friday on Nov. 24th at a time when investors are questioning whether the consumer-driven U.S. economy can remain resilient.
This year's Black Friday comes as Americans grapple with soaring interest rates and inflation that, while easing, remains above the Federal Reserve's 2% target.
Already, data for October showed U.S. retail sales fell, pointing to slowing demand, although the decline was less than expected.
There's also likely to be plenty of interest in chip company NVIDIA (NVDA - Free Report) , which releases its latest earnings report AMC on Tuesday, Nov. 21st.
It is the last of the results in the earnings season from the Magnificent 7 mega-cap companies, whose massive share gains this year have led equity indexes higher.
(2) What does the weak Japanese yen portend?
There's an air of inevitability about a weaker yen, even with the Bank of Japan increasingly hinting at an end to ultra-loose policy and greater investor certainty that the Fed is done tightening.
After pulling back from the brink of 152 per dollar at the start of the week, receiving a lifeline from cooling U.S. inflation data, the yen was back to the weaker side of 151 a day later. It's déjà vu for traders, who saw support from weak U.S. payrolls numbers on Nov. 3 last only as long as the weekend.
While gaping Japan-U.S. rate differentials do not bode well for the yen, the shift in policy directions should at least give forward-thinking markets some pause.
As long as that's not the case, pressure is on the Kishida cabinet since a weak yen is unpopular politically. And that means Tokyo is never too far from the intervention trigger.
(3) Flash November PMIs due out, globally.
Soft or hard landing? For sure, compelling arguments can be made for both.
The European Commission expects the Eurozone will avoid technical recession; Britain just sidestepped the start of one.
The forward-looking flash November PMIs due out globally should help investors assess recession risks and how quickly rate cuts will begin.
The Eurozone PMI is already below the 50 number, suggesting economic activity is contracting. It is the same in Britain, while the U.S. October manufacturing PMI contracted sharply.
Bond heavyweight PIMCO sees the probability of a U.S. recession within one year at 50%. Market pricing for rate cuts suggests traders reckon economic growth will slow fast enough for the Fed and European Central Bank to switch to easing mode.
And, of course, soft landing hopes could vanish fast, if inflation eases more quickly, and unemployment rises fast.
(4) New directions flow from new U.K. foreign policy leadership, and budgets.
U.K. politics has been dramatic, with Prime Minister Rishi Sunak having fired his interior minister, moved former leader David Cameron back into government and reshuffled other top roles.
Finance minister Jeremy Hunt will now change gear with his Nov. 22nd Autumn Statement, focusing on boosting growth ahead of an expected 2024 election.
Analysts predict the government, hamstrung by a stagnant economy and high debt, won't make big investment pledges.
Still, Hunt looks set to trim taxes for voters and businesses, offering some relief to the many Conservative lawmakers alarmed at the opposition Labor Party's big opinion poll lead. He could also downgrade near-term borrowing expectations, temporarily boosting gilts.
Natwest says the U.K. may issue 10% more debt in 2024-2025 than in this fiscal year — a development that would amplify long-term concerns about gilt market oversupply.
(5) Argentina elected a new president on Sunday.
Argentines elected a new president on Sunday in a race pitching center-left Peronist economy chief Sergio Massa against libertarian outsider Javier Milei.
Milei won 55.8% of the vote, against 44.2% for economy minister Massa, with over 99% of votes counted.
They offered two wildly different visions for South America's No. 2 economy:
Milei offered ‘shock therapy’ for an embattled economy, one that has run out of FX reserves, with inflation running at over +140%, and facing a recession
Pragmatist Massa had pledged a unity government, and more gradual change, to solve the crisis that had worsened on his watch
Milei’s campaign centered on a pledge to take a “chainsaw” to the state — slashing spending by up to 15% of GDP — and to dollarize the economy to stamp out inflation.
Investors are bracing for rocky times, with Argentina's crucial $44 billion IMF program on the ropes and international bonds priced at deeply distressed levels.
And there's more election-induced volatility ahead in emerging markets with Egypt, Taiwan, South Africa and India just some facing key ballots in coming months.
Zacks #1 Rank (STRONG BUY) Stocks
I noted three major Consumer Leisure/Revenge Travel stocks on our #1 list this week.
(1) Royal Caribbean Cruises (RCL - Free Report) : This is a $103 a share stock, with a market cap of $26.6B. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. Additionally, it has 50% investment in a joint venture with TUI AG, which operates the brand TUI Cruises.
The company’s cruise brands primarily serve the contemporary, premium and deluxe segments of the cruise vacation industry, which also includes the budget and luxury segments. These brands operate 64 ships. The ships operate on a selection of diverse itineraries worldwide that include roughly 1,000 destinations on all seven continents.
The company reports revenues under the following segments — Passenger ticket revenues (65.5% of total revenues in 2022) and Onboard and other revenues (34.5%).
Across the company’s five brands, nearly 5.5 million guests sailed in 2022. By the end of 2022, 64 out of 75 ships returned to operations, representing more than 85% of its worldwide capacity. The company’s bookings improved sequentially by 2022-end. As of Dec 31, 2022, the company had nearly $4.2 billion in customer deposits.
In the third quarter of 2022, the company unveiled a three-year financial performance initiative - Trifecta Program, thereby articulating longer-term financial objectives. The program emphasizes on financial coordinates, including Adjusted EBITDA per APCD, Adjusted EPS and ROIC. Under this program, the company expects to achieve a triple-digit adjusted EBITDA per APCD, exceeding the earlier record adjusted EBITDA per APCD of $87 in 2019.
The company also expects to achieve double-digit adjusted earnings per share, exceeding the earlier record adjusted earnings per share of $9.54 in 2019. The company anticipates achieving a return on invested capital in the teens in 2023.
(2) Sands China (SCHYY - Free Report) : This is a $27 a share stock, with a market cap of $22.7B. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Sands China Ltd. operates as a developer, owner and operator of integrated resorts and casinos in Macau and is a subsidiary of Las Vegas Sands Corp.
The company's assets include The Venetian Macao, The Sands Macao and The Plaza Macau.
It also provides human resources administration, travel and tourism agency, mall management, ferry transportation and leasing services, procurement, marketing and administrative services.
Sands China Ltd. is headquartered in Macau.
(3) Live Nation Entertainment (LYV - Free Report) : This is a $89 a share stock, with a market cap of $20.5B. I see a Zacks Value score of C, a Zacks Growth score of D, and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Incorporated in 2005 and headquartered in Beverly Hills, CA, Live Nation Entertainment operates as a live entertainment company. It operates through Concerts, Ticketing, and Sponsorship and Advertising segments.
The company has more than 580 million fans across all of its concerts and ticketing platforms in 46 countries. The company owns, operates, and has exclusive booking rights for or has an equity interest in 289 venues, which include House of Blues music venues, and prestigious locations such as The Fillmore in San Francisco, Brooklyn Bowl, the Hollywood Palladium, the Ziggo Dome in Amsterdam, 3 Arena in Ireland, Royal Arena in Copenhagen and Spark Arena in New Zealand.
The company operates via three segments:
Concerts (80.9% of total revenues in 2022): The segment promotes live music events in its owned or operated venues and rented third-party venues; operates and manages music venues; produces music festivals; makes related content; and provides management as well as other services to artists. The segment’s direct operating expenses comprise artist fees, event production costs, show-related marketing and advertising expenses, and other costs.
Ticketing (13.4% of total revenues in 2022): The segment manages the ticketing operations. This segment sells tickets for its events, as well as for third-party clients in numerous live event categories, like arenas, stadiums, professional sports franchises and leagues, college sports teams, amphitheaters, music clubs, concert promoters, performing arts venues, museums, and theaters via websites, mobile apps, ticket outlets, and telephone call centers. The segment’s operating costs include all center costs and credit card fees, along with other costs.
Sponsorship & Advertising (5.7% of total revenues in 2022): The segment sells international, national, and local sponsorships and placement of advertising. The segment’s direct operating expenses include fulfillment costs associated with its sponsorship programs and other costs.
Key Global Macro
During and after the Thanksgiving holiday, there are a number of PMI prints.
On Monday, there will be a People’s Bank of China (PBoC) policy rate decision. 3.45% is where that rests, at the moment.
On Tuesday, the Bank of Canada (BoC) core CPI for OCT is out. +2.8% y/y was the prior reading. The broad BoC CPI is at +3.8% y/y.
The Canadian New Housing Price Index is down -1.0% y/y thru OCT.
U.S. existing home sales thru OCT are out. The prior y/y change is -2.0%.
The FOMC minutes are out.
On Wednesday, volatile U.S. durable goods orders are out. The broad reading for OCT looks for -3.0% y/y, after a +4.6% y/y print in the prior mark.
Initial jobless claims in the U.S. are also out, a day early this week. Last week, we had a 231K number. Higher than recent prints, perhaps due to strikes.
On Thursday, the Thanksgiving Day holiday happens in the USA.
In Europe, the HCOB manufacturing PMI for NOV comes out. I see a 43.4 consensus call, after a 43.1 prior print.
On Friday, the Jibun Bank Japan manufacturing PMI comes out for NOV. I see a 48.7 prior print.
The USA S&P global manufacturing PMI for NOV also comes out. The prior reading was 50.
Conclusion
Zacks Research Director Sheraz Mian reassures us. Overall Q3 S&P500 earnings growth remains on track to be positive.
If this happens, this will be the first y/y earnings growth witnessed — after three back-to-back quarters of declining earnings.
In terms of the scorecard, Zacks has results from 468 S&P500 members or 93.6% of the index’s total.
To look at Q3 at 100%, we can combine actuals with estimates for still-to-report firms.
Then, total S&P500 earnings are on track:
Exclude the Energy sector drag? Then, Q3 earnings would be up +8%.
So, in Q3, U.S. and global consumers kept on consuming (take note of the cruises, concerts, and gambling) — at a healthy pace.
That supplied the modest Q3 lift in U.S. company share fundamentals.
Now, we enter the peak Q4 northern hemisphere holiday shopping season.
Happy trading and investing!
John Blank
Zacks Chief Equity Strategist and Economist