👉 Week in Review: 8/28/22
Earnings breakdowns of NVIDIA, Palo Alto Networks, & Salesforce, negative bets on the market are increasing, the energy crisis in Europe is terrifying, and a quick economic reality check.
It’s time for a reality check here, folks.
Earnings season has come and mostly passed, with a bear market rally being bolstered by plenty of earnings beats.
As we all know, ignorance is bliss — and the market decided to ignore the fact that US earnings downgrades outnumbered upgrades for 2.5 months leading into / during this cycle of reports.
What’s to blame? Consumer sentiment is slumping, geopolitical panic is soaring, supply chains still need mending, and most of all — inflation is currently at levels that make it impossible for the Fed to reach its target level any time soon.
What’s the result? The obvious impact is that companies frantically change their price points and approach customers in new ways, while raising prices. The less clear impact is that companies get both creative and sneaky in the nurturing of their bottom lines. Take the tweet below as an example. If prices on Uber are increased more than 15-20%, users may feel that it’s time to use Lyft, hail a taxi, or call a friend for a ride. But what if you quietly rob your own workers to try to stay as close to profitability as possible?
“The burdens of high inflation fall heaviest on those who are least able to bear them” — Fed Chair Jerome Powell
Over the past few weeks, media headlines should have theoretically been flooded with earnings misses — but corporate America knows this and set the bar low ahead of earnings season. Companies are feeling the full heat of inflation, the people at the bottom of the totem pole bear the worst of the consequences, and the Fed has realized that inflation isn’t anywhere close to being under control.
We don’t claim to know exactly where the ‘bottom’ will be. Perhaps it has already passed, and we’ll simply crab around in volatility for months to come. The main thing we want to convey is that investors were not realistic during the recent bear market rally. The underlying issues that are causing companies to see earnings compression, layoff workers, and raise prices have not been properly addressed. More downside is all but guaranteed. The timeline and severity is not.