Last Friday ended with a rout on the tech-heavy Nasdaq, falling 1.9% on the back of Snap, Inc. (SNAP) announcing poor results well below analyst estimates. SNAP’s share price fall of 39% dragged down the tech sector. Across the social media sector, shares fell in total market capitalization by some $130 billion.
Meta Platforms, Inc. (FB) dropped 7.6% in one day, making the year-to-date decline a full -50%.
The statement made earlier in the month by Meta CEO Mark Zuckerberg announcing layoffs and forecasting “one the worst downturns that we’ve seen in recent history” may be proving fortuitously accurate.
Despite Friday’s down day, the stock market as a whole over the last five trading days delivered the best results in a month. So far this year, the market is down by 17%.
Some other cautionary signs popped up in the slew of major corporate earnings releases. Results from cellphone and credit card companies, like their cousins in tech, also came in significantly under analyst estimates.
Capital One, Inc. (COF) and Discovery Financial Services (DFS) – both the ultimate gauges of consumer confidence and spending – announced higher payment delinquency rates and moved to increase reserves for bad debt. Similarly, AT&T, Inc. (T), the nation’s largest wireless carrier, announced its quarterly results, pointing to a sharp fall in operating cash flow due to a slowdown in cellphone usage and an increase in payment times. The stock price fell 10% on the news and is now trading towards its 52-week low.
On Tuesday, for example, Goldman Sach Group, Inc. (GS) announced revenues that fell 47% compared to Q2 2021. Yes, the stock rallied by 5%, and the Dow surged some 800 points leaving many investors believing the market had finally bottomed out and a mid-summer rebound was beginning.
However, in longer-term stock market investing, the consumer is king – or at least consumer spending. During the months leading to the Global Financial Crisis in 2008, there were identical signs of consumer weakness; increasing credit card delinquencies, decreased cell phone traffic volumes and longer wait times for bill payments.
Perhaps the most intriguing metric that institutional investors are now carefully scrutinizing is the yield curve. Ordinarily, longer-dated debt pays higher interest rates than short-term debt. Thus, the yield on 10-year Treasury bonds is almost always higher than 2-year Treasuries: except when there is an inverted yield curve.
Currently, the yield on 2-year Treasury bonds is slightly higher than the 10-year rate creating a yield curve that slopes downward. This inversion of the curve implies that the market assumes interest rates in the distant future will be cut by the Federal Reserve as a stimulus measure during a recession.
A negative 10-2 spread has predated every single recession since 1955. At Friday’s close, the 10-2 Year Treasury yield spread stood at -0.21%, compared to -0.19% on Thursday and +1.07% in 2021. However, there have also been a number of false indicators, so the signal is prone to prediction errors.
Play of the Week
A whopping 27 companies led the activity on the LevelFields platform over the past week announcing a dividend increase with an average event increase of +0.54%. At the head of the mover’s list with a one-day event impact of +4.5% was Mercantile Bank Corp. (MBWM).
- On their quarterly earnings call last Tuesday, Mercantile came in slightly ahead of analyst estimates and announced an increase in their dividend to $0.32. This increase raised MBWM’s dividend yield up to 3.7%, which is above the industry average.
Mercantile Bank Corp.: Dividend Increase announced
One of the more unusual market events last week was the 25% dividend increase announced by The Goldman Sach Group (GS). Despite falling revenues, falling profits, and a highly restrained outlook by the CEO, GS did not do as badly as analysts had initially expected. GS stock ended the week some 8% higher.
Goldman Sachs Group, Inc.: Shares surge on news of dividend increase
The LevelFields platform reported other dividend increases from companies including S&T Bancorp (STBA), Citizens Financial (CGFG), Regions Financial (RF), Black & Decker (SWK), and Bank of America (BAC).
Did you miss?
Apart from the many dividend increase announcements, 13 companies announced stock buybacks.
Leading the pack in terms of performance was ODP Corporation (ODP), a leading provider of business services, products, and digital workplace technology solutions. Their board announced a $600 million share repurchase program, including a $300 million tender offer of cash.
The ODP Corp.: Stock buyback announcement
LevelFields also reported other firms announcing stock buybacks including M&T Bank (MTB), SAP, Inc (SAP), and Bank of the James (BOTJ). Additionally, despite releasing lower-than-expected earnings, Snap, Inc. (SNAP) also announced a stock buyback program of $500 million.
At the other end of the news spectrum, seven companies announced mass layoffs with an average event impact of +1.75%.
INOVIO, Inc. (INO), a biotechnology company focused on developing and commercializing DNA medications to tackle cancer and HPV- associated diseases, announced a major restructuring. Plans include reducing 18% of the workforce and 86% of contractors. INO stock rallied 9.24% on the news.
Ride-hailing firm Lyft, Inc. (LYFT) announced they would close their direct car rental business, cut 60 jobs, and slow hiring and trim costs. LYFT shares rallied by 7.6% on the news.
Ford Motor Company (F) also announced 8,000 layoffs from the division manufacturing gas-powered vehicles in the coming weeks.
Tesla, Inc. (TSLA) announced yet another headcount cut – this time 69 staff at its Fremont, Ca facility. The news slightly nudged shares upwards by 2.1%.
Tesla, Inc.: shares end week higher
Where Are They Now?
Last June 16, LevelFields reported a short seller report on Ebix, Inc. (EBIX) leading to a 37% fall in the share price. Listed on NASDAQ with a $684 million market cap, Ebix is a diversified conglomerate focused on travel, payment services, and outsourced IT in India.
The report cited an extensive variety of irregularities in how the firm reported operating results, such as a 71% growth in gift card revenues over a 2-year period. Their gift card business alone accounts for a large portion of net income.
Ebix’s auditors, RSM, resigned over “unusual transactions related to the Company’s gift card business in India.” RSM stated they were “unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions.”
EBIX has bounced back somewhat, but it is still trading at levels below the point when the short seller report was first released.
Ebix, Inc. Short seller report tanked stock and since has struggled to recover
Highlights from the LevelFields Calendars section and beyond:
Two Stock Splits are scheduled for this week:
Monday, July 25: Great Panther Mining Limited (GPL)
Tuesday, July 26: McEwen Mining Inc. (MUX)
Notable Earnings Results Announcements
Monday, July 25
Infosys Technologies Ltd. (INFY), RPM International (RPM), Squarespace (SQSP)
Tuesday, July 26
United Parcel Service, Inc (UPS), Coca-Cola Company (KO), General Motors Corp. (GM), General Electric Co. (GE), McDonald’s Corp. (MCD), UBS AG (UBS), Invesco PLC (IVZ), Fiserv, Inc. (FISV)
Wednesday, July 27
Shopify Inc. (SHOP), Spotify Technology S.A. (SPOT), T-Mobile US Inc. (TMUS), Hilton Worldwide Holdings (HLT), Kraft Heinz Company (KHC), Hess Corp. (HES)
Thursday, July 28
Pfizer, Inc. (PFE), Mastercard Inc. (MA), Southwest Airlines Co. (LUV), Valero Energy Corp. (VLO), Hertz Global Holdings (HTZ), Peabody Energy Corp. (BTU), PG&E Corp. (PCG), Anheuser-Busch InBev (BUD), PBF Energy, Inc. (PBF), DTE Energy Co. (DTE), CMS Energy Corp. (CMS), Franklin Resources Inc. (BEN), XCEL Energy, Inc. (XEL),
Friday, July 29
Exxon Mobile Corp. (XOM), Chevron Corporation (CVX), Proctor & Gamble Co. (PG), Colgate-Palmolive Co. (CL), Phillips 66 (PSX), AllianceBernstein Holdings (AB), Imperial Oil Ltd. (IMO)
For this week, a slew of energy firms will be releasing results. Given the spike in energy and commodity prices over the last quarter and the surge in summer travel, it will be no surprise if many of these names beat consensus estimates by a wide margin. Vastly higher energy prices may dampen consumer spending but are certainly a key driver in the share prices in the energy sector.
The LevelFields Team