Preview of the week starting 01 Jan 2024 - can Walgreen continue its rally?

Public Holidays

However, New Year’s Day (1 Jan 2024) will be a public holiday for Singapore, Hong Kong, China and the USA.

Economic Calendar (01 Jan 2024)

Notable Highlights

• FOMC Meeting Minutes should be closely watched as this will shed some light on the pending Fed Pivot.

• Manufacturing PMI will be released in the coming week. These will capture the performance of the manufacturing sector from Purchasing Manager Index (PMI). Typically, a figure above 50 indicates growth and a figure under 50 shows decline or contraction. The data to watch include S&P Global US Manufacturing PMI (Dec), ISM Manufacturing PMI (Dec) and 

  ISM Manufacturing Prices (Dec).

• Non-manufacturing (services) PMI will also be released in the coming week that reflects the growth or contraction to the non-manufacturing / Services sector. Let us monitor the following data that include S&P Global Services PMI (Dec),S&P Global Services PMI (Dec) and ISM Non-Manufacturing PMI (Dec).

• ISM Non-Manufacturing Prices (Dec) reflects the inflationary. (or deflationary) prices faced by non-manufacturing sectors.

• Initial Jobless Claims - This is a reflection on the impact of unemployment, a data point for the Fed’s interest rate decision. ADP Nonfarm Employment Change (Dec) will also lend to their considerations.

• Unemployment Rate (Dec) data will also be released to provide insights on unemployment. This will be watched by the Fed as a component of consideration for the coming interest rate decision. JOLTs Job Openings (Nov) will be the other data point.

• Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, this is demand erosion that can lead to reduced production & weakening consumer spending.

• Payroll-related data such as Nonfarm Payrolls (Dec) will bring some understanding to payroll and employment.

• Average Hourly Earnings (MoM) will shed light on wage increases that will affect the spending ability of the consumers.

Earnings Calendar (01Jan 2024)

Earnings Whispers earnings calendar / X

For the first week of Jan 2024, the above are earnings of interest. Let us look at Walgreens in detail.

WBA 0.00%↑ has fallen from the 52-week high of 37.96. It has recovered from the recent 52-week low of 19.68.

Observations about the recent performances:

• Revenue has grown from $76.3B (2014) to $139B (2023)

• Gross profit grew from $21.5B (2014) to a peak of $30.7B (2018) but it has fallen to about $27B (2023).

• In 2023, it has incurred operating loss of $7.1B from previous 9 years of profitability. The most profitable year was $6B in 2018.

• As such the current EPS is at a negative of -$3.57 from previous years of positive EPS.

WBA has fallen over 30% from a year ago.

For the coming earnings, the forecast of its EPS and revenue are 0.6331 & $34.88B respectively.

Investing has a “Strong Buy” recommendation. Will WBA continue to rise?

Market Outlook - 01 Jan 2024

Technical observations of the S&P500 1D chart:

• The Stochastic indicator has completed a top crossover and could range sideways. A downtrend is expected though it is also possible to range sideways.

• The MACD indicator has completed a top crossover completed. We should expect a downtrend soon.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is above both the MA 50 line and the MA 200 line. Thus, it could be read as bullish for the long-term and mid-term.

• Exponential Moving Averages (EMA). All 3 EMA lines are moving upwards and thus, implying an uptrend.

From the 1D technical indicators above, there are a total of 18 (Buy), 1 (Sell) and 0 (Neutral). Investing recommends the “STRONG BUY” recommendation based on the technical indicators above (1D chart for S&P500).

From the data above, the market should see a decline in the coming week though ranging sideways is possible.

News and my thoughts from the last week (01 Jan 2024) - BYD, banking, layoffs

• BYD to announce EV plant in Hungary soon, report says BYD plans to build a new factory to produce EVs and batteries in Szeged, southern Hungary, according to the Financial Times.

• US banks could get slammed with another $160 billion in losses as commercial real estate faces its biggest crash since 2008. - Business Insider

• “Currently, all crew are safe with no reported injuries and a thorough assessment of the vessel is being conducted”. MSC will continue to reroute vessels booked for Suez transit via the Cape of Good Hope”. - Tradewindsnews

• BYD has obtained conditional testing license for level 3 autonomous driving on high-speed roads - Reuters

• when I see the word "invest", I read this as "gamble" in some context.

• From The Information, Google is considering a substantial workforce reduction, potentially affecting up to 30,000 employees, as part of a strategic move to integrate AI into various aspects of its business processes. - CNBC

• In the survey, nearly four in 10 companies said they are likely to have layoffs in 2024, prompting increased fears of a recession around the corner. More than half of companies also plan to implement a hiring freeze in 2024. - NewsWeek

Despite the likely end of Fed rate hikes, corporate defaults will rise next year, Fitch Ratings says. Meanwhile, slower economic growth will push high-yield bond defaults to 5.0%-5.5%. - Business Insider

The federal government ran a deficit of $314 billion in November 2023 — $65 billion more than the same month last year.

• A Bloomberg gauge of the greenback has been down nearly 3% since January in the steepest annual drop for the US currency since 2020. Not sure why this is a bad thing when US products would be more affordable though its buying power would drop.

When we hit ATH with increased leverage, how is it sustainable? Here are some charts that I have compiled.

My investing muse

https://www.peoplematters.in/article/strategic-hr/the-biggest-layoffs-of-2023-amazon-to-microsoft-firms-fired-employees-in-jaw-dropping-numbers-39753

Major Layoffs in 2023

Yahoo - 1000

Zoom - 1,300

Lucid Motors - 1,300

LinkedIn - 1,400

PayPal - 2,000

Spotify - 2300

Disney - 2,500+

Rolls-Royce - 2,500

SAP - 2,800

Oracle - 3000

Morgan Stanley- 3,000+

Cognizant - 3500

IBM – 3,900

Citigroup – 5000+

Dell - 6,650

Ericsson - 8,500

Credit Suisse – 9000+

Meta - 10,000

Microsoft – 10,000+

Vodafone – 11,000

Alphabet – 12,000+

Accenture - 19,000

Amazon – 27,000

The above is a summary of key layoffs in 2023. Are these the trimming of operational excess for better productivity? How many of these are due to business survival? How much of these are due to an expected downturn? Could it be a myriad of the reasons cited above?

As per the screenshot above from the latest Google layoff news, there is speculation of 30,000 in the coming weeks. Different sources are pointing to more layoffs in 2024.

The following is extracted from a Newsweek article about 2024 layoffs:

There was a slight division in midsize and large companies compared to small companies. While 42 percent of midsized and 39 percent of large companies indicated layoffs were coming, only 28 percent of small company business leaders said the same.Industry-wise, construction and software companies were by far the most likely to predict layoffs in the next year, at 66 and 65 percent, respectively.Meanwhile, information, retail and finance and insurance companies will likely see some employee turmoil as well, with 44 percent of information and retail companies and 38 percent of finance companies saying layoffs are anticipated.

Business Insider has recently shared about more layoffs from companies like Nike, Intel and Citigroup in a recent post.

How should we make sense of this while the market is hitting all-time high in various indices?

36 Benjamin Graham Quotes on Investing (SUCCESS)

The market can be moved by sentiments in the short run but eventually, it is always about the value that the business delivers. We can attribute the recent market surge to the Fed’s indication of a coming pivot. With this, we have seen an uptake in property sales and a drop in the mortgage rate.

With PCE and CPI above the 2% target, is it premature to call for a pivot? Is the Fed part of the political machine to improve sentiments and sway voters?

Conclusion

We cannot deny the recent highs in stocks and indices. The question lies in it sustainability. With the start of a new earnings season, we will see how the companies are doing in the coming week for the previous quarter.

With companies taking steps to retrench, should we expect the profitability to be maintained or improved? There is no need to speculate as the earnings will be released in the coming weeks. Most of us look at the targets of EPS and revenue. Let us also monitor the outlook shared.

There would still be room for more rallies and highs. Yet, the country (consumer, corporate and governments) is slipping into a debt spiral. Let us review our portfolio, consider some hedging and avoid leverage/credit. If some of the businesses are showing weakening business fundamentals (more debts, less free cash flow, reduction in revenue, profits and margins), let us consider taking profits/stop losses and review their place in our portfolios.