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Kim Khan: Well from the macro front it’s going to slow down a bit but of course you’re going to have a lot of Fed speak that’s going on. And we’ve got some numbers like durable goods, new home sales, consumer confidence beginning of the week.
But the focus at the end of the week is really on the personal spending and income numbers which come along with the PCE deflator which the Fed watches closely as a gauge for inflation, the core PCE price index to be specific. Right now the market is looking for pretty much no change from what happened last month with a rise of 0.4% for the month and 4.7% annual rate staying steady. But the Fed is going to be watching this closely because of whether or not it gives another hint. If it starts to get too back on the hot side, as we kind of saw with inflation creeping up in the UK, that could be a concern for them.
As the market’s concerned though, the big thing that they’re watching is whether or not inflation cools off a little. And if it does, then they’re going to be even more skeptical about what Fed J. Powell was saying about more rate hikes, especially the two that the Dot plot has penciled in.
Julie Morgan: Tell me this, what do you make of how the market reacted to J Powell’s testimony, his two days of testimony this week?
KK: A lot of people are saying that it’s selling off this week because he was more firm about more rate hikes being needed. But I think that was pretty clear in his press conference in the statement. Anyway, I’m more inclined to think that this is just a breather after five straight weeks of a rally for the S&P.
JM: Now let’s talk about earnings. I know companies reporting earnings next week include the cruise line Carnival to kick off the week midweek. We have Micron technology and consumer staple General Mills followed by Nike on Thursday and Constellation Brands on Friday. So Kim, tell me what do you think we should expect from Nike?
KK: Well it’s been a tough year so far for Nike shareholders. By the numbers, stocks down about 7% year to date. That’s compared to about 15% up for the broad market and 30% up for its sector consumer discretionary. So not a good performance. But analysts are saying that Nike’s got a pretty low bar to clear for its top line when it reports its fiscal fourth quarter earnings. That’s because it’s guided down so it should be an easy beat for revenue. That’s what Morgan Stanley is saying.
But they’re also concerned about margins hitting the bottom line and that’s because they’ve done some channel checks and they’ve found out that there’s what they call a sizable inventory glut in mass sportswear across the industry.
So people are having to add a lot of promotions and discounts to get rid of that and that could hurt margins. And BofA said they’re going to be watching about Nike’s direct to consumer strategy and what they’re saying about that, mainly because a lot of people were upset with the news that Macy’s and DSW have disclosed that they’re going to add Nike to their catalogs this fall. So it’s kind of a move more to the wholesale side than the direct to consumer plan that Nike was touting for a while.
JM: So the inventory issue, I thought that went away and now it’s back again. Or did it just never go away?
KK: It’s more of a demand based one this time, not a supply chain issue. So it seems like maybe people just bought up a lot of sportswear with a disposable income they have, and now a lot of sportswear makers are left with a lot of inventory that they’ve got to get off their shelves pretty quickly as people aren’t buying them as much.
There’s also a concern about demand in China that analysts have noted the growth in China is in question and how much stimulus they do to kind of jump start the economy is going to affect how much global demand there is for Nike’s products.
JM: So in other news Kim, this is a follow up to a story you covered on Wall Street Lunch, our brand new afternoon edition of the podcast.
Elon Musk recently said that he would be up for a cage fight, and that’s a quote against Mark Zuckerberg.
He said this after making a sarcastic comment about a potential Twitter competitor from Meta. And then in a post to his Instagram story account, Zuckerberg responded saying, quote, send me location. What do you think about this?
KK: It raises the question of have we gone peak tech? Bro, if you’re going to have tech billionaires just actually fighting each other in a steel cage in an octagon.
But I mean, it’s actually growing some traction. It hasn’t been denied by either of the possible participants. It hasn’t been denied by Meta, who said kind of rather cryptically, the story speaks for itself.
Vegas have put out ODS on a potential fight and they’re giving the edge slightly to Elon Musk. So this could happen if neither one of these guys decide to back down.
JM: Something that I thought was so funny when I saw this story on Seeking Alpha, it was so appropo. The first line reads, this is not a joke. And I mean, when I first saw the story on Twitter, I really thought it was a joke.
KK: Yeah. And it’s also a great instance of life imitating art because this was actually a subplot of a few Friends episodes where Pete Becker this character who was a tech multimillionaire and kind of like an Elon Musk or Mark. Zuckerberg kind of person.
He was a character played by John Favreau back when he was just an actor and not just printing money with the Avengers and Mandalorian and he was trying to woo Monica and friends and then had a sudden change of heart of what he wanted to do with his life and decided he wanted to be a UFC champion. And the result was that he just getting pummeled in consecutive matches. And the last one they were all watching on TV, and we don’t actually know whatever happened to the character, but it was not good.
JM: Yes, I remember those episodes. And Monica was not initially attracted to him, but then she came around a bit. Okay, so yeah, I see where you’re going with that one. Now tell me this. Did you read some of the comments on this story? The comments are there’s really no in between. You either love one and hate the other, and then some comments say they’re just a couple of bored billionaires.
KK: Yeah, I mean, once you guys run out of things to do, I guess sometimes it would be tempting to just try the next level. I know Zuckerberg has been posting training videos, so maybe that’s what spurred ELON to troll him about that. They do have very different views of technology. They’re very opposed.
Obviously, there’s a Metaverse versus AI component here, and I can see this happening before social media.
If you’d gotten the two richest people to challenge each other to an actual site, this probably hasn’t happened since there was an actual duel, probably back in the 1920s.
JM: So when we think about investors, how could something like this benefit them?
KK: Well, I mean, it could get more retail money into stock, just kind of creating this fanboy culture. And that’s not a great way to invest because you think that everything is either 100% great or 100% awful. There’s always going to be shades of gray.
On the other hand, if you do believe in the vision of someone, it is a good thing. I mean, a lot of people believe in Warren Buffett’s vision and investing strategy, and that’s made them ton of money.
So shouldn’t just totally discount the kind of cult of personality effect that can help stocks rise?
JM: All right, so last question for you on this one. If you were able to get some tickets, would you go?
KK: I wouldn’t be able to afford tickets. If I was actually assigned to cover the story by seeking Alpha and fly out to Vegas, I wouldn’t say no.
JM: Oh, that’s a bit of a hint hint right there, Seeking Alpha.
KK: Yes, I’m available.
JM: Hey, I am too. I’ll be your producer.
KK: Great. We can have ringside commentary.
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