In our recent QnA session, some common topics were raised, and in this update, we will touch on Pika World’s perspective of the equity landscape in a concise format.
Let’s dive in.
💼A New Reality Confronting Investors
The equity markets have been seeing a decrease in upward momentum given the confluence of multiple headwinds. As an investor, we hope for more good news to get out of this funk and seek the stock prices to climb again.
Indeed, stock prices had struggled for the past 2 weeks, largely attributed by the latest surge in Covid-19 cases and the reopening issues that embody the trade. When data is assuring, the high valuation can still add anxiety for investors averaging upwards on their stocks. Moreover, in the last few days, we see more development of Chinese crackdown, shifting to impact casino stocks. This adds up to solid inertia to invest further in our portfolio. It is not an uncommon feeling among investors.
👓Outlook Darkens but Not Bearish
The S&P 500 is a victim of this new reality. It has dived about 1.2% from the high on Sept. 2. As a matter of fact, as Covid cases relating to Delta rise around the world, it is causing a sneeze to the index as 40% of the sales within the S&P 500 companies are derived from overseas.
As we see pockets of dark clouds gather, we hear investors’ minds on concerns relating to sales and profit. After all, October will usher in possible new earning seasons as corporations end their result performance review for the July-Sept quarter.
Companies have reduced their forecasts not because of demand but due to the inability to produce enough to meet the pent-up surge for their goods after the long stretch of lockdown. Moreover, the input materials are lacking even if labour is available, ranging from cars’ microchips to computer parts.
🍟F&B Companies Bearing the Brunt
Looking beyond manufacturing, the pandemic had hit hard on retailers and fast-food outlets since store sales comprised a large portion of their portion. This is evident by the bankruptcies, reduced plans for new store opening and falling new store sales with closure on the horizon.
Yum China Holdings, in particular, has talked about the falling of operating profit by 50% to 60% on year on year basis for the quarter, due to store closures and weak sales on opened stores.
🀄️Covid and China
Chinese regulations bears are hugging companies tightly. The early summer saw technology being the focus of the crackdown. Most recently, the Macau government intends to upsize their oversight of the gambling industry. Notably, Wynn Resorts tumbled so did Las Vegas Sands, both of which have deep operations in Macau.
This complicates the market twin huge problem, Covid and China, and to resolve these is challenging as their stickiness is here to stay.
🎈Volatility is Rising
As Pika World treads in an increasingly volatile market, a string of consistently solid economic fundamentals readings and brighter corporate announcements do play a role in lifting sentiments rather than mixed messages on guidance.
Of course, market participants need to see the dust settled on Covid cases and supply chain disruption. For the past months, the job reports were all over, without a strong signalling effect. As a result, consumers’ confidence data did not spark excitement, and our focus on inflation-related indicators has become an obsession.
📮Outlook Ahead
At Pika World, we do not see earning issues as a bedrock for a bearish market. Still, as they develop into an incrementally negative aura, the void of any solid and positive macro news to offset them means equity market sentiments will be weighed down by unresolved stigma.
Tonight, we will receive two pieces of essential data, the weekly initial jobless claims and the August retail sales, which will further shed light on the health of the labour market and the US consumer pockets.
Perhaps the tide could be changed, and in our hearts, we hope so.
This is Pika Nat, and I will see you at the next one.
Cheers!
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