efficentupup wrote a post · Apr 26, 2023 15:19

Economy is flashing red while companies beating estimations left and right

The Fed

Central banks are tightening liquidity.
Global liquidity is tightening again after being affected by the banking crisis in the first quarter.
The European Central Bank may accelerate its so-called quantitative tightening (QT) pace in July.
The US money supply continues to decline, and liquidity is a very important leading indicator that should be closely watched.

Economy is flashing red while companies beating estimations left and right

The Economy

The Richmond Fed survey was released.
The survey results are worse than other surveys, indicating a slowdown in activities and higher prices paid/received.
This suggests stagflation, which is a combination of stagnant economic growth and inflation.

US Conference Board consumer confidence is down to 101.3 vs 104.0 last month.

Freight and 3PLs (third-party logistics providers) have slowed down significantly in the past few weeks, with many carriers going out of business.
Economic activities are cooling and potentially accelerating to the downside, though not much is being reflected in economic data yet.
The commodities market, including copper, oil, soy, wheat, etc., is turning around from the recent rally this week.
If this trend continues, it may indicate a gloomy economic condition up ahead.

The Business

Today's earnings results are strong overall, with stable performance from essential consumer goods ( $PepsiCo (PEP.US)$ , $McDonald's (MCD.US)$ , $CME Group (CME.US)$ , and $Coca-Cola (KO.US)$ ) and excellent performance from non-essential consumer goods.
The weakness comes from transportation and industry ( $United Parcel Service (UPS.US)$ and $3M (MMM.US)$ ), suggesting some potential trouble.
After-market closing, $Alphabet-C (GOOG.US)$ and $Microsoft (MSFT.US)$ have both exceeded expectations, but MSFT's performance is much better than GOOG's (ad revenue barely exceeded expectations, while cloud revenue actually fell short).
The best investment for the remaining year is still Large Growth.

UPS missed both the top and bottom lines and guided lower as well. This is actually good news for disinflation . Additionally, UPS and FedEx deferred volume is down significantly, which is another piece of evidence that spending on goods is slowing down.

Pepsico beat both top and bottom lines and guided higher. Most of the growth really came from inflation, but at least consumers are not cutting back on snacks yet. Similar observations from McDonald's, Coca Cola, and Chipotle. One important piece of information from Pepsico earnings call is that there will be no more price increases for the rest of the year.

GM beat earnings estimates and guided higher. This is a bit surprising, especially considering that Whirlpool also beat expectations. In fact, the whole consumer discretionary sector was doing very well in Q1. This really is something you wouldn't expect to see if the economy is weakening.

McDonald's beat earnings but missed revenue. However, they are now anticipating a recession as revenue per single order dropped and price resistance from dinners increased.
Visa confirmed that consumer spending is still very strong, with a 10% growth in payment volume.