Catalyst watch for the week of May 21. Seeking Alpha Managing News Editor Kim Khan says to look out for reports on personal income and spending, core PCE price index and durable goods orders next week (00:28). He also talks about the possibility of fraudulent jobless claims. (01:48) Seeking Alpha Associate News Editor Kevin Curran gives investors a preview of what to expect when Lowe’s (NYSE:LOW) reports earnings. (05:24) Hot topic: Should CEO’s be able to say whatever they want and get away with it? (08:20)
This is an abridged transcript of the podcast.
Julie Morgan: So, Kim, I know that you’re going to take the broader look right now. What do you have for us?
Kim Khan: Yeah, I mean it’s not a chock filled week for economic indicators, but it gets pretty busy right at the end of the week next Friday when you have personal income and spending numbers out. That’s going to give us a nice gauge again on the health of the consumer after retail sales and then you’re going to get some.
More inflation numbers that come with the report, the Fed’s favorite inflation gauge, core PCE price index. So that’ll have the bond market pretty excited about that. And finally we’ll have durable goods orders, another consumer measures. So I think that a lot of stock investors are going to want to see some strong news out of that. The stocks seem now to want good news, to be good news. They don’t want really recessionary numbers, they’d rather have strong numbers because they already feel like Fed cuts are priced in.
Later this year and it seems like also like stocks are kind of coiled up for a bounce right now. Looking at the latest hedge fund numbers from Society Generale, it said that their net short positions are at a 12 year high even though the markets been going up. So some really solid numbers could give that the market a bounce.
JM: OK, so that’s something we can look forward to in the upcoming week. But you know Kim, there was something that I noticed that you wrote an article this morning. We’re recording this on Thursday May 18th. The title of the article is Fraud Makes Thursday’s Jobless claims numbers literally unbelievable. Tell me what is that all about?
KK: OK, well I’ll start with the jobless kings figures that came out today and they came out with around 242K.
For the weekly initial jobless claims, that was a bigger fall than was anticipated. But the thrust of the article was that can investors actually believe these numbers? Pantheon macros, Ian Shepherdson said. They are, in a note. Literally. Unbelievable. That’s where the headline came from, and you can read more of his insight there.
But to sum it up, there’s been a lot of fraud claims, fraud in initial jobless claims in Massachusetts, so much so that it could be, in fact.
The national numbers, Massachusetts come out and put in a statement about the amount of benefit fraud they’re seeing. JP Morgan is saying that maybe all of the recent gains that we’ve seen and then just stop those claims, which has pushed.
Claims from sub 200,000 to above 200,000 and around close to 250 could be attributed to a fraudulent claims, Pantheon Macro says. Like just not just Massachusetts but also Kentucky. So that’s something that raises A deeper question about how much investors can trust these government numbers.
Now of course there’s a political aspect, there always is. So whoever is the administration, the opponents say I don’t, I never trust the numbers out of that administration.
But actually there are some more legitimate claims about whether these numbers should be relied upon as heavily as they are, given that there are a lot of problems within, not just with fraud. This is kind of an interesting example we’ve seen in claims for the first time recently, but also in seasonality and revisions that we see through all data sets that we get.
JM: You guys want to take a deeper dive into that article? I’ll definitely leave a link for you in show notes.
Kevin, what do you have for us in terms of earnings?
Kevin Curran: Yeah, so definitely some indicators to look at here. Apologies for my home state’s spate of fraud confusing investors as of late, but as far as the earnings indicators go, it’ll be a pretty busy week midweek next week, with Lowe’s probably attracting some of the most attention after an inauspicious report from Home Depot this week.
We also have a number of specialty retailers during the week like Best Buy, AutoZone, Williams-Sonoma, Ulta Beauty, as well as a few others. We have some apparel manufacturers like VF Corp, Abercrombie and Fitch and American Eagle joining some retailers like Kohl’s in the Gap. And also there’ll be a focus on discounters from Dollar Tree, BJ’s, Costco.
And Burlington stores, outside of that retail focus, there are a couple of tech names that people will likely be monitoring in terms of the Internet and St. and actually the platform that we’re using to record this today in Zoom Video, Palo Alto Networks in the cybersecurity space work day and Intuit Intuit of course the parent of TurboTax reporting for the first time after the close of tax season and semiconductor stalwarts, Marvel Technology.
And NVIDIA Corporation in later in the week. NVIDIA of course, probably being one of the more closely watched ones as it seems like it has its hand in just about everything from autonomous driving to AI to what have you these days.
JM: We had Home Depot report. Tell me what’s what are you expecting to hear from Lowe’s next week?
So usually they’re pretty similar reports. You know, they’re huge competitors. It’s kind of a duopoly in the home improvement space.
In the United States, between Home Depot and Lowe’s and if Home Depot’s indications are as they were on earlier this week, it’s it’s not voting too well for Lowe’s. We saw comparable sales fall pretty sharply in the Home Depot’s report and they also issued a pretty weak guidance Looking ahead, they were saying that they expect comparable sales to continue to fall.
And EPS to fall as well. And now their EPS is looking to be down towards a double digit percentage versus their prior expectation that it would only be a single digit drop. I think this begs the question of whether or not the pandemic boom and home improvement has you know, well and truly fallen off now or if maybe Lowe’s can gain some market share from Home Depot after their poor report.
That said, I’m not that optimistic because the pro demand from Lowe’s is usually lower and that’s what’s really been buoying the home improvement space after I said the pandemic driven boom in doityourself improvement kind of wore off already. So I’m not very optimistic on it, but who knows, We’ve seen some surprises this earning season and it could be.
One of those tale of two home improvement retailers where Lowe’s picks up or Home Depot is lagging.
KK: Well, I can, I can give you some optimism from Jefferie’s. Actually just this past week they put Lowe’s on their franchise pics stock list. That’s their list of the 21 stocks that they have all rated as buys but they have the most conviction of.
So they really like Lowe’s. It’s just a new addition this past week and one of the main reasons is the evaluation. They said it trades at a 30% discount to its peers on pe basis. So some love for Los coming there. You can see the rest of the picks also on our site.
KK: Yeah, I suppose it does depend on your timeline. I mean, I’m not negative on these necessarily long term as far as an earnings called though. It seems like there was a lot that went wrong in the quarter. I mean, both Home Depot and tractor supply called out weather constraints. Now they’re looking at more constriction on their supply chains continuing a little bit longer than people had anticipated. So just reading the tea leaves on the initial earnings report, I might be negative. But, you know, maybe Jeffries has a better view into the future than I do and can look, past just the earnings sprint reaction that we’re discussing.
KK: Well, they certainly have a longer term horizon definitely on this pick as a conviction pick.
JM: Lowe’s reports earnings Tuesday the 23rd. So we can look forward to that. Let’s switch gears just a little bit. We know that Elon Musk spoke this week and when he speaks, people listen, one of the things he talked about was, things that CEO’s say, like, you know, can they get into trouble for some of the things that they say? Has he gotten into trouble for some of the things that he said, we already know the answer to that. What, what’s your take on that?
KC: I think sometimes it’s better to be quiet and be thought a fool than to open your mouth and remove all doubt as they say. Alot of times when you start to be as vocal as Elon Musk has been in the past, you can run yourself into trouble. Although that’s not to say that he has no tact. I do think that he’s quite careful what he says in regards to the Chinese market, which is increasingly the most important for Tesla. So while he does ruffle a lot of feathers in the domestic market, he’s not necessarily so audacious as to completely step out of bounds with, you know, markets that might have a more severe backlash to what he might tweet, let’s say.
JM: But you’re basically saying that he knows exactly what he’s saying when he says it.
KC: Well, you know, I mean, I think he said some things that probably should have got him into trouble in the past, you know, taking Tesla private at $420 a share calling. Vern Unsworth, a pedo guy when he saved the divers, there’s a number of things he said that I don’t think he knew what he was getting himself into, but I do think that he is careful in some aspects.
KK: And that’s crucial for Tesla in my view, it’s a risk or war game really, I guess for CEO’s I mean, I mean, not Elon Musk is out with lambasting George Soros, you know, just recently. So he’s, he’s still willing to make these ad hominem attacks on people and, you know, he just seems to be more emboldened now he’s the sole proprietor of Twitter even though he still has to have some of his Tesla tweets technically read by a lawyer.
But, you know, if you say outrageous things, you get a lot of coverage and, you know, we’re as journalists as guilty of feeding this machine as anybody because we know people will click on, you know what somebody has to say that’s outrageous.
I mean, you’re really not gonna get as much traction as you’re not gonna get a viral story or, you know, or a viral tweet going out when it’s like, oh, somebody is, you know, successfully, you know, boosted earnings by more than 10% for four consecutive quarters, you know, just like it’s really grinding out results, but it hasn’t really insulted anybody lately.
It does create a sort of cult investor base too that really sticks by the company.
KC: So I guess it has its, it does have its trade off as Kim said, you know, if you have this a really outspoken visionary type ceo people are willing to follow them and will kind of stick by, and hold their shares in the company.
Whereas if it’s, you know, some nameless, faceless person, maybe there’s no conviction in this type of retail driven buying that we see for stocks like Tesla, let’s say.
JM: Very interesting conversation. And of course, this conversation can continue in the comments. Tell us what you think. Kim, what about the survey for next week that will appear in the Wall Street breakfast newsletter?
KK: Well, getting to the most recent survey we asked people if they thought that stopping short selling of regional bank stocks was a good idea given the volatility and the pressure that seemed to be almost driving some banks out of business, more than 56%. So certainly a majority said that they felt that that shouldn’t go into practice to let the market work as it’s supposed to.
And this next week coming up, we’re gonna be surveying you about what we just talked about on the jobless claims data on whether or not people have confidence in the economic data that’s coming out and is really moving markets, setting interest rates, you know, has everybody on edge every time a big number comes out and it’s not just jobless claims.
A lot of people have a real problem with the shelter component of C P I saying that it’s, you know, that doesn’t reflect the cost of lodging or renting or, you know, buying a home in any way.
And yet it’s a huge piece of what the fed decides to do, what interest rates are set on and what people get paid and social security increases.
JM: Do you believe that they believe all the numbers that come out?
KK: I think our audience will say absolutely no, we do not believe all the numbers that are coming out. And a lot of that will just be a healthy skepticism for how much these numbers can actually capture how the economy is doing. And also a bunch of that is gonna be there’s somebody pulling the string behind the scenes and we don’t trust them.
KC: Yeah, I think maybe, maybe if there’s a percentage of trust we would get maybe a a better answer. Maybe they trust the numbers 60% or rather than just a binary, do you trust them or not? I’m not sure. I think some people believe them to a degree, but certainly not 100%.
KK: Yeah. I think if they broke it down, people trust the really boring numbers like capacity utilization and the really big numbers like on farm payrolls wouldn’t have much stress at all.
JM: So, of course, that will appear in the Wall Street Breakfast newsletter, our daily one page news summary on Monday and of course, we’ll talk about it here also on the Wall Street Breakfast Podcast. Anything else you wanna add?
KK: Not for me?
KC: No, I’m just thinking of, you know, who’s the, who is the first superstar CEO? I’m trying to think of who it was because nowadays we’re so used to the Mark Zuckerberg, Jeff Jeff Bezos, Elon Musk type folks. I wonder, when did that really come about that?
KK: Everybody knew the names of major company CEO S and like back to the Rockefellers or something or yeah, it could have been all the lines and I don’t know, Andrew Carnegie JP Morgan kind of era.