Before we get into the business of the economy and stocks, I have a Public Service Announcement for anyone with Student Loans. The website to apply to get a portion of your Student Loans forgiven is now live. If you have not already signed up, do it RIGHT NOW! Here is the link: https://studentaid.gov/debt-relief/application
GET IT DONE!!
Stocks had a nice moment last week. After taking a beating day after day after day after day after day after day after day after day after day (9 consecutive down days), the market went on a major rally after Bank of America reported earnings Monday morning (more below) and showed things were not as bad as we've been made to believe. However, that does not mean everything is going well (more below).
Market Relief Returns:
Tale of the Tape
Economy
That is all you need to know as to where we are right now. Food the one thing we all need to survive, is getting more and more expensive. It is causing families to make hard decisions or what food to buy and not buy. Families are choosing to buy fewer things in general in order to cut down on costs. According to Axios, “Some consumers inevitably will buy food on credit; not an ideal plan at a time of soaring interest rates.”
Another Week Another Set of Layoffs
Microsoft joined tech companies on Monday, announcing layoffs across the company. It is estimated that 1000 jobs will be cut. This comes after months of hiring freezes.
It feels like we are slowly descending into a recession. More and more companies are making moves to protect their downside as the future remains uncertain and very gloomy.
You would think with both things above, consumers are in a worse place in the economy right now. However, that does not seem to be the case at all. Brian Moynihan said during Bank of America’s earnings call on Monday:
"A perspicacious analyst might wonder whether the talk of inflation and recession and other factors would fructify in slower spending growth. We just don't see it here at Bank of America.”
Big words to say, consumers are still looking very good on our end and we see no slowdown in spending. Then American Express CEO follow up with:
“We’re not seeing any changes in consumer spending” and predicted a strong holiday quarter for retail and travel.”
I have referred to the ability of Americans to spend money as a superpower multiple times in the past. That superpower is going strong despite all the negative headlines. It is almost as if everyone is thinking, “Well that sucks for everyone else but I am okay and nothing will happen to me.” Rather than slowing down spending, people are just going about their business as normal. In their defense, people are right to feel that way. Wages have been rising for the first time in forever and there are more jobs available than unemployed people. Plus most people are still sitting on an unprecedented amount of savings.
The problem is things change very quickly. Federal Reserve Vice-Chair Lael Brainard said last week when asked about the “excess” savings everyone keeps pointing to:
“Revised data shows that the savings stockpile is smaller than previously thought and is being drawn down rapidly.”
I think this everything was summed up rather perfectly by Vincent Reinhard, the chief economist at Dreyfus and Mellon,
“Household strain will appear pretty suddenly. The fact that households have been doing well doesn't mean they will do well over the next six months."
My Takeaway: I have sounded like a broken record over the past few weeks. Well, the record still ain’t fixed. I have no idea if we will have a recession or not. It is very likely we do have a recession so we all need to be prepared for it. The best way to prepare is:
Have an Emergency Fund
Invest in Your Skillset and Network
Even if we do not go into a recession, these things make your life so much easier.
You might be getting a nice raise next year and you don’t need the uncomfortable discussion with your boss.
The IRS just released the tax brackets for 2023 with a major inflation adjustment to the various ranges. According to Axios:
The standard deduction for married couples filing jointly in 2023 is $27,700, up $1,800 from the prior year.
For single taxpayers, the standard deduction rises rose to $13,850, up $900.
While tax rates remain the same, the income limits for each tax rate are different.
That means your top tax rate might have gone down. For example, if you were earning $90,000 a year in 2022 your top tax rate was 32%. Next year it's 24%.
For those who are like me saying, "The IRS adjusts for inflation?"
Yes, yes they do. As Axios said, "The IRS adjusts tax brackets every year to ward off "bracket creep" — when your salary rises to keep up with inflation, propelling you into a higher tax bracket."
Hopefully, you fall into a lower tax bracket but then again who doesn't want to make more money? So I hope we all continue to go into higher tax brackets. We can always find ways to play the tax games when we are making booku bucks.
My Takeaway: NAH inflation still sucks
Earnings
Netflix arose like a Phoenix from its ashes when it reported earnings on Tuesday. The Stock is up 20% in the last week
The results:
EPS: $3.10 vs. $2.13 per share, according to Refinitiv.
Revenue: $7.93 billion vs. $7.837 billion, according to Refinitiv survey.
Expected global paid net subscribers: Addition of 2.41 million subscribers vs. an addition of 1.09 million subscribers, according to StreetAccount estimates.
Absolutely, no one saw Netflix doing this well in the quarter. Again showing that no one knows anything. Especially the loud minority, if you looked on Twitter over the last two quarters. You would have thought Netflix was about to be bankrupt and people were leaving the service in droves. But the opposite is true.
Netflix is cashflow positive and they want everyone to know it. On the call they took shots at their competition, stating they had operating profits of $5-$6 Billion annually. While the competition is losing over $10 billion. Netflix has flipped the switch to begin making money, which is the most important thing for any business.
My Takeaway: The loud minority on Twitter or any social media platform should always be ignored. People love to be outraged about anything and everything. You can scream and shout but in the end, I cannot hear you because your actions are much louder. Now can this change? Of course but right now there are no real signs that people are no longer interested in Netflix.
Snapchat earnings were awful, to say the least. One sentence that sums up Snap's earnings, “Our revenue growth continued to decelerate in Q3":
Revenue grew 6% to $1.13 billion
Users grew to 363 million, a 19% annual increase
Snap lost $360 million a 400% increase from last year
Snapchat Stock crashed 25% and that is after falling over 75% in the year.
On its own, this sucks but Snapchat was like a virus. It infected other stocks. Snap said, "We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs of capital.”
This led to Google, Facebook, and every other company that makes most of their money from advertising falling as well. But unlike Snap, Google recovered on Friday.
My Takeaway: Snapchat is just not a good business at this point in time. It continues to add users which should be great but it cannot monetize those users. Snapchat tries to be a media business like IG or TikTok but no one uses it like that. Everyone uses it as a messaging app mainly. It is extremely difficult to monetize messaging platforms. Advertising may be slowing but Snapchat has much bigger problems.
Stats of the Week
Natural Gas prices have risen year over year by 68%
Meaning heating our homes this winter, for those of us who use natural gas (aka me), will be much more expensive. To the tune of $931 on average for the year
If you live in the Northeast your bill gonna be even worse. The average for the Northeast will be $2,354 for the year
The annual cost of Amazon's employee attrition across all levels
Retention has always been a problem for Amazon and it keeps getting worse
Shortest tenure of a British Prime Minister
Liz Truss the newly or rather ex-Britain Prime Minister resigned on Thursday after sending the UK into a tailspin with a few policy announcements to start her term
She wanted to cut taxes during a period when every dollar is needed for the government to fund itself
Also, she wanted to increase spending in order to boost economic growth.
Neither of which investors liked and they pulled out of the UK market with a quickness which led to Truss being ousted
Looking Ahead
Need I say more?
As these companies (minus Facebook) go so goes the Stock Market. I expect every single company to report decent earnings. The only negative will be the impact of a strong dollar which makes money outside the US worth less. Outside of that, I do not expect any of these companies to pose any real signs of slowed growth.
I could be very wrong, especially for a company like Google with a slowdown in Ad revenue as shown by Snapchat.
Follow me on IG (@bykelechiwuaba) and TikTok (@kelechiwuaba) cause I will be making videos of each company’s earnings as they happen. Gonna be a busy one for me.
Sports I Care About Update
Erik ten Hag is making me a believer in Man U again.
Man U smashed Tottenham in the middle of the week but then tied with Chelsea on Sunday.
Both games showed Man U improving from the Newcastle game last week. Maybe the opponents played into their hands. But I will take a week without losses. These are hard to come by these days.
Extras
Russia is openly attacking citizens of Ukraine in locations like schools and public facilities. Russia is not even trying to hide it by saying "we are aimed at infrastructure". Putin is getting more desperate as he loses ground in the war.