The markets today....exactly what you would expect with what is going on at the moment and the events that will happen this week. Stock market news live updates: Stocks fall after Walmart profit warning https://finance.yahoo.com/news/stock-market-news-live-updates-july-26-2022-111826597.html (BOLD is my opinion OR what I consider important content) "U.S. stocks extended losses at Tuesday's open as investors mulled disappointing earnings from Walmart and General Motors and braced for results from Big Tech due out after the bell. The benchmark S&P 500 tumbled 0.6%, while the Dow Jones Industrial Average declined by roughly 100 points, or 0.3%. The technology-heavy Nasdaq Composite fell 1.1%. Shares of Walmart (WMT) plunged 8% at the start of trading after the retail giant slashed its second quarter and full-year profit outlooks late Monday due to rampant inflation and a resulting pullback in consumer spending on discretionary items. “The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars," Walmart CEO Doug McMillon in a statement. "We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” Walmart’s warning sent shares of other retailers lower early in the session. Amazon (AMZN) stock fell 4%, Target (TGT) declined nearly 5%, and Dollar General (DG) slipped 3%. The International Monetary Fund further downgraded its forecast for global growth this year and warned of a "gloomy and more uncertain" amid worse-than-expected inflation. The organization now projects the global economy will grow by only 3.2% this year, a downgrade from the 3.6% it had previously forecast in April when it cut expectations for 2022 to 3.6% from 4.4%. Shopify's (SHOP) stock nosedived 16% after the e-commerce giant said it was laying off roughly 10% of its global workforce after a hiring boom to meet pandemic demand for online shopping. "It’s now clear that bet didn’t pay off," CEO Tobi Lutke said in a statement. "What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point." Also weighing on sentiment was a disappointing report from General Motors (GM) early Tuesday that showed second-quarter results fell short of Wall Street estimates. The Detroit-based automaker saw its net income fall 40% from a year ago during the period and said it failed to deliver 95,000 vehicles due to part shortages. Shares fell nearly 3% early Tuesday. Elsewhere in markets, shares of UBS (UBS) dropped more than 8% after the Swiss bank reported a smaller quarterly profit than analyst anticipated as market volatility weighed on investment banking revenues and the financial institution warned of a challenging second half of the year. Federal Reserve officials will convene for their two-day policy meeting Tuesday and are expected to raise interest rates another 75 basis points at its conclusion Wednesday afternoon. Federal Reserve Chair Jerome Powell is set to deliver remarks at 2:30 p.m. ET shortly after the U.S. central bank’s policy decision comes out at 2:00 p.m. ET. Investors are in the throes of the busiest week of the year for Wall Street, with Big Tech earnings on tap, a busy calendar of economic releases – including the all-important advance estimate of second-quarter GDP – and the Fed’s rate decision in the spotlight. Second quarter reports from Microsoft (MSFT) and Alphabet (GOOG) will be closely-watched after the bell. According to FactSet Research, 21% of companies in the S&P 500 have reported second-quarter earnings through Friday, with only 68% presenting actual earnings per share above estimates — below the five-year average of 77%. Any earnings beats have also, in aggregate, been only 3.6% above estimates, less than half of the five-year average of 8.8%." MY COMMENT No doubt the people that drive the day to day markets......short term stock traders......are very wary this week and will tend to anticipate negative news and events. So....we are in for a wild and likely DOWN market this week.....baring some really positive earnings news. I am sure the traders LOVE the markets this week. For us long term investors......another short term irrelevant week. It was nice to pile up some money reserves in my stock values last week. A nice cushion for what is going on this week. I have not looked at my account today.....no need.....I know very well what I will see. Poor Amazon....they are being hammered by the Walmart earnings.
OK.....since I mentioned it I had to look. I have no will power. All of my stocks are RED at the moment except for Honeywell. Actually a victory.....I expected ALL TEN to be in the red today. I will grasp at any little "win" that I can get.
Yes, they seem to be making moves. They are a big player in some of the CHIPS Act stuff recently. They are definitely making some friends with some of the Taiwan chip companies which are going to continue to be big business for the US at home and abroad.
One thing that is a continued positive for me is to have a source of income at my age....72. We are on track to play at least 100 to 120 shows this year. The music business has recovered nicely after going dead during the peak of the pandemic. I retired long ago from the business world.....as I have said many times......at age 49. I am now making good monthly money from playing since the pandemic shut-down ended. I dont budget that money since it could end at any time. BUT....it is hard not to become dependent on that extra money......something that I try to financially and psychologically avoid. It does cost me extra income taxes and self employment taxes every year since it is reported, and I get a 1099. I am sure many other people my age.....that are retired....are still working part time or even full time.....some by choice and some by necessity.
On the topic of the home builders and falling sales. Homebuilders are boosting incentives as they suddenly struggle to sell homes https://www.cnbc.com/2022/07/26/hom...-as-they-suddenly-struggle-to-sell-homes.html (BOLD is my opinion OR what I consider important content) "Key Points Sales of newly built homes fell more than 8% in June from the prior month and were 17% lower than June of 2021, according to a report Tuesday from the U.S. Census. Inventory also rose to a 9.3-month supply, up from 5.6 months at the end of last year. Chief executives of major builders are saying they have to respond more quickly to the sudden turnaround in the market, in part by boosting incentives. After two years of not being able to build homes fast enough to keep up with demand, the nation’s homebuilders are now experiencing a slowdown in sales and an increase in supply. Sales of newly built homes fell more than 8% in June from the prior month and were 17% lower than June of 2021, according to a report Tuesday from the U.S. Census. Inventory also rose to a 9.3-month supply, up from 5.6 months at the end of last year. Chief executives of major builders are saying they have to respond more quickly to the sudden turnaround in the market, in part by boosting incentives. Pulte Group, one of the nation’s largest homebuilders, reported Tuesday that net new orders for its homes in the second quarter were lower by 23% from last year. The company’s cancelation rate was 15%, compared with 7% in the prior year period. “We have to work harder to sell homes. We have to be more nimble,” Pulte CEO Ryan Marshall said on a conference call with investors. “Home price appreciation has slowed, stopped, or, through the use of incentives, is taking a couple of steps back. Through much of the second quarter, incentives were mostly tied to the mortgage, but this is now expanding to include discounts on options and lot premiums.” The median price of a newly built home sold in June was $402,400, still up 7.4% from a year ago. But the market had been experiencing double-digit price increases. Builders are getting help from lower commodity prices now, especially lumber, and land prices are starting to adjust lower as well. Buyers are still seeing sticker shock, though, due to the sharp rise in mortgage rates and inflation in the overall economy. The average rate on the 30-year fixed mortgage began this year around 3% and then began rising steadily. It jumped over 6% briefly in June, before settling back in the high 5% range. “The consumer, really, it was mid-June that we saw this kind of pullback, that pause. I kidded our sales people the other week that they’d gone from order takers to financial therapist,” said Doug Bauer, CEO of Tripointe Homes on CNBC’s “Squawk on the Street.” The builder is also increasing buyer incentives. “I think over the next quarter or two there will be some price discovery as we match up mortgage payments with pricing,” Bauer added. Prices for existing homes are also starting to come back to earth. While still in the double digits, price gains decelerated in May for the second month in a row, according to the S&P Case-Shiller national home price index. Prices are stubbornly high in the existing home market because supply is still quite low. The builders had been helping, accelerating construction, but that has suddenly changed. “This may just be the beginning of a difficult stretch for the homebuilding industry,” said Nicole Bachaud, an economist with Zillow. “Decelerations in housing permits and starts activity will put a cap on sales in the near term and suggests that builders are bracing for rougher road ahead, even as the housing market remains hungry for more inventory with long run demand staying put.” MY COMMENT The home builders are in for a very TOUGH time over the coming months. Some RARE good news for potential buyers that are going to see builder pricing and incentives for new homes in their favor.....while....at the same time being hammered by higher mortgage rates. Good news.....bad news.....for buyers. We seem to be NOW entering the peak of the BAD ECONOMY. The key questions are......how much worse will it get and how long will it last.
These two I think are fairly popular with dividend investors. KO has been paying a dividend since about forever, I think (60 years or so). They seem to fit the "slow but steady" type of race with a pretty big international footprint as well. They have that "brand" in the US as well, as far as recognizable and everyone knows when they see it type of deal. When I was a young kid, my grandpa would always come by with a "treat"...it was always a cold glass bottled Coke. Always 2, one for him and one for me. Oh, the visits we would have. He has long since been gone, but I bought some KO stock way back for that sentimental reason. I admit that sound investing advice is one should never invest on that kind of reason alone and that advice is accurate and true. I did it anyway. Me and "gramps" can still have a Coke sort of. He was an important man in my life. Turns out, it has not been a bad investment.
YEP.....I owned Coke for many, many, years. It has been a while now. It was one of the mainstays of my BIG CAP portfolio for a long time in the old days. Your story reminds me of my Coke memories Smokie and a story from my mom. When she was a kid in a small town in New Mexico the local Coke distributor would give any school kid that got straight A's a free bottle of Coke if they brought their report card to the office. My mom was there every report card. In the same small town when I was a 4-6 year old kid the drug store on the main street had an old fashioned soda fountain. We would go there once in a while to get an ICE COLD Coke as a treat. They had those metal cone shaped holders that held a paper cone. That is what the drinks were served in. Probably most people these days reading this have no idea what I am talking about. Those fountain Cokes were so rich and good....ice cold. Much better than the Coke you get now.....at least that is my memory. Back than in the early to mid 1950's very few people kept soft drinks at home in the refrigerator. We only got them on a picnic or a special occasion.
Here is another company making a mistake by dumping some BIG MONEY business segments. No doubt.....in the name of creating shareholder value. Big companies.....becoming little companies......the modern trend. In my opinion very short sighted. there is value to the revenue that these conglomerates and semi-conglomerates get from different business segments. In this case what they are spinning off brings in over $8BILLION in sales. Of course.....going the opposite direction is Amazon and Berkshire......modern version of a conglomerate type of business. 3M to spin off health care business The company expects the transition to be completed by year-end 2023 https://www.foxbusiness.com/markets/3m-spin-off-health-care-business (BOLD is my opinion OR what I consider important content) "3M announced Tuesday that it will spin off its health care business into a separate publicly traded company. "The decision to spin off our Health Care business will result in two well-capitalized, world-class companies, well positioned to pursue their respective priorities," 3M CEO Mike Roman said in a statement. The new company will focus on wound care, health care IT, oral care and biopharma filtration. 3M's health care products took in roughly $8.61 billion in sales in 2021. The spinoff is expected to be completed by the end of next year, and 3M said it will retain a 19.9% stake in the new company. 3M's announcement coincided with the release of its quarterly earnings report Tuesday. The company's second-quarter adjusted profit fell to $2.48 per share from $2.75 per share a year earlier, however, beat analysts' average estimate of $2.42 per share. 3M also said it plans to complete the spinoff of its food safety business to Neogen, with a targeted closing date of Sept. 1. The companies announced the agreement in December 2021." MY COMMENT A shame.....short sighted in my opinion. BUT.....that is the thinking of modern management. Grab the money right now and dont think much about the long term future. 3M is another stock that I held in the past for many, many, years as part of my BIG CAP, ICONIC, DOMINANT, company portfolio.
A nice RED LOSS for me today. Same as earlier in the day.....only one positive holding....Honeywell. At least I still have a good portion of my cushion that I built up over the past couple of weeks......at least so far. I got hammered by the SP500 today by 1.54%.
WOW.....that was quick....here are the Microsoft numbers. Microsoft earnings are out – here are the numbers https://www.cnbc.com/2022/07/26/microsoft-msft-earnings-q4-2022.html (BOLD is my opinion OR what I consider important content) "Microsoft shares fell 3% in extended trading after the software maker reported fiscal fourth-quarter results that failed to reach Wall Street consensus. Here’s how the company did: Earnings: $2.23 per share, adjusted, vs. $2.29 per share as expected by analysts, according to Refinitiv. Revenue: $51.87 billion, vs. $52.44 billion as expected by analysts, according to Refinitiv. During the quarter, Microsoft reduced its quarterly guidance for income and revenue because of changing foreign-exchange rates. CEO Satya Nadella said employees will get pay increases, and the company introduced services to help customers deal with security incidents. When management lowered earnings expectations, though, it didn’t factor in other issues that could hurt results. Technology industry researcher Gartner said earlier this month that logistical disruptions in the quarter had dragged down PC shipments, a key input for sales of Windows operating system licenses to device makers. Plus, macroeconomic worries that hurt revenue growth for advertising-driven social-media companies Snap and Twitter could rub off on Microsoft. In 2021 the company generated $10 billion in advertising revenue before traffic-acquisition costs. Microsoft shares have sold off 25% so far this year, compared with a decline of 17% for the S&P 500 U.S. stock index. Executives will discuss the results with analysts and issue guidance on a webcast starting at 5:30 p.m. ET." MY COMMENT Not a big miss....but in the current environment it will still hurt the markets tomorrow. Hopefully there will be something in the guidance and discussion that will lessen the pain tomorrow.
Here are the Google numbers. Alphabet earnings are out – here are the numbers https://www.cnbc.com/2022/07/26/alphabet-is-set-to-report-q2-earnings-after-the-bell-.html (BOLD is my opinion OR what I consider important content) "Alphabet reported earnings after the bell. Here are the results. Earnings per share (EPS): $1.21 vs $1.28 expected, according to Refinitiv Revenue: $69.69 billion vs $69.9 billion expected, according to Refinitiv Wall Street is also watching other key numbers in the Alphabet report: YouTube advertising revenue: $7.52 billion expected, according to StreetAccount Google Cloud revenue: $6.41 billion expected, according to StreetAccount Traffic acquisition costs (TAC): $12.41 billion expected, according to StreetAccount Alphabet is expected to report a slowing of revenue growth to 13% from 62% a year earlier, when the company was pulling out of the pandemic and the economy was flourishing. Recently, analysts have lowered their estimates for second-quarter earnings to account for broad economic challenges now facing advertisers. Google said last month it will slow the pace of hiring and investments through 2023, and CEO Sundar Pichai told employees in a memo, “we’re not immune to economic headwinds.” “We need to be more entrepreneurial working with greater urgency, sharper focus, and more hunger than we’ve shown on sunnier days,” Pichai wrote. Also during the quarter, Google said it would be raising pay and overhauling its performance evaluation system for full-time employees as the company tries to ease tension between employees and leadership. Alphabet finance chief Ruth Porat warned Wall Street in April that the company may be in for another rough quarter after missing analysts expectations on the top and bottom lines for the first period. She cited the Russia-Ukraine war, tough comparisons from the prior year’s growth and competition from rivals like TikTok. Snap soured the mood for ad-tech last week, when the social media company reported disappointing results on the top and bottom line and said “forward-looking visibility remains incredibly challenging.” The stock plunged 39% and pulled down other ad-tech stocks. Facebook parent Meta, which is set to report results on Wednesday, dropped more than 7%. There’s also potential regulatory action from lawmakers related to Google’s dominant search business. The Wall Street Journal recently reported that a new antitrust lawsuit over Google’s ad-tech business could come as soon as this summer. And Google faces lawsuits from coalitions of state attorneys general tied to concerns around privacy and monopoly control." MY COMMENT A very slight miss so far....kind of mixed. We will find out more over the next hour or so.
Yes, kind of a spanking in the markets today. In regard to some of the earnings...as pointed out above a couple of the heavyweights reporting a miss. Not terrible, but it will linger in the air for probably longer than we would like.
Here is more detail on Microsoft Microsoft misses on top and bottom lines https://www.cnbc.com/2022/07/26/microsoft-msft-earnings-q4-2022.html (BOLD is my opinion OR what I consider important content) "Key Points Microsoft’s revenue and income fell short, as did the company’s revenue from Azure and other cloud services. Changing exchange rates and challenges in advertising and the PC markets brought down revenue in the quarter. Microsoft shares fell 1% in extended trading after the software maker reported fiscal fourth-quarter results that failed to reach Wall Street consensus. Here’s how the company did: Earnings: $2.23 per share, adjusted, vs. $2.29 per share as expected by analysts, according to Refinitiv. Revenue: $51.87 billion, vs. $52.44 billion as expected by analysts, according to Refinitiv. Microsoft’s revenue increased by 12% year over year in the quarter, which ended on June 30, compared with 18% growth in the previous quarter. according to a statement. Net income moved up 2% to $16.74 billion. The biggest challenge in the quarter stemmed from worsening foreign-exchange rates. Microsoft said that reduced revenue by $595 million and earnings by 4 cents per share. In June, Microsoft reduced its quarterly income and revenue guidance guidance for income and revenue just because of rate fluctuations. Microsoft’s Intelligent Cloud segment, which includes the Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services generated $20.91 billion in revenue. That was up 20% and below the consensus of $21.10 billion among analysts polled by StreetAccount. The company said revenue from Azure and other cloud services grew by 40%, compared with 46% in the prior quarter. Analysts surveyed by CNBC had expected 43.1%, while the consensus estimate from StreetAccount was 43.4%. Microsoft does not disclose Azure revenue in dollars. Microsoft’s Productivity and Business Processes segment including Office productivity software, Dynamics and LinkedIn posted $16.60 billion in revenue. That was up nearly 13% and slightly less than the StreetAccount consensus of $16.66 billion. The More Personal Computing segment featuring the Windows operating system, Xbox video-game consoles, the Bing search engine and Surface devices delivered $14.36 billion in revenue for the quarter. Revenue was up 2% year over year and barely lower than the $14.65 billion StreetAccount consensus. Microsoft said search and news advertising, excluding traffic-acquisition costs, rose 18% thanks to stronger search volume and revenue per search. Still, a contraction in advertising spending resulted in a $100 million cut to revenue for the search and news advertising and LinkedIn categories. Sales of Windows licenses to device makers fell by 2% in the quarter. Technology industry researcher Gartner said earlier this month that logistical disruptions in the quarter had contributed to a 12.6% decrease in quarterly PC shipments, a key input for that metric. The company said factory shutdowns in China in April and May and a worsening computer market in June reduced Windows revenue from device maker by $300 million. During the quarter, CEO Satya Nadella said employees will get pay increases, and the company introduced services to help customers deal with security incidents. Excluding the after-hours move, Microsoft stock has tumbled 25% so far this year, compared with a roughly 18% decline in the S&P 500 index of U.S. stocks. Executives will discuss the results with analysts and issue guidance on a webcast starting at 5:30 p.m. ET." MY COMMENT A very slight miss in my view. Take out the currency hit and they are very close in many of the categories. I think without going back.....that every category was up by a positive percentage over a year ago. I take this as good earnings considering all the various headwinds. We will see what the markets take is tomorrow.
Here is more on Google. Alphabet misses on earnings and revenue for second quarter https://www.cnbc.com/2022/07/26/alphabet-is-set-to-report-q2-earnings-after-the-bell-.html (BOLD is my opinion OR what I consider important content) "Key Points The company reported earnings per share of $1.21 vs $1.28 expected. The company also fell short of revenue expectations for advertising and Google Cloud. Alphabet shares have lost about a quarter of their value this year. Alphabet reported weaker-than-expected earnings and revenue for the second quarter. Here’s how the company did: Earnings per share (EPS): $1.21 vs $1.28 expected, according to Refinitiv Revenue: $69.69 billion vs $69.9 billion expected, according to Refinitiv YouTube advertising revenue: $7.34 billion vs.$7.52 billion expected, according to StreetAccount Google Cloud revenue: $6.28 billion vs. $6.41 billion expected, according to StreetAccount. Traffic acquisition costs (TAC): $12.21 billion vs$12.41 billion expected, according to StreetAccount Revenue growth slowed to 13% in the quarter from 62% a year earlier, when the company was benefiting from the post-pandemic reopening and consumer spending was on the rise. Advertising revenue increased just 12% to $56.3 billion, as marketers reeled in their spending to manage inflationary pressures. Google Cloud, which fell short of revenue expectations, lost $858 million during the quarter. Other Bets, which includes self-driving car unit Waymo and life sciences unit Verily, made $193 million in revenue but lost $1.69 billion during the quarter. The report comes days after Snap announced disastrous quarterly results and said it plans to slow hiring because “forward-looking visibility remains incredibly challenging.” In contrast to Snap, Alphabet shares rose slightly in extended trading despite the miss, as investors may have been expecting more troubling signs. Alphabet shares have lost about a quarter of their value this year." MY COMMENT MOST of the items above are very close to the estimates.....and many are still positive percentages compared to a year ago. Again.....like MSFT.....I am going to call this a mild earnings miss in light of what could have been......plus....the fact that we have been in a RECESSION for the past 3-6 months. No doubt the markets will be down tomorrow compliments of MSFT and GOOGL.
We have all talked about the many reasons for the events playing out before us. The kind of distortion that our economy went through with all of the shutdowns and stimulus....it was a massive disruption to a large machine. We are seeing the results of this for almost 7-8 months now. It is going to take some time for all of this to settle out...and it is going to be costly for individuals and companies alike. Let us hope that we have learned something from it. On the positive side of the coin...good, solid/stable companies will be able to weather the storm. I think we are seeing some of their adjustments and preparations for doing so lately. Some restructuring, some cutbacks, and adjustment to future plans will maintain them for a healthy run at some point in the future. While there is uncertainty for just how difficult this time will end up being, it is not the first time stress or difficulty has shown up on their path to being successful. I believe they can still deliver. As long term investors, we are not too much different in comparison to the good/solid companies we hold in our portfolio. We review our plan and determine if our allocations are sound and match our intended goals for the future. We rely on our previous experience of difficult times and steady our nerves. Our plan is built to provide financial security for the future....it will succeed again.
AND......if all else fails......there is always the simple, ultimate, long term strategy of just putting everything into a SP500 Index Fund and let it ride for the long term. Much easier than dealing with individual stocks.....but....I am not ready to do this yet. Some day.....when I am tired of the markets and dont want to deal with anything anymore.
Yes to the above regarding the SP 500 index. A proven, simple strategy to do. A person can set this up with regular contributions and throw a little extra in whenever possible and be doing very well by the time they are toward the end of their working career. Plus, it helps investors remain focused and avoiding many pitfalls that can derail a financial plan.
A really good open today. I guess the following is part of the reason: 1. The MSFT and GOOGL earnings were.....good enough.....along with the guidance. Personally.....and all in all.....I thought they were a little better than the low expectations that built up over the past couple of days. 2. The economic news has been bad enough that the FED is eextremely likely to just stick with the anticipated 0.75% rate hike. 3. The Ten Year Treasury yield is STILL in the bottom end of the 100 year range.....in spite of the rate increases. 4. Earnings are actually coming in nicely.....whether the media will admit it or not. 5. In the corporate world job cuts are happening across the board.
We are seeing articles about earnings now talking about money/currency trends around the world. Adjusting for Swings With Constant Currencies More companies are helping investors put currency moves in context. https://www.fisherinvestments.com/en-us/marketminder/adjusting-for-swings-with-constant-currencies (BOLD is my opinion OR hat I consider important content) "Q2 earnings season is in full swing, and there is a new buzzword in town: constant-currency. As in, Widgets “R” Us reports earnings grew 4%, or 7% on a constant-currency basis. What is this, and what should we make of it? Read on. Simply, constant-currency earnings aim to strip out skew from big currency swings in order to zero in on how the core business is faring. As you have no doubt seen headlines railing about, the dollar is near an all-time high relative to a broad basket of currencies, which has implications globally. When the dollar strengthens, it can hurt US companies’ overseas sales. If they don’t raise prices and transaction volumes stay constant, their revenue in dollars drops—the same amount of sales in euros, pounds or yen converts to fewer dollars. Or, if US companies raise prices in hopes of keeping dollar-denominated revenues firm, they risk losing market share. This dilemma often gets at least a partial offset from overseas costs being cheaper when the dollar is strong, but it isn’t always a wash. This is why you will have seen oodles of American companies blaming the strong dollar for disappointing earnings—and oodles of articles arguing it is a huge problem markets are egregiously ignoring. Meanwhile, companies based abroad have the opposite problem. When their home currencies are weak relative to the dollar, they have to pay more in their local currency for parts, labor and energy sourced overseas and priced in dollars. They can get an offset from overseas sales, though. If they want to, they can cut prices overseas to gain market share without taking a big hit once they reconvert to totals to their own currency. Or, they can keep prices overseas steady and earn big fat profits from currency conversion. Or, we should say, paper profits. In many cases, overseas revenues don’t get converted back to a multinational company’s home currency. Rather, the company will plow those back into whatever business they are conducting in that territory. So, Widgets “R” Us will take the euros it earns from selling widgets in the eurozone and use them to pay workers there, cover overhead costs and purchase parts and raw materials. But the rules and niceties of corporate accounting don’t let the CFO stand in front of investors and announce that profits in their eurozone business grew 6%, their UK business grew 8%, their Japanese business grew 5% and leave it there—they need a headline total. And if they are an American company whose shares trade on the US exchange and are priced in dollars, then that headline total needs to be in dollars. So, Generally Accepted Accounting Principles (GAAP) require companies to convert all overseas costs and revenues to dollars at the actual exchange rate. Similar practices overseas lead eurozone firms to convert everything to euros, British firms to pounds, Japanese companies to yen, etc. As you can imagine, this can cause big skew when the dollar is on the move, bringing large fluctuations in earnings growth rates that may or may not match the actual results overseas. Pretend that Widgets “R” Us had total Japanese sales of ¥5 billion in Q2 2021 and ¥6 billion in Q2 2022. That shakes out to a 20% y/y growth rate. But in Q2 2021, ¥5 billion translated to $45.05 million. Q2 2022’s ¥6 billion, due to the yen’s depreciation to multi-decade lows relative to the dollar, converted to just $44.17 million. So, after conversion, a 20% sales growth rate morphs to a -1.95% sales decline. The 20% growth rate is far more meaningful to the core business, but accounting rules emphasize the slight decline. Enter constant-currency earnings, which companies are increasingly reporting as a supplement to headline GAAP earnings. Note: They are a companion, not a replacement, and not all companies report them yet. Instead of using market exchange rates, companies will apply a fixed exchange rate to each currency. It may be last year’s or last quarter’s rate. This gives investors a dollar-based figure so they can see, in one number, how all the global plusses and minuses even out. But it does so without injecting wild swings from factors outside companies’ control. In concert with GAAP earnings and revenues, constant-currency figures can give investors a clearer look at how much currency fluctuations drew the bottom line away from the actual results on the ground. We think headline and constant-currency figures are best used together—this isn’t an argument to throw away headline results and look at constant-currency numbers only. Rather, constant-currency figures give you more context with which to evaluate the headline results. These days, currency swings are artificially hurting several US multinationals’ results. But currencies move down as well as up, and there will come a time when the dollar’s moves make US firms’ bottom lines look better than they would on a constant-currency basis. Sniffing that out is also quite helpful. Looking at constant-currency figures can also help you put headlines in context. These days, headlines cite the dollar as a big risk to the stock market as a whole. Constant-currency earnings can help you see through that, especially once you understand how companies actually manage their international finances. After all, if revenues in pounds, yen and euros aren’t actually converted to dollars in real life, then is it an actual financial hit when companies apply a conversion rate for accounting purposes? They also help you see past the myopia of short-term currency movements to help you see the business’s underlying fundamentals. These days, constant-currency earnings show that for all the handwringing, US multinationals’ overseas business is going pretty fine overall, a powerful counterpoint to investors’ latest fear." MY COMMENT Yes.....many accounting rules and requirements actually distort reality. I like this concept...it matches earnings results to real world REALITY. I hope we see more of this sort of reporting in the future. It helps to tamp down the FEAR MONGERING.......and......increases focus on REAL fundamental results.
Speaking of REALITY.....here is the short term reality today......assuming that there is even such a thing as "short term reality" in investing today. Stock market news live updates: Stocks climb ahead of key Fed decision https://finance.yahoo.com/news/stock-market-news-live-updates-july-27-2022-113235652.html (BOLD is my opinion OR what I consider important content) "U.S. stocks rose early Wednesday as investors geared up for a major decision from Federal Reserve policymakers on interest rates. All three major indexes pushed forward in early trading, lifted by gains in Microsoft (MSFT) and Alphabet (GOOG, GOOGL) after earnings reports from the tech giants late Tuesday. The S&P 500 advanced 0.8%, while the Dow Jones Industrial Average added 120 points, or roughly 0.4%. The tech-heavy Nasdaq Composite jumped 1.4%. Shares of Microsoft rose as much as 3.5% at the start of trading, buoyed by a rosy outlook for its cloud business despite unveiling earnings for the fiscal fourth quarter that missed Wall Street estimates. The company maintained its guidance for solid revenue growth in the new fiscal year despite the impact of headwinds from war in Ukraine, an unfavorable foreign exchange rate environment, and prolonged COVID shutdowns in China on its most recent financials. Alphabet shares climbed roughly 3% at Wednesday's open after a modest beat on ad revenue offered some relief to investors Tuesday following a dismal report from Snap (SNAP) last week that raised concerns about the digital advertising market. The reports serve as curtain raisers for more Big Tech results this week, with figures from Meta Platforms (META) due out after Wednesday’s close, and Apple (AAPL) and Amazon.com (AMZN) on deck to report Thursday. The Federal Reserve is expected to issue another 75 basis point increase on its benchmark interest rate at the conclusion of its two-day policy-setting meeting Wednesday afternoon. Investors will also tune in to remarks from Federal Reserve Chair Jerome Powell after the U.S. central bank’s policy decision comes out at 2:00 p.m. ET. If the U.S. central bank follows through on the hike market participants are largely anticipating, the move will bring rates to a range of 2.25%-2.5%, or a "neutral" level estimated to be the point at which any further rate increases would be “restrictive” to economic activity. “The market can begin to firm once it believes the Fed is going to toggle down expectations,” Christopher Harvey, head of equity strategy at Wells Fargo Securities told Yahoo Finance Live on Tuesday (video above). “You’re not going to get that on Wednesday, but I do think you get a pretty good probability of that occurring in September."" MY COMMENT The most important thing for stocks moving to the end of the year is predictability and consistency from the FED. They need to wake up and STICK to a plan of rate increases that the markets can count on. We are OBVIOUSLY in a recession.....and they are going to be raising rates into a recession. The best way to offset this is to issue a plan of rate increases and stick with it. UNCERTAINTY is a market killer. The FED also needs to error on the side of being too slow to raise rates. There is a definite danger of setting off a wave of DEFLATION....especially if the housing markets tank.
