Morning Toast 20th April

Bud Right - backlash to the backlash | Good and bad sign continue.


Markets were pretty flat yesterday despite more earnings reports rolling in. This earnings season continues at pace, with a big week for first-quarter results rolling on. As of yesterday, S&P 500 companies were cruising toward their best start to an earnings season since 2012. However, S&P 500 futures are sharply down this morning.

Feelings are still mixed among the experts of what our economic future looks like. Right now, markets are going well, with investors agreeing with St. Louis Fed President James Bullard, that recession fears are exaggerated.

He cites a (“very, very”) strong labor market and resilient consumer consumption as reasons for his dissent.

The non-voting official supports continued interest rate hikes to fight inflation.

In fact, Bullard thinks rates should be raised to a range of 5.5% to 5.75%, 50bps higher than the median estimate.

On the flip side, the four biggest U.S. banks—BofA, JPMorgan, Citi, and Wells Fargo—wrote off $3.4 billion in bad consumer loans in Q1. That’s a 73% increase year-over-year, and combined with additional reserves, provisions at the lenders are up to levels last seen at the start of the pandemic. Economic factors affecting retail customers' ability to pay debt, combined with the early signs of a credit crunch in the banking sector, where according to Reuters Bank credit growth is now 5% below the long-term average, and Lenders have tightened lending criteria to levels normally seen in a recession - show a slightly different long term picture on where the economy is headed. 

Today we're turning our attention to a frustratingly frequent dilemma: the debt ceiling and the U.S. political party battles on the issue....a unique game where politicians get to play with the countries ability to function at the whim of partisan positions.

Stock Spotlight

With roughly 10% of S&P 500 earnings reported, 90% and 73% of companies have beat on earnings and sales estimates, respectively.

Here are some of yesterday’s highlights:

  • $JNJ Johnson & Johnson: $2.68 EPS (vs. $2.50 expected), $24.75 billion in sales (vs. $23.67B expected)

  • $NFLX Netflix: $2.88 EPS (vs. $2.86 expected), $8.16 billion in sales (vs. $8.18B expected)

  • $GS Goldman Sachs: $9.87 EPS (vs. $8.10 expected), $12.22 billion in sales (vs. $12.79B expected)

What we’re watching today:

  • $TSLA Tesla

  • $ASML Holding

  • $ABT Abbott Labs

  • $MS Morgan Stanley

  • $IBM International Business Machines

  • $ELV Elevance Health

  • $LRCX Lam Research

  • $CCI Crown Castle

  • $USB US Bancorp

  • $LVS Las Vegas Sands

  • $TRV Travelers

  • $KMI Kinder Morgan

  • $BKR Baker Hughes

  • $NDAQ Nasdaq

  • $DFS Discover

  • $EFX Equifax

Stock Spotlight

Bud Light anti woke woes....just waiting on the SNL parody of this one! 

As a quick recap, America’s biggest beer brand enlisted trans activist and comic, 28-year-old Dylan Mulvaney (below), to promote the brew in a campaign Bud’s vice president, Alissa Heinerscheid, said was designed to attract more female and younger drinkers because otherwise, “there will be no future for Bud Light”.

Seemingly offended by a trans person fronting their favourite brew, Bud’s loyal drinking base soon began to boycott the beer, leading to a 70 per cent fall in sales while Bud’s parent company, Anheuser-Busch InBev, saw its market cap plummet $A6 billion. 

Continuing the backlash (namely from right-wing, white, men’s groups) comes a new beer for aggrieved Bud Light drinkers called Ultra Right Beer. only in MERICA! 

The beverage is the work of a conservative, pro-Trump politician from Georgia called Seth Weathers and is aimed at outraged right-wingers who want to drink a “100%woke-free beer”.

Luckily we’re in 2023, so we’re seeing the backlash to the backlash leading some shoppers to seek out Bud Light, and we’re now seeing a rally in the Stock. 

The shares have jumped more than 8% over the past month and are up 8.1% since the start of the year, helped by a strong fourth-quarter report in March, and at a recent $64.78 are only about 3% below their 52-week high. Over the past year, AB InBev stock is up 10.6%.

That means that AB InBev has outperformed not only the S&P 500 but its peers tracked by the Consumer Staples Select Sector SPDR Fund (XLP) over the past one-month, one-year and year-to-date periods. In fact, over the past year, AB InBev has been a standout in the sector, with its shares outpacing those of Constellation Brands (STZ), Molson Coors Beverage (TAP), Boston Beer Co. (SAM) and Diageo (DEO).

Sustainability News

In a recent study from IBM, over 70% of Businesses View ESG as a Revenue Enabler: Oh how things change! For the good this time! 

The survey cements that the argument that ESG harms profitability is “more than a myth—it’s misinformation that leads to poor business decision-making,” according to the study. Furthermore, it found that consumers increasingly focus on companies’ sustainability performance when making purchasing and employment decisions.

For the new study, The ESG ultimatum: Profit or perish, IBM’s Institute for Business Value (IBV) analysed results from a survey of more than 20,000 consumers about their attitudes toward sustainability and social responsibility, as well as a survey of 2,500 executives across 22 industries and 34 countries regarding their ESG strategy, approach, and operationalisation, expected benefits and business objectives considerations. The study also segmented businesses according to ESG maturity to compare relative performance.

The executive survey indicated that ESG is a top priority for businesses, with 76% of respondents reporting that it is central to their business strategy, 72% approaching ESG as a revenue enabler rather than as a cost centre, and 45% expecting ESG efforts to result in improved profitability.

The benefits of sustainability-related initiatives were particularly evident for the segment identified as “ESG leaders,” with these companies 52% more likely to report that ESG efforts have “a very great” impact on profitability and also more often reporting ESG-related improvements in customer engagement (70% more often than low ESG maturity companies), risk management (90% more often), and access to finance (85% more often).

The study also found a strong sustainability focus among consumers, with around two-thirds of respondents reporting that environmental sustainability and social responsibility (68% and 65%, respectively) are very or extremely important to them, with these priorities already impacting employment and consumption decisions. 

More than 70% said that they would be more willing to apply for a job with a company that they consider environmentally sustainable or socially responsible, with over 40% willing to accept a lower salary to work for such a company – and a quarter of those who changed jobs in the past year reporting that they did so. Additionally, over half reported paying a premium for environmentally sustainable or socially responsible products in the past year.

Quote of the Day

“We’re not ‘starting a price war,’” the chief executive officer of Telsa tweeted on April 15, as they reduced Tesla prices for the 3rd time this year. “We’re just lowering prices to enable affordability at scale.” Uh-huh! 

Douugh, did you know?

No one’s got a crystal ball that predicts the markets, so trying to know when a dip will happen is nearly impossible. But that doesn’t mean you can’t be prepared for them. Here are two of our top tips to structure your portfolio for market dips.

Don’t put your eggs in one basket

Diversification is all about spreading your money across a variety of investments. A diversified portfolio will help even out the effect that a market dip has across your portfolio. You can diversify across different markets internationally, industries, and types of investments (like stocks or ETFs). 

Cover all your bases - growth & value stocks

Growth stocks are shares in companies expected to grow faster than average, meaning they can sometimes be more volatile and less likely to pay dividends. 

Value stocks are companies that are considered to be undervalued, tend to be more mature, less volatile and more likely to pay dividends. 

When a market dip happens, value stocks tend to perform better than how they perform in rising share markets. In comparison, growth stocks tend to perform worse during market dips and better in rising share markets. 

Diversifying across both will help you survive and thrive in market dips.

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