Morning Toast April 18th

Reporting Season to Turbocharged Markets? | Starbucks goes greener!


In our last Toast we mentioned that the potential of stronger than expected earnings could drive continued growth in U.S. stocks, especially in tech.

Reporting is upon us again, and analysts will be poring over results from Tesla, Netflix, IBM, AT&T, Bank of America, Goldman Sachs, American Express, and a heap of other firms, hunting for clues on how the economy is faring in these confusing times.

With the Dow gaining for four straight weeks and the S&P and Nasdaq gaining in four of the past five, these reports could turbocharge markets - or send them flying into the wall! 

One notable late report, which was due yesterday, is from Charles Schwab...check out the second Spotlight for more.

Stock Spotlight

Bank of America's strategists is feeling pretty positive about the stock market as we head into the second quarter. The S&P 500 has already had a solid start to 2023 with an 8% gain, but it could get even bigger if one of BofA's optimistic predictions comes true!

According to a note to their clients, any of these positive developments could shake up the market's negative attitude:

  • A resolution to the Russia-Ukraine conflict

  • More people are immigrating to the U.S., and ChatGPT's deflationary impact on the workforce

  • Big Tech companies are spending big bucks on an arms race

  • No recession in sight

  • Investors realise stocks are a better choice than bonds.

The thing is, lots of investors are feeling sceptical about the stock market this year, including hedge funds who are currently betting against the S&P 500 with the biggest short position since 2011. That, plus traders have flocked to money market funds with hefty cash positions now topping a record $5 trillion. To Bank of America, any of these scenarios could mean an upside for stocks.

Stock Spotlight

Charles Schwab, the largest publicly traded U.S. brokerage, is feeling the heat from investors due to its investments in long-term bonds and mortgage-backed securities. These assets have taken a hit as interest rates rise, which is causing concern among investors.

Back in 2019, Schwab made a big move by slashing trading commissions to zero and banking on its bank (pun intended) to keep driving profits. Since then, most of the company's money has come from customer funds sitting in low-yielding accounts that are "swept" into its bank arm. As trading surged, Schwab needed somewhere to invest the incoming cash, and for a while, it worked out great.

But the collapse of three U.S. banks last month has turned things upside down. Schwab, like Silicon Valley Bank, invested in debt that would take five years or more to mature. These investments, backed by the U.S. government, were supposed to be super safe, but rising interest rates have put them underwater.

Now, Schwab is facing a tough moment in its 50-year history. Deposits have dropped, and unrealised losses have swelled as interest rates surge. The stock took a 33% hit in March, which was its worst month since 1987. Some investors aren't waiting to see what happens and have already sold their stakes. Rajiv Jain’s GQG Partners, which had been among Schwab’s top 15 shareholders at year-end, sold its entire $1.4 billion stake during last month’s turmoil, the Financial Times reported Friday.

It's a tough time for Schwab, but we'll have to wait and see how they weather the storm.

Sustainability News

One for the eco coffee lovers. The green-badged coffee giant just got a little greener. 

Starbucks is expanding its Greener Store program to 3,500 stores in 20 markets worldwide, including Asia Pacific, Europe, the Middle East, Africa, and Latin America and the Caribbean. These Greener Stores are an important step in Starbucks' efforts to reduce its environmental impact and build a more sustainable future for our planet.

To achieve Greener Store certification, Starbucks has developed a set of 25 performance-based standards with the World Wildlife Fund, covering areas such as energy efficiency, water stewardship, and waste diversion. Each store has a different combination of sustainable features, like solar panels or water recycling tanks, as well as less obvious elements like high-efficiency appliances, low-emitting paint and sealants, recycling tampers, and energy-efficient HVAC temperature systems.

Starbucks partners (employees) also play a big role in the certification process. Daily practices, like recycling, composting, and donating store materials and perishable food through the Starbucks FoodShare program, are key factors in achieving Greener Store certification.

The program has already saved the company almost $60 million in annual operating costs in the U.S. alone, thanks to 30% water savings and 30% energy reduction compared to historic store practices. In markets worldwide, the program is helping Starbucks achieve its goal of reducing carbon emissions, water usage, and landfill waste by 50% by 2030.

As Michael Kobori, Starbucks chief sustainability officer, says, "With a company of Starbucks scale – any one action, no matter how small, has the potential for massive impact." We're proud to see Starbucks continue to lead the way in sustainability and hope that other companies will follow suit.

Quote of the Day

"The S&P 500 has now spent more than 25 weeks above its 200-week moving average. Since 1950, there are zero instances of the S&P 500 making a new low once it has recovered above the 200-week moving average and spent at least 15 weeks there." 

- Fundstrat's Tom Lee

Douugh, did you know?

Protecting your capital, diversifying and relying on the experts can be the best long-term strategy. 

What makes us say this? Well, the latest data from VandaTrack retail shows that U.S. investors are sitting on big losses in their stock portfolios even as the market climbs. The data shows that the average retail investor is down 27% on the year. Despite markets being up by that much. 

How can this be? 

  1. Carrying capital losses

Capital loss is the possibility that you could lose all your money and have to work twice as hard to make it back.

If your portfolio value declines, consider doing what experienced investors do, and use it to generate capital losses. Talk to your accountant about how this can benefit you; just make sure to check your state tax rules first to see what you’d incur. 

  1. Making bad bets

Diversification is a strategy that will help you avoid falling into bed with bad bets, by investing in a mix of investments to help protect you from losing all your money. 

By spreading your investments, you're less likely to have your portfolio wiped out due to one negative event impacting that single holding. 

You can diversify across Sectors and Industries, across Companies, across Asset Classes, and also across Borders.

  1. Failing to time the market.

Timing the market is a tricky skill that takes many of the top investors a long time to do successfully - let alone to master.

Start Investing Today!

Investing involves risk. You aren't guaranteed to make money, and you might lose the money you start with.

Douugh Australia Pty Ltd ABN 76 617 000 138 operates under Douugh Australia Pty Ltd AFS License No. 500063. Although we endeavour to ensure the accuracy of information we provide, we do not accept responsibility of liability for any errors or from any loss from its use. Any information provided is general advice only and has been prepared without considering your objectives, financial situation or needs. We don't provide personalised advice or recommendations. Before making any investment decision you should consider whether it is appropriate for your situation and seek appropriate taxation and legal advice. For more details, see our FSG, Terms of Service and other disclosures.

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