Nike’s stock has been cruising this year, easily outpacing the broader market thanks to good earnings, new products, and the continued strength of “athleisure”. Shares are up 35% this year, and now it looks like they might head much higher as today’s earnings release is expected to be very strong. Many analysts are boosting their target prices, especially because gross margins look likely to expand on the back of less discounting and a shift towards the higher-margin direct-to-consumer business.
FINSUM: About a year ago, when Nike was going through a rough patch and losing market share, we thought investors should stick around. That has paid off.
The market has been doing well lately and movements have been relatively calm. That may all be set to change, however, as a big driver of volatility is set to emerge. That driver is the so-called “blackout” period. The blackout refers to the month before earnings releases where companies are barred from repurchasing their own shares. Company buybacks have been a major tailwind for markets this year, with almost $400 bn of buybacks happening in the first half alone, up almost 50% from the prior year. Volatility has been historically higher in blackout periods.
FINSUM: So we are of two minds on this. On the one hand, blackout periods happen very frequently, so why would this one be special? On the other hand, there could be a lot of political and geopolitical (i.e. trade wars) turbulence in the next month, which means this particular period could prove very volatile.
Stocks have been doing great—almost too great. After a rough patch from February to July, the S&P 500 is up 3% in the last two weeks alone. Stocks have been so strong over the last several weeks that it has taken shares back to nearly overbought territory—right where they were in January before February’s violent correction. However, that seems less likely this time around for a couple of reasons. Firstly, the economy and earnings have been humming; and secondly, because many fund managers might ditch their short bets and go long before they fall even further behind.
FINSUM: There are several factors coming together which make it look like this could be a very good autumn for stocks.
Central bankers meeting at their annual gathering in Jackson Hole this week have a topic at the front of their minds—is rising corporate power hurting investment, wage growth, and productivity? Looking at the figures, the picture is mixed, but that is beside the point says the Wall Street Journal. The WSJ argues that investors should buy the monopolies the central bankers are worried about, because if the bankers are right, that will mean rising returns to capital. In other words, investors will be getting more and more of the rewards.
FINSUM: Market share in most of the US’ business sectors have been consolidating for years, and there are less and less publicly traded stocks as companies swallow each other. Corporate power is rising. However, for investors, this is a simple matter as more power will likely mean better payouts and returns.
Apple just crossed the trillion Dollar threshold. Shares have been rising, up over 27% this year, on strong sales figures. Everything seems good, right? Think again, says Barron’s, as it believes the stock could be in for a “clobbering”. The reason why is that Apple’s recent success with the iPhone X may have weakened its prospects for 2019. Because there is a longer and longer timeline between phones that have the dazzle to get customers to actually trade up, currently good iPhone X sales may be sapping demand for 2019, meaning the next few quarter’s earnings might be quite disappointing.
FINSUM: This makes sense to us. Customers only have so much wallet share for smart phones, and the iPhone X took a lot of that this year, which means the next several quarters could be lean.