Barron’s Weekend Summary: Recession is already here for many small businesses
Cover Story:
Recession is already here for many small businesses. For small businesses and households across America, recession isn’t an abstract concept or technical definition. It is a reality that many say they have felt since the start of this year, as rapidly rising prices ate into consumers’ budgets, hit firms’ profit margins, and pushed the cost of credit higher. Recently, the pain has lessened. A slowdown in major inflation gauges alongside an indication of robust hiring have investors betting anew on a “Goldilocks economy” that gently falls back into balance and allows for the Federal Reserve to stop tightening sooner than previously expected.
Interview:
-This week, Barron’s has interviewed Haim Israel. As head of global thematic research at Bank of America, Haim Israel studies the megatrends shaping the global economy that are likely to power investment returns. Some trends, including the rapid aging of populations in the US and China, and the march toward de-globalization as US-China tensions flare, are unfolding in the moment, while others, such as quantum computing, seem far away. Israel says a triad of crises in recent years—the clash between the U.S. and China, the war in Ukraine, and the Covid pandemic—has shaved the timeline for megatrends to evolve, meaning even long-term investors need to pay attention now.
Tech Trader:
-Since a June low, technology stocks have soared, with the Nasdaq Composite index up 20%. But the classic Looney Tunes cartoon offers a lesson to investors. Reality eventually matters. The sustainability of any rally led by triple-digit percentage gains from money-losing firms like Coinbase Global and FuboTV is suspect. More important, the latest developments show business trends in the technology sector could be getting worse, not better, suggesting a rough ride ahead for shareholders.
The Trader:
-Long term investors should avoid meme stocks: Take Bed Bath & Beyond, the latest and greatest meme stock. Shares dropped almost 24% on June 29 after a disastrous fiscal-first-quarter earnings report. Same-store sales dropped 23% year over year in the quarter, and the CEO announced his departure. Analysts cut their ratings, with the average analyst price target falling to about $4.50 a share from almost $8.
-Is it a bull market? Of late, there’s been more to be optimistic about. After its worst first half of a year in decades, the S&P 500 index has climbed 15% from its mid-June low, including a 1.2% slide this past week. The Nasdaq Composite has rallied 20% in the past two months, putting it in a new bull market—despite a 2.6% decline for the week. The Dow Jones Industrial Average is up 14% from its June low after a 0.2% dip for the week.
Features:
-About 3,000 cases of monkeypox were reported in the U.S. one month ago, but that number has risen to nearly 14,000 as of Aug. 18. This trend prompted the World Health Organization to declare a global public health emergency on July 23, followed by the Biden administration’s national emergency declaration on Aug. 4. Three supply chain professors and Barron’s agree that the US government, particularly the Centers for Disease Control and Prevention and the Food and Drug Administration, have been slammed for their slow response times and bureaucratic tendencies.
-Bitcoin and its peers should, in theory, trade independently of mainstream finance, but they have proved to be largely correlated to other risk-sensitive assets like stocks. Craig Erlam, senior market analyst at Oanda, said that while the trigger for the Bitcoin selloff wasn’t clear, “the fact that it has barely recovered any of those losses suggests there is substance to the move.” Erlam added that the break below $22,500 “could be significant if it holds, with the next key test once more being $20,000.’ He added: “The crypto winter may not be over yet.”
European Trader:
-Swiss-based commodities company Glencore has emerged as a prime beneficiary of Europe’s energy crisis.
High prices for coal, one of the company’s main offerings, are likely to persist as the war in Ukraine pushes past the six month mark. That, in turn, could lead to double-digit gains for the stock. “Glencore has already outperformed, and we think there is more to come,” says Tyler Broda, head of European mining at RBC Capital Markets in London. “Russia’s invasion changed the calculus in the global energy balance, and coal is a very key part of that, especially in Europe.”
Emerging Markets:
-India is the awakening giant of global internet. Since Jio Platforms (the internet arm of billionaire – and Asia’s richet man - Mukesh Ambani’s family conglomerate) stormed into the market in 2016, penetration has jumped from a quarter of the population to half of it, or 350 million new customers in raw numbers.
Ambani’s troops pushed this expansion with an epic cycle of price cutting, which bankrupted half a dozen rivals but left service fees among the world’s lowest. “For $3 a month, Indians get a voice and data package that would cost $60 or $70 in the U.S.,” says Venkat Pasupuleti, portfolio co-manager for India at Dalton Investments.
Commodities:
-Gasoline prices have been falling for weeks, but diesel and natural-gas prices remain much higher than a year ago. It’s mainly the latter two that are raising costs for the nation’s fuel-intensive agricultural industry, leading to expectations that food prices will remain high. Kent Vander Lugt, a farmer in southwest Minnesota, says his fuel costs are 60% higher than a year ago, increasing his cost per acre of corn raised by $30 to $40.
A major reason food is so “plentiful and secure” is abundant hydrocarbon, a compound made of hydrogen and carbon found in crude oil and natural gas, which allows for “synthetic fertilizers and cheaper horsepower,” driving massive increases in productivity, says Albert Chu, portfolio manager at Newton Investment Management, an affiliate of BNY Mellon.
Streetwise:
-Economic signs look healthy enough—job growth, wages, even consumer spending. But the retail sector is abuzz about consumers trading down. After Walmart beat earnings estimates this past week, it said that customers were buying less deli meat and more chicken, hot dogs, and canned tuna, and that US stores were getting a lift from high-income shoppers stopping in for bargains.