Barron’s Weekend Summary:Nike has a China problem—one that could come to the fore when it releases its earnings this coming Thursday
* Cover Story :
- The old battle lines between national currencies are being redrawn by an onslaught of crypto insurgents. These privately issued currencies are fragmenting monetary systems, banking, and payments. The landscape calls to mind the “wildcat” money era of the mid-1800s, when a scrum of banks supplied their own notes—prompting the Federal Reserve to establish a national currency. Commerce doesn’t run as efficiently without a “no questions asked” currency, and governments risk losing control over fiscal and monetary policies if multiple currencies vie for economic activity.
* Tech Trader :
Despite rather ho-hum changes to the new iPhone13, Apple’s (AAPL) outlook is a little brighter than skeptics on the Street would have you believe.No question, iPhone updates were incremental, mostly under-the-hood tweaks. The notch at the top of the screen is smaller, and the new A15 bionic processor at the core of the phone is faster than the iPhone 12’s A14 chip. There’s longer battery life, improved cameras, and higher memory capacity at comparable price points.
* The Trader :
- Nike has a China problem—one that could come to the fore when it releases its earnings this coming Thursday. Investors should take caution heading into the call. Yes, we’ve heard this before. Last quarter, in fact. Back then, worries about China sales—both because of Covid-19 and boycotts following Nike’s (NKE) statement that it doesn’t use forced labor from Uighurs—were supposed to keep a lid on profits. Instead, the company handily beat forecasts thanks to strong sales everywhere but China. That, combined with a rosy view of its growth through 2025, helped Nike stock surge 16% on June 25, the next trading day.
- The predictions of impending doom from Wall Street’s talking heads continued this past week. The reasons for a pullback are many: The stock market has rallied for too long and has gone up too smoothly, the Federal Reserve is about to remove the bond buying that has helped prop markets up, taxes are ready to rise, economic data are slowing. None of it really left a mark. But then the S&P 500 dropped 0.6%, to 4432.99, over the week, while the Dow Jones Industrial Average fell 0.1%, to 34,584.88, and the Nasdaq Composite slumped 0.5%, to 15,043.97. For the S&P 500, it was the first close since June 18 below its 50-day moving average—a technical measure of the previous 50 days’ closes that often ends up acting as support or resistance and that currently sits at 4436.35. For traders, it was very frightening.
- Business is booming for many. The problem is sales and earnings guidance are getting cut anyway. Labor shortages are hitting profit margins. Parts shortages are hitting product deliveries. And rising prices are cooling off demand. The most recent example comes from boats. MasterCraft Boat Holdings (MCFT) is enjoying strong demand, but it can’t make enough product. The company cut its sales guidance for its fiscal 2022 first quarter Friday due to a “temporary delay in the shipment of a key component from a single engine parts supplier.” Sales will rise about 30% instead of roughly 35%, it says. Not bad, but profit margins will now be about 11% for the quarter instead of about 14%.
* Interview :
Barron’s interviews Daniel Yergin, who has written some of the most influential books on energy, while advising companies and governments on policy and markets. He is now vice chairman at IHS Markit. His latest book, The New Map: Energy, Climate, and the Clash of Nations, looks at how the politics of oil have changed in the past two decades, with the boom in U.S. shale and the rise of China. Yergin, 74, recently sat down with Barron’s to discuss the new dynamics of energy markets.
* Features :
- The next generation of Covid-19 antivirals is on the way, and a pill to treat—or even prevent—Covid-19 could be available by the end of the year. Merck (MRK), Pfizer (PFE), and the biotech Atea Pharmaceuticals (AVIR) each expect late-stage data on an oral Covid-19 antiviral in the coming months. If the data are positive, the drugs provide a major opportunity for the companies—one that investors should not ignore.The antivirals may not be effective enough to stop a Covid-19 infection in its tracks. Still, if they show even moderate efficacy, they will play a major role as the global fight against the virus shifts to a long-term grind against an endemic threat. A prescription Covid-19 antiviral that could be taken at home as a pill would be in great demand around the world.
- The market’s mind has been intensely one-tracked since its early-pandemic nadir. In the background, beyond the skyline of stocks pushed higher and higher by the Federal Reserve’s very visible hand, a storm is brewing.
The question is whether it matters.
This time of year is usually fraught for the stock market, and this year it has been especially so. The S&P 500 is already down more than its historical September average. In the context of year-to-date performance, though, September’s decline has barely been a blip, and the U.S. stock market looks unshakable. The flood of liquidity from the Fed and U.S. Treasury has left a lot of people with more money than they know what to do with, and thus U.S. stocks have had nowhere to go but up
* Europe :
- Few Big Pharma companies have proved able to catch the early wave of Covid-19 vaccines and ride it to success. But Sanofi is trying hard to show that there is a life after failure—or, as the company would prefer to put it, setback. Rivals Pfizer (PFE) and AstraZeneca (AZN) showed the potential of cross-cooperation with smaller, nimbler partners—with Germany’s BioNTech for the former, and Oxford University for the latter—in developing and producing vaccines against a new virus in record time.
On the other hand, for Sanofi and partner GlaxoSmithKline (GSK), two of the world’s 10 largest pharma giants, it looked more like a process of hits and misses. A series of setbacks meant the vaccine had to be delayed, putting pressure on the French company’s stock. It also irked the rest of the European Union, which a year ago had ordered 300 million doses of the yet-to-be approved vaccine.
* Emerging Markets :
China Evergrande Group has debt due next week that it can’t pay, and investors should pay attention.The woes of the property giant—the world’s most indebted developer—aren’t just China’s problem, and could spill over into global financial markets.China has already warned banks that Evergrande won’t be able to pay debt obligations due Sept. 20, according to reports, which would bring the group one critical step closer to failure. And the Chinese central bank has just moved to avoid a liquidity crisis, injecting 90 billion yuan ($14 billion) into the country’s banking system Friday, according to Bloomberg.
* Commodities :
-Big diversified mining companies BHP Group , Rio Tinto , Anglo American, Glencore , and Vale are in the best shape ever. Their shares, however, trade cheaply amid worries that the good times in industrial commodities are ending. For investors willing to accept some risk, the Big Five miners offer a rich opportunity. The five have price/earnings ratios in the single digits—some of the lowest of any major industry group in the global stock markets. And their dividends are generally ample. Rio Tinto’s trailing 12-month yield is 14%.
* Streetwise :
Game theory, used to model competitive outcomes, has been the subject of 12 Nobel Prizes in economics. But my grasp of Nash equilibrium and Pareto optimality isn’t strong, I confess, so the framework I use for the debt-ceiling standoff is a Buddy Hackett duck joke. A hunter from the big city shoots a duck, which falls on a farm, as the late comedian explained to Johnny Carson on The Tonight Show more than 30 years ago. He climbs a fence to retrieve it, but a farmer appears and says, “It’s my property, it’s my duck.” The two men argue, until the farmer proposes a peculiar local custom for settling disputes: “We take turns kicking each other in the groin.”