Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, Aug. 22. The Bottom Line segment of today’s podcast starts at (5:56) and Stocks on the Contrarian Radar at (7:25) for listeners who want to skip ahead.
State of Play
The big news yesterday came from the Bureau of Labor Statistics revising its annual jobs growth downward by some 800,000 jobs, or almost 30%. The market didn’t seem too bothered by this and closed higher anyway. As we look at our board of indicators for signs of direction at 0700, things are pretty quiet:
Stock index futures are flat, all hogging the break-even point;
Commodities aren’t doing anything either. WTI crude oil is unchanged at $72/barrel, its lowest level of the year. Copper is down 0.5%;
Cryptos are showing some signs of life, with Bitcoin up 3% to trade north of $61,000, the higher end of the range it has found itself this month;
Bonds are dropping a bit. The 2-year yield is up 4 basis points to 3.96% whilst the 10-year is up 5bps to 3.83% (yields move inversely to prices).
Earnings
Baidu (BIDU 0.00%↑) earnings were mixed and that stock isn’t moving in the pre-market;
BJ’s Wholesale (BJ 0.00%↑) beat estimates and that stock is moving higher in the pre-market;
Peloton Interactive (PTON 0.00%↑) also report before the open this morning;
Ross Stores (ROST 0.00%↑), Workday (WDAY 0.00%↑), and restaurant owner CAVA (CAVA 0.00%↑) report after the close at 1600.
Economic Data
The BLS news from yesterday will only intensify the focus on the labor market, so initial jobless claims at 0830 are pretty big. Conspiracy theorists can point to the fact that the Department of Labor, which produces initial jobless claims, is the parent organization to the BLS. But for whatever reason these claims are not due to revisions.
Anyway the number expected by a survey of economists is 232,000 claims, a slight increase over last week’s 227,000 but still below the four-week average of 237,000. Continuing claims are expected to come in at 1,870k, also slightly higher than last week’s 1,864k.
We then get Purchasing Manager Indexes from S&P Global at 0945. The expectation here is for manufacturing PMIs to print at 49.5, identical to last month whilst services PMIs are expected to drop a bit, from 55.0 to 54.0. The 50 level separate expansion from contraction.
Existing home sales are out at 1000. Economists who were surveyed expect 3.93 million sales, a small increase from the 3.89 million recorded last month.
The Jackson Hole Symposium kicks off in Wyoming today. The title of this year’s conference is “Reassessing the Effectiveness and Transmission of Monetary Policy,” which truly sounds like the type of thing that only economists can get excited about. The full agenda drops tonight at 2000. Powell speaks tomorrow at 1000.
The Bottom Line
To repeat the refrain of what we’ve been saying all week: those recessionary fears that spooked markets for a 72-hour period earlier this month are now a distant memory. It seems we’re all systems go on the soft landing. That is the narrative coming in to today.
Initial jobless claims could change all that. Just keep in mind that this is just one report — and a weekly one at that. There are seasonal elements as well, such as this being the dog days of summer when probably not that many people will be bothered to file for unemployment. Or so the thinking goes.
Stocks on the Contrarian Radar©️
Tyson Foods (TSN 0.00%↑) is down 2% overnight for no apparent reason. This caught The Contrarian’s attention as TSN was one of the best performing S&P stocks during the sell-off earlier this month. You can see the clear divergence between TSN and the SPY during the market meltdown:
It’s one of the biggest food companies in the US, with ~25% market share of foods — especially meat — produced for US consumption. This gives it solid defensive qualities probably for the same reason grocery stores (and Walmart) do. The premise is that Americans will shop at restaurants less and eat at home more during tough economic times (they probably won’t start eating less at any time, unless things get really tough).
Anyway, the valuation is pretty solid if you ignore the earnings multiple which is pretty rich at ~33x forward earnings. TSN trades at 0.4x sales at 9x cash flows. Management has a pretty aggressive stock buyback strategy and the dividend is 3% and growing. Maybe not the worst time to dive in to TSN?
There are certainly risks. Vegetarianism and veganism aren’t going anywhere. Nor is this Ozempic stuff. Margins are vulnerable to inflationary pressures. The stock is still trading near its high for the year.
Still, people have to eat. Diets usually don’t last long, especially in the US. Protein is back in favor in many diets anyway.
Full disclosure: The Contrarian does not own any TSN, but this makes him interested in buying some.
Housekeeping
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