Market Overview for Week of February 22, 2022

What Occurred within the Inventory Market Final Week?

Worth Motion

Efficiency-wise, the NASDAQ 100 is down 1.71% for the week, the S&P 500 is down 1.58%, and Russell 2000 is down 1.03%.

The three major US indexes: S&P 500 (SPY), NASDAQ 100 (QQQ), and Russell 2000 (IWM) are all at essential ranges proper now.

The relative underperformance of the QQQ and IWM in opposition to SPY is telling of the present weak point current in long-duration development shares and small-caps that are extra harm by reflation and rising rates of interest, in comparison with “real-economy,” value-oriented blue chip shares that are overrepresented within the S&P 500.

When evaluating index value motion, the core concepts of Dow Concept are good instruments to use and certainly one of them is that when the market chief is making a transfer, the opposite index ought to verify it. The market chief for almost your complete bull market up to now has been the QQQ, by a large margin, and we’re seeing QQQ cling round its lows, with little proof of purchaser help forming.

Ought to we see a breakdown of that essential low within the QQQ, we want to see a corresponding break in SPY as affirmation.

Drama within the Ukraine

Tensions between the US and Russia are escalating. The US State Division is accusing Russia of planning an invasion of Ukraine. The US doesn’t like this as a result of they’re part of NATO, or the North Atlantic Treaty Group, which is a army alliance made up of dozens of nations and led by the US.

Russia desires ensures that Ukraine received’t be a part of NATO, and Ukraine desires to affix NATO, which might profit the US as it could strengthen NATO.

Consequently, two of the three international superpowers are at a standoff proper now, which might result in precise army battle and the lack of lives.

Tensions simply escalated as of Friday night as Biden stated he’s satisfied that Russia will invade imminently, inside days.

Whereas we’re oversimplifying right here, that’s just about the crux of it. Ignore the politicization of the occasion as some type of private vendetta Biden has in opposition to Russia or vice versa. That sort of stuff doesn’t assist you to gauge the market affect of those occasions.

Notably, Russia is among the world’s largest oil producers and certainly one of Europe’s greatest suppliers of pure gasoline. Army battle might imply disruptions in shipments or manufacturing, which implies extra power ache for Europe. When you’ve been following alongside, Europe is amidst an power disaster proper now, paying out the nostril for fossil fuels like pure gasoline and heating oil. This might make issues even worse for them if Russia decides to chop off provide to Europe.

Battle or army battle usually means volatility. And volatility results in a flight to security, so control defensive property like treasuries, protection contractors, utilities, and client staples.

Russian shares have been promoting off on the information, with the volatility of their shares greater than doubling since November 2021:

The potential destabilizing results to the worldwide economic system have additionally been taking a success on US shares, as may be seen within the S&P 500:

Crude began the week with a multi-year excessive of $96, solely to retreat later within the week to shut out at $90.21.

Troubles at DraftKings

DraftKings is the market chief within the model new business of authorized US-based sports activities betting. The business is very large and fiercely aggressive, with the American Playing Affiliation estimating that there’s almost 3,000 on-line playing websites.

DraftKings was an enormous post-COVID winner, seeing their inventory rise from March 2020 lows of $10, to a March 2021 excessive of $74. Being a well-funded and family title, many selected them as a standalone winner on this new business and the inventory market rewarded them as such with lofty valuation multiples.

However the firm has been experiencing important issues within the final 12 months, simply as lots of their development inventory friends like Peloton (PTON) and Zoom Video (ZM) have.

DraftKings (DKNG) simply reported earnings on Friday the 18th and the inventory dropped 21%, with most citing the corporate’s unfavourable steering and excessive buyer acquisition prices as the first cause.

Buyer acquisition price (CAC) is a measure of how a lot advertising {dollars} it takes to get a brand new buyer on your firm. CAC is immediately associated to the lifetime worth (LTV) of a buyer, in different phrases, how a lot revenue an organization initiatives they make throughout their time as a buyer of an organization. Tons of effort is put into determining how one can get the CAC to a degree that’s passable relative to LTV, all whereas making certain a lot of that LTV is front-loaded (the client shortly pays them) to handle cash-flow considerations.

That is the issue DraftKings is having. They’re paying an excessive amount of in advertising/promoting {dollars} per buyer they entice. You may need suspected this too, as the corporate’s promotions for brand spanking new clients have been fairly excessive recently, providing free bets, massive deposit bonuses, or betting traces which can be extraordinarily favorable to new clients.

The result’s that DraftKings’ bills are rising whereas their unfavourable money movement development is accelerating. That is the other pattern that an organization desires.

Moreover, the corporate’s future steering doesn’t look significantly better. Bear in mind, the inventory market is a discounting mechanism. Corporations are valued based mostly on projections of their income sooner or later, not at the moment. Therefore, future steering is all-important and DraftKings dissatisfied the market. Their EBITDA (consider this as revenue earlier than taxes and different non-cash prices) steering was under the expectations of the market and analysts. Lacking expectations as a development firm means massive ache.

Different Earnings Strikes Final Week

DraftKings was the most important headline this week, however fellow development inventory Roku (ROKU) made the same transfer, dropping 22% on weak steering to $112, placing the inventory down almost 80% from it’s all-time excessive of $490. Like DraftKings, it’s one more lockdown winner experiencing massive hassle post-reopening.

Walmart (WMT) acquired a bit of bump in its inventory value following a reasonably constructive report for the retail large. Most notably within the report, Sam’s Membership, which is their Costco-like warehouse retailer, jumped 10.4% in comparable gross sales.

Earnings This Week

Waiting for this week’s upcoming earnings studies, we’re going to listen to from house enchancment retailers Residence Depot (HD) and Lowe’s (LOW), Chinese language web large Alibaba(BABA), and a handful of outlets like TJ Maxx (TJX), Macy’s (M) and Foot Locker (FL).

Right here’s the complete record of notable earnings studies for the approaching week:

Monday, February 21:

Market closed for George Washington’s birthday

Tuesday, February 22:

Residence Depot (HD)
Macy’s (M)

Wednesday, February 23:

Lowe’s (LOW)
TJ Maxx (TJX)
com (OSTK)

Thursday, February 24:

Alibaba (BABA)
Anheuser-Busch (BUD)
CBRE (CBRE)
Wayfair (W)
Newmont Mining (NEM)
Keurig Dr. Pepper (KDP)
Discovery (DISCA)
Papa John’s (PZZA)

Friday, February 25:

Icahn Enterprises (IEP)
Foot Locker (FL)

Upcoming Financial Information

New Residence Gross sales: Thursday, February 24

The US housing market remains to be sturdy, seemingly pushed by a mixture of inflation and post-pandemic migration (house consumers are upsizing out of residences or smaller houses).

Final month’s information confirmed some YoY weak point in high-priced houses seemingly on account of a widespread sentiment that costs are too excessive. Whereas the actual property market could be very scorching, it doesn’t have the identical “increase” sentiment that led to the housing disaster, which might probably stall out house value development.

With that stated, house gross sales are nonetheless rising