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- Lemonade | March 5th, 2024
Lemonade | March 5th, 2024
TOGETHER WITH
Today’s report is brought to you by Lemonade, An Insurance Company Built For The 21st Century.
[ good morning ]
Here’s everything you need to know today
Markets continued mildly pulling back this morning after regressing a little yesterday. With no meaty data to power the price action until next week's CPI—The Street is letting this rally cool off a little for now.
We're still very much in a 'winners and losers' era where traders reward efficiency and punish sluggishness in equal measure. But the focus has shifted back to consumer spending now that we're in the phase of earnings season where retail is the primary focus.
Target just reported their third straight quarter of declining sales, but their results are honestly encouraging as management has shaved enough spending off of their bottom line to survive weaker consumer behavior. Target's results also are a great contrast to Walmart's earlier this year. We're seeing discretionary spending weaken considerably while overall consumer spending holds firm amidst all this inflationary pressure. U.S. consumers might be more focused on discounts than anything, but they're still eager to spend in any way they're capable.
This balance is critical for keeping economic growth on track while simultaneously keeping inflation under control. Cooler spending means weaker retail stocks will suffer—but it also is a massive relief for inflationary pressure. Even though it looks like the Fed won't cut rates this month the way bulls were initially hoping, results like Target help us remain confident about the overall bull narrative for 2024.
So, let's check out some of the main stories powering this volatile price action and stay ahead of this wild market.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ retail ]
Target Sales Decline For 3rd Quarter in a Row
But, efficiency is saving the stock
BREAKING NEWS
Target stock popped this morning after the retailer beat expectations and drove better efficiencies. This is despite yet another decline in sales. What gives?
WHAT HAPPENED
Comparable sales at Target declined 4.4% YoY, which represents the 3rd quarter in a row where those sales declined. However, the market had already priced in weaker sales and Target managed to beat expectations handily.
Target managed to generate a $2.98 EPS from $31.92 billion in revenue. Target stock is surging thanks to an incredible beat in their operating income. Those earnings surged over 60% in the last year to $1.9 billion—a triumph of efficiency.
BELT-TIGHTENING
Target managed to save around half a billion dollars in expenses throughout 2023 as they adapted to more efficient operations. Management expects another decline in sales for Q1 of 2024 as discretionary spending continues to cool.
However, Target has demonstrated that they are perfectly capable of adapting their operations to a more efficient model while offering enough essentials to keep more discerning consumers coming back.
WHY IT MATTERS
Target is a strong bellwether for overall consumer spending as they are more of a discretionary shop than rivals like Walmart. Target has finally dialed in digital efficiencies and other bloat-cutting efforts that can help assuage The Street's fears for the next few quarters. The market loved this result—but investors are still waiting for the moment when Target's sales consistently stop declining. For now, profits are enough for this market as investors added over 7% to Target's market cap in early trading.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | -1.31% | -0.40% | 43.35% |
| Consumer Disc. | -1.35% | 4.00% | 24.43% |
| Consumer Stap. | 0.08% | 0.44% | 3.01% |
| Energy | -1.07% | 3.85% | -0.66% |
| Financials | 0.25% | 4.21% | 12.16% |
| Health Care | -0.15% | 2.54% | 13.04% |
| Industrials | 0.36% | 5.94% | 17.56% |
| Materials | 0.73% | 8.98% | 5.14% |
| Real Estate | 1.14% | 5.71% | 2.64% |
| Technology | 0.00% | 3.79% | 49.43% |
| Utilities | 1.69% | 3.07% | -5.33% |
*Market data based on standard trading hours and calculated close to close
[ electric vehicles ]
Tesla Stumbles After Berlin Factory Sabotage
Price cuts and declining sales in China didn't help either
BREAKING NEWS
Tesla stock fell hard in early trading after declining sales in China were amplified after a potentially deliberate act of sabotage forced the Berlin Gigafactory to shut down. It's hit after hit at the former top EV player.
WHAT HAPPENED
A new report showed that Tesla's deliveries in China declined 19% since last year to just over 60,000 vehicles. This is a huge blow considering that some of Tesla's steepest price cuts were in the Chinese market in order to stay competitive with BYD. Traders began dumping Tesla stock as these numbers cast a lot of doubt over Tesla's ability to grow global deliveries.
ACTUAL SABOTAGE
And then—Tesla's Berlin Gigafactory was forced to shut down. In what right now appears to be a deliberate act of sabotage, an electricity substation in the German town of Grünheide was set on fire. This left large parts of Grünheide and the Tesla facility without power.
An unconfirmed letter claiming responsibility for the attack was posted to an alternative news site in Germany. An unknown organization calling themselves the 'Volcano Group' claimed responsibility for the attack—stating that their target was the Tesla facility. This 'Volcano Group' claims far-left sympathies and justified their attack on those grounds.
Operations have yet to resume and law enforcement has not (yet) confirmed if that letter is an accurate representation of who is responsible for the attack.
WHY IT MATTERS
Tesla's Berlin facility was supposed to be a key feature of expanded production in 2024. However, after shipping issues in the Suez Canal earlier this year forced the factory to shut down, that hasn't been the case. This latest shutdown continues to hamper the efficiencies Tesla needs to generate in order to live up to the market's still sky-high expectations for the stock. With Tesla's position in the Chinese market becoming shakier as well—investors aren't keen on sticking with Elon right now. Tesla stock slipped over 2% in early trading, adding to the 25% drawdown the stock has experienced since January.
[ smartphones ]
Apple Falls Again as Chinese Sales Crumble
Huawei is surging as the iPhone struggles for life in China
BREAKING NEWS
Apple's iPhone dominance took a massive hit in the last year according to a new report breaking down smartphone sales in China. Let's break down the breakdown:
WHAT HAPPENED
Apple's iPhone sales declined 24% YoY in the Chinese market according to a new report by Counterpoint Research. Overall smartphone sales declined economy-wide but only fell 7% overall. So, demand is dropping and Apple is getting unseated in the Chinese market as well. Huawei is the clear winner of this trend, as they leaped to second place in overall market share—rising 64% in the last year.
ATTACKED ON ALL SIDES
Huawei is ascendant mainly because of their Mate 60 series of handsets. Huawei's most advanced smartphones are approaching iPhone-level quality. However, the big pressure hitting Apple came from really intense discounting done by big players like Oppo, Xiaomi, and VIVO. This time last year, Apple was securely in control of the second-place position behind VIVO with a 19% share of the Chinese market. Now, Apple has tumbled to 4th place with just a 16% market share. Vivo is just barely holding onto the top spot.
WHY IT MATTERS
A lot of Apple's growth prospects were previously pinned on growth in the Chinese market. Now, geopolitical tensions between the U.S. and China have boiled over and are affecting the perception of U.S. products in the Chinese market. Chinese consumers are simultaneously looking to spend a lot less and buy more products that are made by Chinese firms. These twin pressures can put a big dent into Apple's growth horizons and are adding to a mounting bear narrative that will weigh on Apple for the foreseeable future. Apple shares declined an additional 2% in early trading after yesterday's selloff.
Extra Moby Snacks
GitLab completely missed the AI revolution and is paying the price. The software company missed on revenue and earnings expectations in Q4 and fell over 24% in early trading.
The drone player AeroVironment jumped 26% in early trading after they announced a 90% increase in EPS since last year. As war gets more complicated, the drone business is becoming more and more foundational to military spending.
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