Last week, I took a break from focusing on a single macro theme and went with some of the news flow contributing to the near term noise and angst. Omicron, Fed, we know all that. So, this week, I am taking a different approach again, as we work toward winding down the year.

With Q3 earnings season largely behind us, I thought it would be useful to pick up on some of the underlying themes emerging from the earnings narrative, but more importantly, some of the themes we have picked up during our own bottoms up analysis conducted in Magic Markets Premium.

For those unaware, I am a partner in Magic Markets, a subscription service which aims to bring institutional level insights to every investor in an affordable and simple manner.

We do deep dives into global stocks, covering the macro, fundamentals and technicals. We cover the content in a written report as well as a podcast.

If that’s your kind of thing, you can check it out here.

This blog is macro orientated, so I won’t bore you with company specific info in this post, suffice to say that there are some interesting megatrends which will undoubtedly shape our approach to markets for the longer term. So lets get right in.

What’s the big picture?

A few weeks back, we covered how earnings were generally beating long term averages as were margins. Over 80% of the S&P 500 beat earnings expectations and over 75% beat on revenues. As this is relative to consensus, it could be a product of bearish analysts or strong company results. Either way, markets are forward looking.

Thus far, more company’s have issued negative guidance for Q4 than positive guidance. Partially this may be a base effect, although it is likely tied to real economy headwinds which haven’t quite dissipated. What are the pressing concerns?

What’s on CEO’s minds?

More than half S&P500 companies cited inflation as a concern in their most recent releases, with supply chain concerns pipping inflation to a staggering 342 out of 500 according to data from FactSet around a week ago! Naturally the two are intrinsically linked but the supply chain impact would technically feed into production losses and margins, while inflation would feed into both inputs and outputs, impacting consumer demand.

Ironically, the last week also saw Jerome Powell capitulate from transitory to ‘non-transitory’. Perhaps its related to his confirmation for another term.  Or perhaps, given the historic nature of the Fed being behind the curve, its possibly time to see inflation easing back? Let’s see how this plays out.

Against this backdrop, it is understandable that different pressures will manifest differently on a sectoral basis. This is expressly the reason why we initiated a diverse set of stocks in Magic Markets premium to start off with. Assessing each company requires a differentiated lens. We aren’t just looking at tickers, we are looking at businesses.

We wanted to make sure that our subscribers got a glimpse of how we view different industries as well as the factors impacting the businesses, either in tandem or differently. Often, its not what the earnings calls say rather than what the numbers are telling us.

Many different flavors

We have thus far covered 9 stocks across a variety of industries, with a new one each week. Some are well known, like the banks or Nike. Others like Intuit or Monster are perhaps a little more obscure. By no means is this fully representative of the entire market or even the economy but already, the insights on a macro basis are interesting.

The Sector and Industry spread we’ve covered so far
Supply chain, logistics, foreign investment and real infra

We saw that aluminum supply constraints and the commensurate push in prices into October hurt the auto sector. But similarly, it resulted in pressure on the beverage sector through supply of cans.

Naturally both are related to supply chain pressures, but semiconductors are the focal point of debate in the auto space. Who would have thought that the shortage on the dealer lot may also be related to your ability to get your energy drink?

Another pressure point on supply chain is logistics. The ability to move goods produced in low-cost geographies to end users and consumers is severely constrained. This is apparent in the apparel space, but potentially also in the auto space. This has severe macro implications for developing countries as ‘onshoring’ builds in developed markets. It’s not necessarily lights out, but EM’s may start being used solely as regional hubs with developed market demand potentially being brought back into developed markets.

The logistics crunch has not just been international. Inter-country logistics are also fairly backlogged given the move to online shopping as a theme during the pandemic. This has affected the ability of ‘do-it-yourself’ crafters getting their goods to customers. Investing across the value chain into logistics by larger players may lead to fulfillment advantages for larger players over niche operators as well as a continued tailwind in warehousing real estate relative to other real estate sectors.

As evidenced, the impacts are sometimes between sectors and sometimes within sectors.

Head in the clouds – digital payments, the Metaverse, AI, Subscriptions and SaaS

While some pressure points are in the physical world, others are entirely digital. From online retail to digital currencies, the number of virtual and real-world intersections are increasing. The collective term has become the ‘metaverse’, something we have written about on the blog before.

Touchpoints will include banks and payments systems and how they evolve or get disintermediated. As companies and consumers increasingly move online, issues like AI to better understand consumers preferences and behaviors will be harnessed to better corral the masses into spending their hard earned dollars (or crypto) at your store.

Subscription based models have become pervasive in everything from software to niche food industry. Everything as a service has given rise to any number of acronyms ending in (X)aaS.

These trends would also spill over into the backbone of the virtual world, infrastructure providers which will become the ‘utilities’ of today and tomorrow.

There’s a lot to unpack

These are just some of the themes we have picked up which not only have a bearing on how we approach our lives, but also how we live them too. Some are obvious. Some may need a lot more rumination  and reflection before their impact and bearing on our lives and investments are clearer.

Blog posts merely plant the seed to explore further. I can’t cover it all in the blog post, but as always, feel free to reach out.

That said, it always pays to apply both a macro and a micro lens and approach things from multiple angles in order to see the wood for the trees. That’s what this blog and Moe-Knows is about. We are all learning and I look forward to continuing this journey with you all.

Until next week.

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MK White

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