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Consumer Pulling Back Please click here for an enlarged chart of Walt Disney Co (NYSE: DIS).
Note the following:
- This article is about the big picture, not an individual stock. The chart of DIS is being used to illustrate the point.
- The chart shows the drop in DIS stock on earnings.
- Overall, Disney earnings were good. The reason the stock was hit is because Disney projects operating income for its Experiences segment which consists of parks will show no growth in the June quarter vs. a consensus of 12% growth. Theme parks are important for Disney as they account for 52% of its operating profit.
- The Arora Report’s detailed analysis of Disney’s earnings and conference call indicates that the consumer is now resisting high park prices and is pulling back.
- This morning, the stock of ride hailing and food delivery company Uber Technologies Inc (NYSE: UBER) is falling. In The Arora Report analysis, the main reason behind the drop in UBER stock is that the consumer is pulling back.
- On May 6, the big meat producer Tyson Foods Inc (NYSE: TSN) fell after reporting earnings. The Arora Report’s analysis of earnings show that the consumer is pulling back.
- On April 30, Starbucks Corp (NASDAQ: SBUX) fell after reporting earnings. In The Arora Report’s analysis of the earnings and conference call, the main reason behind SBUX earnings shortfall is that the consumer is pulling back.
- On April 30, McDonald's Corp (NYSE: MCD) reported earnings. The earnings showed flat to declining trends. n The Arora Report analysis, the reason is that the consumer is becoming price wary.
- The foregoing is just a sampling. The Arora Report analysis of earnings so far shows that the consumer pulling back is impacting a large number of companies.
- Further, The Arora Report analysis shows that about 60% of consumers are pulling back, but the remaining 40% are still on a spending binge.
- As a member of The Arora Report, none of the foregoing should surprise you – we have been sharing with you that liquidity of consumers at the low end was drying up.
- The U.S. economy avoided a recession for two reasons:
- Excessive consumer spending that was triggered by the free money from the government. This factor is now abating.
- Excessive fiscal spending by the U.S. government. This spending continues.
- The consumer pulling back impacts earnings. However, in The Arora Report analysis, so far Wall Street analysts have not properly adjusted their earnings estimates. By next quarter, they will need to adjust their estimates. Prudent investors need to get ahead of upcoming reductions in earrings estimates.
- It is important to remember that there are three other factors driving this stock market higher:
- Exuberance over AI. Yesterday we shared with you real examples of NVIDIA Corp (NASDAQ: NVDA) and Palantir Technologies Inc (NYSE: PLTR). For the first time, smart money is willing to take on the momo crowd. In The Arora Report analysis, a fortune is to be made from artificial intelligence between now and 2030. However, in the short term, the move up in many stocks is overdone. Again, prudent investors need to look ahead and not just through the rearview mirror.
- The Fed’s second blunder that has dramatically eased financial conditions. Here, prudent investors need to carefully watch on an ongoing basis, as Powell appears to be itching to compound his blunder. The thinking in some conservative circles is that Powell’s stance when the data does not justify it is to help with Biden’s reelection. Trump has already stated that he will not reappoint Powell. The Arora Report is politically neutral. Our sole job is to help investors. Having said that, it is important that investors do not let their politics get in the way of making money.
- Reckless fiscal spending by the U.S. government. The spending continues with no sign of abating.
- The stock market always has crosscurrents. Powell’s actions and fiscal spending will likely lead to more buying of stocks, even though other factors seem to be at the cusp of turning.
Magnificent Seven Money Flows In the early trade, money flows are neutral in Apple Inc (NASDAQ: AAPL).
In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class C (NASDAQ: GOOG), Meta Platforms Inc (NASDAQ: META), Microsoft Corp (NASDAQ: MSFT), Tesla Inc (NASDAQ: TSLA) and NVDA.
In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (ARCA:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
Momo Crowd And Smart Money In Stocks The momo crowd is buying stocks in the early trade. Smart money is selling stocks in the early trade.
Gold The momo crowd is selling gold in the early trade. Smart money is inactive in the early trade.
For longer-term, please see gold and silver ratings.
The most popular ETF for gold is SPDR Gold Trust (ARCA:GLD). The most popular ETF for silver is iShares Silver Trust (ARCA:SLV).
Oil API crude inventories came at a build of 0.509M barrels vs. a consensus of a draw of 1.430M barrels.
The momo crowd is like a yoyo in oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
The most popular ETF for oil is United States Oil ETF (ARCA:USO).
BitcoinBitcoin (CRYPTO: BTC) is range bound.
Protection Band And What To Do Now It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
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