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November 1, 2021

Microsoft tops Apple

Good morning traders,

Welcome back to The Daily Setup. The three major US stock market averages closed the month Friday at record highs. Here’s what’s on the docket today:

  • US Steel is on the rise
  • Microsoft becomes the world’s most valuable company
  • Starbucks drops it low

Let’s start this work week off right. 

Jeff

Hitting highs Biggest Mover

BIGGEST MOVER

X Gon’ Give it to Ya!

Just like how DMX gifted his music to the world (RIP Earl Simmons), U.S. Steel (X) gifted their shareholders a kick-a** Q3 earnings report. The company not only crushed earnings estimates, but also raised their dividend. Shares of X closed Friday’s trading session up 13%. The company reported the following:

  • $5.36/share on $6B in sales vs. the Street’s estimates of $4.87/share on $5.8B in sales.
  • 4.1M tons of steel were shipped in Q3, up from the 3M tons shipped a year ago.
  • The company also announced that it would buy-back $300M in stock and raise the quarterly dividend from $.01/share to $.05/share.

Friday’s move in U.S. Steel puts it up close to 60% year-to-date. This move in X tracks with the future’s price of Hot-Rolled Coil (HRC), a key benchmark in the steel industry. HRC is up 79% YTD, with U.S. Steel trading between $20 and $31 since late March. Friday’s announcement has pushed the stock back through the midpoint of that range.

 

Turn that Zune up to 11

^Microsoft’s C-Suite celebrating at Chili’s happy hour

The old king reigns once more. On Friday Microsoft (MSFT) surged ahead of Apple (AAPL) to become the world’s most valuable company by market cap, at $2.49T. Apple reported a disappointing quarter on Thursday of last week, dropping its value to a paltry $2.46T. How embarrassing.

  • MSFT reported a strong quarter last week, with EPS of $2.27 vs. estimates of $2.07, and revenue of $45.32B compared to the expected $43.97B.
  • Results were up across business segments, with Cloud Services, Productivity & Business Processes (LinkedIn and Office), and More Personal Computing (Windows, gaming, devices) all up double digits YoY.
  • Despite the company seemingly firing on all cylinders, nobody wants to set Bing as their default search engine.

Shares of MSFT were up 2.24% on Friday and are up 48% YTD. Quarters like this where all segments are contributing could mean that the company is poised to continue its momentum and upward trajectory. CEO Satya Nadella continues to prove that Steve Ballmer is best suited for underperforming as an NBA owner.

 

Are we sure it’s just transitory?

^ a live look at inflation rising

Normally when something hits a 30 year high it’s good news, but not when that metric happens to be inflation. Headline inflation, which includes food and energy costs, rose at a 4.4% clip during September, the fastest pace since 1991. Maybe this all has something to do with crowds at football stadiums chanting for some guy named Brandon?

  • Core inflation, which is apparently an inflation measure without food or energy and does not pertain to abs, was up 3.6% annualized, also a 30 year high. Who needs to eat or drive or heat their homes anyway?
  • Prices may be on the rise, so surely income is keeping pace, right? Well no, as personal income decreased by 1% during September. Maybe next month’s reporting will be better since October should have some good news driven by staffing up of Spirit Halloween stores.
  • Another potential drag on the economy is potential weakening of consumer spending, which was up only 0.6% in September.

Inflation keeps rising, meanwhile, personal income has mostly stayed the same. To try to make up the difference and fight inflation, investors may be driven into riskier assets, so it’s possible that stocks and cryptocurrencies benefit. The best combatant may be high end bourbon though, since prices continue to hit comical levels. Best of luck to any of you trying to source some Pappy Van Winkle during the annual Buffalo Trace Antique Collection release.

Shares of Zendesk…anything but calm

Rumor Has It

SAAS Zendesk (ZEN) announced its earnings and the acquisition of Momentive Global (MNTV) after the bell on Thursday. Rather than staying present and taking deep inhales/exhales, investors said, “F*ck that!” and sold shares faster than you could say namaste. Stocks for both companies got pummeled, closing Friday’s trading session down 14.7% and 8.8% respectively.

  • Zendesk announced Q3 EPS of $0.17/share, which was in line with analysts’ expectations
  • The company’s full-year forecast for 2021 is expected to come in between $1.33B-$1.34B, higher than analysts’ estimates.
  • ZEN also announced that the deal with MNTV, the parent company of Survey Monkey, is valued at roughly $4.1B and is expected to close in early 2022.

So why the plunge in the stock price of both companies? Usually, you see the acquirer (ZEN) down, while the company being purchased (MNTV) initially up on the announcement of a proposed deal. The fact that both companies fell on the day is a clear sign that investors feel that either the deal does not make sense for Zendesk, they paid too much for Momentive, or both. Pay attention to any news relating to the deal over the coming weeks to months. The large move down today may end up being a chance to get involved with both companies at a discount… or may end up being a harbinger of things to come.

Europe, steel, and shots Other News

Other News

Caffeine’s a hell of a drug
-Rick James and every Starbucks customer

Starbucks (SBUX) released their fiscal Q4 earnings results after the bell on Thursday, and it made investors feel the same way I do when I realize how much money I spend at Starbucks in a month…not good. The company missed on almost all of Wall Street’s estimates, which is impressive considering it costs $5 and your first born for a cup of coffee there these days. I haven’t broken the news to my daughter yet. Shares of the coffee giant closed down 6.1% in Friday’s trading session. Lowlights include:

  • Fiscal Q4 EPS of $1.00/share on revenue of $8.1B vs. estimates of $0.99/share on $8.22B.
  • U.S. same store sales of 22% vs. an expected 24%, with international same store sales of 3% vs. an expected 4.3%
  • China, the company’s second largest market, saw same store sales decrease by 7%, which was the main catalyst for the selloff in shares of SBUX.
  • The company also announced a wage increase to $15/hr by the summer of 2022, which I assume will be the cost of a venti iced coffee at that time.
  • Keep an eye on SBUX over the coming weeks as any continued downside momentum may take it to its 2021 low of $95.92 put in on January 29th.

 

Shots for the kids

Last Friday the FDA granted emergency use authorization to Pfizer and BioNTech’s vaccine for kids aged 5-11. If the CDC signs off on it, the government will immediately begin making shots available to 28M children and could administer as many as 15M shots within a week, which almost makes up for not being able to hand them out for trick-or-treating.

  • The shot, which only contains a third of the dosage given to adults, is over 90% effective at preventing symptomatic infection in children.
  • That’s a big deal, because a lot of kids have gotten COVID. According to the American Academy of Pediatrics, over 6.3M kids have tested positive for the virus, resulting in 20k hospitalizations and 500 deaths. Aside from saving lives, the new vaccine will help unburden the devastated husk that is the U.S. healthcare system.

There’s EU, there’s me, and

there’s US

This weekend, at the worst party in all of Europe, Biden struck a deal with European leaders to roll back the Trump steel and aluminum tariffs from 2018. The plan comes just in time to stop the EU from doubling their retaliatory tariffs on certain ‘Murican exports like whiskey and motorcycles.

  • Rather than do away with tariffs entirely, Biden took a middle path called a tariff rate quota, in which Trump’s 25% steel tariff and 10% aluminum tariff apply exclusively when the EU exports more than 3.3M tons of metal annually.
  • The new plan will remove taxes on more than $10B in exports annually and maybe make the EU stop hating us so much. It should also lower price tags on products like cars and washing machines, both by removing tariffs and by mitigating supply chain issues.
  • The pro-Europe move is also an anti-China move. Accepting more metal from the EU means curbing U.S. reliance on China and their aggressive, carbon-intensive overproduction of export metals. The enemy of my enemy is my friend.

 

Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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