To explain, the blue and green bars above track the average monthly performance of the S&P 500 after a new US president takes office. If you analyze the columns titled “Sep” and “Oct”, you can see that the end of summer often causes the worst monthly performance. And while the S&P 500 closed September with a decline of 1.19%, the weakness is expected to continue into October.
As proof, the shares of Bed Bath & Beyond plunged more than 22% on September 30. And with supply chain disruptions and weak demand colliding with uncertainty in U.S. policy, optimism is on shaky ground. For example, the retailer’s second-quarter adjusted EPS was $ 0.04 versus $ 0.52 expected, while revenue was $ 1.99 billion versus $ 2.06 billion. expected dollars. Additionally, the company lowered its adjusted third-quarter EPS forecast to $ 0.05, with revenues ranging from $ 1.96 billion to $ 2 billion. Analysts were expecting figures of $ 0.28 billion and $ 2.02 billion respectively.
And although I have pointed out the problem several times, the CFO Gustavo Arnal lamented the fervor of soaring freight costs. He said during the company’s second quarter earnings call:
“What we’re seeing now in the second trimester is, look, significant increases in transportation costs well above what we expected. We had anticipated 240 basis points. We have 360 basis points. We still anticipate a sequential increase in freight costs as we move from Q2 to Q3.
In addition, the CEO Mark Tritton said the Delta variant also “created a difficult and volatile environment: “
“In August, the last and most important month of second quarter sales, traffic unexpectedly slowed down and as a result, sales did not materialize as we expected. External disruptive forces such as the resurgence of COVID-19 cases and growing Delta fears have created a difficult and volatile environment. This is especially evident in the larger southern states, such as Florida and Texas, as well as California, which in total accounts for about 30% of our total sales. From July to August, traffic trends evolved in this state and worsened by double-digit percentages.
“As the quarter progressed, particularly in August, conditions deteriorated from our thoughtful preparations. The speed of industry inflation and time pressures have exceeded our plans to offset these headwinds, and as a result, we have not pivoted fast enough, particularly on the recovery in prices and margins.. “
The bottom line? With the US Dollar already supported by a strong technical and fundamental base, a deep correction in the S&P 500 could be the next spark to ignite the bullish fire. And with the earnings season starting in early / mid-October, further disappointments like the ones we’ve experienced with Bed Bath & Beyond could spur the next correction. More importantly, however, given the strong negative correlations of MPs with the US dollar, a sharp rise in the greenback could coincide with a sharp drop in PM.
In conclusion, the PM recovered on September 30, but the bearish thesis remains unchanged: the USD index is about to be revalued upwards and US Treasury yields are still on the rise in the medium term. Additionally, with the general stock market showing signs of stress, a real fit of panic could also push up the USD index and upend the PMs. Therefore, the decline in precious metal prices is expected to materialize over the next few months.
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Przemyslaw Radomski, CFA
Sunshine Profits: Efficient Investing Through Diligence and Care
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