Wall Street Strategies
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Morning Commentary

Amazon On Defense

By Charles Payne, CEO & Principal Analyst
10/25/2019 9:35 AM

The Dow Jones Industrial Average seesawed all session long, but a last-minute bid to move into the plus column was derailed by news CVS (CVS), Rite Aid (RAD) and Walmart (WMT) are pulling Johnson and Johnson Baby Powder products off shelves. Johnson & Johnson (JNJ) shares immediately dipped dashing the hopes of the big board joining other major equity indices.

The big news of today’s session will be Amazon (AMZN), which missed big time on earnings, as its cloud business (AWS) came up short. 

But the bigger story is mounting cost and weaker guidance.

AMZN Third Quarter

Operating Expenses % of Revenue

2018

2019

Fulfillment

14.6%

14.5%

Marketing

5.8%

6.8%

Technology & Content

12,7%

13.1%

General and Administrative

1.8%

1.9%

Fourth Quarter Guidance

During the quarter, the company is going to invest $1.5 billion to fulfill one-day shipping to counter Walmart’s two-day shipping.  Manpower is mounting, as an extra 100,000 workers brings US total to 400,000 and the global workforce to 750,000.

I don’t view the company’s lower guidance as a proxy for Christmas shopping, but instead, as a reflection of greater competition.   It’s getting real, as brick and mortar survivors are learning the omnichannel game and doing it well.   The stock has been down an average of 4.85% in the week after reporting over the last four quarters and will begin today off almost twice as much.

Earnings Winners

Message of the Market

Yesterday,  Technology rocked spurred on by that big beat by Lam Research (LRCX).  Intel (INTC) doesn’t have the coattails it once did, but its an important tech name that should provide a spark.

If you’re wondering about Amazon, the stock is in the S&P Consumer Discretionary sector.  Although its weighting in XLY is only 0.34% versus 22.33% for Amazon, results from Mohawk Industries (MHK) underscore one of my current investment thesis of improved household formation.

S&P 500 Index

+0.15%

 

Communication Services (XLC)

 

-1.33%

Consumer Discretionary (XLY)

 

-0.07%

Consumer Staples (XLP)

+0.35%

 

Energy (XLE)

 

-0.63%

Financials (XLF)

 

-0.09%

Health Care (XLV)

 

-0.60%

Industrials (XLI)

+0.22%

 

Materials (XLB)

+0.26%

 

Real Estate (XLRE)

 

-0.30%

Technology (XLK)

+1.39%

 

Utilities (XLU)

+0.39%

 

The results from Mohawk, coupled with Bassett (BSET) and Sleep Number (SNBR) from last week, points to millennials moving out, and not necessarily to big expensive cities, but looking for the old dram home with the white picket fence.

I even believe the current pullback in new home sales median prices is a good thing for the industry, where home prices were climbing twice as fast as wages, which were powering higher.

  We learned in September the median home price slipped under $300,000 for the first time this year.

Portfolio Approach

We sent alerts that we were closing two positions and taking profits in two positions in the model portfolio.  Valero (VLO), but we think there should be some exposure to energy, and Winnebago (WGO), which is such a satisfying grand slam because Wall Street hated the stock, and Main Street media leaped all over the notion the industry was leading the nation into recession.

Today's Session

The major indices are under some pressure this morning, however the Dow just turned positive.  The S&P 500 is down slightly, and the Nasdaq is the worst performer. U.S. Treasuries are relatively flat, with the benchmark 10-yr yield up one basis point to 1.77%. The greenback is also up 0.1%. Energy has had a good week with the sector up over 3%  as oil has risen  4.5% . However, WTI crude is down 0.2% now to $56.13 per barrel.  


 

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