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Is The Snap Downward Guidance The Canary In The Coal Mine?

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Is The Snap Downward Guidance The Canary In The Coal Mine?

After the close yesterday, a very strong rebound day with all the major stock indexes up more than 1.5%, Snap (NYSE:SNAP) announced a downward guidance in its second-quarter estimates of revenue and adjusted earnings, and a slowdown in hiring, only a month after its first-quarter earnings call. The company cited that “the macro environment has deteriorated further and faster than we anticipated” and expects EBITDA (Earnings Before Interest, Taxes, Depreciation, & Amortization – a standard measure of cash flow) to fall below the lower end of its guidance, which was zero. The stock, already down over 50% year to date, plummeted 28% in extended trading and now stands over 10% lower than its 2017 IPO.

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Q1 2022 hedge fund letters, conferences and more

Concerns that other ad-supported online companies may be feeling the same challenges didn't take long to develop with Meta Platforms (NASDAQ:FB, AKA Facebook) falling 8% pre-market this morning, Alphabet (NASDAQ:GOOGL) down 4%, and Pinterest (NYSE:PINS) down 17%.

After the negative surprises of Target (NYSE:TGT) and Walmart (NYSE:WMT) last week were criticized for not giving warning guidance, it appears that other companies have chosen to keep investors better apprised of changes in their outlook.

This morning, Best Buy (NYSE:BBY) reported a sales drop of 8%, better than the 9.1% estimates, but missed on earnings and guided down on its previous forecasts of full-year sales and earnings also citing a deteriorating macro environment. The stock opened essentially flat, having already fallen sharply last week in sympathy with Target & Walmart.

Surprise Disappointments

The market has been fearing downward earnings forecasts by Street analysts, compounding the P/E compression we've already seen, but it appears the companies themselves are going to beat them to the punch. These retail store disappointments come as a bit of surprise given the mantra of how strong the American consumer is.

Energy prices continue to rise, keeping inflation fears hot, which also gives no relief of hopes that the Fed's strong rhetoric of monetary tightening might ease. Growing stagflation concerns are reflected in the drop in interest rates with the US 10-year yield dropping 9bps to 2.77%, a one-month low, far below inflation expectations.

Volatility Persists

The high levels of volatility look far from over and continue to present windows of opportunity to add quality earners on pullbacks.  The trend, however, remains negative so keep plenty of powder dry for the yet to occur capitulation trade.

Coffee Beans

The share of remote workers has been trending downwards with brief upticks coinciding with the third and fifth wave of Covid in winter 2020/21 and 2021/22. According to April 2022 data from the Bureau of Labor Statistics’ Current Population Survey, 7.7 percent of employed persons 16 and older in the U.S. had been working at home or remotely at some point in the past 4 weeks due to the coronavirus pandemic, the lowest point by far since Covid-19 hit the country in the spring of 2020. Source: Statista. See the full story here.

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Louis Navellier

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