Pegasus
Long/Short Equity Investor
Consumer discretionary stocks such as durable goods, brokerages and travel are deeply overpriced, more so each day the energy shock persists. The energy market is moving from oversupply into shortage, eroding buying power, and much of the marginal growth in compute spending depends on loose financial conditions. Helium and gas shortages could also halt production in Taiwan. x.comÂ
US consumer discretionary stocks may bounce, but a likely economic downturn next year means any rally is unlikely to last. Given the issues facing the consumer and where the economy is in the cycle, the consumer is not where the focus should be, though there is no specific downside target. x.com x.comÂ
Rising freight and oil costs threaten consumer staples margins, with plastic a significant input, while a weakening consumer adds trade-down risk. That makes chasing the recent bid for staples unattractive. x.comÂ
US consumer cyclicals and broad market breadth look set to gain as Q2 bank results refute the K-shaped consumer doom thesis. Card spending rose 9% to 12% at JPMorgan, Bank of America, Citi and Wells Fargo while credit quality improved: JPMorgan's card net charge-off rate fell to 3.34% from 3.47% and it cut full-year guidance, and Wells Fargo's credit-loss provision fell 9%. With rate tailwinds and falling gas, retail, transports, regional banks and equal-weight stocks signal a cyclical rotation. … Show more
Debt-laden consumer companies without pricing power are ones to avoid because their costs are surging and their customers are tapped out. Nike, McDonald's and Delta are already getting hammered. Constellation Brands should drop below $100 before its next report. x.comÂ
US large-cap equities are vulnerable because earnings have not caught up with total market capitalization. The market is farther from its 200-week moving average than at any point in 18 years, and cracks are starting to show; staying bullish ignores these risks. Rate hikes remain possible, oil is still high, and yields may climb again, so now is the time for caution. x.com x.comÂ
Falling rates and buying in financials, consumer discretionary and Home Depot make US small caps a very good buy here with high probability. The drawdown exceeds 11%, as it did at the start of the Iran war, and daily RSI and MACD are at similar bottoms. x.comÂ
Carnival's recent resilience looks vulnerable because it is the one cruise operator that does not systematically hedge fuel costs. Almost all consumer cyclicals have rolled over, consumer sentiment is weak and a virus outbreak is possible, suggesting demand 6-12 months out could be weak. x.comÂ
US energy stocks are being steadily accumulated after a 17-year base, and that base will not resolve in a month. The sector broke out this year and pulled back on contracting volume, which is digestion, not distribution. Energy trades near 13x earnings versus about 20x for hyperscalers. Stocks now rise with oil and get bought back when oil falls. Tech is priced for the cost of capital to come down; energy for the reason it will not. x.com x.com x.comÂ
Rising gasoline prices are short-term bearish for Lululemon, e.l.f. Beauty, Celsius, Nike, Ulta Beauty, Target and Deckers. Consumers squeezed at the pump spend less on discretionary items, while businesses face higher freight and logistics costs that pressure margins. Long term, the weakness should offer a chance to accumulate great brands at cheaper prices. x.comÂ
Higher transport and input costs threaten US stock margins and demand. The PPI surprise shows the oil-cost pressure described in March playing out: headline rose 1.3% monthly versus 0.6% expected, and core 0.7% versus 0.3%. The March scenario put logistics costs at 3-6 weeks and consumer prices and weaker demand at 1-3 months; margins could shrink 100-300 basis points if costs cannot be passed on. The full scenario was not expected to play out. x.com x.comÂ
