Tag Archives: Darden Restaurants Inc

Business

Stock futures are flat as investors look ahead to Federal Reserve speakers

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Stock futures were flat Friday morning as investors responded to data that elevated concerns of a looming recession and looked ahead to a slew of Federal Reserve speakers scheduled for later in the day.

Futures tied to the Dow jones Industrial Average gained 3 points, trading near the flatline. S&P 500 futures were fractionally lower and Nasdaq-100 futures were slightly higher.

In a continuation of Wednesday’s sell off, the Dow dropped 764.13 points, or 2.25%, for its worse daily performance since September on Thursday. The S&P 500 and Nasdaq Composite fell 2.49% and 3.23%, respectively.

Thursday’s disappointing retail sales report suggested inflation is hitting consumers more than expected. This has investors concerned that consumer spending is slowing, a sign that the economy is weakening.

With these latest declines, the market is heading into Friday with all the indexes poised to notch a second consecutive week of losses.

Stocks have been falling in the wake of the Federal Reserve’s 50 basis point interest rate hike to a target range between 4.25% and 4.5% — the highest rate in 15 years. The central bank said it would continue hiking rates through 2023 to 5.1%, a larger figure than previously expected.

“After gouging themselves on hopes for a Fed pivot, equity traders are experiencing indigestion from yesterday’s FOMC statement, which reiterated Jerome Powell’s theme of ‘higher for longer,'” said John Lynch, chief investment officer for Comerica Wealth Management.

Investors will be watching Friday for before the bell earnings from Olive Garden parent Darden Restaurants, which could provide more insight into consumer spending patterns. They will also look for any hints on future Fed policy from speakers John Williams, Michelle Bowman and Mary Daly. Investors are trying to gauge the pace of future rate hikes and the central bank’s view of the economy.

There also will be data coming in the morning with December’s purchasing managers’ indexes within services and manufacturing. The indexes are seen as gauges of business conditions. Manufacturing is expected to come in at the same rate as November, while services is expected to increase by 0.3 points.

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Customer service suffers at short-staffed restaurants as Covid takes toll

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A waiter works at a restaurant in Alexandria, Virginia, on June 3, 2022.

Olivier Douliery | AFP | Getty Images

Jeff Rothenberg has grown accustomed to long wait times at restaurants, even when tables are visibly open.

“Another restaurant we went to had open seats outside, but when we went to the host, they mentioned that the kitchen was short-staffed,” Rothenberg, an operations director at a California-based fintech firm, told CNBC. “So although he had seating, he was going to put us on a 30-minute waitlist to be seated.”

Rothenberg was on the 30-minute waitlist for nearly an hour, he said. Then, after he was seated, he waited another 45 minutes for his food to arrive.

“It was the type of experience that makes me not want to eat out as much,” he said. “I felt bad for the servers, because they were trying, but they could only do so much, not having enough cooks.”

It’s a scenario that has been repeated across the food service industry since the Covid pandemic began in 2020, and it’s taking a toll on restaurants and their staff, as well.

Lockdowns in spring of that year led to layoffs and furloughs for many cooks and waitstaff, prompting the federal government to back billions of dollars in forgivable loans for small businesses. The disease ravaged the U.S. workforce, killing more than a million people over the course of two-plus years while sickening many millions more, according to the Centers for Disease Control and Prevention.

As states relaxed their restrictions, restaurant employment recovered, although the industry is still down 750,000 jobs — roughly 6.1% of its workforce — from pre-pandemic levels as of May, according to the National Restaurant Association.

Customers are noticing the difference. In the first quarter of 2022, customers mentioned short staffing three times more often in their Yelp reviews than in the year-ago period, according to the restaurant review site. Mentions of long waits rose 23%.

“I think the experience has been different since Covid. I see that the restaurant industry has changed a lot,” Nev Wright, a health-care worker, told CNBC outside Firebirds Wood Fired Grill in Eatontown, New Jersey. “It wasn’t always like this — now it takes time, with expenses and shortages of staff and everything.”

The American Customer Satisfaction Index found that consumers were less happy with fast-food chains this year compared with 2021 — the sector’s score slipped to 76 out of 100, from 78. Customers were less satisfied about the speed and accuracy of their orders and about the cleanliness and layout of the restaurant.

The customer satisfaction scores for independent and small chain restaurants also dropped this year, to 80 out of 100, from 81, according to ACSI’s annual report. Some national full-service chains saw their scores fall even more year over year: Dine Brands’ Applebees dropped 5%, Darden Restaurants’ Olive Garden 4%, and Inspire Brands’ Buffalo Wild Wings 3%.

‘Everything is very weird’

Eatontown resident Theresa Berweiler said that over the past year she has been met consistently with early closing times and long waits at restaurants, even when they aren’t busy.

“I’m 64 years old, and I’ve never seen anything like this,” the receptionist told CNBC on Wednesday outside a local Chick-fil-A. “Everything is very weird. Covid has definitely changed the world, and I’m not sure for the better.”

Restaurants aren’t the only businesses seeing the labor crunch hit customer service. U.S. consumer complaints against airlines more than quadrupled over pre-pandemic levels in April, according to the Department of Transportation. Hotelier Hilton Worldwide isn’t satisfied with its own customer service and needs more workers, CEO Christopher Nassetta said on the company’s quarterly earnings call in May.

For restaurants, staffing challenges have put pressure on an industry already struggling with inflation and recovering lost sales from the pandemic. Alexandria Restaurant Partners, a group that owns and manages eight restaurants across Florida and Northern Virginia, has dramatically changed the way it does business.

“We’re not sure where all the workforce went, but a lot of them have disappeared, from managers to chefs to hourlies,” said Dave Nicholas, a founding member of ARP.

A chef prepares food in the kitchens of Café Tu Tu Tango, a popular restaurant in Orlanda, Florida.

Source: Alexandria Restaurant Partners

Now, Nicholas said, his focus is on hiring and retention. The group opened a recruitment position and now has two full-time recruiters working to bring much-needed employees into jobs with higher wages and better benefits than the group has ever had. 

“Before, you could hire them as fast as you needed them. These days, that’s not the case,” Nicholas said. “Our mission is to be the employer of choice. That comes with benefits we maybe didn’t have before, down to servers, busboys and dishwashers. The cost of that has been enormous, but the cost of turnover is enormous, so we weighed it.”

But not all workers are taking home more pay, even if their baseline wages increased. Saru Jayaraman, director of the Food Labor Research Center at the University of California Berkeley and president of One Fair Wage, which advocates abandoning the tipped wage, said frustration from understaffing often results in lower tips for workers. In turn, lower pay leads many restaurant employees to quit, exacerbating the issue.

“It’s a vicious cycle of people being unhappy with the service that may tip less, then they don’t come back, and sales are down,” she said.

The restaurant industry has historically struggled with high turnover. The issue has only intensified during the Covid pandemic as employees seek better pay and working conditions, worry about getting sick, and have difficulties finding child care. The accommodation and food service sectors had a quit rate of 5.7% in May, according to the Bureau of Labor Statistics.

Nicholas said that despite ARP’s recent rollouts of retention bonuses and partner programs, in addition to higher wages and better benefits, it’s been a “battle” to contend with the labor market.

Full-service restaurants have been hit harder than limited-service eateries by the labor crunch, with staffing down 11% from pre-pandemic levels.

And that means the experience of eating out likely won’t be the same anymore.

“Going to a restaurant and having them bring over bread with butter,” said Nicholas Harary, owner of Barrel & Roost, a restaurant in Red Bank, New Jersey, “those days are over.”

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Business

Accenture, Darden Restaurants, FactSet and more

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Check out the companies making headlines before the bell:

Accenture (ACN) – The consulting firm’s shares fell 3.3% in the premarket after its quarterly revenue beat forecasts but earnings were impacted by the cost of its Russia exit. Accenture raised its full-year revenue forecast but cut the top end of its projected earnings range due to a greater-than-expected negative impact from foreign exchange.

Darden Restaurants (DRI) – The parent of Olive Garden and other restaurant chains reported better-than-expected profit and revenue for its latest quarter. It also increased its quarterly dividend by 10% and authorized a new $1 billion share repurchase program. Darden added 3.4% in premarket trading.

FactSet (FDS) – The financial information provider beat top and bottom-line estimates for its latest quarter. It also backed its prior full-year guidance, with growth projected at the upper end of its projected range.

Rite Aid (RAD) – Rite Aid shares jumped 4.3% in premarket action after reporting better-than-expected revenue and a smaller-than-expected quarterly loss.

KB Home (KBH) – KB Home reported quarterly earnings of $2.32 per share, beating the $2.03 consensus estimate, and the home builder’s revenue also came in above analyst forecasts. However, it said rising interest rates and higher prices were beginning to have a negative impact on sales growth. KB Home jumped 3% in premarket trading.

Occidental Petroleum (OXY) – Berkshire Hathaway (BRK.B) bought an additional 9.6 million shares of Occidental Petroleum, raising its stake in the energy producer to 16.3%. Occidental rallied 2.9% in premarket action.

Steelcase (SCS) – Steelcase shares rose 3.1% in premarket trading after the office furniture maker reported better-than-expected quarterly results. Higher prices and increased demand helped offset rising costs stemming in part from supply chain difficulties.

WeWork (WE) – The office-sharing company’s stock rose 3.3% in the premarket after Credit Suisse initiated coverage of the stock with an “outperform” rating. Credit Suisse feels WeWork is among the companies that will benefit from the increase in hybrid work and co-working, as well as demographic trends.

Snowflake (SNOW) – The cloud computing company’s stock was upgraded to “overweight” from “neutral” at J.P. Morgan Securities, which pointed to an attractive valuation as well as extremely high satisfaction levels among Snowflake customers. Snowflake surged 6.1% in premarket trading.

Revlon (REV) – Revlon slid 5.7% in the premarket, signaling a possible end to the three-day win streak that followed its Chapter 11 bankruptcy filing last week. The cosmetics maker’s shares have surged more than fourfold over the past 3 sessions.

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Business

Jim Cramer says he likes these 6 travel and leisure GARP stocks

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CNBC’s Jim Cramer on Monday highlighted six stocks in the travel and leisure space that he believes are investable due to their affordable price and growth potential.

“With the [Federal Reserve] tightening [interest rates], the market prefers something called growth at a reasonable price, or GARP. … In other words, you want companies with better-than-average growth rates as long as their stocks have relatively cheap valuations,” the “Mad Money” host said. 

“Get used to the world according to GARP, okay? It’s the old, new way to invest,” he later added.

The Fed approved a 25 basis point interest rate hike in March, which is expected to be the first of several increases this year to tamp down soaring inflation. The minutes for the Fed’s March meeting, released April 6, signals that the Fed could raise interest rates by 50 basis points in upcoming meetings. Fed officials also plan to shrink the balance sheet by around $95 billion a month.

To come up with the list of investable travel and leisure stocks, Cramer first ran a screen for companies in the S&P 500 that can put up double-digit earnings growth this year and next year. Then, Cramer examined the companies’ price to earnings growth multiple, or PEG ratio. “This is a metric that tells you how much we’re willing to pay for a company’s growth rate. … When we’re talking about a reasonable valuation, anything at 1 or less would generally be considered cheap,” he said.

Using the two metrics to whittle down the list of companies, Cramer was left with 51 names. 

“We’ll be going through our favorites over the course of the week,” Cramer said. He added that he believes the travel and leisure stocks he picked will benefit from “the great reopening, even if the Fed really hits the brakes on the economy.”

Here are Cramer’s picks for the six “GARP-iest” travel and leisure companies:

  1. Expedia
  2. Booking Holdings
  3. Marriott International
  4. Disney
  5. Darden Restaurants
  6. Sysco 

Disclosure: Cramer’s Charitable Trust owns shares of Disney.

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Business

Sell stocks of unprofitable companies

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CNBC’s Jim Cramer on Friday previewed next week’s earnings schedule and said that investors should use it as a chance to offload unprofitable companies from their portfolios.

The “Mad Money” host said that the market could be in for some pain next week after this week’s rallies, as investors digested the news of the Federal Reserve’s quarter-percentage-point interest rate hike, the ongoing Russia-Ukraine War and Covid outbreaks in Asia and Europe.

While investors shouldn’t sell off everything, next week could be a golden opportunity for investors to shuffle holdings around, Cramer said.

“If you still own the stocks of unprofitable companies that don’t even have any good cash flow and sell at high price multiples to sales, I’m begging you to use this chance, start by today, to do some selling and reposition yourself into more tangible companies with much cheaper stocks,” he said.

All earnings and revenue estimates are courtesy of FactSet.

Monday: Nike

Nike

  • Q3 2022 earnings release at 4:15 p.m; conference call at 5 p.m. ET
  • Projected EPS: 71 cents
  • Projected revenue: $10.6 billion

“I don’t expect Nike will actually have good numbers, but that’s now the conventional wisdom, which leaves open the possibility of an upside surprise,” Cramer said.

Tuesday: Nvidia, Adobe

Nvidia

  • Investor Day at 1 p.m. ET

“[Chief executive Jensen Huang’s] speech will define where tech is, where it’s going, and what are the boundaries that must be smashed,” Cramer said. “And he’ll smash them.”

Adobe

  • Q1 2022 earnings release after the close; conference call at 5 p.m. ET
  • Projected EPS: $3.34
  • Projected revenue: $4.24 billion

Cramer said that he believes Adobe will have better results than Wall Street is expecting, “but the standards have gotten ridiculously high for this fabulous company.”

Wednesday: General Mills, KB Home, Ollie’s Bargain Outlet Holdings

General Mills

  • Q3 2022 earnings release before the bell; conference call at 9 a.m. ET
  • Projected EPS: 78 cents
  • Projected revenue: $4.56 billion

“The food stocks are a diminishing group. … They’re hurt by inflation in every part of their manufacturing chain. A lot less defensive than they used to be,” Cramer said of General Mills and other food companies.

KB Home

  • Q1 2022 earnings release after the close; conference call at 5 p.m. ET
  • Projected EPS: $1.54
  • Projected revenue: $1.5 billion

Cramer said he expects that the company “blows away the numbers and even gets some recognition for doing so.”

Ollie’s Bargain Outlet Holdings

  • Q4 2021 earnings release after the close; conference call at 4:30 p.m. ET
  • Projected EPS: 66 cents
  • Projected revenue: $513 million

Cramer said that a problem Ollie’s could face is limited inventory if other retailers don’t have any unsold products for Ollie’s to take off their hands due to consumers willing to pay full-price for everything.

Thursday: Darden Restaurants

Darden Restaurants

  • Q3 2022 earnings release before the bell; conference call at 8:30 a.m. ET
  • Projected EPS: $2.11
  • Projected revenue: $2.52 billion

Listening to Darden’s call will show where consumers are choosing to spend their money after staying in during the pandemic, Cramer said.

Friday: University of Michigan Consumer Sentiment Index

The University of Michigan Consumer Sentiment Index reports numbers for March Friday after the preliminary index dropped to 59.7 earlier this month, the lowest level in nearly 11 years, according to Reuters. Cramer said if the consumer sentiment index number turns out to be “gloomy,” that means bad news for gardening and outdoor living companies like Home Depot and Lowe’s.

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Business

Darden Restaurants, BlackBerry, Salesforce and others

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Check out the companies making headlines before the bell:

Darden Restaurants (DRI) — The Olive Garden parent reported earnings of $1.76 per share, higher than the $1.64-per-share forecast. The restaurant company also reported same-store sales that rose 47.5%, topping estimates. Shares rose 3% in premarket trading.

BlackBerry (BB) — The company reported better-than-expected quarterly earnings, with an adjusted gross margin of 65%. BlackBerry reported a loss of 6 cents per share, compared with the expected loss of 7 cents per share, according to Refinitiv. Revenue came in at $175 million, topping estimates of $164 million. Shares rose more than 7% premarket.

Salesforce (CRM) — The software company raised its full-year 2022 revenue guidance to between $26.25 billion and $26.35 billion. This is higher than the company’s previous estimate of revenue between $26.2 billion and $26.3 billion. Analysts expected $26.31 billion. Shares rose 2% in premarket trading.

KB Home (KBH) — Shares of the homebuilder rose in premarket trading despite missing top and bottom-line estimates. KB Home reported quarterly earnings of $1.60 on revenue of $1.47 billion. Wall Street expected earnings of $1.62 per share on revenue of $1.57 billion, according to Refinitiv.

Joby Aviation (JOBY) — Morgan Stanley initiated coverage of the air taxi start-up with an overweight rating, saying in a note to clients on Thursday that investors should take a look at a stock with major potential upside. Shares of Joby Aviation popped more than 5% in extended trading.

Biogen (BIIB) — The drugmaker’s stock rose in premarket trading after Needham initiated coverage of the stock with a buy rating, saying in a note to clients on Wednesday that the company’s controversial Alzheimer’s drug Aduhelm will be a big seller for the company long term.

Roku (ROKU) — Shares of the streaming company rose 2% in premarket trading after Guggenheim upgraded the stocks to buy from neutral. The Wall Street firm assigned Roku a 12-month price target of $395, implying a 22% one-year return.

SoFi (SOFI) — Shares of the fintech company rose in premarket trading after gaining 11% during the regular session on Wednesday. Sofi is the 6th most-mentioned stock on Reddit’s WallStreetBets, according to quiver quant.

Accenture (ACN) — Accenture shares rose in extended trading after reporting better-than-expected earnings. The company also increased its dividend and buyback authorization.

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Business

Four takeaways as child tax credit kicks off this month

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A woman wears a face mask while shopping for a baby shower gift during the Covid-19 pandemic, at Madison’s Niche boutique in Huntington, New York on April 21, 2021.

Alejandra Villa Loarca | Newsday | Getty Images

Child tax credit payments are an “underappreciated stimulus” that could lift sales across the retail, restaurant and travel industries — especially as shoppers emerge from the pandemic and get ready for back-to-school season, according to a research note published Tuesday by Cowen analysts.

The monthly payments, which begin Thursday, could benefit a wide range of companies, from grocers including Walmart to fast food chains such as Jack in the Box, according to the note.

Families have gotten child tax credits for years, but the American Rescue Plan made several key changes. It increased the amount per child from $2,000 to $3,000 for those between the ages of 6 and 17, and to $3,600 for each child under age 6. It qualified low-income families who have little or no taxable income. And it changed the way it is paid out, so that families receive half the money through direct deposits that run from July to December. Families will receive the other half after filing taxes.

That will translate to $250 or $300 per child each month. Families who make up to $150,000 for a couple or $112,500 for a family with a single parent, called a head of household; or $75,000 as an individual taxpayer will get the full amount. The payments will be phased out above that amount — but even those who get less money will receive advance payments.

Parents and caretakers of nearly 90% of children in the U.S. will receive the payments, according to the Internal Revenue Service.

Here are four major takeaways from the analysts:

More dollars mean more spending

The child tax credit will amount to an estimated $150 billion in stimulus over the next year, according to Cowen. Analysts at the equity research firm say the extra dollars may surprise both Americans and the economy at large, calling it “an underappreciated catalyst for discretionary consumer spend.”

As families get the money, Cowen predicts, they will spend it on food for the home, dining out and shopping online. The analysts named retailers and restaurants that are best-positioned to attract those dollars. On the grocery side, they pointed to Walmart, Target and Grocery Outlet. Among fast-food chains, they named Jack in the Box, Wingstop, Papa John’s and Darden, based on a survey of consumers that looked at their incomes and what places they frequent. And among e-commerce companies, they named Amazon.

Coinciding with ‘pent up demand’

Many families have already ramped up spending on new shoes and clothes as they emerge from their homes after getting Covid-19 vaccinations. Analysts from Cowen said that child tax credit dollars will likely feed into that spending spree.

Already, some retail industry watchers have predicted an usually hot back-to-school season as families crave a new start and a sense of more normalcy — and potentially channel that toward fresh notebooks and first-day-of-school outfits.

Cowen analysts expect that retailers that cater to back-to-school or team sports are positioned well to attract child tax credit dollars, including Walmart, Kohl’s, Foot Locker, Dick’s Sporting Goods and Nike. They also said retailers that focus on value, such as off-price retailers Burlington, Ross and T.J. Maxx, could get a boost since they cater to low-income families that are receiving child tax credit payments. They also said American Eagle Outfitters is in a good spot to attract the payments, as it caters to styles that teens crave, such as looser-fitting denim and casualwear.

Spilling over into adult categories

Parents, grandparents and other caretakers may spend some of the child tax credit dollars on themselves in the form of beer, cigarettes and plane tickets, according to Cowen.

Analysts estimated that the tobacco industry could pick up about $1.2 billion and alcoholic beverages could pick up roughly $2.7 billion of the estimated $150 billion impact of the child tax credit. That could mean good news for tobacco company Turning Point Brands and beer industry players, Constellation Brands and Boston Beer.

Cowen estimated air travel will get an approximately $1.15 billion bump from child tax credits, as the July payments arrive just in time for vacation season. That will be most noticeable for airlines that cater to leisure travel and lower prices, such as Allegiant, Frontier and Spirit, the analysts predicted.

A renewal looks likely

The monthly payments will end in December — but Cowen analysts are betting that they will be renewed. In the note, they said they expect the one-year program will be extended through 2025 through a reconciliation bill.

In the note, the analysts cited the size and scope of the government program, which is intended to fight childhood poverty. They called it a “huge policy change” that acts as “universal basic income for low-middle income parents.”

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Business

Rite Aid, Coherent, RH, Nike & more

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Take a look at some of the biggest movers in the premarket:

Rite Aid (RAD) – Rite Aid expects to report a loss for its just-concluded fiscal year, compared to analysts’ forecasts of a $125 million profit. The drugstore chain was hit by a 37% drop in sales of cold, cough and flu-related products, as people suffered from these maladies far less due to pandemic-related lockdowns. Rite Aid shares plunged 18.6% in premarket action.

Walgreens (WBA) – The drugstore operator’s stock fell 2% in the premarket, possibly in sympathy with Rite Aid. Deutsche Bank also labeled the stock a “catalyst call buy idea,” noting short-term issues but saying the Covid vaccine could provide a positive opportunity for Walgreens in both the near and longer-term.

Darden Restaurants (DRI) – The parent of Olive Garden and other restaurant chains reported quarterly earnings of 98 cents per share, well above the consensus estimate of 69 cents a share. Revenue beat estimates as well, and although same-restaurant sales tumbled 26.7% from a year ago, that was a smaller drop than the 31.2% anticipated by analysts polled by FactSet. Darden shares rose 4.2% in premarket trading.

Coherent (COHR) – Coherent accepted a takeover proposal by optical components maker II-VI (IIVI), ending a long bidding battle between II-VI and optical fiber company Lumentum (LITE). Coherent – a provider of lasers and related technology – approved the bid of $220 per share in cash and 0.91 II-VI shares for each Coherent share, and will pay Lumentum a breakup fee of $217.6 million. II-VI tumbled 8% while Lumentum jumped 7.2% in the premarket.

RH (RH) – RH reported quarterly earnings of $5.07 per share, beating the consensus estimate of $4.76 a share. The Restoration Hardware parent also saw revenue beat analysts’ forecasts. RH reported strong demand for its high-end furniture and other luxury products, and expects current-quarter revenue to grow by at least 50%. RH shares surged 8.4% in premarket action.

KB Home (KBH) – KB Home beat estimates by 10 cents a share, with quarterly profit of $1.02 per share. The home builder’s revenue missed analysts’ projections despite a 23% rise in net orders and a 4% increase in deliveries. KB Home shares dropped 1.9% in premarket trading.

AstraZeneca (AZN) – The drugmaker said an updated analysis of its Covid-19 vaccine’s U.S. trial showed 76% efficacy, compared to 79% in a report earlier this week. The earlier report had not included more recent infections and came under some scrutiny from an independent data monitoring board.

Nike (NKE) – Nike is the target of criticism on Chinese social media for a statement in which the athletic footwear and apparel maker said it was “concerned” about reports of forced labor in Xinjiang. Nike also said it does not source products from the region. The shares fell 4.5% in premarket trading.

H.B. Fuller (FUL) – H.B. Fuller reported quarterly profit of 66 cents per share, 19 cents a share above estimates. Revenue also topped Wall Street forecasts. The maker of adhesives, sealants and other industrial products saw particular strength in health and hygiene-related products, although it saw weakness in construction adhesives. Fuller shares surged 6.2% in premarket action.

Royal Philips (PHG) – The health technology company struck a deal to sell its Domestic Appliances unit to investment firm Hillhouse Capital for about $4.4 billion. The transaction includes the right for Hillhouse to use the Philips brand name for 15 years, with the possibility of renewal. Philips shares added 1.6% in the premarket.

Advanced Micro Devices (AMD) – The chip maker’s stock rose 1% in premarket trading after Northland Capital Markets upgraded the stock to “outperform” from “market perform.” Northland called Intel’s (INTC) move to re-enter the foundry business as a “strategic faux pas” and said AMD stood to benefit as a result.

ViacomCBS (VIAC) – The media company’s stock remains on watch after a more than 30% tumble over the past two sessions. That followed the company’s announcement that it would raise $3 billion through stock sales. It fell another 1.1% in the premarket.

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Business

The bond market is dictating stock trading

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Tech stocks climbed Friday to end the week on a high note, but CNBC’s Jim Cramer expects more downside in the tech cohort as investors continue to rotate out of high-growth names.

“Like it or not, stocks are joined at the hip with the bond market right now,” the “Mad Money” host said.

As bond rates rise amid early signs of an economic recovery, investors are fleeing from riskier growth stocks to cyclical ones, particularly bank and industrial stocks that have underperformed, Cramer said.

The tech-heavy Nasdaq Composite has fallen in recent weeks and remains down 7% from its high about a month ago. The rotation from tech to value stocks, however, won’t last forever, Cramer said.

“Either tech stocks get too low … or long-term interest rates get too high. Until that happens, the rotation will just continue to play out,” he said. “We aren’t there yet, but I’m confident that we’ll get there eventually because that’s what always ends these vicious kinds of rotations.”

Cramer revealed what’s circled on his calendar in the week ahead. Corporate performance projections are based on FactSet estimates:

Tuesday: GameStop, Adobe

GameStop

  • Q4 earnings release: after market; conference call: 5 p.m.
  • Projected EPS: $1.35
  • Projected revenue: $2.21 billion

“The bulls hope to learn on this call more about [Ryan] Cohen’s plan when the company reports, and if there’s anything good at all about these results, well I expect to see a ton of buying the next day,” Cramer said.

Adobe

  • Q1 2021 earnings release: after market; conference call: 5 p.m.
  • Projected EPS: $2.79
  • Projected revenue: $3.76 billion

“Unfortunately, the results are less important than the state of the Wall Street fashion show,” he said. “If Adobe reports a great quarter and rates are soaring that day, with the yield on the 10-year approaching 2%, then the earnings won’t matter at all.”

Wednesday: RH, GrowGeneration, General Mills

RH

  • Q4 earnings release: after market; conference call: 5 p.m.
  • Projected EPS: $4.73
  • Projected revenue: $797 million

GrowGeneration

  • Q4 earnings release: after market; conference call: Thursday, 9 a.m.
  • Projected EPS: 7 cents
  • Projected revenue: $61.5 million

“You rarely hear those two mentioned in the same sentence, but right now they represent the most exciting parts of retail,” Cramer said about RH and GrowGeneration.

“I suspect they’ll both report excellent quarters,” he said. “Home furnishings are the most popular part of retail purchasing right now, as we saw from the incredible quarter Williams-Sonoma just delivered, and the cannabis culture … [has] been an unstoppable force as state after state embraces legalization.”

General Mills

  • Q3 2021 earnings release: before market; conference call: 9 a.m.
  • Projected EPS: 84 cents
  • Projected revenue: $4.45 billion

“I like this one as a way to take the temperature of the pantry stocks,” the host said. “I think the reaction will be tepid, but then again Smucker surprised to the upside and I like Hormel very much. So let’s take a listen.”

Thursday: Darden Restaurants

Darden Restaurants

  • Q3 2021 earnings release: before market; conference call: 8:30 a.m.
  • Projected EPS: 68 cents
  • Projected revenue: $1.61 billion

“Do you know we have 150,000 [restaurants] that have closed? It means that the survivors should be in an incredible position, which is why I expect them to crush numbers,” Cramer said of Darden. “The stock’s had a big run, but I think the scarcity value of the stock and the last-man-standing thesis make it compelling.”

Disclosure: Cramer’s charitable trust owns shares of Facebook, Amazon, Goldman Sachs, JPM organ Chase and Wells Fargo.

Disclaimer

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Fed could be source of volatility as Powell speaks in week ahead

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Chairman of the Federal Reserve Jerome Powell listens during a Senate Banking Committee hearing on “The Quarterly CARES Act Report to Congress” on Capitol Hill in Washington, U.S., December 1, 2020.

Susan Walsh | Reuters

The Federal Reserve could remain a source of angst for markets in the week ahead, with chairman Jerome Powell scheduled to testify twice before Congress and more than a dozen other Fed speeches expected.

The bond market’s reaction to the central bank this past week was unusually volatile.

Though the market was initially steady after the two-day Fed meeting and Powell’s briefing Wednesday, Thursday came with a big selloff in bonds and spiking rates. Traders reacted to the fact that the central bank is willing to let inflation and the economy run hot while the job market recovers.

In the approaching week, bond market professionals will be watching Powell and other member of the Fed for further cues.

“This is bonds’ — I wouldn’t call it day in the sun — it’s more like day in the tornado,” said Michael Schumacher, head of rate strategy at Wells Fargo. “Clearly the bond market is the one the equity market is watching right now, and normally that’s not the case.”

Stocks were lower on the week, with the Dow off about 0.5% and the S&P 500, down 0.7%. The Nasdaq Composite was off 0.8% for the week.

The Russell 2000, however, was hit the hardest, losing close to 3% for the week.

Yields ratcheted higher as the market sold off. Bond yields move inversely to price.

The benchmark 10-year Treasury yield, which impacts mortgages and other loans, rose as high as 1.75% Thursday, a move of more than 10 basis points in less than a day. It was at 1.72% Friday afternoon.

“The bond move has been huge, and it’s starting to scare people,” said Schumacher.

“There’s been this question hanging out there for awhile: How much of an increase in yield can some of the higher octane stocks take?” he asked. “There’s no magic number, but as we speak, the 10-year is up 80 basis points this year. It’s incredible.”

Powell speaks

Powell testifies Tuesday and Wednesday before Congressional committees along with Treasury Secretary Janet Yellen on Covid relief efforts and the economy.

He also speaks on central bank innovation at a Bank for International Settlements event Monday morning.

Other central bank speakers this week include Fed Vice Chairman Richard Clarida, Vice Chairman Randal Quarles, Fed Governor Lael Brainard, and New York Fed President John Williams.

Inflation and the Fed

There is also some key data.

Important releases include the personal consumption and expenditure data on Friday, which includes the PCE deflator, the Fed’s preferred inflation measure. Core PCE inflation was running at an annual pace of 1.5% in January.

The Federal Reserve this past week took no action at its two-day meeting, but it did present new economic projections including a forecast of 6.5% for gross domestic product this year. The central bank’s forecast now shows PCE inflation going to 2.4% this year, but falling to 2% next year.

The majority of Fed officials did not see any interest rate hikes through 2023.

Powell reiterated that the Fed sees just a temporary pickup in inflation this year because of the base effects against last year’s numbers when prices fell.

The central bank will target an average range of inflation around 2%, so that number could exceed that threshold for some time. It’s a change to the Fed’s ground rules, which makes the bond market nervous.

Normally, the Fed would hike interest rates if inflation flared up to avoid an overheating economy and avert a bust cycle.

“For the bond market, and the Fed, there is a communications problem and there’s a consensus problem. There can’t not be tension,” said Diane Swonk, chief economist at Grant Thornton.

“They will be trying to clarify the Fed’s message, but without a consensus on what those numbers and guardrails mean, it will be hard,” she said. “They will be explaining themselves as economists, and they’ll be speaking a different language than the bond market speaks.”

Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, expects the bond market could be more volatile than stocks, and inflation would be problematic for both.

At some point, he expects there could be a 10% stock market correction, and inflation or a sharp move in bond yields could be a trigger.

“The market is trying to make sense of what could be perceived as a disconnect, between their economic projections and the Fed’s dual mandate of unemployment and inflation,” said Grohowski.

“Yet, they’re committed to keep short rates on hold until the end of 2023,” he said. “That’s what the market is struggling with. I think it’s unsettling to me to hear words like ‘overshoot.'”

Rotation from tech into cyclicals

Grohowski expects what he calls the ‘great rotation’ from tech and growth stocks into cyclicals and value to continue. Growth and tech have been most sensitive to rising rates, and the Nasdaq has corrected more than 10%.

“I think we’re in the sixth or seventh inning of a nine-inning game. It’s not over, but I think we’ve seen the lion’s share of the great rotation out of growth, into value,” said Grohowski. He said that view depends on the 10-year not rising much above 1.75%.

Grohowski is concerned by the Fed’s willingness to let inflation overshoot because inflation is a negative for stocks.

Supply chain issues are a concern. He pointed to Nike’s comments Thursday that its sales were hurt by port congestion, and also the shortage of semiconductors, which is impacting automobile production.

“Inflation expectations are troublesome for P/E [price-earnings] ratios,” Grohowski said. The [stock] market is trading at 22 times our estimate for this year’s earnings.”

He said the market is having difficulty reconciling the lack of any forecasted interest rate hikes versus the strength of the Fed’s economic forecast.

“If you ask me what I lose sleep over? …It’s too much of a good thing. Too much of a good thing is being too accommodative,” Grohowski said.

Bond market direction

Schumacher said there’s a chance the bond market could steady in the next couple of weeks, even if yields tick up.

He said corporate pension funds appear likely to reallocate capital into bonds before the end of the quarter March 31, and that could be supportive. Also as the Japanese fiscal year is set to begin, there could also be new buying in U.S. Treasurys because on a currency adjusted basis U.S. debt looks very cheap, Schumacher said.

He is also watching Treasury auctions in the coming week.

The Treasury auctions $60 billion 2-year notes Tuesday; $61 billion 5-year notes Wednesday, and $62 billion 7-year notes Thursday.

In particular, Schumacher is watching the 7-year auction, which drew poor demand last month.

Week ahead calendar

Monday

Earnings: Tencent Music Entertainment

9:00 a.m. Fed Chairman Jerome Powell at Bank for International Settlement summit

10:00 a.m. Existing home sales

10:00 a.m. Quarterly Financial Report

1:00 p.m. San Francisco Fed President Mary Daly

1:30 p.m. Fed Vice Chairman Randal Quarles

7:15 p.m. Fed Governor Michelle Bowman

Tuesday

Earnings: Adobe, IHS Markit, DouYu, GameStop, Steelcase

8:30 a.m. Current account

9:00 a.m. St. Louis Fed President James Bullard

10:00 a.m. New home sales

12:00 p.m. Fed Chairman Powell, Treasury Secretary Janet Yellen at House Financial Services Committee

1:00 p.m. Treasury auctions $60 billion 2-year notes

1:25 p.m. Fed Governor Lael Brainard

1:45 p.m. New York Fed President John Williams

3:45 p.m. Fed Governor Brainard

4:20 p.m. St. Louis Fed’s Bullard

Wednesday

Earnings: General Mills, Shoe Carnival, KB Home, RH, Tencent, Embraer, Winnebago

8:30 a.m. Durable goods

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI

10:00 a.m. Fed Chairman Powell, Treasury Secretary Yellen at Senate Banking Committee

1:00 p.m. Treasury auctions $61 billion 5-year notes

1:35 p.m. New York Fed’s Williams

3:00 p.m. San Francisco Fed’s Daly

7:00 p.m. Chicago Fed President Charles Evans

Thursday

Earnings: Darden Restaurants

5:30 a.m. New York Fed’s Williams

8:30 a.m. Initial claims

8:30 a.m. Q4 GDP third reading

10:10 a.m. Fed Vice Chairman Richard Clarida

10:30 a.m. New York Fed’s Williams

1:00 p.m. Treasury auctions $62 billion 7-year notes

1:00 p.m. Chicago Fed’s Evans

7:00 p.m. San Francisco Fed’s Daly

Friday

8:30 a.m. Personal income/spending

8:30 a.m. Advance economic indicators

10:00 a.m. Consumer sentiment

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