Yahoo Finance The Market's Excessive Recession Fears
Monday, August 5, 2024
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features a comment on the ongoing market turmoil that reflects renewed macroeconomic worries, in addition to featuring updated research reports on 16 major stocks, including Johnson & Johnson (JNJ), T-Mobile US, Inc. (TMUS) and Marsh & McLennan Companies, Inc. (MMC), as well as a micro-cap stock, Natural Health Trends Corp. (NHTC). These research reports have been hand-picked from roughly 70 reports published by our analyst team today. You can see all of today’s research reports here >>>
The Market's Recession Fears
These fears have made a dramatic comeback in recent days, particulalry in the wake of Friday's soft(ish) July jobs reading that in turn followed the Fed meeting that was broadly interpreted to have signaled the long-awaited easing cycle to get underway at the central bank's September meeting.
The immediate trigger for the Monday sell-off in the U.S. is the overnight massive downturn in the Japanese market and fearful interpretations of Berkshire Hathaway's sale of half of its position in Apple shares over the weekend.
The magnitude of the U.S. indexes' pre-open weakness and the post-open follow through has almsot morphed into this almost the sky-is-falling narrative, particulalry from those segments of the market commentariat that were dead sure of a recession ever since the Fed started tightening policy but had finally gotten quiet after repeatedly getting it wrong.
Are the recession propponents finally right? Even a broken clock is right twice every day, but I am very confident that those patting themselves on the back for getting the recession call right, albeit in a delayed fashion, will be disproved all over again.
I am not suggesting that there is no recession risk or it can never happen. All I am arguing is that while economic growth is undoubtedly moderating, but there is still positive growth today and in the days ahead, as we saw in this morning's service-sector ISM reading and as the Atlanta Fed's GDPNow real-time economic tracker is showing.
I don't want to go into the nitty gritty of recent economic data to make my point, but I do want to point to the largely reassuring run of quarterly earnings releases in the Q2 reporting cycle.
The market wasn't impressed with the quarterly reports from the Tech leaders like Alphabet, Microsoft and Amazon, but the disappointment was more about these companies' rising capex spending levels rather than issues with their growth profile.
I wouldn't argue with the view that the market may have over-shot in its enthusiasm for these mega-cap Tech names on AI hopes, but we have to be mindful of how profitable these companies are and how much growth they are able to generate despite their enormous sizes. Take for example, the Magnificent 7 stocks that have been hit hard in the ongoing market sell-off where only Nvidia is still to report Q2 results.
Total Q2 earnings for the Mag 7 companies increased +33.5% on +14.3% higher revenues. For full-year 2024, the Mag 7 companies are expected to enjoy +29.4% more earnings than the year-earlier level on +9.9% higher revenues, followd by +15.6% earnings growth in 2025 on +12.1% higher revenues.
Investing is a risky business even in the best of times, but the worst thing investors can do today is get swept up in the all-around angst and get out of their positions.
There is clearly a market correction underway at present, with the afforementioned mega Tech names hardest hit. But this doesn't mean we are heading into a recession. Stay calm and don't panic. If you have the liquidity, then start adding to your positions in small amounts. If you don't have such a capacity, don't worry about it.
Today's Featured Analyst Reports
Johnson & Johnson shares have underperformed the Zacks Large Cap Pharmaceuticals industry over the past year (-5.2% vs. +24.9%). The Zacks analyst believes that headwinds like generic competition and pricing pressure have continued to trouble the company. J&J faces the upcoming patent expiration of the blockbuster drug Stelara. It is also incurring huge legal expenses due to the pending lawsuits related to its talc products.
(You can read the full research report on Johnson & Johnson here >>>)
T-Mobile US’ shares have outperformed the Zacks Wireless National industry over the last six months (+17.3% vs. +9.5%). The Zacks analyst believes that the company is benefiting from industry-leading postpaid customer growth with a record-low churn rate. Long-term contracts with the U.S. Navy will likely boost commercial prospects.
However, tough competition in the U.S. telecom market affects its growth potential. Promotional offers and low-priced service plans to expand the customer base are putting pressure on its profitability. Soft demand for prepaid services is a headwind.
(You can read the full research report on T-Mobile US here >>>)
Shares of Marsh & McLennan have outperformed the Zacks Insurance- Brokerage industry over the last two years (+34.1% vs. +31.1%). Per the Zacks analyst, the company is positioned for growth due to strategic acquisitions, new product launches and diversification into emerging markets. Its revenues have surged owing to its broad geographic presence, robust client retention and the solid performance of the Risk and Insurance Services unit.
(You can read the full research report on Marsh & McLennan here >>>)
Natural Health Trends’ shares have outperformed the Zacks Consumer Products - Discretionary industry over the past year (+24.7% vs. -3.6%). The Zacks analyst believes that the company is capitalizing on emerging markets like India, showing substantial growth, and aligning with global e-commerce trends to boost online sales. Strategic initiatives, such as new products and member incentives, such as MetaBoost, are aimed at growth and market share.
However, challenges include a significant membership decline, impacting sales potential, and heavy reliance on volatile markets like Hong Kong and China. Additionally, deferred revenue and regulatory risks in key markets pose financial and operational concerns.
(You can read the full research report on Natural Health Trends here >>>)
Other noteworthy reports we are featuring today include Roche Holding AG (RHHBY), Medtronic plc (MDT) and MercadoLibre, Inc. (MELI).
Director of Research
Sheraz Mian
Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and
Today's Must Read
J&J's (JNJ) Innovative Medicine Unit to Drive Growth in 2024
T-Mobile (TMUS) Rides on Strong Postpaid Customer Growth
Strategic Buyouts Aid Marsh & McLennan (MMC), Expenses Hurt
Featured Reports
Investment & Expanding Operation Aid American Water (AWK)
Per the Zacks analyst American Water's planned long-term investment to strengthen infrastructure and expanding operation through acquisition and organic means are going to drive its performance.
AXON Benefits from Strength in TASER Segment, High Costs Ail
Per the Zacks analyst, AXON's TASER Segment is driven by strong demand for TASER devices and higher cartridge revenue. However, high operating costs remain a concern for the company.
Medtronic (MDT) Gains in Market Share Amid Macro Issues
The Zacks analyst is impressed that despite the slow supply constraints recovery, Medtronic is reporting market share gains across major businesses like cardiac rhythm, surgical innovations and spine.
MercadoLibre (MELI) Gains From Total Payment Volume Growth
Per the Zacks analyst, MercadoLibre is benefiting from solid total payment volume growth, driven by strong momentum across the Mercado Pago platform.
Strong Clientele & Bookings Aids GoDaddy's (GDDY) Prospects
Per the Zacks analyst, GoDaddy benefits from strong bookings primarily driven by strong customer additions and price increases in various domains.
KBR Banks on Contract Wins & Strategic Plans Amid High Costs
Per the Zacks analyst, KBR is benefiting from new and on-contract growth, along with inorganic and organic business efforts. However, increased costs and expenses mar prospects.
Tractor Supply's (TSCO) ONETractor Strategy Seems Encouraging
Per the Zacks analyst, Tractor Supply is focused on integrating the physical and digital operations to offer consumers a seamless shopping experience. The company's loyalty program also bodes well.
New Upgrades
Vabysmo, Other New Drugs and Tests Fuel Roche (RHHBY) Growth
Per the Zacks analyst, strong growth of Vabysmo, Ocrevus, Evrysdi and Polivy boost Roche's top-line as legacy drugs face biosimilars. The base diagnostics business is also performing well.
Itron (ITRI) Benefits from Increasing Smart Water Meter Sales
Per the Zacks analyst, higher demand for smart water meters aided the top-line expansion. New project deployments are driving the Networked Solutions segment's revenues.
C.H. Robinson (CHRW) Benefits From Dividends & Share Buyback
The Zacks analyst believes that the shareholder-friendly measures adopted by C.H. Robinson instill investor confidence and positively impact the company's bottom line.
New Downgrades
ProPetro (PUMP) Margins Pressured by Lower Activity
The Zacks analyst believes that declining rig counts and heightened competition has suppressed ProPetro Holding's margins and profitability by lowering utilization rates.
Competition & Operational Weakness Hurt Robert Half (RHI)
Per the Zacks analyst, Robert Half faces tough competition in terms of price and reliability of service. A weak operational performance is an overhang.
Low Residential, Renewables End Markets Ail Gibraltar (ROCK)
Per the Zacks analyst, Gibraltar is witnessing slower market conditions in both Residential and Renewables end markets.
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Roche Holding AG (RHHBY) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
Medtronic PLC (MDT) : Free Stock Analysis Report
Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
MercadoLibre, Inc. (MELI) : Free Stock Analysis Report
