Investing.com’s stocks of the week
Market Scorecard
After three days of heavy selling, global stocks had a solid rebound yesterday. All the recent selling meant that the Nasdaq dropped 11%, putting it into a 'Bear Market' - a traders terms for when an asset price falls more than 10%. The question traders are asking now is if the rebound is permanent or temporary? As investors, we are less concerned. We will continue to add to the market on a monthly/ quarterly basis, keeping our eyes on the horizon. With such big moves in so few days, the market is now running on emotion. Emotion leads to volatility and unpredictability. It is during these times of volatility that investing is less 'fun'. As you know by now - keep your head down, this too shall pass.
Yesterday the JSE All-share closed up 0.07%, the S&P 500 closed up 2.01%, and the Nasdaq closed up 2.71%.
One Thing, From Paul
The chart below shows what's been going on in the US jobs market in recent months. It's a very well done visualisation, prepared by Kathryn Anne Edwards, an economist at the Rand Corporation.
It's important to study this topic, because the direction of the US stock market is heavily influenced by the weekly and monthly jobs number releases, because those are seen as the most important indicators of the recovering US economy.
On the left are the 16.8 million workers who were laid off when the Covid-19 crisis broke. Keep in mind that in the US, workers can be laid off with little or no notice, and then their state governments send them weekly unemployment insurance payments.
It's clear that as each month passes, some workers return to employment (in green), some new ones are laid off (yellow), some remain on temporary layoff (orange), some become permanently laid off (red) and others leave the workforce permanently (brown).
On balance,the situation is improving, and unemployment is decreasing, but it's a bit complicated.
Byron's Beats
As you may know by now, we are a big fan of Ben Evans. He has a weekly newsletter with over 150 000 subscribers. I almost always find something from his newsletter to feature in my beats. Yesterday he wrote a comprehensive piece about Amazon (NASDAQ:AMZN). We have 435 Amazon shareholders in our client base so this should be of interest to you.
The piece focuses on breaking down Amazon's various divisions and looking at how profitable they are. There is a misconception that Amazon makes most of its profits from Amazon Web Services, their cloud business. Because the US online retail business (profitable) is often bulked with the rest of the world business (non-profitable) it is assumed that online retail as a whole is not profitable. The image below shows how this can happen.
What this means is that the more mature online retail business in the US is in fact very profitable and as other regions mature, they too should turn to profit.
Advertising on the Amazon platform has also been a huge winner with very little extra effort. The benefits of having scale I guess. I won't give away too much, go give it a read.
Michael's Musings
Many people already use Starbucks (NASDAQ:SBUX) as a second office. You get free internet, a nice environment and good tasting coffee. In Japan, Starbucks is now experimenting with the idea of having a more formal office offering.
There are different pods and spaces that can be booked in advance for their customers. Walk into the store, collect your coffee and snack, and then head off to the office. The experiment will show if that extra floor space required is compensated for by extra coffee sales.
As the world moves to more flexible working and hot desking, having Starbucks be an office meeting place could work well. The company is already well located in most cities and they have relationships with landlords. Lets see if the experiment in Japan leads anywhere.
Bright's Banter
The yoga-inspired technical cashmere apparel company Lululemon (NASDAQ:LULU) reported strong numbers on Tuesday, crushing expectations thanks to a big jump in its online business which offset revenues lost due to temporary store closures. Lululemon now operates more than 500 stores across 20 countries thanks to its popularity among die-hard athleisure brand snobs.
Revenues rose 2.2% to $904 million year-on-year thanks to the direct-to-consumer (i.e. online) revenues increasing by 157%, and now accounting for 61% of total sales, as compared to just 25% last year. Profits fell from $125 million to $86.8 million, which was much less than expected.
CEO Calvin Mcdonald said that while the company continues to invest in it's e-commerce business, physical stores still form a big part of the company's strategy as it enables more purchases. The stores have local yoga studios and fitness classes with instructors, they sell the whole experience. The company expects to open 30 to 35 new stores this year.
The apparel company bought the home fitness company, Mirror, for $500 million in June. In addition to home workout equipment, Mirror provides live personalised fitness classes with fun instructors and you get to track your performance data as well. All at a fee of course. The infographic shows LULU's share price performance since 2015.
Inforgraphic courtesy of: Statista
Signing Off
Its Thursday which means there is a weekly jobless claim figure from the US. Probably more important though, is that Paul releases his latest Blunders video this afternoon. On a data front, there is a South African current account read, and mining production for July. This afternoon the ECB announces its latest interest rate, where no change is expected. The JSE All-share is higher this morning and the Rand is stronger at $/R16.65.
