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Good morning investors!

If this is your first time reading, welcome to The Investor’s Edge — a thriving community of more than 15,000 subscribers striving to be better investors with an edge in the market.

Every Wednesday we publish “The Mid-Week Wrap-Up” — your ticket to being well informed and staying ahead in the investment game!

This report is designed to help investors of all skill levels break down important stories/topics within the stock market. And best of all, we cut through all of the BS and give you exactly what you need to know in easy to digest, bite sized pieces of content.

This article is designed to truly give you that EDGE in the day ahead!

Grab your afternoon pick me up and let’s dive in.

Market Talk

The market was down to start the week as earnings, weak economic data and Fed comments weighed on the major indexes.

3 Stories Moving the Market

These are some of the biggest stories so far this week that are having an influence on market action.

Fed keeps interest rates steady

The Federal Reserve opted to keep interest rates unchanged amid ongoing inflationary pressures, maintaining the benchmark short-term borrowing rate between 5.25% and 5%.

The decision reflects the Fed's struggle to curb inflation while supporting economic growth. The committee highlighted the challenge of bringing inflation back to its 2% target and emphasized the need for greater confidence in sustainable inflation trends before considering rate adjustments.

The Federal Open Market Committee also decided to slow the pace of reducing bond holdings, signaling a modest easing of monetary policy.

Jerome Powell’s speech seemed to allay many fears as the Fed chair’s comments pushed markets higher on the day. Powell dismissed the possibility of an interest rate hike at the June meeting, emphasizing the central bank's commitment to maintaining the current federal funds rate until there is greater confidence in addressing inflation.

Powell also highlighted the Fed's focus on the job market's resilience and its dual mandate of stable prices and maximum employment. He also downplayed concerns of stagflation, citing economic growth at around 3% and inflation below 3%.

Companies are flashing warning signals about the consumer, we should listen

Major companies like Starbucks, McDonald's, Mastercard, and Pepsico have all adjusted their financial outlooks downwards due to reduced consumer spending.

Factors like declining same-store sales and flat U.S. sales are prompting these adjustments. Companies anticipate slower growth rates and emphasize the importance of resilience in navigating challenging market conditions.

Starbucks not only saw shrinking same-store sales and declining traffic across all regions, but drastically reduced its full-year outlook after the report.

McDonald's noted that U.S. same-store sales are roughly flat so far in the second quarter and emphasized the need for a resilient approach amidst challenging market dynamics.

Mastercard now expects full-year net revenue and adjusted earnings to increase on the low-end of low double-digit figures, compared to its previous views of high-end low double-digit growth.

Lastly, on its earnings call, Pepsico’s CEO said “As we look ahead, we continue to expect a normalization and moderation in category growth rates versus the last few years. We also continue to expect that consumers will remain watchful with their budgets and choiceful with their purchases.”

📚 EDGE-UCATION: What does this mean for the economy and the market?

Last week we mentioned that recent economic data indicated that companies would need to start lowering their guidance for the year. How could we possibly know this?

This prediction was based on the fundamental idea that consumer behavior drives the economy, as seen during the pandemic when consumer spending plummeted, causing a sharp economic slowdown. Stimulus checks aimed to boost spending and revive the economy.

Currently, consumers are financially strained, with declining savings rates and high levels of debt amid a period of high inflation.

As a result, consumers cut back on discretionary spending, affecting companies in those sectors, leading to missed projections, reduced forecasts, and job cuts. This further strains consumer finances, slowing the economy and potentially leading to a recession.

Although the stock market doesn't always mirror economic conditions, reactions to guidance cuts suggest it may align this time. Despite the uncertainty, the dollar-cost averaging strategy remains the most sound investment approach.

Walmart launches new grocery brand, as it tries to hang on to inflation-fueled growth

Walmart has introduced a new private-label grocery brand called Bettergoods, aimed at retaining shoppers amid high inflation.

Bettergoods will offer diverse products priced mostly under $5, including culinary-inspired items, plant-based options, and ingredient-specific items, catering to consumer demand for elevated culinary experiences and healthier options. The retailer hopes to attract younger, more affluent customers while appealing to its existing base.

Walmart, already the largest U.S. grocer, with net sales for groceries in the U.S. of $264.2 billion last quarter, sees private labels as a significant revenue driver, although exact figures weren't disclosed.

The move reflects a broader trend in the industry, with grocers expanding private-label offerings to meet evolving consumer preferences and compete with discounters. 

Earnings Brief (Edge+)

These are some of the biggest earnings reports so far this week that are having an influence on market action.

*Note - our full breakdown of Monday and Tuesday’s report were sent out in a special mid-week edition of our Earnings Recap earlier this morning:

Wednesday - 5.1.2024

Mastercard shares are down -1.2% today after it reported better-than-expected profit in the first quarter, but missed revenue estimates and cut its full-year outlook. Here are the key numbers from the report:

• Earnings per share: $3.31 vs. $3.23 expected

• Revenue: $6.30 billion vs. $6.34 billion expected

CVS shares are down -19.5% today after missing analyst expectations and slashing its full-year EPS guidance. Here are the key numbers from the report:

• Earnings per share: $1.31 vs. $1.69 expected

• Revenue: $88.40 billion vs. $89.33 billion expected

The Second Half

The second half of the week will be about Apple’s earnings and the nonfarm payrolls report.

Earnings Reports

There are several major earnings still on the way this week. Here at The Investor’s Edge we will be watching:

• Wednesday (after-close): Qualcomm, and VICI Properties

• Thursday: Apple, MercadoLibre, Coinbase, and Block

• Friday: Hershey

Here is the calendar of earnings releases scheduled for the rest of the week:

Economic Reports

Here is the calendar of events scheduled for the remainder of the week:

The nonfarm payrolls report will be the major catalyst of the week as investors look to the jobs market for signs of cooling as inflation concerns continue to run rampant. There will also be additional labor market data, PMI report, and initial jobless claims.

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Thank you for reading this edition of the Mid-Week Wrap-Up.

Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.