Is it that bad for earnings? We’ll have a better idea by the end of the week. There is much fear and trepidation about earnings in 2023. But first, we have to get through fourth quarter results. The first batch of earnings reporters for the fourth quarter (Accenture, Adobe, AutoZone, Costco, Darden Restaurants, Lennar and Oracle) have not been a disaster. While none of these have been a disaster, only one company — Autozone — has seen first quarter estimates rise after its report, according to Nick Raich at The Earnings Scout. All the others are going down. And that is the problem: Earnings estimates have been trending down for weeks. It’s a small sample size so far, but in the next few days we’ll have a better picture. This morning General Mills reported an earnings and revenue beat on higher prices, and also raised its full-year forecast. We’ll hear from FedEx and Nike after the close, then Carnival and Micron on Wednesday. CarMax and Paychex on Thursday before the opening will round out the week. The three to watch: FedEx, Nike and Micron Could there have been a more epic disaster than FedEx’s earnings last quarter? After the terrible earnings pre-announcement on September 15th (the guidance for the two forward quarters was about half what analysts were expecting), shares traded down 20% the next day. The company blamed “global macroeconomic trends” and announced cost-cutting plans. The bar is very low for FedEx. Like all multinational retailers, analysts began slashing Nike’s second half 2022 earnings estimates and 2023 estimates this summer. For the current quarter they are reporting (it ended in November) estimates have been cut from $1.01 on June 1 to $0.65 today, according to Refinitiv. No surprise there: Nike gets about 20% of its revenues from China, almost 30% from Europe, so expect a big focus on inventory. Bulls will note that China’s aggressive re-opening will be a tailwind. Micron, too, has had a serious haircut in earnings projections, from about $3.17 June 1 to a loss of $0.02 today, due to concerns about weaker global demand and lower prices for DRAM chips. The stock is down 30% in the second half of this year. They already issued a warning on November 17th, so again the bar is low. Bottom line: There has been a lot of bad news priced into these three companies, all leaders in their category. Single-stock ETFs Nike’s earnings out after the bell today will focus some attention on a curious phenomenon from 2022: single stock ETFs. Launched with great fanfare earlier this year, single stock ETFs (which can go long or short a single stock) were supposed to open a new dimension in ETFs: retail investors now had a quick and simple way to make long and short bets on individual stocks . In July, single stock ETFs were launched for Tesla, Nvidia, Paypal, Pfizer and Nike, followed in August for Apple and Coinbase, and in September for Amazon, Alphabet, and Microsoft. Long Meta and long Alibaba ETFs were added just this month. The investor verdict? Forget about it. There are now 26 single-stock ETFs that trade in US markets with a total of a little less than $294 million in assets under management. That is a paltry sum, considering the US ETF market is worth just shy of $7 trillion. It gets worse: 75% of those assets are in just the top three funds, which are all Tesla: the Direxion Daily TSLA Bull 1.5X Shares (TSLL), the AXS TSLA Bear Daily ETF (TSLQ), and the Direxion Daily TSLA Bear 1X (TSLS). Blame it on the down market. Blame it on the fact that the value of these ETFs reset on a daily basis so it is almost impossible to hold these ETFs for more than a few days before you start to deviate from the expected return. Blame it on the fact that this is largely a product for retail investors and that institutions can simply short the stocks if they have a strong opinion. Which brings me to Nike. Two Nike ETFs launched in July: AXS 2X NKE Bull Daily ETF (NKEL), which gives you two times the daily long exposure to Nike, and AXS 2X NKE Bear Daily ETF (NKEQ), which gives you two times the daily inverse of Nike . Like most of the other single stock ETFs, this has failed to attract any significant assets. However, both NKEL and NKEQ saw large volume on the day of its earnings report on September 29th (they reported after the close) and for two or three days after. This tells me there is at least a small retail community that is trying to make bets for and against Nike. It’s just not large enough to move the dial.
