In this podcast, Motley Fool senior analysts Jason Moser and Maria Gallagher discuss:
- The Fed’s latest rate hike spooking investors.
- Costco Wholesale delivering (yet again) in the fourth quarter.
- Darden Restaurants walking a fine line with customers.
- DocuSign‘s hiring its new CEO from Alphabet.
- Amazon declaring victory with Thursday Night Football.
Motley Fool analyst Deidre Woollard and Motley Fool contributor Matt Frankel talk with Robert Leonard, host of the Millennial Investing podcast, about “house hacking.”
Maria and Jason answer questions from the Fool Mailbag and share two stocks on their radar: Lululemon Athletica and Microsoft.
Got questions about stocks? Drop an email to [email protected] or call the Motley Fool Money Hotline at 703-254-1445!
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on September 23, 2022.
Chris Hill: We’ve got a new CEO, early results on Amazon’s investment in the NFL and a preview of consumer spending for the holidays. Motley Fool Money starts now.
From Fool Global headquarters, this is Motley Fool Money. It’s the Motley Fool Money radio show. I’m Chris Hill joining me, Motley Fool senior analysts Maria Gallagher and Jason Moser. Good to see you both.
Jason Moser: Hey.
Maria Gallagher: Nice to see you.
Chris Hill: We’ve got the latest headlines from Wall Street. We will dig into the Fool mailbag and as always, we’ve got a couple of stocks on our radar. But for the fifth time in six weeks, there was a lot of red on Wall Street. The Federal Reserve’s announcement on Wednesday afternoon that interest rates will be increased by another three-quarters of a percent. Apparently surprised enough investors to cause a further drop. Jason, we were talking about this before the show. I’m a little mystified because all of the talk leading up to the announcement was that it was going to be three-quarters of a percent in terms of the hike, that’s exactly what we got. I’m not sure why there was this dramatic reaction that continued throughout the rest of the week.
Jason Moser: Yeah. Certainly not a surprise in the decision. I feel like we all were expecting that. It did feel like the majority of folks felt like that would offer some certainty to the market and then the news would ultimately be received well. Clearly we got the George Costanza version, that did the opposite. Honestly, Chris, these are the times when my proclivity to expect the worst and hope for the best seems to really work out as an investor. I guess it just makes it easier to tolerate these stretches, not expecting a whole lot, at least in the near term. But I will say yet the level, the magnitude of this reaction is a bit surprising. It does really feel like it’s a bit harsh, but it also does feel like we’re seeing just more and more language there, expectations of recession becoming more prevalent. There’s certainly data out there that tells us things are headed in that direction. Obviously, we don’t really do a whole heck of a lot as far as interest rate yields go.
But when you look at the difference between the two and the 10 year, that’s assignments used to at least give you certain looks into the state of the economy and whether there’s optimism or pessimism. But right now, I mean, we see the gap between that two and the 10 year. That’s telling us that the predominant view out there is very pessimistic. You see Goldman recently cutting their year-end S&P target. You see language like “hard landing” now. It does feel like pessimism is starting to really gin up there. I don’t know that that’s going to change anything in the near term. I think the good news though if you can look a little bit further down the line, is something that I tweeted yesterday. I still think about this a lot. There’s data out there. There’s historical data that shows us that on average, stocks perform worse in the year leading up to a recession, and during the recession.
Then down the line, things start to recover. In the two years following the recession, price returns were positive 82 percent of the time. We can debate whether we were in a recession here, the first two quarters of contraction we witnessed. I think, generally speaking, most feel like maybe that was a recession-lite, prepping us for the real deal that is expected now in 2023. Maybe this really is now we’re on that pathway to that capitulation more or less, where we start to see some recovery post-recession. Because it does feel like we know a recession’s inevitable. It’s just a matter of when. Does feel like 2023 is setting up for that type of a call and then maybe we start to see things improve. But I know that is little solace for investors today. All we can really do is encourage you to hang in there and stock your portfolio with really good businesses. That’s what we continue to focus on.
Chris Hill: Yeah, Maria, I think if there’s a silver lining to Jason’s point, some of the best businesses in America are looking more attractively priced now than they were, say, a year ago.
Maria Gallagher: Absolutely there. I agree with a lot of what Jason’s saying. I think a lot of the reaction has been in the continued shift of the narrative of, for so long the Fed was saying, inflation is just transitory and it’s going to get better. We’re moving past that narrative, and Powell has just been not as optimistic. He’s saying things like the housing market has to go through a correction to get supply and demand more aligned. He’s definitely taking more of a pessimistic — as Jason was saying — standpoint. I do think that shift is much more solidified this month than it has been even the past couple of months. I think now people are hopefully more aligned in the future saying, OK, this’s probably here to stay. It’s been here for a while, but it’s probably here to stay.
Chris Hill: Let’s move on to some of the companies making headlines this week. Shares of Costco were down a bit on Friday, despite the fact that fourth-quarter profits and revenue were both higher than expected. Maria, do I have this right? Their same-store sales came in at nearly 14 percent.
Maria Gallagher: Yeah, Costco continues to deliver. I think no one’s ever really surprised when Costco delivers. Their net sales were up about 15.2 percent. For the full year, they were up about 16 percent. The comp sales for the year were about 14 percent or 10 percent when adjusted for gas prices and currency. But I think one of the big stories here is the lack of membership price increases that people have been waiting to see. Generally, Costco raises prices about every 5.5 years and their last increase was in 2017. People have been expecting some news about the membership price increases and this earnings report, they said they don’t have timing for it yet.
With the constraints on consumers, they don’t know when that time of increasing membership prices is going to be in. A lot of people were expecting this to be when they talked about it. Especially Sam’s Club recently raised prices earlier this month. They’re talking about Amazon Prime is probably going to increase their prices as well for their membership options. It is going to be something that people are still looking for Costco to do in the next couple of months, next couple of quarters. I think it’ll be interesting for when they plan to actually do those increases.
Chris Hill: Related to that, we’re starting to get some commentary from some of the biggest retailers out there in terms of seasonal hiring. Target came out this week, said they’re going to be hiring 100,000 seasonal workers. I believe it was last week, UPS came out with the same number. Walmart said they’re only hiring about 40,000 seasonal workers, which is roughly a 100,000 fewer than a year ago. As we start to get more pieces of the retail puzzle filling in Maria, how do you think we’re shaping up for the end of the year?
Maria Gallagher: I think it’s going to be really fascinating to see. A lot of these companies I think, are waiting to see consumer buying demand in September and October leading up to maybe some more crunch time hiring in the holiday season instead of having these long planning for holiday season. But like you said, Target said, it’s going to be about the same as last year. Kohl’s is planning to hire about 90,000 people, about the same as last year. Michaels is hiring 15,000, which is a little less than last year, but the Walmart is the one that has the biggest change. I wonder if that’s a Walmart isolated thing, since a lot of these other retailers are guiding for similar, if not slightly lowered guidance further hiring for this year. But it’ll be interesting to see what the other retailers say as we get closer and closer to the holiday season.
Chris Hill: Darden Restaurants is the parent company of Olive Garden, LongHorn Steakhouse, and The Capital Grille. While the company’s fine dining segment continued its comeback, overall profits and revenue in the first quarter were lower than Wall Street was hoping for, Jason.
Jason Moser: Yeah. Big picture this wasn’t the most encouraging quarter. They’re clearly seeing slowdowns in traffic and ultimately performance in Maine Staples like Olive Garden and LongHorn. They made up for it a little bit on the higher end, like you’ve mentioned. That speaks a little bit, at least to one of the advantages of a company like this with a rather broad portfolio of offerings. It feels like really one of the big themes on the call was inflation that remains a headwind for consumers, particularly in those in households making less than $50,000 a year. That was a data point they called out on the call because the Olive Garden, Cheddar’s, they’re more direct exposure to those guests. Olive Garden’s essentially half of the business. To me, they seem to be playing a…