Market Commentary, KR DOCU & ULTA Earnings, The $ Is Breaking Down

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Today (Thursday) was a little more interesting than Wednesday, with a nasty last half hour selloff, but the end result was the same: little change in price on low volume. The major indexes performed as follows: S&P -0.06% NASDAQ +0.23% Russell +0.58%. Like Wednesday, volume in the main ETFs that track these indexes (SPY, QQQ and IWM) was anemic. No reason Friday should be any different.

However, there were a number of notable earnings reports today (Thursday)

The country’s largest supermarket chain, Kroger (KR, $24 billion market cap), reported before the open. Top Gun is long shares of KR and the numbers looked fine to me with comps +10.9% and Adjusted EPS +51% to 71 cents. However, shares finished the day -4.37% on 3x average volume as investors are concerned about the implications for their business of a reopening.

In the afternoon, Docusign (DOCU, $48 billion market cap) and Ulta Beauty (ULTA, $16 billion market cap) reported. DOCU reported Revenue +53% to $383 million and 22 cents Adjusted EPS. The problem here, as with so much Tech, is extreme valuation. DOCU guided full year revenue to $1.426 billion to $1.430 billion. That means shares are trading at 33x current year revenue: 33x earnings is expensive; I don’t know what to say about 33x revenue!

ULTA reported an underwhelming quarter with comps -8.9% and Adjusted EPS -26% to $1.64. I have no idea why shares were trading near all-time highs heading into the report but last time I checked the after hours they were off about 4%.

On Wednesday, I talked about “The Economics of the $ Breakdown”. It’s important to understand that so that you know why I, and so many other investors, are following the $ so closely. Here, I simply want to point out that the $ Index has broken down below its 2020 support at 92 and now appears headed to the 2018 lows ~88.5 (Chart Source: Grant Hawkridge Tweet, 12/3, 9:05am PST).

Chris Kimble stepped back and looked at a monthly chart of the $ going back to 1985. If 88.5 doesn’t hold, I don’t see much support all the way back down to the all-time lows ~72 from 2008. If this happens, expect the magnitude of the three consequences I wrote about in “The Economics of the $ Breakdown” to be extreme. The first two – rising interest rates and real economy inflation – would likely wreck and destabilize our highly indebted, import dependent economy.

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