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What Do These Earnings Numbers Say About The Economy?
Here we go, trying to make sense amid considerable confusion:
Airbnb’s results do tell us something about the economy. They reinforce The Juice’s thesis that two main groups of consumers exist today – one doing well and spending on things they don’t need, such as travel. And another struggling to make ends meet.
So far, we feel pretty good about how the numbers line up with our increasingly attractive tale of two consumers hypothesis. But, not so fast, the latest debt data from the New York Fed throws a wrench in our thinking. Or does it?
Scroll with us.
The Latest Numbers On Debt Don’t Add Up
Here’s where it gets really confusing. On debt. Something seems like it’s gotta give. If all hell does break loose, The Juice has a super straightforward idea for you.
But first, the seemingly contradictory numbers, via the New York Fed’s Q2 report on household debt and credit released the other day.
Source: NY Fed
The Fed attributed the increasing debt loads to the increased cost of pretty much everything.
Makes sense. And suggests we could be headed for trouble.
However, other data from the same report enters confusion into the conversation:
All sounds good.
The only kernel of concern – debt balances that are 30 days late increased in Q2. Maybe this is the writing on the wall. Maybe not. Too soon to tell.
It could be that the struggling cohort of consumers are cutting back on discretionary purchases and using debt responsibly to get by. And they’ll pay it all back – over time – without much issue.
Or the bottom’s about to fall out. You made your minimum credit card payment in June, but missed in July or you’re not so sure about August.
Time will tell.
The Bottom Line: In the meantime, what to do, as an investor, if all economic hell breaks loose thanks, in part, to a debt implosion?
This is the relatively easy part.
If you’re concerned and want to play it safe, stay away from relatively unpredictable names such as Uber and Airbnb. While they’re not necessarily bad long-term investments, particularly Airbnb, they bring another layer of uncertainty into an already uncertain economic situation.
Stick with names that have proven they can weather the storm.
Starbucks might be one, thanks to its loyal consumer base.
Apple’s (AAPL) definitely another. The company’s recent earnings report drives this point home. If you’re a long-term investor, Apple could be a portfolio staple. However, as our sister newsletter, The Spill, notes, Apple’s growth trajectory at the moment might not be impressive enough.
Then there’s Costco (COST). Since The Juice suggested looking at the stock in early June, it’s up roughly 11.5%. You can attribute this strength, in part, to Costco’s relatively affluent and resilient customer.
In fact, Costco has outperformed Target (TGT) and Walmart (WMT) over the last six months. The retailers that have crushed Costco stock during this time – Dollar General (DG) and Dollar Tree (DLTR). The Juice put both of these stocks on your radar in late May.
Source: Google Finance
What a way to play this dichotomous economy whose bottom might be about to fall out – AAPL and COST on the high end. DG and DLTR on the low end.
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