Wednesday 29th September, 2021
1/ Investors suppress worries over debt ceiling
2/ Micron losing ground despite strong results
3/ Cintas rises on positive performance and guidance
4/ The bottom line
1/ Investors Suppress Worries Over Debt Ceiling
Markets remained mixed as investors continue to wait for U.S. lawmakers to make progress on the debt ceiling problem. It seems unlikely, but the reality is the situation could result in U.S. government shutdowns and the possibility that it would default on its debt. Markets are not pricing in that possibility right now. Indexes gained late in the trading session, with the State Street’s Dow Jones Industrial Average ETF (DIA), and its S&P 500 Index ETF (SPY), along with Invesco’s Nasdaq-100 ETF (QQQ) and iShares’ Russell 2000 ETF (IWM) reclaiming ground after yesterday’s pullback.
Volatility remained high while trading volumes continued to be lower than average. This muted trading could mean that investors are still uncertain about the direction markets may move in the near term and are waiting for a catalyst for either direction.
The chart below illustrates the recent performance of DIA compared to IWM. While small-cap stocks have performed well during the ongoing economic recovery, it appears that recently the benchmark DIA has taken the lead. This could be because small cap stocks tend to carry a lot of debt, and if interest rates were to rise, this debt becomes more expensive to hold, making speculative growth stocks less attractive investments. As market downturn fears intensify, investors could be seeking haven in value-based blue-chip stocks.
2/ Micron Losing Ground Despite Strong Results
Investors booked profits in Micron Technology (MU) after the company reported fiscal fourth-quarter earnings. MU reported earnings per share (EPS) of $2.42 and $8.27 billion in revenues, exceeding analyst expectations of $2.34 in EPS and revenues of $8.21 billion. The share price of MU dipped after the chipmaker offered lower-than-expected guidance for the next quarter. Today’s 2.3% loss placed MU’s share price well below its 20-day moving average.
Micron’s performance has slowed of late. The company has gained 40% in the past year, profiting from a spike in prices for chips amid the COVID-19 pandemic. With so many working from home, PC sales boomed. It appears that trend is beginning to slow.
The chart below compares the recent performance of MU compared to iShares Semiconductor ETF (SOXX). MU’s one-year performance has been stellar; however, the company has struggled in 2021. While MU has fallen 3.6% year-to-date, SOXX has risen nearly 19% in the same span. The chip shortage hasn’t abated, and MU has lagged its sector by a wide margin.
3/ Cintas Rises on Positive Performance and Guidance
Cintas Corp. (CTAS), known for being the leading business uniform provider, rose after beating forecasts for EPS and revenue. CTAS shares notched higher as the company reported $3.11 EPS and $1.9 billion in revenue. Analysts had expected $2.76 in EPS and revenues of $1.88 billion. Investors bid up the share price after CTAS offered future guidance that was higher than expected. Share prices rose 1.6%, adding to the more than 18% rise CTAS has experienced in the past year.
Below is a comparison between the recent performance of CTAS with State Street’s Industrial Sector ETF (XLI). CTAS has lagged its sector year-to-date, gaining 14% to XLI’s 16%. However, CTAS has outperformed XLI by a wide margin of late. Cintas is a good company for investors to keep an eye on because it serves companies across a wide variety of sectors and industries. The company’s recent performance could be indicative of investor confidence in more businesses returning to offices.
4/ The Bottom Line
Stocks staged a mild rebound today despite the U.S. government’s looming debt ceiling. Microchip manufactures continue to feel the pinch of supply chain issues, but uniform supplier Cintas anticipates next growth in the next quarter.
Originally posted on 29th September, 2021
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