Pavan Sharma

US markets (S&P 500 Index -0.7%) started the week with a negative tone, as investors brace for a more hawkish Fed policy following Friday’s comments. Treasury yields continue to climb with the 2-year rate accelerating to 3.48%, reaching its highest level since 2007, well ahead of the 10-year US interest rate which rose to 3.11%. Most sectors traded lower, with tech and real estate stocks leading losses, while energy and utilities were the only two sectors in the green.

Tourism Holdings (THL) were up after providing upbeat guidance for 2023, as rental demand recovers strongly since the recent reopening of borders and anticipate a major summer rush over the NZ summer. For the 2022 financial year, THL reported a net loss of -$2.1m, a major improvement from the previous year of -$12.4m. Net debt also was healthy at $58.5m, giving the company ~$200m in headroom facility to fund further fleet growth. Tourism Holding guidance net profit after tax for 2023 is expected to be between $17m to $30.2m, and the company did not pay a dividend for the current year and stated a dividend is unlikely for 2023 (Given dividends are conditional on lenders approval) – we anticipate a return in dividend by 2024 to be healthy assuming earnings recover to pre-covid levels.

US markets (S&P 500 Index -3.4%) were sharply lower on Friday, after Fed chair Jerome Powell made it clear that rates will continue to rise to combat inflation – dampening hopes of possible easing in monetary policy. Powell reiterated his tough stance and the Fed’s goal to bring inflation back down to 2%. Not only reiterating that there would be room for further rate hikes over the near-term, but that rates will likely stay higher longer than anticipated. This saw all sectors in the red, with tech shares were hardest hit with the NASDAQ Index down -3.9%, followed by consumer discretionary and communication services. European markets (Stoxx 600 Index, -1.7%) also closed lower, as risk of a deep recession continues to rise in Europe as gas and electricity prices continue to skyrocket. 

Pool Corp (NYSE: POOL) is the largest integrated pool business in the U.S with an additional presence in Europe and Canada. It has ~38% market share; the rest of the pool market in the U.S is fractured and competitors command market share in the single digits. Its business model is simple: people who own a pool pay for its maintenance for life, creating a recurring revenue model which makes most of earnings relatively predictable stable.

We reiterate our BUY rating for The TJX Companies Ltd (NYSE: TJX), though we see little near-term upside. The company continues to act as a solid defensive stock which, like other discount/”off-brand” retailers, tends to perform well in a recessionary environment. We are seeing similar movement in the “private” labels of food retailers (see below). In other words: consumers are disregarding “brand” and buying value-orientated products. TJX is poised to do well from this given their off-price model.

Out-of-home advertiser Ooh! Media shares have been climbing higher after releasing a better-than-expected result for the first half of the 2022 financial year. OML had been oversold since the start of the year as digital advertising spending starts to wane off from the pandemic boom and advertising spending set to fall on weaker economic outlook. However, for OML, it’s likely to be the other way around, being heavily impacted by the pandemic, while reopening will see advertising shift their budgets away (or limit their increase) from digital and increase allocation towards out of home, which has its awareness recovery to pre-pandemic levels.   The result was buoyed by the ease in covid restrictions and opening of international borders increasing advertising spend back in the sector. Accordingly, revenue was up +10% from last year to $276.1m, and operating earnings (EBITDA) soared +62% from last year to $51.5m.

US markets (S&P 500 Index +1.4%) rose strongly overnight on light trading, as market attention remains focused on Fed Chair Powell’s Jackson Hole address tonight. Expectations are that the Fed will be aggressive with monetary policy going forward, to bring down inflation to its 2% target. US second quarter GDP was revised up slightly indicating a fell -0.6% year on year, less than -0.9% that was expected, and coming in better than the steeper -1.6% contraction in the first quarter. On the flip side, jobless claims data came in stronger than expected suggesting the US economy is still in a strong position (particularly the employment market)  – giving the Fed extra capacity to continue its hawkish tilt. The session saw all sectors rise, with materials, communication and tech leading gains, as the NASDAQ index rose +1.7%. European markets (Stoxx 600 Index, +0.3%) closed higher, on a more mixed day of trade, with strong gains for oil and gas stocks offset by losses from retail stocks.

US markets (S&P 500 Index +0.3%) ended the overnight session up after starting in the red, ending a 3-day losing streak. Stock traders remained hesitant to make any huge bets ahead of Jerome Powell’s speech on Friday, which may provide clues on how hawkish the Federal Reserve will be in the face of mounting economic challenges. Most sectors were up slightly, with energy and real estate leading gains, while tech and healthcare remained mostly flat. European markets (Stoxx 600 Index, +0.2%) were also up as European gas prices rose another 8%, taking the Dutch  benchmark to a fresh record close. UK gas prices show similar moves. The dire European gas situation has been spilling over into other markets, with US gas prices continuing to trade near record highs.