QUARTER 3 MARKET UPDATE: 10.27.22
OLIVIA SPAULDING & HAILEY GOLDBERG
Quarter 3 came to a close as of October 1st. The Fed remained hawkish throughout the quarter, aiming to cool record inflation with substantial interest rate hikes. It is likely that this cycle will continue until there is substantial progress, but many hope that prices have already faced the worst of it and the Fed will begin to loosen up on the tightening cycle.
Quarter 3 began with a positive outlook in both stocks and bonds, with better numbers than anticipated across the board. The Chair of the Fed stated that in the future, “it’d be necessary for the Fed to slow the pace of interest rate increases”. Additionally, a CPI report released in July hinted towards a peak in inflation, leading investors to believe the Fed would pivot in their rate hikes. This was a catalyst for S&P 500 growth, leading to numbers that reached a 4 month high by August. Unfortunately, after this optimism, Fed Chair Powell dismissed rumors that the Fed would pivot in their strategy, even going so far as to state that Americans may feel some “pain” in the following months.
Bonds and stocks both ended Q3 with low numbers for the year. With intense Fed rate hikes, geopolitical obstacles, and stubborn inflation, this quarter’s market was extremely volatile.
Markets remain volatile in Q4, but optimism has been sparked due to high S&P 500 numbers. This is likely due to positive Q3 reports. About 73% of S&P 500 have reported their Q3 numbers and many of them exceeded expectations. In general, despite high prices and talk of a recession, American consumers continue to spend. It is clear that the market desperately wants interest rates to decline. In order to do this, inflation and the labor market must slow. This happened early October, when there was a drop in demand for labor and job openings. The recorded unemployment claims fell to a low since April, 193,000.
Hermès Prices Will Rise
Recession? According to the luxury brand, Hermès, recession hasn’t affected their sales. In fact, the company plans on increasing their prices by 5 to 10 percent in the next year. Hermès’ Executive VP of Finance, Eric du Halgouet, blames increased costs and currency movements for the future price hikes. During the pandemic, Hermès only increased their prices by 1.5 to 2 percent, while their competitors increased prices by 4 percent. Hermès is so confident with their company projections for the next year that they will be hiring 800 more employees, and raising the salaries for all current European employees this coming summer.
Analysts projected Hermès’ sales to be up 12 percent by the end of September, when in fact the company ended their quarter up 24.3 percent.
So, does a recession affect luxury brands like Hermès? Probably not, since a waitlist still exists for their Birkin bags that sell for over $10,000.
Last to Hold Out, Adidas Finally Cuts Ties with Kanye West
Following multiple antisemetic statements from musician and entrepreneur, Kanye West, Adidas cut ties. Kanye previously bragged that no statement would lead to an end to their massive deal, but he was proved wrong this week as Adidas stated they would “end production of Yeezy branded products and stop all payments to Ye and his companies.”
Yeezy finished strong this year with an estimated $2 billion. This is approximately 10% of Adidas’ revenue annually. Deciding to cut ties with Kanye this year will result in a loss of $248 million dollars. Adidas will recover from this hit, but reports have shown that Yeezy is responsible for a large chunk of West’s net worth.
News of Adidas cutting ties with West is significant, but they were the last large company to do so. Kanye West has been exiled from every industry he was present in. Balenciaga, JPMorgan Chase, CAA, Gap and MRC have all terminated their relationships with West.
Ralph Lauren Corporation (NYSE: RL)
Share Price: $96.10
Market Cap: $6.191B
Founded in 1967 in NY, Ralph Lauren designs and sells apparel, accessories, footwear, fragrances, and home products for men, women, and children across North America, Europe, and Asia.
In the past week, Ralph Lauren came out with earnings, and beat the street estimate of $1.72 per share by 9.3%, and this trend of good earnings is expected to continue.
Ralph Lauren has strong brand recognition across its multiple departments. Consumers will always be buying Ralph Lauren products due to its known reputation for quality apparel.
Additionally, at $96.10, Ralph Lauren stock is currently at the low end of its 52 week trading range ($82.23 - $135.99), a good value for investors who are looking to invest their money while waiting for the market to turn around.
Steve Madden, Ltd. (NASDAQ: SHOO)
Share Price: $29.20
Market Cap: $2.307B
Incorporated in 1990, Steve Madden designs and sells branded and private labeled footwear and accessories for men, women, and children. The company markets products in the United States and internationally.
In the past month, Steve Madden has been able to fulfill customer needs and restock their stores, while many retailers have been struggling. As other retailers go out of business, Steve Madden can gain customers and increase their share of the market.
Additionally, the company’s earnings per share has increased by 18.8% in the past year. This trend is likely to continue in the future as they gain market share.