So long, farewell, do svidaniya, goodbye | US banks are so relaxed |

Hi Reader, here's what you need to know for June 29th in 3:12 minutes.

🇺🇸 There’s so much to know about the near-certain US recession. But you can find out all of it – literally all of it – in about 15 minutes at our The US Recession: Everything You Need To Know event on Wednesday. That sounds like a lot of ground to cover, but if anyone can do it, abrdn economist Abigail Watt can. Get your free ticket

Today's big stories

  1. Nike posted quarterly results that left a lot to be desired
  2. Now that company valuations have tanked, only one factor is standing between us and even more of a stock market crash – Read Now
  3. US banks have decided to return even more cash to shareholders



What’s Going On Here?

Sportswear giant Nike gave a disappointing quarterly update earlier this week.

What Does This Mean?

Nike’s revenue and profit beat expectations last quarter, on the back of fine performances in Europe, the Middle East and Africa, and Asia and Latin America. But there were a couple of major problems under the surface. For one thing, this was the third-straight quarter where demand for the company’s products exceeded supply, which caused sales in North America – the company’s biggest market – to fall 5% from the same time last year. And for another, Chinese lockdowns impacted around two-thirds of the company’s business in the country, dragging sales in the region down by 19%.

Nike wasn’t particularly positive going forward either, saying it didn’t expect revenue to grow much – if at all – this quarter. And even the announcement of a new $18 billion stock buyback program didn’t help ease an irate investor, who sent the company’s stock down 3%.

Why Should I Care?

The bigger picture: Nike hands its rivals extra sales.
Nike’s shift toward direct sales and away from wholesale revenue continued to play out last quarter, with the former up 7% and the latter down 7%. The strategy isn’t without its risks, mind you: it leaves retailers like Footlocker with more shelf space in their stores, which is space they’re now more likely to give to Nike’s competitors. That’s especially notable because those retailers tend to be fairly discount-happy, which could go down a treat as cash-strapped shoppers start to look for quality brands at lower prices.

Zooming out: Nike hands even more rivals extra sales.
Nike also announced last week that it’s leaving Russia, faced with the prospect of a law that would allow the government to seize its assets and impose criminal penalties on it. That, analysts suspect, provides a great opportunity for both local and Chinese sportswear brands – including Li Ning and Anta – to make even more of a dent in Western companies’ market shares.

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Analyst Take

There’s Just One Brick Left Keeping The Stock Market Standing

There’s Just One Brick Left Keeping The Stock Market Standing
Photo of Reda Farran

Reda Farran, Analyst

When the S&P 500 briefly entered a bear market earlier this month, it was because stock valuations have been cratering.

Hardly surprising, given that the US central bank has been aggressively hiking rates, which have reduced the amount that investors are willing to pay today for future profits.

But the scenario could’ve played out much worse if the single other factor that’s been propping up stocks hadn’t held firm.

The trouble is, there are reasons to believe it might not hold out much longer.

That’s today’s Insight: the one factor holding up the stock market.

Read or listen to the Insight here


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Destress Tests

Destress Tests

What’s Going On Here?

A group of US banks announced plans this week to return even more cash to shareholders in 2022.

What Does This Mean?

Every year, the Federal Reserve (the Fed) implements a stress test on US banks to make sure they have enough money to deal with an economic meltdown and its potential consequences. This year’s test, for example, imagined that US unemployment hit 10%, the stock market fell by 55%, and the economy shrank by 3.5% from the end of last year. Banks then use the results of that test to work out how much they can afford to give to investors in the form of share buybacks and dividends.

Quite a lot, it turns out. All of the lenders passed the test with flying colors, which encouraged a selection of them to up their payouts. In fact, analysts now think US banks will return as much as $80 billion to shareholders this year (tweet this).

Why Should I Care?

The bigger picture: This is getting too real.
Some banks seem more cautious about the state of the economy, with the likes of JPMorgan and Citigroup keeping payouts as they are. And it might be a smart move when you consider that the terms of the test were announced in February, before US inflation hit a 40-year high and the Fed started hiking interest rates. These scenarios, then, suddenly seem less like the extreme end of the spectrum and more like a plausible vision of the future.

Zooming out: Try harder, Goldman.
Goldman Sachs is one of the banks that boosted payouts, but it has more to do to get investors on side: the firm projected this week that its fledgling consumer business will lose $1.2 billion this year. That matters because analysts only expect investors to give Goldman’s stock a higher valuation if it builds out a more diversified business – one that can handle any slowdowns in its core trading and banking businesses.

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💬 Quote of the day

“Be bold. If you are going to make an error, make a doozy, and don’t be afraid to hit the ball.”

– Billie Jean King (an American former world No.1 tennis player)
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🎉 Coming Up This Week…

🇺🇸 The US Recession: Everything You Need To Know: 1pm June 29th
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😊 How Not To Panic In A Bear Market: 5pm July 7th
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🏡 Shelter Your Portfolio With Premium Real Estate: 12pm July 12th
🔮 The Psychology Of Risk Management: 10am July 13th

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