almost 3 years ago • 3 mins
Nike might not be the diehard ports fan it used to be after reporting a mixed set of quarterly earnings late last week.
What does this mean?
Nike’s performance last quarter was an emotional rollercoaster: on the upside, the retail giant turned up a higher profit than analysts were expecting, but on the down, its revenue came up short. Likewise, total ecommerce sales grew almost 60%, but sales in North America – its biggest market – dropped 10% from the same time last year.
The shortfall, Nike said, was partly down to shipment delays that have lasted almost a month and left its products sitting around US ports. Clearly, that’s meant neither Nike nor its network of retailers – from department store Macy’s to sports specialists Dick’s – are able to sell them. And even when the goods do finally arrive, they’ll be so last season that those retailers might have to offer profit and brand-damaging discounts to get them off the racks.
Why should I care?
For markets: Spare a thought for the little guys.
Nike’s stock dropped 4% on Friday, but it might’ve fallen more if not for its positive outlook: the company is – arguably prematurely – expecting European lockdowns to ease and its stores to reopen next month, and thinks its Stateside port issues will get better as the year goes on. Smaller American companies might not be so lucky, mind you: they don’t have the corporate manpower to navigate the US shortage of drivers or the global shortage of shipping containers.
The bigger picture: Someone has to pick up all those packages.
Over a third of Nike’s sales are made online now, and that surge in demand is being met by the likes of FedEx, which reported stronger-than-expected earnings of its own late last week. The logistics company’s stock jumped 7% on Friday, and investors seem so positive on the sector that they sent rival UPS’s shares up 2% too.
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What does this mean?
Four times a year, a lot of major derivative contracts on US stocks all expire at once. That leaves investors with a decision to make: buy and keep the related shares, or “roll forward” those contracts by buying ones with a later expiry date.
There were $655 billion worth of single stock options set to expire on Friday, according to investment bank Goldman Sachs – the third-most ever in a month. Throw in the quarterly rebalancing that always tends to happen within and between stocks and bonds, and the scene was set for higher-than-normal volatility.
Why should I care?
The bigger picture: Retail investors matter now.
Most institutional investors will have been prepared for the higher volatility, but it might’ve come as a surprise to some retail investors. And while the big-hitters haven’t historically paid much attention to things that unsettle their smaller counterparts, they might want to start doing just that: retail investors now hold 35% of all US stocks and – thanks to the recent surge in popularity of commission-free trading apps – they account for one-fifth of all stock trading.
For you personally: Rebalancing helps you maximize your profits.
Not all professional investors rebalance their portfolios, but those that do might find themselves buying more bonds – whose prices have fallen and yields have risen in the last few weeks – at the end of this quarter. And that might be a smart move, if analysis from East West Investment Management is anything to go by: the firm’s dummy portfolio of Canadian stocks and bonds – split 60/40 – performed better when it was rebalanced than when it wasn’t, and best of all when it was rebalanced on a quarterly basis.
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