News and analysis

CarMax (KMX) quarterly report came out on April 11, vividly displaying why any immediate investment into the used car market still sounds like not a good idea. The stock quickly lost ground, wasting a double-digit number of percentage points as a response to its net income drop to $0.32 per share against $0.44 cents per share a year ago, also compared to much stronger $0.52, $0.75 and $1.44 per share in the previous three quarters. Analyst polls estimated a net income per share at about $0.50, which would be 56% better than the reality.

This almost looks like a financial fiasco in the company's efforts to withstand slowing demand in the segment. CarMax Q4 2023 revenue decreased by 1.7% to $5.6 billion, slightly below consensus expectations of $5.8 billion, indicating the lack of gross marginality of the business. This happened even though the total supply of unsold used vehicles on dealer lots grew by 9% YoY to 2.27 million units in March, according to Cox Automotive data. CarMax CEOs delayed their own goal of selling over 2 million units annually, when measuring combined retail and wholesale actions, to between 2026 and 2030, from its prior target of 2026.

A "higher-for-longer" Fed fund rates is demonstrably bad for car sales volumes, be it new generation Tesla cars or just pre-owned vehicles, while operating costs for warehouses are growing. Besides, easing some semiconductor constraints in North America may help marginally improving orders for new cars, leaving used-car sales under the same pressure. Meanwhile, the entrance of Asia players offered significant discounts. Therefore, North American and European operators of the used car market need to sell many great cars at cheaper prices. CarMax already posted its official warning of a potential "hit to profit-sharing revenue" due to inflationary impact to its partners, before last Christmas. "While affordability of used cars remains the challenge for consumers, pricing improved during the quarter," Enrique Mayor-Mora, executive vice president and CFO admitted.

It was only a smaller division of CarMax Auto Finance, which managed to get a 19% better income due to "a lower provision for loan losses" and an increase in average managed receivables. Yet, this was rather news from the side business, which was clearly not enough to be optimistic. The company added that it is now focused on enhancing its omni-channel experience and leveraging data science and automation. Carmax said it delivered "strong retail and wholesale" graphic processors, which helped to increase "used saleable inventory units" more than 10%, but used total inventory units was unchanged despite innovations. The company seeks to achieve efficiency improvements in its core operations, believing that they "are well-positioned to drive growth as the market turns", according to Enrique Mayor-Mora. This may be useful to strengthen competitiveness in better times for the segment. Yet, the current challenges are too heavy to be ignored by market crowds.

Latest developments from inflationary data and US central bank authorities have encouraged me to take profit on my only stock from the banking segment, a moderate stake in JPMorgan Chase & Co (JPM). You may wonder what happened to this reputable financial institution or its ratings, or just to my personal assessment of its reliability. Everything is OK with JPMorgan ever since it was established more than 150 years ago. In fact, I still consider JPMorgan as the strongest representative of the US banking family, and that was exactly the reason why I left a block of my JPM stock in peace after selling out all other banking stocks. So, the point is I feel the banking segment may form the weakest link among broader sectoral distribution of Wall Street investments, as I don't believe anymore that the squeezed financial income by US banks may be hold unharmed when the benchmark 10-year public bond yields exceeded 4.5%, for the first time since late November.

Specifically, too high bond yields may further drop the value of most previously accumulated old bonds on the balance sheet of large and small banks, indiscriminately. Historically high borrowing costs is the reason behind the curtain of this piece, where the Federal Reserve wrote the screenplay of this sad episode. Again, expensive costs for credit financing, from the banking customers point of view, makes their need for credit lower, weakening the source of regular income for banks. Borrowing costs, as well as bond yields, cannot follow below certain high standards when the interest rate cuts phase of a monetary cycle is postponed due to persistent inflationary pressure.

The Federal Reserve (Fed) Minutes this Wednesday have clearly confirmed to me that most of the Fed members are ready for a longer period of tight policy. "Some" of them literally agreed that the current 5.25%-5.50% interest rate range was "less restrictive than desired, which could add momentum to aggregate demand and put upward pressure on inflation". This is exactly a train of thought, which is used from time to time in the periods of arguing the need for even more rate hikes, and not rate cuts. Well, no policy makers actually pencilled a higher policy rate on dot plot projections, yet it is now hard to imagine any rate cut at least before September. The Fed has no reason to cut, as they need to wait two or three consecutive quarters with declining CPI (consumer price index) numbers, while the CPI is surging at the moment. Central bankers seem to be not sure about inflation dynamics in coming summer months with usually growing gasoline prices, as Minutes also showed they were debating whether it became risky to ease too soon, before the inflation path shifted back towards the major supposed autobahn leading to its 2% target. "Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2%," the minutes said in favour of two opposite views in one sentence. Such rhetoric looks like replacing some portion of lies. This was a bad sign.

Share price of the Bank of America (BAC) quickly lost nearly 3% for the last two trading sessions. Technically, the Bank of America formed a potential top to slide down further, after the head and shoulders pattern appeared on daily charts and the neckline was broken just a day ago. Meanwhile, as the segment's undisputed leader, JPM has wasted only about 1% so far. Yet, the uptrend in JPM is under question as well. So, this does not look reasonable to squander the big advantage after the JPM price climbed up from a $150 area to about $200 per share from the pre-Christmas time to this spring. No prudent owner will leave it to chance, especially when the cut of cards will look more and more unfavourable. This is why I don't want to wait for the earnings date, which is scheduled for tomorrow, Friday April 12, when JPM and some other large banking players like Blackrock, Wells Fargo and Citigroup would reveal their quarterly numbers, as Q1 numbers do not matter too much when the hurricane on bond yields is already here.

The banking rally accelerated in the first three months of the year, hand by hand with a bias towards cutting rates. Previously, they projected cutting rates by 0.75%, and now the crowd began to understand that even a 0.5% rate cut would be a sweet dream scenario for 2024, when the single rate cut just two months before the November elections to the White House would be like throwing us a bone, just for the bulls would not suddenly transform into bears in the improper time.

VeChain (VEC) has experienced a notable uptick, rising by 12.0% to $0.0474 over the course of this week. Although prices reached $0.0493 on Thursday, they retraced slightly thereafter. It's worth noting that VEC had previously touched this level on March 12, but faced resistance amidst a broader correction in the crypto market.

Despite the challenges posed by Bitcoin (BTC) maintaining its position around $70,000 per coin, VeChain (VEC) possesses its own set of bullish catalysts that could propel prices upwards, potentially towards the $0.1000 mark. As the market consolidates at current levels, integration of VEC into Big Tech projects may contribute to sustained upward momentum for VEC.

Philip Morris multinational tobacco company (PM) stocks have reached a notable support level at $90.00, a price point that has been retested 11 times since April 2021. This support has demonstrated its resilience over time and appears to be well-defended by large market players. Given this historical pattern, there is a reasonable expectation that the support level will hold once again.

Considering the current price of $89.08 per share, I plan to initiate a long trade position. My target price for this trade is set at $100.00 per share, representing an 11.0% increase from the current level. To manage risk, I will place a stop-loss order at $80.00 per share, which is below the lows observed on December 30, 2022.