Huge week of earnings on tap for us.
We have the key drivers of the economy reporting this week, with payment companies like Visa (V), and logistics companies like UPS (UPS).
Both are a great tale on the economy.
And that’s exactly what I’m expecting to hear from their earnings reports this week – what is going on in the U.S. economy.
We will see how well the consumer is holding up in the face of higher rates. We just saw American Express increase its provision to cover consumer losses, which is likely just the tip of the iceberg.
UPS is looking at goods after they are purchased, how inventory is moving around the country.
So, I’m looking forward to both reports this week.
Let’s dive in…
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United Parcel Service (UPS)
Earnings: October 26, Before the Open.
Consensus: EPS $1.66, Revenue $21.64B.
Avg. Analyst Rating: 2.4 (Buy), Price Target $151.96.
Shares of UPS have been under consistent pressure as rates have been on the rise.
The stock is down 25% in just over a year.
It’s not a pretty chart, by any means, and it comes back full circle to the Fed’s war against inflation, pushing interest rates to a point where they are going to break the economy.
It’s just a matter of time.
And UPS shares are showing that pain already, but there is plenty of room for more in the months ahead.
That red horizontal line is my line in the sand.
It marks the low from fall 2022 and has been a level that is getting tested almost a year later.
It’s going to be key going forward and as long as the stock is below it, you want to be bearish on UPS. And with the companies ties to the American economy, it also means you want to be bearish in general as this is not a good sign for the overall market.
Which brings me to our next stock, payments giant Visa.
Visa Inc. (V)
Earnings: October 24, After the Close.
Consensus: EPS $2.27, Revenue $8.56B.
Avg. Analyst Rating: 1.8 (Buy), Price Target $233.38.
This company is just as tied to the economy as UPS. They rely on consumer spending and more charges on cards.
Using a Visa is the norm these days. Everyone has a Visa, so growth is already limited to transactional fees and interest. The more transactions, the more money they can make and the higher the credit balances, the more interest they earn.
But, we already saw American Express show us the other side of that coin.
If balances are getting higher, the company needs to adjust their loss provisions to account for the expected pain in consumers wallets that is coming.
With that in mind, take a look at the chart on V.
It’s bullish!
This chart shows the stock in a nice uptrend, trading clearly between two key levels, with the support in green and resistance in red.
Better yet, we are at the bottom of this channel, which indicates some room to run higher.
But I’m not buying it.
I’m placing V on my Tank It list because of all that background I just provided on UPS and how rates are affecting the economy.
Visa is going to take a hit from this as well.
What we are seeing now, is the quiet before the storm, where the company is actually seeing favorable results due to higher rates.
They haven’t seen the negative side of higher rates yet. The side that hurts the consumer and crashes the economy.
But when it comes, V is going to be in a world of hurt.
For now, I’ll watch the earnings, see if it can hold this near-term support. But the stock won’t make it on my Bank It list for a while.
That’s all for today.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE