Quantum Supremacy

As far as weeks go, this one was pretty middle-of-the-road.  While there were a lot of companies reporting earnings announcements, there weren’t any that stood out as exceptionally good or bad.  The market is a good mechanism for pricing in both data and sentiment.  Having lowered earnings guidance at the end of last quarter, it seems companies have done just enough to meet expectations.  I suppose considering the political, geopolitical, and general economic slowdown, we can count that as a win.

Let me briefly touch on the latest going on with Brexit. Last Saturday, British Parliament voted 322 to 306 to withhold support for the Brexit deal negotiated by Prime Minister Boris Johnson. This action has forced Mr. Johnson to do exactly what he said he wouldn’t: ask the EU for an(other) extension. The EU is expected to grant a three-month extension putting the new deadline at January 31, 2020. In the meantime, Mr. Johnson will likely seek an early election on December 12 rather than try again to get his Brexit deal approved by Parliament. Kudos to those who can make sense of the whole thing.

In other news, the trade deal brokered a couple weeks ago between the United States and China may be less than meets the eye. While trumpeted as a breakthrough, the cracks quickly started to appear when China walked back the certainty of the deal suggesting President Xi would need some time to review the agreement. This week we learned that the signing, which was slated for mid-November, could be delayed. Surprisingly it was the U.S. Secretary of Commerce Wilbur Ross that said, “it has to be the right deal and it doesn’t have to be in November.” If I didn’t know better, this looks like a preemptory move by the Trump administration to downplay the previously announced agreement.

Also worth noting, the pace of stock buybacks is slowing. Stock buybacks by S&P 500 companies totaled $161B in Q2, down 18% from Q1 and down 17% year-over-year. Despite the slowdown, this year is still on track for the second highest total on record. Goldman Sachs sees 2019 total buybacks down 15% to $710B and believes the slowdown will continue into 2020. This could adversely affect earnings since buying back stock makes per-share earnings look better as the overall figure is divided by a smaller number of shares.

Closer to home, Procter & Gamble reported a rather upbeat third quarter with beats to both its top and bottom lines. In fact, it saw revenue growth of almost 7% y/y which is pretty darn good for a consumer staples company with a market cap of $311B and annual revenue of $69B. Perhaps the cherry on top is that revenue grew from organic sales led by the beauty and health care segments. It goes to show beauty and health never go out of fashion. Another retailer had news of a different sort. Walmart announced it plans to kick off the holiday season beginning midnight on October 25. The company blames the late Thanksgiving this year for its decision to start earlier than it has ever before. And lastly, we learned Google has been working diligently on taking over the world. Not literally, of course. The company has achieved a breakthrough in quantum computing, known as quantum supremacy, showing that “quantum speedup is achievable in a real-world system and is not precluded by any hidden physical laws.” That’s a mouthful.

In closing, I want to offer a public service announcement. When shopping at Amazon, it is always wise to vet a third-party seller if it is not Amazon itself. There have been issues, for some years now, that less scrupulous third-party vendors on Amazon’s platform sell counterfeit goods. Amazon has done a fine job trying to stomp out these sellers. However, this week we learned that some Amazon third-party sellers are selling expired food items. A data analysis firm specializing in Amazon Marketplace recently analyzed the top 100 food products for CNBC and found at least 40% of sellers had more than five customer complaints related to expired products. If you are tempted to buy a food items off Amazon (from a third-party seller), you’ve been warned. It might not be as scrumptious as the description makes it sound. Now you know.

Bruce J. Mason, MBA