Before the bell: quality over quantity

Earnings season is in full swing, with markets now turning their attention to Tesla and Alphabet’s results. Opendoor also stands out, drawing comparisons to the GameStop saga.

“It’s the quality of the deal, not the timing.” With that statement, U.S. Treasury Secretary Scott Bessent has breathed new life into the so-called “TACO trade.” August 1 was supposed to be the deadline for a trade agreement between Europe and the U.S., but that now appears to be more flexible than expected. The Euro Stoxx 50 lost just 0.3%, while the S&P 500 hit another all-time high. In Europe, Ryanair surged 6.6% after reporting a strong quarter.

In Asia, Japanese stocks came under some pressure after an extended weekend, but losses are now fading. Investors are just now able to react to the Japanese government’s election defeat. Meanwhile, the first European earnings reports are rolling in. Paint specialist AkzoNobel has dampened expectations: revenue and profit came in lower than anticipated, prompting a downward revision of its full-year outlook. Universal Music is planning a new listing on the U.S. stock exchange after previously leaving Euronext Amsterdam. This week, the spotlight is on Tesla and Alphabet, whose results will dominate market sentiment.

Markets are pricing in a lot of good news

The U.S. earnings season has had a strong start. For now, there’s little sign of consumers cutting back. Just look at the banking sector: according to Bloomberg, a stunning 94.4% of companies beat analyst expectations. Giants like Netflix also exceeded expectations on nearly all fronts, and airlines like United Airlines saw an increase in passenger numbers. Yet markets haven’t always reacted positively, possibly because much of the good news is already priced in. With the S&P 500 at new record highs and trading at around 22 times expected earnings over the next 12 months, our experience tells us this: in such an environment, strong results often lead to muted reactions, while poor numbers can trigger severe punishment.

Opendoor is the new GameStop

History may not repeat itself, but it often rhymes. The wild stock swings of real estate platform Opendoor are starting to resemble the early days of GameStop in 2021. Like GameStop back then, Opendoor is in troubled waters—heavily indebted and bleeding cash. The company buys homes, renovates them, and sells them through its platform—a business that’s struggling as U.S. home prices decline and Opendoor holds these properties on its balance sheet. Yet yesterday the market briefly valued the company at 3.6 billion dollar, ten times more than a month ago. A key factor: the Twitter account of hedge fund manager Eric Jackson. Since tweeting about the stock to his 59,000 followers, the shares have skyrocketed—rallying as much as 120% on Monday. Jackson claims the stock should be worth 40 dollar. Our nuanced opinion? Only in a world where world peace reigns, Pascal Paepen invests 100% of his wealth in Bitcoin, and every investor is high on magic mushrooms do we see Eric Jackson’s price target being reached. Opendoor is nothing short of the next GameStop. Don’t get carried away—we strongly advise against investing in this stock.

Did you know…

that Opendoor controls nearly 90% of the U.S. iBuyer market? iBuying is a process where a homeowner submits an online request to sell their house. The iBuyer uses technology to analyze the home and then makes an automated offer—no realtor needed. The company then renovates the house and resells it at a markup.

This article was translated from Dutch and was originally published on Spaarvarkens.be.