4th Quarter Comeback | The Daily Peel | 10/5/22

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Market Snapshot

Stocks started the 4th quarter on a tear after a miserable first three to start the year.

Bond yields and the USD are both retreating, giving equities some breathing room. Fears that the 10-year would sail past 4% have moderated, for now.

The labor market is loosening up a bit, with layoffs increasing and job growth slowing. While bad for workers, it could help ease inflation.

At the close, the Dow jumped 2.80%, the Nasdaq skyrocketed 3.34%, and the S&P soared 3.06%.

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Let’s get into it.

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What's Ripe

Peloton ($PTON) — Yup, embattled Peloton joined the rally Tuesday on news that its bikes will be in all Hilton-branded hotels going forward.

Despite its struggles, it still has a strong brand. Investors liked the pivot away from its direct-to-consumer model.

The Hilton news builds on top of its recent announcement that Peloton bikes will be sold in DICK’s Sporting Goods, hinting at a traditional-retail future for the company.

$PTON was up 18.61% by the end of the day.

Shopify ($SHOP) — Shopify rode the wave of growth stock optimism this week as investors saw solid value after a brutal year.

$SHOP may not be the threat to Amazon it was once hoped to be, but with a P/E less than half of where it was at its IPO, value signals are blaring.

Side note, Shopify’s CEO has been loading up on Coinbase stock in recent months.

$SHOP was up 13.58% by the end of the day.

What's Rotten

The VIX (VIX) — It’s been quite a ride for the VIX over the last six months.

After sharp rises in May and June, it lulled for a while until another spike last week.

Investors are assessing whether the recent moves are a head-fake or something more.

It’s sitting at a hair below $30, and many have been waiting for it to cross $40, which has been a reliable signal in the past few decades of a market bottom.

The VIX ended the day down 3.59%.

The US Dollar (DXY) — Although it can cause a host of global issues, a really strong dollar is a great inflation-fighting weapon domestically.

But the biggest US companies, which heavily influence the direction of the economy, have global operations.

For them, the benefits of dollar strength are tempered by foreign exchange headaches.

All-in-all, a pause in the dollar’s rapid rise is probably good for the global economy at this point.

DXY is down 3.45% in the past week.

Thought Banana

JPow Needs Better Data — After the stock market freefall in March 2020, the Fed took immediate action, cutting rates to near-zero in just a few months.

The market responded swiftly, returning to its pre-C-19 peak by the end of that summer.

Yet rates stayed near the floor for another year and a half while JPow and team dismissed the inflation that was surfacing as “transitory.” It kept ballooning its balance sheet with bond purchases all the while.

Investors have been asking all sorts of questions about this reactivity:

• Why has it been so behind the curve, reacting to problems instead of managing monetary policy to prevent them?
• Could better data have revealed earlier that recent inflation wasn’t quite so transitory?
• Will it time its current set of rate hikes better, or will it be behind the curve again?

Some of these are hypotheticals, but more real-time data is out there, sitting in spreadsheets at the likes of Visa, PayPal, Zillow, and grocery stores across the country.

Relying on labor and price data that lag multiple months would be like using a GPS that tells you what turn to make 15 minutes ago. It’s limited in how helpful it can be for decision-making.

I have no idea what a data-sharing agreement between payment companies and the Fed would look like, but we would all benefit from more informed monetary policy based on the most current data JPow can get his hands on.

Wise Investor Says