July 3, 2023 | Peel #493

In this issue of the Peel:

• Equity markets continue to rise with NASDAQ increasing by 1.45% due to Apple's performance, while treasury yields rise as investors move into risk-on assets.
• Apple and SolarEdge Technologies perform well, while Nike and Coinbase face challenges with earnings and regulatory issues respectively.
• The Federal Reserve's goal to get inflation back at 2% and Americans' retirement savings issues, particularly regarding the gap between expectations and reality, represent key financial concerns.

Market Snapshot

Happy Monday, apes.

And Happy 4th of July Eve to all the Americans out there. We hope you had a Budweiser and Jack Daniels-soaked weekend of fireworks, beaches, and sunburns while still managing to keep all 10 fingers. Statistically, there’s probably at least one of you reading this that has one less finger since the last edition of The Daily Peel.

Equity markets are certainly getting in the Holiday spirit. The Nasdaq stormed 1.45% higher as Apple’s flex brought US majors to the highest levels in over a year. All 11 S&P sectors rose on the day as the good vibes appeared to be spread far and wide for the session.

Treasuries, meanwhile, saw yields rising, likely as investors rotate into more risk-on assets, as implied by the uptick in equity and commodity markets. The 2-year is chilling right around 4.9% for the time while the 10-year is trying to cross the 3.9%, reminding us of that heavy inversion.

Let’s get into it.

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Banana Bits

• Tesla deliveries set yet another record quarter as discounts and other price cut measures drive an 83% increase
• Riots are chilling out a bit in France, but a riot is still a riot, and it sure wasn’t a peaceful evening this weekend
• The US government seems to be really good at shooting itself in the foot, especially when it comes to debt and interest rates

Macro Monkey Says

Economic Summer Chill

Whether you’re talking about abs or beer, pretty much everyone wants a 6-pack.

Very much like that desire, JPow and the rest of the Federal Reserve want inflation back at 2%. The thing is, both desires rely on one thing: their cores.

Fortunately for Jerome Powell and his gang of gray-haired nerds, they get an update on their core progress every month. On Friday, the Bureau of Economic Analysis (BEA) dropped the latest numbers on Personal Consumption Expenditures, the Fed’s preferred inflation measure, and with that came the Core PCE.

JPow and the fellas as the Fed prefer PCE because it 1) gets reweighted more and 2) is far less volatile than CPI, for the most part.

Now, Core PCE to JPow is like a nice, open highway to a long-haul trucker: it’s their favorite thing ever (I assume). In May, we saw the Fed’s preferred inflation reading continue to decline while consumer spending by the same reading continued to grow, but both came at much slower rates. Check out the below charts from the WSJ:

"... there wasn’t a whole lot of objectively positive news ..."

Headline PCE growth clocked in at 3.8% annually, the lowest reading in 2 years. Although nothing in the report was interpreted as a screaming red flag, there wasn’t a whole lot of objectively positive news after that.

Core PCE, on the other hand, gained at 4.6% for the month, decreasing by just 0.1% from the prior month. Meanwhile, spending for the period grew 0.1% monthly, or 0.0%, when adjusted for inflation.

It was as if the US economy realized it was summer, cracked open a cold one, and decided to chill out for a second. Much like for yourself, if that chilling gets out of hand, however, we may be looking at the early signs of a breakdown.

"... the economy has been jacked up on HGH in the form of fiscal stimulus and accommodative monetary policy."

Since the pandemic showed up, the economy has been jacked up on HGH in the form of fiscal stimulus and accommodative monetary policy. That’s allowed Americans to save more than ever and, combined with other factors like supply chain backlogs and extreme demand for goods and services, has also forced the labor market into one helluva tight knot.

The question now is: how long can that HGH last, and can we come down off of it without dropping our max bench?

What's Ripe

Apple (AAPL) ↑ 2.31% ↑

• The King is back to remind us all who the hell is in charge. Apple, the most valuable company in the world, is once again flexing its muscles with a closing print above a $3tn market cap. To be clear, this has happened before, back in the glory days of January 2022, when the overall market was at its all-time high.
• With Apple making up 7.63% of the S&P’s total market cap, everyone else came along for the ride. It was a momentum move for sure, but it came with an upgraded price target from Citi to $240 at the same time, the new highest Street price target.
• With services becoming more and more of the primary driver of Apple’s growth, the market seems to be assigning shares at a higher multiple as software is typically valued higher than hardware. I’d say we’ll see how long that lasts, but Apple simply does not miss, so I mean…

SolarEdge Technologies (SEDG) ↑ 5.94% ↑

• The surface of the sun might be 10,000 degrees Fahrenheit, but solar-related stocks are getting even hotter.
• And in particular, this mid-cap Israeli name is getting toasted by Bank of America, who upgraded the stock to a Buy rating and called it a “healthy diversified structural growth story.”
• That’s Wall Street analyst for “I love you,” essentially. Naturally, this upgrade helped boost shares on an already jovial day for markets overall.

What's Rotten

Nike (NKE) ↓ 2.65% ↓

• For the first time in over three years, Nike was unable to Just Do It. And by it, we, of course, mean beat their earning estimates.
• The sneaker and sporting goods maker posted an EPS of $0.66 vs. the $0.67 expected. Seems like a little creative accounting might’ve been able to close that GAAP (bah dum tss).
• Revenue still surpassed estimates, but expense growth from things like input costs, freight costs, and FX headwinds proved difficult to outpace.

Coinbase (COIN) ↓ 1.21% ↓

• Most stocks have more than enough problems to weigh them down without getting into an all-out war with one of the US’s scariest federal regulators, the SEC. Coinbase decided it was up for the added challenge.
• Shares have been on a tear lately since big dawgs of TradFi BlackRock and Fidelity filed to create spot BTC ETFs to list publicly in the US. Investors were hopeful for a minute there, given the size, scale, and experience of these asset managers. The key word in there was “were.”
• Now, the SEC has thrown both filings out the window and told these two firms to try again. BTC and other digital assets saw prices fall in response, bringing Coinbase and other crypto stocks down with it.
• It’s all but guaranteed that these companies will refile. For one, BlackRock’s prior 575-1 acceptances vs. rejections record on ETF filings is at least one solid reason to believe there’s still a chance.

Thought Banana

Saving for the Golden Years

Thanks to poet and philosopher 50 Cent for letting me paraphrase his legendary album above. He may not have known it at the time, but he did a great job describing the current state of Americans’ retirement savings.

A nice $1.27mn check sounds great right about now, but unfortunately, that number does not refer to your next direct deposit. That’s how much the average American thinks they will need to have saved up in order to “comfortably retire.”

This figure comes from an annual survey by the seemingly intern-lead company called Northwestern Mutual. Breaking down their responses by age range gives us an even better look:

Source

"... not a single cohort is anywhere even remotely close to their goals."

So, 50-year-olds appear to be the biggest tweakers when it comes to retirement planning. And probably rightfully so, as at that age, most people hope to be right on the cusp of diving into that sweet retirement life of 11 am beers and $350 putters.

But as you can see, not a single cohort is anywhere even remotely close to their goals. A lot of that delta can be chalked up to measurement and survey methodologies and likely isn’t as off as the headlines seem, but the point remains: Americans gotta start putting those IRAs and 401(k)s to work.

Especially the younger Americans among us, who expect to retire at the ripe young age of 60, the lowest expected retirement age of all. On the other hand, boomers plan to keep grinding right up to age 71.

"... they sure do highlight a problem we’ve all kinda known about but haven’t really discussed ..."

While these survey responses didn’t exactly reveal anything too new, they sure do highlight a problem we’ve all kinda known about but haven’t really discussed, specifically:

• Healthcare costs are the main contributor to retirement worries
• We spend too much money now that ideally would be saved and spent later
• Unless major changes occur, we’re all gonna be grinding until we’re gray

But, most of you out there are in the upper half of that chart, the young blood of the nation. You have plenty of time to get your retirement account(s) to that magic number; all you gotta do is one thing: start today. With social security set to delete itself in the 2030s, your backup plan isn’t looking too good.

The big question: Will Americans be able to sustain themselves in retirement from employment savings on a broad scale? What kind of economic and quality-of-life strains will this delta create?

Banana Brain Teaser

Friday — What do the following words have in common?

• Buzz
• Part
• Maze
• Muse
• Stern
• Moral
• Bed

They can all have the prefix “a-” and still be words.

• Abuzz
• Apart
• Amaze
• Amuse
• Astern
• Amoral
• Abed

Today — In these Word Pyramids, the first letter is given to you (which is the first answer). Use the clues to build the pyramid to find the answer. In each consecutive answer, a letter is added to the previous answer. However, the answer letters might not be in the same order. Go

Starting letter: D

Clues:

1. pop-up material
2. assist
3. uttered aloud
4. surprise attacks
5. render harmless
6. indefinite number
7. polyhedrons

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser”.

Wise Investor Says

"Compound interest is the eighth wonder of the world. He who understands it, earns it." — Albert Einstein

Happy Investing,

Patrick & The Daily Peel Team

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