Breaking that Losing Streak | The Daily Peel | 5/31/22

Silver Banana goes to...

Market Snapshot

The futures pointed slightly higher Friday morning heading into the long weekend, and markets did not disappoint. The 10-year closed just below 2.75%. WTI Crude closed above $115.

When the closing bell rang, the Dow was up 1.76%, the S&P was up 2.47%, and the Nasdaq finished up 3.33%. Stocks ended the week having their best week since November of 2020.

Let’s get into it.

Banana Bits

Friday was indeed a good day for stonks, but the markets put together one hell of a week
Pelosi Capital had a rough weekend; I guess that’s what happens when your calls go to zero
You remember those pesky ARM mortgages that we handed out in the 2000s? Well, they’re back, but different.
Even those who will likely be on the wrong side of (Western) history still have some patriotism and national pride. Check out how the Russians are supporting their boys overseas.
The single-family rental market is beyond the moon right now; tap into some outsized returns without huge capital outlays or pesky tenants
Did you go anywhere for MDW? You paid more for gas than any other MDW in the last ten years.

Banana Brain Teaser

The answer to Friday’s Banana Brain Teaser was all of them; every month has at least 28 days.

For today’s first five respondents with the correct answer, I will unlock our WSO Company Database for 30 days. Let’s give this one a try:

What does a “t” & a peninsula have in common?

Shoot us your guesses at [email protected] with the subject line "Banana Brain Teaser" or simply click here to reply!

Macro Monkey Says

Housing Market Cooldown — Data last week showed us a few things about the health of the economy, including a much-needed slowdown in the housing market.

Refinancing applications are down significantly year-over-year, and logically so, given that the 30-year fixed APR hovered around 5.10% - 5.25% at the end of the week last week.

There’s a great tweet floating around that talks about the increase in the average home price and 30-year fixed interest rate from Jan 2021 until now. Basically, the average monthly payment has almost doubled since then.

This is absolutely unsustainable. There’s no chance of having a middle class when the median income versus median home price keeps trending how it has moved in the last 18 months.

Do we think that there is a 2008-esque mortgage-backed crisis looming? Nah, not unless you’re passing out NINJA loans to the jobless. We’ve all seen The Big Short; we’re not there yet.

We are seeing a noticeable slowdown in housing sales. There was a 9% year-over-year slip in home sales as of April, and we are probably going to see this number increase through the summer.

I challenge you to conduct your own incredibly scientific study: take a look at your local housing market using the Zillow app. Look at it in map view. Set some arbitrary but inclusive parameters on your search. Take a screenshot of the map view.

Then, at the beginning of August, run the same search. If I were a gambler, I would bet that the inventory level for your search parameters will probably be higher in a few months, particularly as rates rise and homes get relatively more expensive.

That being said, this is obviously a non-scientific method to gauge your local housing market. I’m not a gambler, and this isn’t financial advice.

Raise the Roof(stock)

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What's Ripe

Ulta Beauty ($ULTA) — I’m not sure that a lot of you are consumers of many of Ulta’s products, which is probably why a lot of you missed this one. They announced their earnings last week, and with those earnings came a fat EPS and (less so) revenue beat.

The signs were there. Target noted that beauty had made a significant comeback in their stores, so obviously, some of the beauty names would have good earnings. On the news, $ULTA ripped higher by 12.47%.

Pinduoduo Inc. ($PDD) — Delisting rumors and fraud whispers be damned! Apes, you sent this one ripping on Friday.

And why shouldn’t the Chinese internet stock rip after reporting a huge earnings beat, destroying estimates by 61% on the bottom line?

Chinese lockdowns (yes, they’re still happening) have spurred online spending. Just as you degens threw your parents’ credit cards into Amazon in 2020 and early 2021, many healthy CCP members are impulse buying their f*cking faces off on $PDD’s platform.

On earnings news, Pinduoduo skyrocketed by 15.19%.

What's Rotten

Workday ($WDAY) — Even though Workday’s revenues edged analysts’ estimates, so to speak, their earnings were disappointing. As a software platform company, likely the only thing that kept them from a double-digit haircut was their guidance, which came in slightly better than expected.

Their leadership expects growth to shift further into the future, which, frankly, is a likely story for anyone experiencing the brunt of some of today’s macro-environmental headwinds.

On what amounted to an earnings miss, shares of $WDAY retreated 5.57%.

Dow Dividend Stalwarts ($KO, $VZ) – Let’s face it: Friday was a pretty great day for stonks. Ironically, the most losery laggards in the Dow closed in positive territory.

Verizon Wireless and the Oracle of Omaha’s beloved Coca-Cola “led” the Dow’s lowest gaining stonks on Friday, closing up 0.81% and 0.60%, respectively.

It’s worth mentioning that $KO yields around 2.7% at current share price levels while $VZ is paying close to 5%.

Sure, they’re low beta and boring, but in the event of a recession, their boring, low beta shares with hefty yields might keep your portfolio afloat, especially in an inflationary environment.

Thought Banana

When Will This Downturn End? — There are a handful of great memes floating around right now about your relatives saying how easy it is to be a stock picker in a bull market.

When valuations become unhinged from fundamentals, it sure is easy to invest. When Daddy JPow says, “F*ck your puts,” you bet your a$$ that it’s easy to generate some returns as a bull.

But during a downturn, picking winners is hard. Hell, picking stonks that will lose less than their competitors in their respective industries is tough right now. Finding some positive returns when the market decides to move lower for 8 weeks in a row is a difficult nut to crack.

I can’t decide if I was truly a genius in 2020 and 2021, making more money in stonks than in my 9-5, or if the market was really just idiot-proof. Maybe a little bit of both?

But now that the other shoe has dropped, my returns seem to look like I am indeed that idiot. I’m sure a lot of you are in the same boat, and it’s not a good feeling.

While we do talk about options, NFTs, cryptos, and other speculative moves that happen in the broader financial markets, I’m a staunch believer of time in the market as a means of generating returns and building wealth.

Eight weeks of negative returns or a five-month downturn won’t make or break your portfolio. Just like housing prices typically have an upward trend in the modern era, it’s safe to say that equities will probably do the same.

Don’t fret, Apes. This too shall pass.

Wise Investor Says

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” — John Bogle

Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? Sign up for the WSO Daily Peel here. ADVERTISE // WSO ALPHA // COURSES // LEGAL

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