Candid Confessions | The Daily Peel | 4/28/2023

Apr 28, 2023 | Peel #450

Market Snapshot

Happy Friday, apes.

Almost Friday was a happy one, that’s for damn sure. And it was in the right direction – at least for the bulls among us. Among the US’s Big 3, the Nasdaq led the way, ripping over 2.4%, while the Dow and the S&P both surpassed 1.5%. It was a story of the bigger, the better, as investors are starting to get psyched on big tech earnings, with nearly all of them beating the snot out of expectations so far.

Yields surged as well. Just two days ago, the 2-year was decently below 3.8%, and yesterday closed a hair above 4.1%, a major swing for this asset class. The 10-year moved higher as well and pushed past 3.5% as the risk on trade led by equities and even slightly enjoyed by BTC-dominated portfolios for the day.

Let’s get into it.

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Banana Bits

• It was a relatively mild winter in North America, and as the clouds sure didn’t grow much, and they didn’t at Amazon last quarter either
• As the US invests heavily in American-made chips, homegrown semiconductor maker Intel is setting records…for losses
• Zuckerberg’s days of fearing a loss or hefty penalty for the acquisitions of WhatsApp and/or Instagram
• Investors continued to pile into money market funds this past week

Macro Monkey Says

GDPrank

Even for a year like 2023, yesterday was a particularly weird one in the world of macroeconomics. We weren’t exactly drowned in game-changing data, but some important numbers – and potentially even more important words – did come to light.

Tricked, duped, bamboozled, and, most of all, pranked are the only words that can accurately describe what happened to Federal Reserve Chairman Jerome Powell yesterday. Reports are swirling that a group of Russian pranksters posing as Ukrainian President Volodymyr Zelensky got Powell to spill the beans on what he really thinks.

Now, hardly any reports are questioning this, but it feels like this could still be a deepfake. The Fed hasn’t come out and denied the sentiment by Powell or claimed the video as false, but what kind of message would it send if they did? The odds aren’t 0%. We’re walking on thin ice, but honestly, gotta respect the game. This is going down as a legendary prank, at the very least.

Here’s the video. To summarize, Powell basically says:

• He expects less than 1% GDP growth for the full-year
• At the same time, he said that a recession is about equally as likely
• He recognized that rate hikes have been the primary driver of slowing conditions while stating that it has been necessary to rein in inflation
• Raising rates dramatically is the only way the Fed knows how to do so
• Labor market tightness leading to wage pressures is what they’re specifically targeting and looking at

That was the day’s unexpected report, and it arguably moved markets more than our next star, the expected macro report of the day. Let’s come back to “reality.”

US GDP grew at a seasonally adjusted, annualized rate of 1.1% in the first quarter, according to the Commerce Department. Economists had guesstimated an acceleration which, last time I checked, is a lot higher than 1.1%.

Safe to say, this was disappointing news, but markets didn’t seem to mind, pretty much ripping all day, as brilliantly described above. Businesses showed signs of cutting back inventory build, a clear sign of anticipated slowdowns in demand. Consumers retaliated with a 2% acceleration in spending, the largest driver of growth for the quarter and far from confirming this expectation (yet).

Yes, a lot of that spending comes from credit, but apparently, consumers think they’ll be able to manage. No worries, not like consumers have ever been wrong about what we can afford before.

Business investment was miserable already, on the other hand. Big ticket investments were scaled back as no one wants to finance a project when rates (aka the cost of financing) are way higher and expected demand is way lower than a year ago. Bit of a chicken and an egg problem with these signs, but we’ll do our best.

Markets clearly responded to earnings, the Powell Prank, and probably a combination of some other nonsense for the day more than this broad-scale economic reading. Can’t wait to see how that works out.

What's Ripe

Meta Platforms ($META) ↑ 13.93% ↑

• Yup, like we asked yesterday, it turns out the market did agree that Meta is officially back after last quarter’s earnings. Every fiber in my being still wants to just call this thing Facebook, but zuck it, let’s go.
• Shares reached a new 52-week on the firm’s revenue beat and surprisingly positive outlook. If only the firm’s users got the same feeling when using its apps.
• Anyway, shares soared on the news and put 2023’s return above 90% while lifting the stock’s 1-year performance to +15%. Last October, that same return was about -70%. It’s a turnaround for the ages, and yet again, those who listened to Buffet, Graham, and random Reddittors were vindicated yet again.

Comcast ($CMCSA) ↑ 10.27% ↑

• One of America’s most hated companies was one of Wall Street’s favorites yesterday, as Comcast’s latest quarterly numbers got the people going.
• Already the third largest media/telecom giant in the US by market cap, the stock’s double-digit return has Comcast closing in on Disney and T-Mobile.
• Sales fell for the year to $29.7bn, but the $0.92/sh raked in surpassed the expected EPS of $0.82. Sure, the company’s key growth driver in Peacock managed to lose even more money (didn’t realize that was possible), but no one cared.
• And that’s because subscribers still grew. NBC’s streaming platform and home to former Netflix king & queen combo The Office and Parks and Rec surged 60% compared to the same period last year and reached 22mn, more than enough to overcome subscriber losses in the firm’s traditional cable unit.

What's Rotten

Abbvie ($ABBV) ↓ 8.00% ↓

• You know it’s bad when you raise full-year adjusted EPS guidance and the market still slams shares down by 8%. Slowing sales in a key Abbvie product is primarily to blame, as only Wall Street could get mad about fewer people getting diseases.
• Abbvie, the 5th-largest big pharma stock by market cap in the US, faced one of its worst trading days ever on yesterday’s earnings report. A 24.3% constant-currency ($ values adjusted for FX fluctuations) decline in sales from Humira, the largest selling drug in the world at $3.54bn for the quarter, was a real kick in the you-know-wheres.
• The multitalented drug that can treat things like arthritis, Crohn’s disease, and plaque psoriasis is facing patent protection loss in both the US and Europe as biosimilars now burst onto the market.
• Net sales for the firm overall fell while EPS also missed estimates, but Abbvie remained optimistic for the year, raising adjusted (aka bullsh*t, most of the time) EPS guidance. Obviously, this wasn’t nearly enough to compensate shareholders for losing their baby, but they sure did try.

Crocs ($CROX) ↓ 15.87% ↓

• The world’s drippiest shoe brand was especially downbad yesterday as the idiots that sold essentially just admitted they have no sense of fashion.
• Going the exact opposite route of Abbvie above, Crocs had a pretty solid quarter, yet a feared slowdown in sales from the freshly acquired HeyDude brand was too much to overcome. Not even the firm’s beat of $2.61/sh on $884mn in sales vs. expectations of $2.16 on $857mn could get the job done.
• While old-school Crocs held up their end of the bargain, the HeyDude label missed sales estimates, and its slower-than-expected growth is now being baked into guidance and, thus, its share price. Let’s all go buy some Jibbitz to support our friend in need.

Thought Banana

Dot Boom

Despite Amazon's healthy earnings report, shares couldn’t keep up with the rest of big tech. Unlike the rest of its big tech brethren, Amazon shares were put away and not to be played with after-hours yesterday, losing more than 2.1% in the late session.

Compared to expectations, the firm’s Q1 numbers were as gorgeous as Ryan Gosling and Margot Robbie in the new Barbie movie sneak peeks. Sales of $127.4bn beat expectations for $124.6bn, while $0.31/sh took a dump on the $0.21 anticipated.

Amazon is currently the fastest-growing online ad business, but anticipations of potentially coming in on the low end of expectations for cloud growth and operating income were far too much to compete.

The $51.09bn in top line seemingly sucked in dollars like the force of gravity, handsomely beating consensus yet still coming short of last year’s record-setting figures. AWS net sales of $21.4bn were in line, but in this segment of the industry, in-line growth isn’t nearly good enough.

Investors were shook, to say the least. Earlier in the week, reports from the firm’s peers also diagnosed with gigantism certainly set the bar high, so it’s possible the relative performance against expectations coming up slightly weaker contributed as well.

Hopefully, Amazon execs have enough self-confidence to withstand the doubt investors are displaying. Something tells me nearly $130bn in sales, almost equivalent to the founder’s net worth, will make them feel better.

The big question: Are analysts correct to anticipate underperformance from Amazon? How resilient to a potential decline in consumer spending are Amazon’s earnings?

Banana Brain Teaser

Yesterday — There is a low railroad bridge in your town. One day you see a large truck stopped just before the underpass. When you ask what has happened, the driver tells you that his truck is one inch higher than the indicated height of the opening. This is the only road to his destination. What can he do to get through the underpass the easiest way?

Let enough air out of the tires to lower the truck.

Today — It’s 100 bananas off the PE Master Package for the first 3 correct respondents. LFG!

Lives without a body, hears without ears, speaks without a mouth, to which the air alone gives birth. What is it?

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

Wise Investor Says

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” — Warren Buffett

Happy Investing,

Patrick & The Daily Peel Team

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