Hump Day Pause | The Daily Peel | 10/6/22

Silver Banana goes to...

Market Snapshot

After a sharp rally to start the week, stocks took a breath Wednesday.

It’s a confusing landscape where bad news is good news and vice versa.

Anything that convinces JPow to slow rate increases will be cheered by the market, while good economic numbers could convince him to keep tightening the screws.

At this point, he’s getting a bit of both. The USD rallied, and bond yields went higher to close out hump day.

At the close, the Dow ticked down 0.14%, the Nasdaq lost 0.25%, and the S&P fell 0.2%.

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Let’s get into it.

Monkey Meme of the day

Source

Banana Bits

Mergers are stressful enough. Take dealmaking into the 21st century
Elon’s throwing in the towel in his Twitter fight, offering to close the deal at his original offer of $54.20 a share
Hedge fund titan Ray Dalio stepped down as co-investment chief at Bridgewater, which has a cool $150 billion AUM
Meta is continuing its cost-cutting efforts by shrinking its office footprint, including in NYC
The strong job market has dented MBA applications, even at top targets like Harvard and Wharton

Banana Brain Teaser

Yesterday — A man lives on the top floor of a hotel. When he is out with a friend or out on a rainy day, he comes back, goes to the elevator, and goes to the top floor. When he goes out alone or on a sunny day, he goes halfway up and walks the rest of the way up. Why?

He was using an umbrella or had a tall friend to push the buttons for high floors.

Today — It’s 100 bananas off our M&A Modeling Course for the first 15 correct respondents. LFG!

A young woman is attending her mother's funeral. While there, she meets a man she has never seen before and falls in love immediately. After the funeral, she tries to find him but cannot. Several days later, she kills her sister. Why does she kill her sister?

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

Macro Monkey Says

Brick and Mortar 2.0 — Kids these days don’t know what it was like to come back from the mall smelling like Hollister and Auntie Anne’s. Nothing like it.

For the past few decades, the decline of brick-and-mortar retail has been one of the most visible economic shifts.

Huge swaths of commercial real estate turned over as consumers moved to e-commerce, changing the landscapes of towns across the country.

Hardly anyone expects malls to regain the foot traffic they enjoyed at their peak, but the brick-and-mortar retail model could be making a comeback.

Consumers shut in during C-19 have a newfound appreciation for actually going to stores to buy stuff rather than having it brought to them
According to the WSJ, “U.S. retail vacancy fell to 6.1% in the second quarter, the lowest level in at least 15 years.”
Peloton is a high-profile example of a company shifting from primarily online sales to a brick-and-mortar presence

This resurgence doesn’t mean old problems have gone away—managing inventory is a giant headache, and more people working from home means less foot traffic in stores around offices.

But with tons of office space set to open up as leases expire, savvy retailers could pounce on the opportunity.

Those that provide a reason for customers to schlep to stores and can keep costs in check will be the winners of brick-and-mortar 2.0.

Bankers are old school. Deal-making shouldn’t be.

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What's Ripe

Chewy ($CHWY) — Market research data is hinting at a big Q3 earnings beat for the pet product retailer.

Despite what you might think, pet supplies tend to be pretty recession proof. If you’ve ever had to deal with a dog adjusting to a new type of food, you’d understand why.

A strong subscription service that’s led to consistent profitability is part of the reason why investors are snapping it up.

$CHWY was up 10.62% by the end of the day.

Wingstop ($WING) — It seems like every fast-food ad these days is for chicken sandwiches. Burgers just don’t hit the same for Americans anymore.

That’s good news for Wingstop, which recently announced a broader lineup of chicken sandwiches to complement its signature wings.

The stock has made an epic comeback since YTD lows in May, climbing nearly 100% since that point.

$WING gained a nice 6.9% on the day.

What's Rotten

Carvana ($CVNA) — There’s having a bad year, and there’s losing over 90% of your market value in less than 10 months.

The pain continued for the car vending machine company Wednesday after a high-profile price target cut.

After a jump to start the week, $CVNA is again dangerously close to a post-IPO low.

$CVNA ended the day down 7.35%.

Squarespace ($SQSP) — Squarespace hasn’t been hit as hard as competitor Wix.com this year, but investors were dumping it hand over fist on Wednesday.

The rise of the gig economy and sole proprietorships has been a tailwind for $SQSP, but a looming recession has many fearing slowing growth.

If those that struck out on their own post-C-19 go back to a 9-to-5 during a recession, earnings will suffer.

By the end of the day, $SQSP was down 5.46%.

Thought Banana

RTO in a Recession — Bosses frustrated by employees’ refusal to return to offices have been smug in their assumption that once the economy turns sour, underlings will bow at their knees and sprint back to their cubes.

But if Meta is any indication, pressure to cut costs could shrink office space and offset labor market pressures that, in theory, would push workers back.

To be fair, tech companies have an easier time dealing with remote work than other industries
But the fact remains that office space isn’t cheap, and execs will have to weigh the softer costs of remote work versus very real lease bills
Productivity in the office versus at home is still up for debate, but some studies are giving the upper hand to WFH

At a high level, remote workers will only grudgingly RTO if they aren’t confident in their prospects elsewhere.

But industries that tend to be most affected by recessions, like retail, tourism, and construction, don’t have very high WFH rates anyway
To be sure, many money-losing tech companies would struggle in a recession too, but the extent of that damage is unclear

With the Fed on a warpath to slow the economy, it’s possible that in-office opportunities could be all that remains.

But execs banking on employees trudging back to the office for fear of losing their job seem a bit too smug right now.

Wise Investor Says

“If you can’t take a small loss, sooner or later you will take the mother of all losses.” — Ed Seykota

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