Mr. Market’s Mood Swings | The Daily Peel | 5/3/2023

May 3, 2023 | Peel #453

Market Snapshot

Happy Wednesday, apes.

And Happy Fed Day to all who celebrate. Yesterday, investors showed the exact opposite of the Holiday spirit as we wrap up the 3rd FOMC meeting of 2023 later today. Sources say it’s gonna be a good one!

Equities are far from excited, with all of the U.S. major indexes falling at least 1% on the day on the heels of a Monday that saw less volatility than a drying wall of paint. The decline speaks volumes, potentially, to the market’s powder-keg style jitters in anticipation of JPow’s game-spitting later today.

Treasuries were feeling the vibes as well. The looming debt ceiling catastrophe is hanging heavy over the minds of bond traders, but investors still bought up treasury bills and bonds like there was no tomorrow in an obvious flight to safety.

Meanwhile, the USD sold off despite the suggestive anticipation of further rate hikes…an unusual daily outcome, to say the least. Eh, probably nothing, right?

Let’s get into it.

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Banana Bits

• The Red Alert is sounding in Carl Icahn’s office today as the 87-year-old’s fund is under attack from the vicious short-seller Hindenburg Research, alleging the old vet is drastically overstating parts of his firm’s true value
• Ford’s earnings weren’t all bad, but EV losses are hard for investors to stomach these days as shares fall after hours
• Pardon my French, but holy f*cking sh*t, Apple reportedly raked in just $10mn shy of a billy in FOUR DAYS after launching its high-yield savings account. Must be nice to be King
• Australia goes full narc mode and effectively bans vaping (not chill!)

Macro Monkey Says

Happy Fed Day!

Clean off your screens, light a candle, and crack a cold one – JPow’s gonna be on soon.

Not only is it always a great idea to call out of work sick, it’s even more always a great idea when rate hikes are on the table. Solid excuse for a mental health day if you ask me.

Despite yesterday’s tomfoolery in equity markets, implied probabilities for no rate hike at today’s meeting soared from 6.8% to 11.3% in the past 24hrs. But then again, maybe the 2nd, 3rd, and 4th largest bank failures in U.S. history occurring in a barely-over-a-month span, we’ll allow Mr. Market to feel a bit nervous.

It’s almost as if markets are implying there’s really no good decision for JPow to make later today. Still, we were already up well over 8% by the end of April from mid-March alone, so maybe a little adjustment isn’t the worst thing in the world.

Moreover, there wasn’t a lot of what one might call “uplifting” news yesterday. To highlight just a few headlines, we saw:

• Janet Yellen states the “X Debt” could be as soon as June 1st (29 days)
• Regional banks’ shares continue to slide despite the rescue of First Republic ($KRE -6.27%)
• A continued slump in demand for energy products like diesel
• China has been running the show for IPOs in 2023 thus far
• An admission by the SF Fed that they didn’t do a good job regulating SVB

And that’s just a few. Aside from a few gold-star-worthy earnings reports, yesterday’s cycle was decisively negative leading into JPow’s meeting.

Of course, the most rightfully terrifying of the above is the very first bullet, the way-too-close deadline of the so-called “X Date” (the date the U.S. defaults on its debt payments).

According to Treasury Secretary Janet Yellen, the U.S. could face a default on its debt 3 weeks in advance of the official start of summer, a great way to ensure we enter the new season on a bang. As the risk-free rate underpinning every financial model in the world from New York to Hong Kong, if this thing defaults and there is no longer a global “risk-free” rate, you can throw your finance degree in the dumpster right now.

Perhaps the feeling is that First Republic may have been the last of the bank failures for now, but an additional rate hike could push others over the edge? Honestly, at this point, it looks as though as long as JPMorgan is alive, we’ll all be okay.

Daddy Dimon did score the deal of the day on this one, however. First Republic specialized in high-end wealth management services, the exact sector JPMorgan has been trying to body its way into for a long time now. Weeks ago, $FRC traded above $25-30bn in market cap. Dimon & Co. picked up this powerhouse of wealth management for almost 1/3rd of that, a move that shareholders seem far from upset about.

Shenanigans have been dominating the market all year now, and leading into today’s FOMC meeting, the most important one in history (until the next one, of course), the powder keg continues to heat up. It’s only hours until JPow’s beautiful gray face blesses our screens, so stay tuned.

What's Ripe

Uber Technologies ($UBER) ↑ 11.55% ↑

• Uber gave its shares a ride well past analyst expectations and made investors feel so good that they even left the firm a tip, in the form of an >11.5% gain on the days, of course.
• Although analysts just about hit the nail on the head with their estimates that Uber would report a loss of $0.09/sh for the quarter was just above the reported loss of $0.08/sh, the firm’s 30% acceleration in revenue beat the hell out of expectations and was more than enough to lyft shares.
• Speaking of Lyft, that sh*tco’s shares are down almost 5% in 2023, while Uber is up almost 45%. Clearly, consumers have picked a favorite when it comes to rides, food, and who knows what else could come.

Molson Coors ($TAP) ↑ 7.66% ↑

• Fact: everyone on Earth loves beer. Some archaeologists argue that the bevvy is the very bedrock of civilization, and last quarter, Molson Coors reaped all of that hard-fought benefit.
• For those that proudly domicile like Patrick Star (under a rock), you may have missed the ongoing outright riot against Bud Light for…uhh…let’s call it a “controversial” recent advertisement. Sales have been hit hard as of late. I’ll be damned before you apes cancel me; it’s just what is literally happening.
• Reports have emerged over the past few days that sales of Coors rival Bud Light have plummeted by 26.1% outside of bar/restaurant sales largely as a backlash to said recent advertisement. Coors and fellow big beer brand Miller Lite have each seen ~13-14% gains in sales over the same period…coincidence?
• And yesterday, Molson Coors’ latest earnings showed that its pulling in of an over 80% jump in net income alongside beats on both the top and bottom lines for the quarter. Safe to say shareholders will drink to that.

What's Rotten

Chegg ($CHGG) ↓ 48.41% ↓

• Cheating has a new king. Reigning Emperor of the high school and college cheating / “education” provider Chegg saw shares get axed like firewood yesterday thanks to the one and only ChatGPT.
• The big scare stemmed from management’s decision to suspend guidance for the time being, citing the hyper-popular AI chatbot as the primary driver. Analysts seem to have all collectively realized that no one wants to pay for answers when the free AI bot can give them the answers for free, even if it’s less accurate for the time.
• If you can believe it, both earnings and sales actually managed to surpass expectations last quarter. But Mr. Market doesn’t give a damn about what happened, only what’s happening. Run with it or run from it, I guess.

Pacific Western Bancorp ($PACW) ↓ 27.78% ↓

• Despite several trading halts throughout the day, exchanges simply couldn’t do anything to stem the selloff of a near carbon copy of First Republic, Pacific West.
• Shares were down the gutter on the day as fears once again ran rampant that the passing of names like SVB, Signature, and First Republic was only the opening act to what’s sure to be a wild show.
• With outsized exposure to a wavering commercial real estate market and above-average uninsured deposits, not to mention a similar clientele and business mix to that of the [see above] already failed banks, maybe investors have a right to be nervous.
• Let’s just at least try our best not to talk ourselves into an avoidable mess, okay? Someone pass the message along to Mr. Market; he blocked me.

Thought Banana

Avoiding the R-word

As depressingly discussed above, yesterday’s financial news was far from hype, and I don’t just mean your checking account. On a broader and arguably more important note, fears of a recession born out of this war against inflation got a boost on the day as well.

Job openings have been one of if not the key features of the labor market over the past year. Headlines like “1.7 job openings” or “2 jobs for every unemployed American” have dominated lately, but according to yesterday’s JOLTS report from the Department of Labor, those headlines won’t be around for much longer.

We learned that job openings have officially hit a nearly 2-year high, coming in around 9.6mn in March from the 10mn reported in February. That’s the lowest openings figure we’ve seen since April 2021.

That’s still nearly 4mn more open positions than the month prior to the world’s collective falling apart in March 2020, but far below the >12mn openings reported in the year-ago period.

Basically, labor market dynamics are moving in the right direction as far as JPow is concerned. Wages are growing at a slower rate as supply and demand fall more into balance in the jobs market over the past few months.

Experts allege normalization is starting to seem like an actual possibility, but others are more concerned about flying through the “normal” labor market levels and heading right towards R-word territory.

Recession odds emerged the very second it became consensus that inflation was on its way out, it seems. As Newton said, every action has an equal and opposite reaction.

The question will be whether or not this sways JPow’s assessment of the path going forward for the federal funds rate. We’ll find out soon enough if we can decipher a certain degree of inevitable Fedspeak.

The big question: Is the labor market normalizing or just on its way to rising unemployment? How will these figures impact the FOMC’s move later today, if at all?

Banana Brain Teaser

Yesterday —

There are 2 ducks in front of 2 other ducks. There are 2 ducks behind 2 other ducks. There are 2 ducks beside 2 other ducks. How many ducks are there?

There are 4 ducks in a square formation.

Today — It’s 100 bananas off the Venture Capital Course for the first 3 correct respondents. LFG!

Walk on the living, they don’t even mumble. Walk on the dead, they mutter and grumble. What are they?

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

Wise Investor Says

“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” — Warren Buffett

Happy Investing,

Patrick & The Daily Peel Team

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