The Good Zuck | The Daily Peel | 2/2/23

• The best thing about the WSJ is this Fed Statement Tracker, mostly because it’s not locked behind a paywall
• Preliminary private payroll prints (damn, that was a lot of P’s) showed a labor market slightly less strong than Dwayne The Rock Johnson for the first time in maybe ever
• Big Dawg Biden and freshman House Speaker Kevin McCarthy began their eventual nail-biter of a debt ceiling debate
• The IMF gets bullish…let’s see how that turns out

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JPow Speaks

Hope everyone had a happy & healthy JPow Day yesterday. We know the stock market sure did.

The first FOMC Meeting of 2023 came and went, and you’re damn right that it lived up to expectations…both literally and figuratively. Going into Wednesday, everyone expected Powell & Co. to raise by 25 bps, and that’s exactly what they did.

The Federal Funds Rate has officially reached its highest level since late September 2007, entering a target range of 4.5% - 4.75%.

Everyone saw it coming, but it seems like Mr. Market did carry just a bit of worry that the hike might come in higher than expected. When they didn’t, markets ripped right at 2 pm when the announcement was released, and the party kept going all the way to close.

But, as long-time apes know, the cryptic language of “Fedspeak” employed following the hike itself is arguably just as important. In addition to all its technical tools, the Fed’s tool of “Forward Guidance” seems to have only increased in importance since Bernanke brought it into the mix during the GFC. Some of the most important quotes from Powell today include…

• “Given our outlook, I don’t see us cutting rates this year, if our outlook comes true”
• “My base case is that there will be positive growth this year”
• “We can now say I think for the first time that the disinflationary process has started.”
• “It would be very premature to declare victory, or to think that we’ve really got this.”
• “And it’s our judgment that we’re not yet at a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes.”

Now, those are just some of my favs. While some of those statements may seem contradictory side-by-side, it’s important to remember that the Central Bank Chair speaks extremely technically with well-rehearsed responses ready to go for the 2:30 pm press conference, so specificity matters. Let’s make a (likely sad) attempt at a TLDR.

Powell basically had 3 important messages to get across. Those include:

• The U.S. economy is seeing the beginning of a stable inflationary downtrend
• The Central Bank is not yet convinced that rates and other monetary policy conditions are restrictive enough to promote sustained, long-term growth
• Rate hikes could continue, and rate cuts are not yet on the table

One quote that didn’t make the above list but is an honorable mention includes when JPow stated that “If we do see inflation coming down much more quickly, that will play into our policy setting, of course.” If it isn’t obvious yet, the Fed is essentially fighting itself.

Basically, they’re saying more rate hikes are likely going to be necessary, but that going forward, they will consider cumulative policy tightening and react to data that gets released between now and March 22nd.

Am I getting the message across? It’s complicated, and I’m not gonna sit here and pretend like I understand JPow’s psyche. Just know things are getting better, but we’re not out of the clear yet. We’re just glad that instead of fighting with markets like they did all last year, the Fed is officially fighting itself.

Peloton Interactive ($PTON) ↑ 26.53% ↑

• One small step for the company, one giant leap for the stock. Peloton is back, and its shares only have one goal: making you regret selling as much as humanly possible.
• Following yesterday’s earnings report, shares surged to a level not seen since last spring. They’re still (very) unprofitable, losing $0.98/sh vs. $0.64/sh expected, but when you’re down so bad, it doesn’t take much to lift you up.
• Revenue, on the complete opposite hand, smashed expectations clocking over $792mn vs. $710mn guesstimated. But even still, the driver of this coked-up day was primarily subscription revenue, which surged 22% for the year. Gross margins also improved to almost 30%, but by the time we realized that shares were already up 15%.
• There’s still a long way to go, but as CEO Barry McCarthy put it, this is a strong sign of a “turning point.” Reports say that ex-CEO John Foley was hospitalized with a concussion after banging his head against a wall for the past 24 hrs straight.

Meta Platforms ($META) ↑ 19.64, AH ↑

• Following Peloton’s playbook of lowering expectations so much that even trash results don’t look like a total dumpster fire, shares in Meta are absolutely popping off after hours.
• Leading into last night’s earnings call, shares rose a cute little 2.79%. When earnings numbers—especially buyback numbers—were announced, it was off to the races. The revenue beat didn’t hurt either, raking in $32.2bn vs. the $31.5bn anticipated.
• User and ARPU numbers fared well, coming in basically in line with expectations. But the real kicker was the $40bn (not a typo) in buybacks the firm has authorized. That’s equivalent to ~10% of shares outstanding and earns the firm a spot in the Buyback Hall of Fame.