Happily Ever After? | The Daily Peel | 1/3/22

Silver Banana goes to...



Market Snapshot

Happy New Year. After a great year for returns once again in 2021, major U.S. indices closed the year with more of a whimper than a bang. All three had rocky days and ended up closing down, with the Nasdaq losing 0.61% while the S&P fell 0.26% and the Dow slid 0.16%.

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Let's get into it.


Macro Monkey Says

One Hell of a Year - "Overvalued", "too highly priced", and of course, "bubble" were three common words and phrases used to describe the price levels of the S&P 500 and other major stock indices going into 2021. This take was often used as a scapegoat for a bearish outlook in returns for the year. Now, I won't say that this outlook was utter stupidity on full display or the highest form of idiocy known to man or anything like that. All I'll say is that this outlook was completely f*ckin wrong.

That is not an opinion, it is a fact. Let's check the tapes. For only the 6th time in history, the S&P 500 came out on top of the three major U.S. indices. Returning 26.9%, the S&P handily beat the Dow's 18.7% and the Nasdaq's 21.4%. An evenly weighted average of the three major U.S. indices gives an investor a return of 22.3%. Even with the highest inflation reading in over 30 years, that investor did pretty well.

Of course, heading into the year, the bearish outlooks described above had merit, as they do today. Price levels are well above historical averages and 2021 marks three years in a row of +15% returns for the S&P when the historical average annual return since the early 20th century is somewhere between 7-9%, depending on if you count dividends. Arguably the most important takeaway here is the reiteration of the ridiculously famous John Maynard Keynes quote that says "the market can stay irrational longer than you can stay solvent."

As we enter the 2022 trading year today, old wisdom like this is important to bear in mind. Place your bets apes, and tread carefully in betting against the U.S. economy.


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What's Ripe

Home Depot ($HD) - With depressed volume to close out the year, major moves in relevant companies were spread far and wide. Still, Home Depot managed to move a sizable 1.24% as investors get more and more excited over housing trends spurring growth at the company. Shares killed it in 2021, returning 56.2% and easily beating it's benchmark index, the S&P 500.

Consumer Staples ($XLP) - Leading the day among the S&P 500's 11 GICS sectors on Friday was Consumer Staples. Shares in companies like Walmart, Costco, and Coca-Cola outperformed to close the year likely as investors position themselves for inflation and rate hike concerns. Historically, companies with strong demand regardless of economic conditions, like consumer staples, outperform during high inflationary periods and when the Fed hikes interest rates. With that, the S&P consumers staples ETF XLP closed Friday with a solid 0.68% gain.


What's Rotten

Peloton ($PTON) - I would say things can't get much worse for Peloton after the year it's had, but as the pandemic wanes away, the sh*t show seems to just be piling up. Shares lost another 3.9% on New Year's Eve, dancing around it's 12-month low after losing an abysmal 75.5% in 2021. This really is the ultimate pandemic story, as analysts far and wide have indicated a loss in consumer interest in the firm and potentially at-home fitness in general now that we can hit the gym together again. On Friday, another sell side firm, JMP Securities, downgraded the stock once more, stripping Peloton of any last pieces of joy they may have had heading into the New Year.

Cruise Stocks ($NCLH, $RCL, $CCL) - There's really not many things that could be worse for a company's stock price than a U.S. government agency coming out and saying "hey, don't use this company's services." Well, that is exactly what happened to the cruise industry last week. Shares in Norwegian, Royal Caribbean, and Carnival all sank on a CDC advisory statement literally telling Americans to not go on cruises. Still, Carnival's mild 2% fall was the largest loss in the group, so clearly the market wasn't too rattled.

Thought Banana:

A Falling Giant - In any group, someone's always gotta be the worst. Unfortunately for Disney, the company was officially the worst performer of 2021 among the 30 companies in the Dow Jones Industrial Average.

Given the state of our world now compared to the pre-pandemic vibe, this is really no surprise. A torrent of troubles have left the Mouse House and its shares beleaguered, under constant duress in one form or another. For starters, closing down their world famous theme parks and limiting capacity within those as well as other iconic Disney experiences, like cruises and seats in movie theaters, certainly hurts. Meanwhile, the new-age streaming service Disney+ released in late 2019 hit a hard plateau in user growth and new content. 

As a result of these and ongoing struggles, shares are down over 12% YTD while the aforementioned index is up over 20%, meaning the Mouse House underperformed by over 32%. Absolutely disgusting. But, an unlikely hero by the name of NFTs and other crypto technology promises to carry Disney from the depths of despair. The firm's IP and other core advantages likely create enough of a moat to weather the storm. And, as we all know of the 98 year old company, if anyone can mount the turnaround needed here, it's Disney.

Wise Investor Says

"Fear incites human action far more urgently than does the impressive weight of historical evidence." - Jeremy Siegel


Happy Investing,

Patrick & The Daily Peel Team

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