This is a weekly market update (I post daily to TikTok). I publish these once a week (beta phase), as well as single stock pieces (1-3x a month) and macro deep-dives. I also publish on TikTok, Youtube, and Twitter!
This week was busy! Lots of economic data, lots of earnings, and my laptop from college gave a final, dramatic goodbye.
The market was a little bit tired today, with month-end repositioning contributing to some of the weakness. Indexes were still up on the week, with the S&P gaining 5.2% on the month (and the SPY hitting that 420 number, before dropping below.)
Here is the YouTube version (will be posted tomorrow or Sunday).
Policy: The Fed Won’t Budge
This was a big week for economic data. Powell spoke, we had some key numbers hit, and the Big Boyz all had earnings.
Powell reiterated that inflation is purely transitory due to base effects (tough to compare to the lows of last year) and temporary supply chain bottlenecks
The problem here is structural - sure, the supply chain bottlenecks could be temporary - but if they are from decades of underinvestment, that’s a different story
When asked about Dogecoin, Powell noted that things have gotten frothy in the market - highlighting vaccines and fiscal policy as the main drivers, but also saying that monetary policy might play a role
The Fed held rates near zero, as expected. Employment still needs to fully recover, and is still well below pre-pandemic peaks.
Biden also released his $4.1tn plan -
Big takeaway? Fiscal policy is full steam ahead and the Fed won’t change path. They will continue buying bonds. They will continue to keep rates low. The adage of “Don’t Fight the Fed” is a truth that can’t be circumnavigated.
Powell will let us know when it’s time to start thinking about thinking about it. And that’s that.
Economic Data: Big Numbers Week
Personal savings back up to ~$6T - lots of cash waiting to find a home
The personal saving rate (% of disposable personal income) climbed from 13.9% in February to 27.6% in March
So it’s up 21% in the month of March - primarily from stimulus checks and job growth - but interesting parallel to increasing worries of labor shortage and wage inflation.
GDP rose by 6.4% this first quarter, above an estimated 6.1%
GDP primarily supported by consumer spending (~70%)
Spending on goods > spending on services - meaning that as we reopen, there is still significant upside to people going out more
The Stock Market
Things were not very green today, due to the broad month-end repositioning.
But for the week, we did see some photosynthesis -
Apple and Microsoft got pummeled
GOOGL, FB, and AMZN were the market darlings
Semiconductors beat up on shortages (with the trickle-down impacting Ford, other autos, and eventually hardware companies)
The Big Techies
Over 45% of the S&P 500 reported earnings this week, including the Big Boyz. Amazon, Facebook, Apple, Microsoft, and Twitter, amongst many more all went up to bat.
Market Mood: Even if stocks beat earnings, the market doesn’t always reward them (Microsoft a notable example here). Facebook was the big winner - showing how picky the market can be.
Google
Picture this - YouTube’s (one segment of Google) is on a revenue pace of ~$30bn for 2021 putting it on par with Netflix’s 2021 revenue forecast ($29.7B)
Google just broke through all expectations - 80% higher than any analysts were predicting.
Amazon beat too
Almost everything on Amazon is an ad - and they make ridiculous amounts of money from that.
They beat on earnings but were relatively underloved by the markets (or, a lot of their growth is already priced in).
Facebook
Facebook has tremendous leverage. With an operating margin of 43%, there is nothing that this company can’t do.
Their VR sales are up 146% - Zuck reiterated several times that this was where Facebook was going to focus. I don’t think that they are a social media company anymore - they are trying to build an entire “computing platform”.
Their pricing power for ads improved as Apple makes things harder
Apple
Apple had tremendous sales growth. Mac and iPad led the way (both +70%). Apple’s cash pile is tremendous - and continues to grow.
Buffet is happy - his position in Apple is increasingly large
Risk Management: They were able to hedge against the semiconductor woes that are plaguing other companies.
Ford’s steep loss (~$2.5bn adverse effect) from the shortage shows how important planning ahead is - and that is what Apple is good at (comes along with planned obsolescence)
Apple is on course for ~$400bn in buybacks - authorizing an additional $90bn. $400bn is equal to the market cap of Walmart, Nvidia, Disney, Home Depot - Apple is BIG.
Tesla
Big news with their Bitcoin sale - they purchased $1.2 billion BTC, Elon told everyone of the BTC purchase, which caused BTC to rally. They then sold $101mn of BTC, and had an excellent quarter in revenue, partly due to the BTC sale
Elon is going on SNL soon. So will be interesting to watch what the stock price does then (since it doesn’t seem to trade too closely to fundamentals)
Twitter
Twitter is the company that could be so many things but isn’t any of them (yet.)
I love Twitter. I want them to do well. But man, they make it hard sometimes.
You could, Twitter, but sometimes, you don’t. Daily average users are building - hopefully they build something with them!!
Semiconductors and Shortages
I wrote a piece about commodities here - there will be 1 (one) mention of lumber in this piece
NIO and CAT both came out to talk about the semiconductor worries.
I think that this is just the beginning of a potentially very big problem - lots of capacity issues beginning to show up for all sorts of items in key production processes.
Crypto
After experiencing quite the selloff last week, crypto is back in action.
JPM has a Bitcoin fund now. Bitcoin won’t be banned.
The Demand for Return
What really is froth? Everyone points to Dogecoin or SCAMCOIN as an example of market froth - or the volatility of GME and other meme stocks (MVIS, recently).
It’s everything tbh - I think memes show up in traditional areas too. The current risk/reward profile for the CCC bonds is incredibly unattractive (on the surface).
“Risk premiums on CCC bonds dropped below 500bps late Monday, a level only seen twice in the last two decades -- the years leading up to 2008 financial crisis & right before the dotcom bubble burst.”
Is the risk gone? The market is barely compensating for risk in these relatively risky companies - and maybe that’s because there isn't any.
The Fed remaining heavily involved provides a backstop for these companies. And the market knows that.
Can companies still fail? That means that there is little to no risk of company failure either - defaults are at all-time lows. The market is almost complacent in letting these zombie companies exist
A Bit of Return, for a Treat: But investors still want them - yields are down to ~5-8% on the riskiest balance sheets in the world because people WANT that little trickle of return. And they are willing to take on significant “risk” to try and achieve that.
Flirting with levels not seen since the GFC.
The Housing Market
Every time I get on Twitter, someone is talking about how their friend just paid 4x listing price for a midsize ranch 30 mins outside of the city. There are a few drivers behind this:
First, a contrarian POV: People are actually headed back to the city.
“$EQR a pure-play REIT for Class A Coastal apartments substantial signs of improvement as cities begin to reopen and affluent renters return…we see considerable positive momentum"
But people still want homes. Partly because of the pandemic (people want space) and the age up of the Millennials - demand for homes is at an all time high - and supply and demand reflects that.
Of course, the price of lumber doesn’t help matters much.
And they are using that home as a loan. Potentially to buy a second home.
Conclusion: Everything is Big
People will often talk about big government, or that corporations are too big (should $AMZN really have a $1.7T market cap?) - but EVERYTHING is big.
There is a lot of money trying to find a home - and things are growing. The U.S. population is increasing at a decreasing rate, but it’s still increasing. It makes sense that things would reflect that.
Is there a prime relationship between the below variables? I am not sure. Should stocks be bigger than Nominal GDP? Maybe not. But the thing is Everything is Big
We have to get used to the financialization of everything (why crypto and meme stonks are on a tear, people want to make money / believe in a different future) but most of the Stock Market Bigness is driven by access to information and access to financialize things. That’s not changing anytime soon.
Next Week
As always, lots more to come. Earnings, economic data, the market never stops ticking. But this was a big week. Won’t be surprised if market takes a bit of a breather after this one.
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
Hey Kyla, I notice you get far fewer likes on these articles than your videos but please keep writing them, they're good!
What are some things that Twitter could be doing, but isn't, but realistically might? I'm tempted to accumulate after it broke through the 20W SMA.