💼 The Fed's Dual Mandate

The Fed’s dual mandate is going well… how long will it last? April 8, 2024 | Peel #683 Silver Banana goes to... [SRS Acquiom. ]( In this issue of the Peel: - 🤔 The Fed’s dual mandate is going well… how long will it last? - 📈 Amazon fires hundreds of AWS sales team… but their stock goes up? - 🚨 70% of S&P 500 companies have issued negative EPS guidance... Market Snapshot 📸 Banana Bits 🍌 - Mutual funds continue to [break inflow records in 2024]() - It’s honestly impressive how much [Boeing planes suck]( - Billionaires and Bernie Sanders teaming up? This has [gotta be good](=) - Congrats to South Carolina on going undefeated, defeating demigod Caitlin Clark in yesterday’s [women’s national championship game](=) Paradise: A World Without VDR Invoice Shock “WTF? How did the VDR bill get so high?!” It’s not something anyone expects to say. And yet there’s a real chance that somewhere in the world, someone is saying something a lot like it right now. The reason is simple: unnecessarily complex VDR pricing models. Pay per page? Per gigabyte? Per month? Per user? Does it really have to be this hard? No, it really doesn’t. All it takes to avoid the trap (and the shock that comes with it) is to go with a truly transparent VDR provider. Yes, they exist—and SRS Acquiom can help. A great place to start is with this brief overview of what to look for—and what to steer clear of—in your search for the right VDR partner. Efficient functionality, secure storage, and consistent service levels are all no-brainers when it comes to selecting a VDR. Transparent, flat-rate pricing belongs on that list, too. [Start your journey to paradise.]( Macro Monkey Says 🐒 Managing Their Mandate Doing two things at once is tough. We apes know how hard walking and chewing gum at the same time is, and don’t even getting started on modeling while Zynning. But, unfortunately for them, the Fed’s “doing two things at once” is way less chill than the Zyns in your pocket—and they’re legally mandated to do it. The Fed’s job is to maintain 1) price stability and 2) maximum employment. And yes, those two economic forces happen to pull in completely opposite directions of each other, so it makes for a fun challenge. But somehow, JPow and the rest of the gray-haired dorks at the FOMC are managing to pull it off. Friday’s jobs report got the apes going on Friday, so let’s get into it. The Numbers In March, the U.S. economy added 303k jobs, much higher than the 200k expected and the most since last summer. [Source]( At the same time, unemployment fell to 3.8%, maintaining the near-half-century low we’ve been sitting at since before Drake released that trash album Certified Lover Boy. Meanwhile, both the labor force participation rate and the employment-to-population ratio changed little. As we discussed last week, we know the U.S. has a tough time counting its own damn population, but growth here is giving JPow a big helping hand. Strong population growth in 2023 and into this year—both legal and illegal—has increased the labor pool. That increased supply lowers price pressures (a.k.a. increasing wages) and in turn, plays a part in getting inflation to chill tf out. [Source]() I’m not sure if I’m using this expression correctly, but this is a true double-edged sword—in order to slow inflation, we need to relax price pressures on labor prices (a.k.a. wages). To do that, we can 1) kill job demand or 2) increase labor supply. For long-term economic growth, the latter is clearly favorable. Now, the population growth theory of getting inflation to chill tf out (the theory’s official name, btw) is still just that, a theory. But, proven or not, this gives JPow a lot more wiggle room. The Takeaway? In order for labor markets to reduce their inflationary pressures without triggering a recession, labor supply not only has to be growing, but growing commensurate with labor demand. Otherwise, we see falling wages. [Source]( And falling wages mean we can’t participate in the great American pastime of spending money. But don’t confuse the above chart with “falling wages”—this shows slowing wage growth. Still sitting at 4.1%, easily outpacing consumer inflation, the risk here remains primarily to the upside. Unfortunately for JPow and his band of dorks, there’s no “end date” like an earnings report or some sh*t where investors reassess these numbers. It’s a constant process, so while we can’t be sure what’s coming next, let’s at least enjoy the fact that right now, the dual mandate is lowkey on fire right now. What's Ripe 🤩 GE Aerospace (GE) 📈6.1% - Every litter has its runt. But for the sprawling litter of a conglomerate that was GE, seemingly everything was the runt… except aerospace. - Continuing GE’s drawn out disassembling of its business units, GE Aerospace recent became its own publicly traded company, keeping the GE ticker. - And, as one of its first solo acts, the firm jacked its dividend by 250%. At least some firms remember that shareholder value is what truly matters. Amazon (AMZN) 📈2.8% - As if there’s ever been a bad time to be bullish on Amazon, analysts are getting more hyped with renewed growth expectations for AWS and online retail. - A pair of surveys that went around the Street show that analysts expect AI to drive accelerated growth for both of Amazon’s key business units. - Naturally in response, Amazon is also firing “several hundred” roles within AWS’s sales team. Probably because like cocaine, the thing kinda sells itself. What's Rotten 🤮 Enphase Energy (ENPH) 📉7.1% - Clearly, the Street heard that our next deep-dive report for [WSO Alpha](=) is on Enphase… and then dumped shares immediately. - This stock has been brutalized for a while, down over 42% in the past year, as the residential solar market has all but evaporated. - On Friday, Citi analysts said they expect that to continue. The bank downgraded shares and cut their price target by a tiny amount, from $126 to $121. Tesla (TSLA) 📉3.6% - For a while, the good news was bad news for the U.S. economy. And now, it seems like that trend is moving to individual stocks, especially Tesla. - There was a lot going on for the firm on Friday. Losing key AI employees to Elon’s other companies was the bad news, but the good news… - Came when Musk announced that Tesla’s robotaxi service would launch on Aug 8th. Shares popped in response, so maybe good news is still good news in 2024. Thought Banana 🤔 Riding Negativity Russian hockey goalie Ilya Bryzagalov famously once said, “why you have to be mad?” Since then, I’m sure you and your friends have quoted him—on average—about 75 times per week. And this week, we have a similar question for S&P companies. What’s Happening? Slightly over 70% of S&P 500 companies that have issued guidance for the first quarter of 2024 have issued “negative” EPS guidance or expectations for earnings to contract on a quarterly or annual basis. [Source]( Instead of asking why they have to be mad, we’re asking, “why you have to be sad?” This is the second-highest percentage of companies issuing negative guidance since Q1 2016, although it is tied with Q2 2019. That might sound bad, but then the natural question of “well, what quarter had the first highest percentage of negative guidance?” arises. The answer? Q1 2023… and we all know how the rest of that year went. Following all that negativity, the market gods blessed us with an annual return of 24.8%. Even after Q2 2019, the S&P 500 finished the year up 11.4%—and that was even with the U.S. and China ramping up their trade war. So, while these companies are feeling a little downbad heading into Q1 earnings szn beginning later this month, the last few times this has happened, it’s almost like markets didn’t even notice. However, the simple fact of issuing negative news could itself be driving this dynamic. Basically, these firms are already setting low expectations for themselves, experiencing share price declines on the projection rather than when the results are released. That’s been the strategy that I have used with my parents for years. Set the lowest expectations possible so that if/when you beat them, the reaction is even stronger than it otherwise would be. Only difference is that I’m still waiting to beat an expectation. [Source]( When we break it down by sector, we can see that 65% of the companies issuing negative guidance are in just 3 sectors—technology, industrials, and healthcare. Even further, nearly 1/3rd come from tech alone. The Takeaway? The headline “second-most companies issuing negative guidance in 5 years” sounds scary. But as usual, if we take even a 5-second look under the hood, we can see that this fear is way overblown. So, to answer our friend Ilya’s modified question, companies don’t have to be sad, and neither do our portfolios. Maybe they really will live up to the sh*ttiness they’ve all projected for themselves, but that would certainly be outside the norm. 💭 The Big Question 💭: Can we expect companies to perform as tragically as they expect? Will the tech sector really see the worst EPS performance, as is implied in these projections? Banana Brain Teaser 💡 Previous 🗓 If the arithmetic mean of the four numbers 3, 15, 32, and (N+1) is 18, then N equals what? Answer: 21 Today 🕐 Abdul, Barb, and Carlos all live on the same straight road, on which their school is also located. The school is halfway between Abdul’s house and Barb’s house. Barb’s house is halfway between the school and Carlos’s house. If the school is 4 miles from Carlos’s house, how many miles is Abdul’s house from Carlos’s house? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “[In the long run managements stressing accounting appearance over economic substance usually achieve little of either.](” — Warren Buffett How Would You Rate Today's Peel? 😁 [All the bananas](=) 😐 [Meh]() 😩 [Rotten AF](=) Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA]( // [ACADEMY]( // [COURSES]( // [LEGAL]() [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353