We Talkin’ Bout Profits?

Company profits GREW Silver Banana goes to... [image]( Market Snapshot Turns out all-time highs weren’t just a feature in 2021. Yesterday, the S&P 500 set yet another record high, approaching the 4,800 level, while other major U.S. indices had a solid day as well. The Nasdaq rose 1.2% while the Dow pushed upward 0.68% and the S&P followed with a 0.64% gain. Let’s get into it. Let’s get into it. Macro Monkey Says The Labor Market is Hard — 2021, a year that shook the labor market like no other. Okay, maybe 1942 would have something to say about that with the U.S. entering WWII, but work with me here. Following the onset of the COVID-19 pandemic in early 2020 (2 years ago, if anyone’s counting) and the subsequent dumping of cash across the entire economy, U.S. workers have faced a confusing mixture of woos and worries when it comes to their occupation. We won’t get the latest data until Friday, but the December jobs report is projected to show an increase of 405,000 workers. Of course, these are economists, who spent more time last year revising estimates than actually forecasting them, so who knows. A strong labor market would provide a ballast to the Federal Reserve’s plan to raise rates three times in 2022, likely beginning in just a few months as the asset tapering process ends in March. It’s hard to raise rates when no one’s hiring already, but when businesses are on their hands and knees begging for workers, it becomes a tad easier. There are a myriad of reasons workers have refrained from heading back to the job but of course, some of those, like COVID worries, apparently, are winding down more than others. Further, the U.S. economy is already sitting at near-historical low unemployment rates. As the labor market participation rate ticks up, the unemployment rate relies on available jobs to match the skills and desires of citizens that are currently counted as out of the workforce. The only way to find out is to stick around and see what goes down in the New Year, kicking off this Friday with the latest job numbers. We Talkin’ Bout Profits? — Yes, we are talking about profits. Unlike what AI thinks about practice, profits as it turns out, are quite important…and quite large. Last year, companies in the S&P 500 grew profits 45%, the highest growth since at least 2008. Even crazier than that ridiculous growth is a factor derived partially from that figure, the overall S&P 500 p/e ratio. As we’ve spoken about before, p/e ratios can be thought of as a quick measure of company valuation. A good way to frame this ratio is the amount of money you’re paying per $1 of the company’s earnings, e.g., a p/e of 25x means you’re paying $25 for $1 of earnings. The S&P 500’s p/e ratio shrank in 2021, despite surging by over 15% for the third straight year. This means that, on a relative historical basis, stocks are cheaper now than they were at this time last year. These lower valuations have led some analysts to believe this gives even more reasons to be bullish in 2022, especially in more value-oriented names. But, analysts are also keen to point out that the party can’t last forever. Profits grew sizably largely due to year-specific factors like pent up demand and the wealthiest consumer base of all time (thanks, stimulus checks). As inflation continues and rate hikes loom, don’t expect to read the same headline at this time in 2023. PUT DOWN THE MOUSE [image](=) Your junior bankers still can't model? "We know how it goes. The bright eyed and motivated analyst you hired a few months ago is still reaching for their mouse and staring at #REF ERRORs like a deer in headlights. Now you're stressed, the analyst is stressed (planning their exit to PE or some startup) and the client is pissed since they expected the model yesterday. Wall Street Oasis can help: this isn't the financial modeling training you grew up on. We cherry-picked incredible instructors from our community of over 900,000 members and built our courses with the ADHD-Instagram-Tinder-obsessed 22-year-old in mind. In other words, your team will actually engage and retain the material (no shit, gamification works). [For options and pricing - click here](=) There's a reason in just the last 9 months, over 40 firms have made the switch from other training companies that overcharge and put your team to sleep... Ready for a more skilled junior team? Book a quick 10-min chat with the Chief Monkey and Founder of WSO [right here](=). What's Ripe Tesla ($TSLA) — If it wasn’t clear enough, consumers have overwhelmingly come to the decision that EVs are valid. The biggest winner as a result of that decision, of course, is Tesla, whose shares popped 13.5% yesterday on yet another blowout quarter of deliveries. Musk & Co. reported 308,600 vehicle deliveries in the 4th quarter, a ~45,000 car beat of analyst expectations and a 70% jump from the same quarter last year. Earnings on those deliveries won’t come out until the end of the month, however, reporting deliveries has become a mini-earnings date at Tesla anyway, and the firm did not let this one go to waste. Reopening Plays ($AAL, $NCLH, $M) — If you were positioned to gain from the reopening trade Monday morning, congratulations, you’re a little richer yesterday. Airline, cruise, and retail stocks almost ubiquitously had a great day. American Airlines led the industry by rising 4.4% while deeply embattled retailer Macy’s saw a 4.6% gain and Norwegian Cruise Lines, despite shade thrown from the CDC last week, put up gains of 6.9%. Omicron who? Apple ($AAPL) — I know, three Ripe Stocks is not the norm here at the Peel, but we would be remiss to not include this historical event. Apple Inc, as of 1:50pm ET, has officially reached a market cap of $3tn, the first stock in history to do so. Tim Cook managed to beat market cap rivals Microsoft and Saudi Aramco to this feat, solidifying themselves as the most valuable company in the world. What's Rotten Moderna ($MRNA) — When reopening plays are up, vaccine shares are down. Exhibit A, Moderna falling a precipitous 7.5%. Not a great way to start off the new year, but after two years of being a top stock in the S&P 500, maybe a reversion to the mean could be expected. Investors appear to be looking beyond current Omicron cases and towards a COVID free future. And what does a COVID free future imply? That’s right, a COVID vaccine free future as well. MongoDB ($MB) — Volatility can be your best friend…or literally the worst possible thing. MongoDB yesterday found themselves, along with other B2B software providers, on the very wrong side of the coin. Shares dipped 7.9% on a day without much news around the name, suggesting lingering volatility from the high-growth selloff remains. Fellow B2B software makers CrowdStrike, Datadog, and Hubspot all sank as well. Thought Banana: M&A = More & A lot more — We’re not done reporting on financial records that were broken in 2021. M&A, aka mergers and acquisitions, saw an all-time high last year, which in hindsight, makes a lot of sense. Deal-making was absolutely on fire, reaching a global total surpassing $5tn for the first time ever, hitting a total notional value of $5.8tn. The previous record, set in 2007 (oof), sits at $4.55tn, so a nearly 19% beat of the all-time record is truly remarkable. Low rates, soaring stocks, and accommodating monetary policy were the main drivers of this growth. All of this activity led to Wall Street bankers, as usual, being the big winners. Barron’s pegs the total earnings for these banks on this M&A activity at $157.3bn, a blowout record as well. And thank god, I for one was extremely worried that the massive pay raises banks shelled out to bankers wasn’t going to be enough. Wise Investor Says “The time to buy is when there’s blood in the streets.” — Baron Rothschild Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? Sign up for the WSO Daily Peel [here](. [ADVERTISE]( // [WSO ALPHA]() // [COURSES](=) // [LEGAL](=) Don't want The Daily Peel? [Unsubscribe here](. Click to [Unsubscribe]( from ALL WSO content Wall Street Oasis (IB Oasis Corp.) 20705 Saint Charles St Saratoga, California 95070 United States