FOMC's 2024 Vibe Killer

On Wednesday, we received the latest FOMC meeting minutes to understand the rationale that led to the latest rate decision. [The Daily Peel... ]( January 4, 2024 | Peel #619 Silver banana goes to... [CapLinked. ]( In this issue of the Peel: - On Wednesday, we received the latest FOMC meeting minutes to understand the rationale that led to the latest rate decision. - Eli Lilly and Energy stocks had a ripe day, seeing their share price rise for the day, while SoFi Technologies and Xerox were down for the day. - Fidelity took on the role of being the market and world’s #1 hater yesterday by once again decreasing their assigned valuation of X. Market Snapshot Happy Thursday, apes. We’re only 2 trading days in, and we already have a few choice words for 2024. Although, I guess I should be happy because it’s not like my portfolio would be up anyway—and at least this gives me something to blame. But on Wednesday, the only one to blame was, of course, the FOMC. Fed Chair JPow and the gang released their latest meeting minutes (more below), increasing perceived hawkish sentiments in markets and bringing down the vibe along with equity values. Small caps were the most victimized by this, with the Russell 2k losing 2.68% on the day while the Dow was once again the leader with a 0.76% loss. As much as I hate to say, 2024 has been the year of the Dow so far, leading on all two trading days! But that’s not too hard on days like yesterday when Utilities and Energy are the only 2 of the 11 total S&P sectors up on the day. Over at WSO Alpha, the apes were able to lose less money than the Nasdaq, but then again, “losing less money” is about as much of a brag as getting a D- curved up to a C+. The portfolio shed 0.99%, which is a loss of exactly 99% better than I typically expect them to do on a daily basis. Treasuries, in the meantime, have kept things interesting so far in 2024. The 10-year briefly breached the 4% level yesterday but settled much closer to its starting point for the year at 3.90%. The 2-year moved similarly, albeit the short note has held its ground on the move higher seen yesterday, finishing around 4.35%. Let’s get into it. This Sh*t is Bananas, B-A-N-A-N-A-S [image](=) We're throwing a monkey wrench into your day because you are one click away from a free dream vacation to Thailand! Open an Enterprise VDR through January 31st, and Caplinked will send you on the adventure of a lifetime. Drink icy cold Singha (the most popular beer in Thailand) on crystal clear water beaches, party at the most fun clubs in paradise, and experience the world-famous Monkey Temple, The Prang Sam Yot. It's a new year, so let's go ape-shit. Level up your dealmaking and, most importantly, your life — [See how to claim your free trip today.](=) Banana Bits - The alleged “Return to Value” outperformance hyped up in 2022 turned out to be just that—in 2022—because 2023 was the [second-worst year on record](=) for value stocks vs growth names. - The job hunt is only getting harder, with the number of open roles falling to the [lowest level since March 2021](… if only there was a program to make finding a [job in high finance]() easier… - Not only are they richer than us, but the wealthiest 10% of Americans now hold a [record ~92.5%]( of stock and mutual fund shares. Macro Monkey Says Gimme A Minute One minute you’re kissing the top of a champagne flute while a riled-up crowd yells, “Happy New Year.” The next minute, you’re back at the office watching markets sell off, thanks to classic nonsense from the FOMC. The duality of man strikes again. Unfortunately for us, we’re only focused on the above actions of the next minute—or minutes*, more specifically. On Wednesday, we received the latest Federal Open Market Committee meeting minutes—a.k.a. a glimpse into the ideas, debates, and feelings that led to the latest FOMC rate decision. As a reminder, this release is relevant to the meeting held on December 12th-13th, the one that powered November’s rally through (almost) the end of the year. On Dec 13th, markets were officially sent into the happiest of holiday spirits as the “dovish hold” decision issued by the Fed caused markets to expect—and price in—rate cuts as early as March of this year. "Needless to say, that was much earlier than most the day prior were expecting." Needless to say, that was much earlier than most the day prior were expecting. We can see this thanks to the fellas over at the [CME Group](, where they track market-implied probabilities for rate cuts at upcoming meetings. For the FOMC’s March meeting, markets had been expecting the following probabilities of a rate cut at the identified point in time: - 1 month ago (Dec 1st)—55.1% - 1 week ago (Dec 27th)—73.9% - 1 day ago (Jan 2nd)—69.6% (nice) - As I write this (Jan 3rd, 6:44 pm)—64.7% And it’s more extreme for the May meeting, where expectations for a 50bp cut (or a second cut following one in March) had become basically the base case, sitting at: - 1 month ago (Dec 1st)—41.9% - 1 week ago (Dec 27th)—72.2% - 1 day ago (Jan 2nd)—64.9% - As I write this (Jan 3rd, 6:44 pm)—58.1% What we’re seeing is that the result of the Fed’s Dec 13th meeting and the accompanying dotplot, which suggested at least 75bps of cutting in 2024, essentially caused markets to price for at least one cut by March and two by May. But, according to the actual minutes of the meeting, that glide path is much less certain than markets had previously been expecting, hence the drop in probabilities seen yesterday. "... there were just a few lines out of the FOMC that made the preexisting outlook F*cked." And, as it always seems to be, within the 10-page document, there were just a few lines out of the FOMC that made the preexisting outlook F*cked. For instance, when commenting on inflation, the Fed said, “[inflationary and rate] outlooks were associated with an unusually elevated degree of uncertainty…” and as a result, “... the economy could evolve in a manner that would make further increases in the target range appropriate.” Overall, the message was the same, suggesting the FOMC will be “maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time.” Translation: we’re gonna hold rates high until we figure out what the hell’s going on. Leading up to the Friday jobs report, this was the first real rate news we’ve gotten since that Dec 13th meeting. Activity in the labor market that had largely been the driver of inflationary pressures very well could add even more to the “unusually elevated” uncertainty the Fed is feeling. Stay tuned. What's Ripe Eli Lilly (LLY) $617.70 (↑ 4.31% ↑) - The rich get richer, the big get bigger, but with Eli Lilly’s new drug Zepbound, the obese get healthier. Eli Lilly managed to carry its own weight higher yesterday despite general malaise in the overall market. - The country’s largest healthcare company and 9th most valuable stock moved higher thanks to a back-to-back alley-oop thrown to them from BMO and BofA. Starting with the latter, BofA analysts named the firm a “Top Pick” among healthcare stocks along with Merck (MRK, +1.35%) on Wednesday. - At the same time, analysts at BMO pointed out that Zepbound—an obesity treatment that arrived late to the game compared to Novo Nordisk’s Ozempic and Wegovy—is already taking market share from these two first movers. Energy Stocks (XLE) $86.12 (↑ 1.63% ↑) - Once again, when all else failed, energy stocks came in to save the day. Rising oil prices and increased macro uncertainty might not be good for anyone, but it sure is good for big oil bulls. - Greta Thunberg was reportedly seen attempting to wipe tears from her eyes with the same material they make those damn paper straws out of as a result of investors seemingly buying up big oil on a day that macro uncertainty spiked. - Energy and utilities were once again the only sectors to move higher on the day, typical when traders actually admit they don’t know what’s going on in the world (although, we’d question if they ever really do). - Oil prices moved higher on the day as well, but not by much. What's Rotten SoFi Technologies (SOFI) $8.31 (↓ 13.89% ↓) - It’s downgrades-galore as we enter 2024 (no rhyme intended), and SoFi found itself as the latest victim. Although, that does put them in the same league as Apple after the Barclays downgrade on Tuesday. - And, of course, being in a league with Apple is like getting asked to throw the football with Tom Brady. But, when Apple falls just 3.5%, and SoFi falls nearly 4x that much, we’d say it’s a tough thing to get too excited about. - Shares tumbled for the digital banking, lending, and investing provider as Keefe, Bruyette, and Woods researchers downgraded shares on a view that pending rate cuts will hurt the firm’s fundamentals more than a decrease in the discount rate will help their share price. - Tough scene, and there was a whole lotta technical detail in the report, but to many, these researchers seem to only be smoking Keefe rather than working at the company. Xerox (XRX) $15.84 (↓ 12.15% ↓) - Ahh, I remember the days when firing your employees was the cool, hip thing to do. Unfortunately, it appears Xerox was late to that party. - The 188-year-old printer and digital documents company announced on Wednesday a plan to cut ~15% of its workforce amid a restructuring to its operational model. And those cuts are coming ASAP, with 3,075 employees set to be on the chopping block this quarter. - Xerox is going back to the good ol’ days of focusing on its core printing business, and needless to say, investors generally aren’t big fans when companies intentionally reduce their field of operations. Thought Banana Solving for X For most people, asking them to “solve for x” is almost certain to induce sweaty palms, teary eyes, and probably even a well-deserved punch in the face for whoever’s asking. But for Fidelity, solving for X seems to be one of their favorite pastimes. X, the company formerly known as Twitter, has been one of the most polarizing businesses in, well, business ever since Elon Musk bought the thing for $44bn. Anyone who made the mistake of mentioning this at their Thanksgiving dinner learned that one the hard way. To fund part of the $44bn purchase, Musk used funds provided by Fidelity, one of the world’s largest and most dominant asset managers, and repaid them with shares in the newly-owned company. As Fidelity now holds shares in the private corporation that is X, it’s their legal responsibility to make sure the value of those shares accurately reflects what the firm believes to be a “reasonable” valuation. "... Fidelity took on the role of being the market and world’s #1 hater yesterday by once again ..." Alright, now that the boring stuff is over, we can get to the juicy part—Fidelity took on the role of being the market and world’s #1 hater yesterday by once again decreasing their assigned valuation of those X shares. We’re pretty sure Musk’s Tweets (Xeets? Maybe just Posts?) still have to be okay-ed by a rep at Tesla, so he hasn’t said much on this, but we can’t imagine Mr. “Go F*ck Yourself” is all too happy. This isn’t the first time Fidelity has put on their hater hat, either. Back in November, their X holdings were devalued as well, since the firm reassesses their X valuation quarterly and publishes changes with a one-month lag. Now, according to Fido, X is worth about 28.5% of what Musk paid for it—a 71.5% decline in valuation to just $12.54bn. Ouch. And don’t go all Elon-stan on me and say they’re being haters just to hate. Fidelity is certainly incentivized to value their shares as high as they reasonably can, but they’re also heavily incentivized not to break the law… which, apparently, not downgrading X’s valuation would have done. "Fidelity is certainly incentivized to value their shares as high as they reasonably can, but they’re also heavily incentivized not to break the law ..." Musk officially bought Twitter on April 14th, 2022, the date the $44bn valuation was assigned. Since then, competitors have seen their shares perform, well, just a little differently, including: - Snap: -52.46% - Meta: +63.89% - Pinterest: +61.82% While Snap hasn’t done so hot either, X is still by far the worst performer among the group. Traffic and engagement might be up, but it turns out that even while that’s going on, telling your customers to “go f*ck yourself” might not have been the savviest business move, at least in the short term. But damn, it sure was funny. The Big Question: How long before Musk is able to make his X investment a profitable one, if ever? Will Fidelity mark the value of their shares down again? When will Musk comment on the devaluation, if at all? Banana Brain Teaser Yesterday — Jane has twenty bills in her wallet. She has a total of $80. If she has two more $5 bills than $10 bills, and four more $1 bills than $5 bills, how many bills of each does she have? Answer She has ten $1 bills, six $5 bills, and four $10 bills. Today — A souvenir vendor purchased 1,000 shirts for a special event at a price of $5 each. The vendor sold 600 of the shirts on the day of the event for $12 each and 300 of the shirts in the week following the event for $4 each. The vendor was unable to sell the remaining shirts. What was the vendor’s gross profit on the sale of these shirts? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “I'd rather be optimistic and wrong than pessimistic and right.” — Elon Musk How would you rate today’s Peel? [All the bananas]() [Decent]( [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](. [ADVERTISE](=) // [WSO ALPHA]( // [COURSES]() // [LEGAL](=) Don't want The Daily Peel? [Unsubscribe here](=). 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