Have You Heard This Wall Street Myth?

In this issue of the Peel:

• 🔻 Markets received a beatdown at the hands of none other than Mr. Jay Powell
• 🙃 Tech heavyweights like Alphabet, Microsoft, and Amazon are dragging down markets
• 🔮 The January Barometer test says that we’re in for another solid trading year

Market Snapshot 📸

Banana Bits 🍌

• “It’s me... Hi... I’m the problem” said Boeing’s CEO after admitting fault in the doorless plane fiasco
• Elon Musk won’t be getting a girthy $56 billion paycheck after a judge ruled it “unfathomable”
• The Disney vs. DeSantis catfight appears to be coming to a close, according to the Florida courts
• US creditors are planning a “treasure hunt” into Rudy Giuliani’s finances, which is sure to keep us all entertained for the next several months

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Macro Monkey Says 🐒

The People vs Jerome Powell

Well, that was a big nothing-burger!

In a classic case study for why you should always lower your expectations, markets got rocked after Jay Powell said it was unlikely that the Fed would cut rates in March.

To be fair, that is pretty consistent with his messaging so far. The Fed will never telegraph its decision beforehand (they’re too coy for that) but will often provide hints as to what members of the board are thinking.

Unfortunately, overzealous investors who all of a sudden turn into body-language and lie detector experts parse through Powell’s statements to look for any secret codes as to what the Fed will do next.

They’ve All Convinced Themselves…

That rate cuts were on the way, boosting market sentiment. Rate cuts are positive for the equity market for several reasons, the main one being that lower rates for banks flow down to the consumer and make everything cheaper, from taking out a car loan to mortgaging a house.

This boosts overall economic activity, and of course, the more money we spend, the better the earnings for your everyday companies. And better earnings mean a higher stock price.

Sadly, That Never Materialized...

Instead, Powell gave a pretty definitive statement to the contrary, sending the S&P down 1.61% and the NASDAQ down 2.23%.

Of course, hindsight is always 20/20, but looking back on it, there was probably never any real reason to think that the Fed would cut in March. They’ve stated multiple times that inflation needs to get to 2% before that happens, and we’re still far from that mark.

Still, traders were pricing in a 50% chance for a hike. Perhaps traders are more spiritual than I thought and were trying to manifest their desired outcome into existence?

Still, your hopes & desires are truly no match for the man who can send markets on a roller-coaster ride with a mere eyebrow crease. Don’t take my word for it. Just check out this chart from a few months ago of how volatile stocks can get while he’s speaking.

Source

What's Ripe 🤩

Paramount Global (PARAA) 📈21.6%

• The sleepy old company that used to play reruns of all your favorite Nickelodeon shows just got a jolt of new-age excitement. The most it has seen in a long time.
• Media mogul Byron Allen put in an offer to purchase the conglomerate for $14 billion dollars, or $28.58 per share, a whopping 50% premium to its recent trading levels.
• The company has been dating around for the past year after publicizing the fact that they were exploring a sale. So far, Allen has put in the biggest offer as a testament to his confidence in the brand long-term.

Stryker Corp (SYK) 📈5.9%

• Medical Technology stocks were a rare winner in yesterday’s downcast market. Earnings reports from the likes of Stryker and Boston Scientific impressed investors and boosted sentiment for the sector.
• The company posted strong earnings and gave sales forecasts that beat street expectations, leading to a slate of Analyst upgrades.
• Stryker’s earnings report was the tide that lifted all boats as competitors saw increases in their stock prices as well. The IHI, an ETF that tracks medical device companies, finished in the green as well.

What's Rotten 🤮

Alphabet Inc. (GOOGL) 📉7.5%

• Blame it on advertisements or the lack thereof. That is what Google’s CEO Sundar Pichai is doing. The tech giant’s earnings report was met with disappointment from investors on lower advertisement revenue.
• It was an otherwise strong quarter for the company, which was offset by a slowdown in the search engine, which is where ad revenue is generated.
• Tech giants like Google, Microsoft, and Amazon have a major weighting in the NASDAQ. As a result, when those stocks suffer, they tend to bring the broader market along for the ride downward.

Lululemon (LULU) 📉5.7%

• The one-time underdog-turned-giant that everyone loves to hate has finally fallen from its throne. Ok, that is an exaggeration, but the company is down the most in months as new data suggests trouble ahead for LULU’s popularity.
• The athleisure brand is seeing declines in sales across the board, particularly in women’s clothing and handbags. The deceleration hit the online market the worst.
• All popular brands will ultimately go through this at some point in their lifetime. The key is whether they can innovate, add value to current customers to win them back, and capture new audiences simultaneously.

Thought Banana 🤔

Wall Street Folklore

Looking into the future isn’t just for clairvoyants and tarot card readers. In a similar fashion, thousands of Wall Street analysts gather around the crystal ball to make their stock market predictions.

Some of those methods, such as the “January Barometer,” seem a bit more mythological rather than fact-based.

The theory goes that if stocks rise in January, they will finish the year higher. Sounds simple enough, right? It’s certainly easier than doing hours’ worth of analysis to come to the same conclusion.

The Idea Was Introduced…

In 1972, by Yale Hirsch, the creator of the Stock Trader’s Almanac. Some lazy traders still use this method today, waiting until the end of January to determine whether they should invest in the market or not.

So how does this hypothesis hold up in reality? Well, since 1938, the January test has been correct 74% of the time, according to Stock Trader’s Almanac. Seems copacetic… except it is a well-known fact that the equity market has a general positive bias.

From 1945 to now, the market has gone up 70% of the time because that is what markets tend to do. Keeping your money in the market every year, regardless of what happens in January, will statistically lead to gains.

So, at its worst, it's a harmless theory, and at its best, it may have merit.

While not the most intellectually rigorous exercise, one can understand the psychological comfort that comes from feeling like you can predict the direction of markets.

However, opponents will say that correlation doesn’t mean causation, and one would be remiss to not factor in all of the other market-moving things going on in the world at any given time.

💭 The Big Question 💭: Where do you think major indices like the S&P 500 will close by the end of 2024? Do you think markets will be able to not only sustain all-time highs but also break new records?

Banana Brain Teaser 💡

Yesterday 🗓

For each trip, a taxicab company charges $4.25 for the first mile and $2.65 for each additional mile or fraction thereof. If the total charge for a certain trip was $62.55, how many miles at most was the trip?

Answer: 23 Miles

Today 🕐

On a scale drawing of a triangular piece of land, the sides of the triangle have lengths 5, 12, and 13 centimeters. If 1 centimeter on the drawing represents 3 meters, what is the area, in square meters, of the piece of land?

Send your guesses to vyomesh@wallstreetoasis.com

Wise Investor Says 🤓

“He who lives by the crystal will eat shattered glass.” — Ray Dalio

How Would You Rate Today's Peel? 

😁 All the bananas                         😐 Meh                                    😩 Rotten AF

Happy Investing,

David, Vyom, Jasper & Patrick