Holiday Profit-Taking Begins

In this issue of the peel:

• 🥚 Prices for eggs came in a tad more expensive, but yesterday’s PPI report was mostly drama-free.
• 📉 Stifel is calling the top for the S&P 500 in early 2025 before falling off a cliff.
• 💰 Traders are taking some profits ahead of the Christmas holiday, with equities up almost 30% YTD.

Market Snapshot

Banana Bits

• PPI comes in a touch hot, but mostly ok as equities are brought back down to earth.
• Alex Jones survives another day as owner of “InfoWars” after a judge ruled that the satirical paper “The Onion” can’t buy it.
• Biden administration takes away a $5bn windfall for banks by putting limits on overdraft fees.
• Check out reactions around the league to Bill Belichick’s surprise move to the UNC Tar Heels.

The Daily Poll

Previous Poll:

Is rate cut incoming?

Yes, Fed will cut by 25 bps: 60% // No, inflation is still a concern: 21.5% // Neutral—wait for more data: 10% // Don't care, just watching the markets jump: 8.5%

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Macro Monkey Says

The Outlook Is Pristine

Main Street is pretty optimistic in the days following Trump’s presidency. 

Whether it’s the nostalgic feeling from getting paid those juicy COVID checks or the epic stock market run four years ago, the percentage of households expecting better days in the future reached the highest level since February 2020. 

What Happened

Based on a New York Federal Reserve survey, 37% of households expect their financial situation to improve a year from now, an 8% increase from last month. 

The number of people who think their situation will worsen also hit a low. This positive sentiment is pretty interesting because consumers still expect higher costs to persist into the new year and expressed caution about the labor market. 

This could be a reflection of the collective savings amassed during the pandemic still keeping us all afloat or maybe the massive amounts of debt we take on. 

But more likely, it’s the prospect of lower interest rates fueling stocks and the reality of a pro-business administration driving sentiment as well.

Disposable income is trending in the right direction, rising by 5.1% in November over the same period last year. As a result of rising incomes, Americans’ average savings rate increased to 4.4% and average spending per capita increased as well, indicating that people feel they have enough of a cushion for the future.

This tracks with other reports like the consumer confidence report and a recent Gallup Poll showing that shoppers plan to spend a record amount of money on Christmas gifts this holiday season.

Source

The new report paints a rosier picture than the last few years. Americans saved a ton of money in 2020-2021 on account of not having anything to do during lockdowns and the boost from stimulus checks used to gamble, I mean “invest” in the market. 

2022-2023 saw the hangover effect from the prior two years of degenerate activity. People stopped getting free money, went back outside, and started spending more, prompting unsustainably high inflation. 

This led to a decline in the number of Americans feeling like they are doing financially ok, according to data from The Federal Reserve.

Source

The Takeaway

The tide seems to be turning for Main Street, with households feeling a renewed sense of optimism about their financial future. 

Despite lingering concerns about inflation and the labor market, rising incomes, higher savings rates, and increased spending suggest a growing confidence in the economy. 

Whether fueled by pandemic savings, a potential easing of interest rates, or faith in a pro-business environment, Americans are leaning into the holiday season with an optimistic outlook. While challenges remain, this uptick in sentiment could be the spark for more sustained economic momentum heading into the new year.

Career Corner

Question

What is the general perception around reaching out to your first-round interviewer to get tips on the upcoming round, or the firm in general, say inviting them for a coffee chat? Is it commonly done? Or is it frowned upon?

Answer

This is just my opinion. If your first-round interviewer thought you did well enough to send you to the next round, I would think they are at least a little bit invested in your success by now, so they should be willing to give you some pointers.

The worst case scenario is they say no good luck.

To be clear, I would not do this BEFORE an interview with this person.

It depends on the circumstances. If you have a previously existing relationship/commonality with them (for example, you went to the same college or high school), or if you really hit it off and they specifically offered to give tips for later rounds, then yes.

But otherwise, I wouldn’t—it would be asking a lot of time from them (since the conversation would be time-sensitive and can’t be “whenever works best for them” down the line), and most importantly, every conversation you have with the team is still an interview.

So, in my view, if you ask for a lot of help here and ask maybe naive questions or seem like you need too much hand-holding through the process, that could negatively impact your candidacy.

Just asking about culture is different, so I think it’s more ok to do that, but it still may be a burden on their time, so back to back.

Head Mentor, WSO Academy

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What's Ripe

Ciena Corporation (CIEN) 15.45% 

• Ciena reported a pretty big earnings miss. The stock soared anyway. Sometimes, companies do everything right, and the stock still gets killed, while other companies miss earnings and rise anyway. A reminder that the markets are not for the faint of heart.
• Ciena reported Q4 earnings of $0.54 per share, a 28% drop from last year and far below consensus of $0.65. What’s interesting is that sales came in right in-line at $1.1bn, with another $2.1bn in the backlog of unfulfilled orders. So, the company is making as much in sales as they always have but converting less of it into earnings. What happened? It turns out Ciena has been too successful for its own good.
• Let me explain. The company is benefitting from an AI boom and is selling more products than usual to meet this explosive demand. They've been trying to revise supply chain efforts to ensure it can ship items on time but also moving their catalog from older, legacy products to new high-speed products. As a result, they’ve faced some hiccups along the way but are poised to almost triple their sales growth over the next few years.

Warner Bros. Discovery Inc. (WBD) 15.43% 

• Warner Brothers is making some big changes to the operating structure of its business. The media conglomerate plans to separate into two distinct segments, one focusing on cable and linear television and the other focusing on streaming and studio production, such as Max and other film studios. This is all expected to go down sometime in the middle of 2025.
• While the streaming and studio part of the business has popped off, the legacy cable division has been on the decline. This created a mixed bag of good and bad for the company. Restructuring unlocks further value for investors by separating out the good and enabling the company to put more resources into that part of the business.
• Comcast also restructured recently, which makes sense, given that cable media continues to be a dying business. This positions both companies well to strategically focus on growing the studio business organically and through M&A. It also adds more clarity and focus for the overall company, allowing Warner Bros to streamline operations and outline specific goals related to each segment.

What's Rotten

Adobe, Inc. (ADBE) 13.69%

• Adobe wants to take a slow and thoughtful approach to jumping on the AI train. Investors don’t want slow and thoughtful, they want quick and aggressive. Despite posting strong earnings, ADBE’s stock had its worst one-day performance since last year because it was a bit cautious on the monetization path for some of its AI products.
• Competitors have been diving in head first and figuring out the details later when it comes to AI. The company has benefitted from tailwinds in the cloud services business as a result of an AI push, and they released some generative AI tools, like a text-to-video product, earlier this year that could compete with ChatGPT.
• However, while Adobe wants to get involved, management said it was taking a holistic approach to earnings, not backing up the entire truck on AI tools right away. The growth outlook there is more of a long-term play and not a flash in the pan. They may need to start making some moves soon because it seems like hundreds of AI companies are being formed daily.

Agios Pharmaceuticals (AGIO) 11.99%

• The biotech business is extremely important to society, but it’s also a dangerous game. Shares of Agios got hit after two patients being tested in trials suffered liver injuries as a result. Yikes. The company has been testing therapies to treat thalassemia, a genetic blood disorder. 
• The biotechnology company was in the midst of Phase 3 studies, meaning that the trials had been going smoothly enough to secure FDA approval for continued testing. Agios has already submitted regulatory filings for approval in the US, EU, and Saudi Arabia.
• It is currently the only therapy in Agios’ portfolio. That is pretty common for early-stage biotechs. Drug discovery, creation, and trialing are pretty expensive, and oftentimes, new companies focus on one drug at a time before building the pipeline. Management hasn’t been notified that they have to shut down testing, so hopefully, there will be positive updates in the weeks to come.

Thought Banana

One Quantum Leap for Mankind

Alphabet’s shares soared after unveiling Willow, its new quantum computing chip that markets a major breakthrough in quantum computing. 

Here at the Peel, we understand that the finance bros are busy kicking ass and putting on sizable trades. So don’t worry, we’ll break it all down for you. Let’s get into it.

What Happened

What is quantum computing, and why does it matter, anyway? To answer that question, we first need to look at the mechanics behind regular or “classical” computing. 

Computer information is stored in bits of data using a binary system, either as a 0 or 1. Everything you see in a program, whether it’s text, images, or numbers, is converted into binary form. 

Quantum computing, on the other hand, doesn’t use bits but qubits. Qubits are not restricted to just 0 and 1 but can simultaneously be both 0 and 1 at the same time, allowing for much more complex calculations. 

Source

The Numbers

Let’s say you’re trying to analyze a basket of stocks and trying to predict the future price of the stock based on different scenarios. We’ll define those scenarios as volume, news, sentiment, and the closing price the day before. 

Each bit would represent a different scenario, and the computer would go through the list and each scenario one step at a time before arriving at an answer. 

Now, let’s look at the same situation using quantum computing. 

A quantum computer could take multiple pieces of information and represent them simultaneously, looking at every possible scenario at one time rather than going step-by-step. Essentially, it’s analyzing every single combination of possibilities at one time.

The difference doesn’t seem that big of a deal when looking at small lists. But Google created a computation that was so difficult to crack that it would take a classical computer 10 septillion years. 

That is way too many zeroes to type, but it’s longer than the existence of the universe. Willow solved the problem in under 5 minutes!

This technological milestone has major implications for the future. Google’s Willow chip represents a pivotal advancement in quantum computing, demonstrating computation capabilities that significantly surpass those of classical computers. 

The projected global market for quantum computing is expected to rise at a CAGR of 43%, reaching $9bn by 2030. According to Google CEO Sundar Pichai, fully harnessing the power of quantum computing could have practical applications in areas like drug discovery, fusion energy, battery design, and much more. 

Source

Google built Willow at its state-of-the-art facility in Santa Barbara and will continue to work with it to advance its quantum computing roadmap, focusing on “quality, not quantity.” This iteration of the chip has about 100 qubits, but Google has aspirations to build a system with 1 million qubits.

The Takeaway

Google’s Willow chip isn’t just a win for Alphabet’s stock—it’s a glimpse into a future where the impossible becomes routine. 

From revolutionizing industries like finance and healthcare to unlocking new frontiers in energy and materials, Willow proves that the quantum leap isn’t just theoretical anymore. 

While we’re still years away from quantum computing becoming mainstream, this milestone shows that the roadmap is real and progress is accelerating. 

For now, the finance bros can stick to their Bloomberg terminals, but one day, they might be placing bets with the help of quantum-driven insights. Buckle up; the future just got a whole lot more exciting.

The Big Question: As quantum computing evolves, how can companies balance ethical considerations with the immense power of processing unprecedented levels of data?

Banana Brain Teaser

Previous

The sum of the weekly salaries of 5 employees is $3,250. If each of the 5 salaries is to increase by 10%, then the average weekly salary per employee will increase by?

Answer: $65

Today

Last week, Chris earned $x per hour for the first 40 hours worked plus $22 per hour for each hour worked beyond 40 hours. If last week Chris earned a total of $816 by working 48 hours, what is the value of x?

Send your guesses to vyomesh@wallstreetoasis.com

❝

Flavor is the condiment that gives success its flavor

Truman Capote

How Would You Rate Today's Peel?

🍌 All the bananas

😐 Meh

😞 Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick