It's Raining Money!
In this issue of the Peel:
Market Snapshot 📸
Banana Bits 🍌
CapLinked’s Enterprise VDR Comes with a Trip to Thailand
If just getting through January already has you dreaming up your next vacation, you’ll never guess who’s here to help you out of your cage. CapLinked is coming in hot to help you escape by sending you on a fully paid for dream vacation to Thailand.
First class airfare, bottomless food and drink, beautiful sights and people, and heck, even a day at the famous Thai monkey temple if you so wish. The craziest part? It’s this easy:
Step one: Sign up for an Enterprise VDR with CapLinked by January 31st.
Step two: Enjoy your dream vacation in Thailand.
Macro Monkey Says 🐒
Consumer Sentiment
Every U.S. consumer must be a Detroit Lions fan or something because they’re suddenly the happiest they’ve been in a long, long time.
Speaking of Detroit, if we take the quick 45 min ride over to Ann Arbor, we can see exactly why.
And now, it’s not because Michigan just won the National Championship, either.
On Friday, The University of Michigan released its latest preliminary results measuring consumer sentiment in the U.S. In short, consumers are ready to roar.
Roaring 20s 2.0?
Researchers at the University of Michigan began measuring sentiment back in 1978, using sentiment in 1985 as the index’s benchmark of 100.
As we can see in the below chart, the 2020s haven’t exactly brought about those Great Gatsby feelings of fun just yet. But like Daisy’s feelings towards James Gatsby, that could certainly change on a dime.
Sentiment leaped into 2024, much like that guy who leaped at that judge in a Nevada court a few weeks ago.
21.4% is how much more optimistic consumers are feeling than at the same point last year. Overall sentiment clocked in at 78.8 this month, much better than the 64.9 reading last January and the nice 69.7 seen in December, a 13.1% increase.
Since January 2021, sentiment hasn’t been higher.
Plus, when adding in the leap from November to December, Michigan consumer sentiment has posted its largest two-month gain since 1991, over 30 years ago.
Even better 👍…
When sizing up current macroeconomic conditions, which we all know the average consumer is clearly an expert in, sentiment jumped even more on an annual basis.
21.6% is how much of a jump our collective assessment of current economic conditions took.
Obviously, this group of U.S. consumers who largely probably couldn’t identify more than 3 European countries on a map aren’t exactly masters of econometrics, but like we always say, sentiment drives outcomes in the art and science of economics.
If consumers are optimistic, they’ll save, spend, and generally act like it. That implies steady or even increased spending, which is almost the only thing that matters for U.S. GDP growth.
Looking ahead, consumers are feeling much more “glass half full” as well.
Expectations for economic conditions jumped 21.2% in January as well, with year-ahead inflation expectations leading the charge of optimism.
Consumers now expect annual price increases of 2.9%, the lowest since December 2020. In the long term, expectations fell to just 2.8%—outside of the 2.9%—3.1% seen in 26 of the last 30 months, according to the University of Michigan.
The Takeaway?
As you can see in the chart below, all 3 major sentiment readings stormed higher in January. While few things in the macroeconomic environment have actually changed in that time, seeing this boost in sentiment could be the start we need.
And really, it’s not like the economy has been particularly bad for a while.
But consumers hate uncertainty almost as much as investors do. If they’re feeling themselves enough to hype up these sentiment readings, that could suggest we’re actually getting some clarity back in the U.S. economy.
Whether that clarity turns out to be seeing something good or bad, well, I guess we’ll find out together. Fingers crossed apes.
What's Ripe 🤩
Super Micro Computer (SMCI) 📈35.94%
Wayfair (W) 📈10.28%
Recommended by LinkedIn
What's Rotten 🤮
Celsius Holdings (CELH) 📉12.74%
Learning Stocks (COUR, CHGG, DUOL) 📉10.32%
Thought Banana 🤔
Flows > Pros
Nothing is more beautiful to hear than those 3 little words—all-time highs.
And that, apes, is where we are now. The S&P 500, Dow Jones, and Nasdaq 100 indexes all closed at record highs on Friday, causing my Friday night bar tab to hit an all-time high as well.
Anyway, amid those all-time highs, we’ve also received reports from some of the country and world’s largest asset managers to show us exactly how investors are positioned.
And just as you’d expect, investors appear to be addicted to shooting themselves in the foot. According to State Street, BlackRock, and separate data provided by Bank of America, investors are flowing out of equity holdings like the damn Nile River.
Here, we can see BofA sizing up a total of $6.81bn in net outflows from U.S. equity strategies and individual investments.
Basically, investors are looking to soak up gains outside of equity strategies and individual equity investments.
Whether it’s profit taking, a poor outlook, or simply just needing some cash after all that spending we racked up during the holiday season, cash and non-active-equity strategies are continuing to take the W just as we reach all-time highs.
If we take a look at BlackRock’s ETF flows shown below, we can see a massive jump that you might initially think is a sign of investors getting more aggressive:
Taking a look under the hood 🕵️♀️...
Reveals a similar sentiment to that of BofA’s research.
BlackRock’s retail equity investments saw outflows of $370mn in Q4. Meanwhile, total long-term active equity styles saw outflows of $5.5bn from September to December 2023 as well.
But it appears that on the institutional side, money managers may actually be getting more aggressive, with institutional active equity investments gaining $704mn for the quarter.
Going over to State Street, another massive asset manager and custodian, the data stays nice and confusing.
Long-term institutional equity investments under State Street’s umbrella saw outflows of $13bn while flows into equity ETFs gained $60bn for the same time period.
Don’t worry, though. These behemoths were still able to rake in even more money because, despite the outflows from active equity styles for the quarter, markets absolutely stormed higher over the course of those 3 months.
As markets storm higher, the total pile of investments for these firms to charge fees on continued to grow as well.
To Summarize:
Don’t get me wrong—we’re all for riding the wave of passive funds and gaining exposure to the indexes, but capturing beta is… boring.
We’re here for the outperformance of those indexes, a.k.a. alpha, and there’s no better place to chase that beautiful Greek letter than with WSO Alpha. We’ll see you there (I hope).
💭 The Big Question 💭: What is the primary driver of U.S. investors focusing on beta capturing over alpha generation? Can we expect a reversal of this in a market downturn? All-time highs are fun, but how long will they last?
Banana Brain Teaser 💡
Friday 🗓
Each machine at a toy factory assembles a certain kind of toy at a constant rate of one toy every 3 minutes. If 40 percent of the machines at the factory are to be replaced by new machines that assemble this kind of toy at a constant rate of one toy every 2 minutes, what will be the percent increase in the number of toys assembled in one hour by all the machines at the factory, working at their constant rates?
Answer: 20%
Today 🕐
When a subscription to a new magazine was purchased for m months, the publisher offered a discount of 75 percent off the regular monthly price of the magazine. If the total value of the discount was equivalent to buying the magazine at its regular monthly price for 27 months, what was the value of m?
Send your guesses to vyomesh@wallstreetoasis.com
Wise Investor Says 🤓
“Selling your winners and holding your losers is like cutting the flowers and watering the weeds” — Peter Lynch
How Would You Rate Today's Peel?
Happy Investing,
David, Vyom, Jasper & Patrick