Spooky Inflation

In this issue of the peel:

• On Friday, the Commerce Department released the Personal Consumption and Expenditures report, giving certain insights into consumer spending.
• Intel and Chipotle Mexican Grill had a ripe day, whereas Enphase Energy and Ford suffered a share price decline.
• Amazon's recent earnings report smashed analysts' expectations, reporting a y-o-y triple in profits, partially due to cost-cutting measures.

Market Snapshot

Happy Monday, apes.

Hope your fantasy teams did better than mine this weekend because going 0-3 is not fun at all. Trust me on that. Fingers crossed, the market treats me better this week than my players did, but if those skills are at all similar, we might be in trouble.

Equity markets were trying their best to keep out of trouble to close last week as well. The Nasdaq was the only good-looking index as it went into Halloweekend with a 0.38% gain. All the others were more in the holiday spirit, choosing to trick us into as far as a 1.18% fall in the Russell 2k. Amazon and Meta tried to carry the team for the day, but despite their efforts, only tech and consumer discretionary gained among the 11 sectors during the session.

Over in the treasury market, however, traders barely reacted to Friday’s PCE report as well. Market watchers were expecting at least some reaction to the news (more below), but all we got was a slight move lower for the most part. The 10-year is chilling at 4.841% while the 2-year is still hanging above around 5.029%.

Let’s get into it.

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Macro Monkey Says

Inflation Who?

There are few things everyone truly hates. Slow walkers, spotty Wi-Fi, and states that don't allow happy hours immediately come to mind, but if we’ve learned anything over the past two years, inflation is right at the top of that list, too.

So on Friday, when the Commerce Department released data suggesting inflation had taken an uptick in September with the Personal Consumption and Expenditures report, onlookers were nervous for a big, mean reaction from Mr. Market.

But for once, he was actually kinda chill about it.

The PCE report is like the CPI but better, and if the Fed likes it more, you should, too. In September, headline PCE clocked 3.4% annual growth and 0.4% for the month. But even better than that, and kind of like extra strong Zyn, the Fed’s favorite measure of all is the Core PCE.

"... onlookers were nervous for a big, mean reaction from Mr. Market."

Core PCE strips out food and energy prices from the overall index, as those tend to be a tad too volatile for the Fed’s models despite their importance in our daily lives.

Compared to August’s 0.1% core PCE increase, September’s 0.3% sure was an uptick, but it was right in line with expectations.

Annually, that translated to 3.7%, a slight decrease from August’s 3.8%. If you’re confused, good—at least we know you’re paying attention.

In addition to coming in line with expectations, this report was the most boring one on price increases in quite a long time, leading the market to shrug it off as if it had never heard who this “inflation” fella was before.

On a much more exciting note, the PCE also gives us a read on consumer spending. As has been reported all year long, American consumers showed signs of shying away from participating in the national pastime of swiping our credit cards.

Personal spending rose 0.7% for the month, above the 0.5% expected and suggestive of the fact that consumers might be adjusting to this newer, higher-priced lifestyle.

"... consumers showed signs of shying away from ... swiping our credit cards."

But, at the same time, incomes continued to accelerate as well, keeping right on par with core PCE by rising 0.3% for the month. Consumers and markets both appear to have shrugged off monthly price increases like it was chopped liver, arguably being the first time we’ve seen this muted reaction since inflation showed its ugly mug back in the summer of 2021.

Lastly, Halloween is tomorrow, so we’d be remiss not to mention the spookiest part of the report. Personal savings rates continued to trend lower, down to 3.4% in September, suggesting that this spending is being buoyed hardcore by dipping into those rainy day funds.

With credit card utilization rates on the rise along with interest rates, that’s a recipe for a meal I do not want to eat.

Anyway, Happy Halloween, I guess. Is candy an inflation hedge?

What's Ripe

Intel (INTC) ↑ 9.29% ↑

• Okay, Intel, we see you. It’s no Nvidia yet by any means, but the company’s 32% gain this year deserves some respect on its name… especially after falling 50% during the prior two years.
• Regardless of your past, good earnings are always a good idea. Intel followed that playbook, reporting EPS of $0.41/sh, nearly double the $0.22/sh expected, while sales of $14.16bn beat estimates for $13.53bn too.
• PC demand came in hot, while management has also been successful in shredding $3bn of costs right off the income statement. Investors were pleased, and some are getting more and more hyped on a potential turnaround for Intel back to actually making money for people. We’ll see.

Chipotle Mexican Grill (CMG) ↑ 4.49% ↑

• Y’all just love those burritos a little too much, huh? Chipotle’s price hikes—might I say egregious price hikes because no burrito is worth $14.60—seems to be working out pretty damn well.
• 11% revenue growth led to a beat on estimates, coming in at $2.47bn, while EPS of $11.36/sh also stepped on analyst expectations, set at $10.51.
• In this inflationary environment described above, consumers are clearly only spending on the essentials: gas, toilet paper, and, of course, Chipotle burritos. The price hikes instituted by the firm, along with the return of the legendary Carne Asada burrito, carried the team for the most part.
• Honestly, that’s understandable, as we’re fairly sure the Carne Asada burrito could be sold in pharmacies as a cure for depression, too.

What's Rotten

Enphase Energy (ENPH) ↓ 14.65% ↓

• The sun’s bankruptcy proceedings continue, with the latest creditor, Enphase, taking a heavy hit on Friday.
• Shares in the solar panel supplier dumped in response to garbage earnings for the last quarter, with even more trash to come in Q4. The stock is trading around a 3-year low after guidance was drastically reduced amid low demand in the solar energy market.
• Solar energy generation is cheap, but installing the panels—especially with sky-high interest rates—is absolutely not. Further, consumers have shown a willingness to adopt habits to reduce their impact on the environment, but when there is even a slight burden (shoutout to paper straws), it ain’t gonna happen.
• So, no one is hooking up solar panels as of now. The firm ended the last quarter with earnings right in line with expectations at $1.02 and a miss on sales.

Ford (F) ↓ 12.25% ↓

• Like above, also choosing to go with the bold strategy of disappointing earnings, Ford paid the price for that on Friday. In the midst of a union battle as well, investors clearly weren’t able to handle any further bad vibes.
• While GM is out here killing it by beating on the top and bottom lines, Ford did not. The OG American car maker delivered $0.39/sh on $41.2bn vs expectations for $0.40/sh on $38.5bn.
• Sales beat handily, but the lack of delivery on earnings suggests management struggled to make those sales at a consistently economical level. Moreover, the firm is delaying a fatty $12bn investment into EV manufacturing while it rides out the UAW negotiations struggle.
• And it’s exactly that strike and its impact on production costs that Ford execs are chalking it up to. Our only advice is that Ls taste a lot better when taken early and quickly, so we’ll see if that plays out here.

Thought Banana

Earnings Spotlight: Amazon

Jeff Bezos set out to create an everything store. Little did he know, he also created an everything stock in the eyes of investors. Few days has that been more true than Friday.

I mean, this is the kind of earnings report analysts dream about. And while it is sad that they dream about financial reports and regulatory disclosures, they’re analysts, so this is, of course, the only “real” “fun” they know.

Nowadays, Bezos is just the Chairman of the Board while Andy Jassy is running the show. And running the show he is, with the company's cost-cutting measures, including 27,000 layoffs in the last year leading to a year-over-year triple in profits—handily beating expectations.

Net income came in at $9.9bn for the quarter, translating to $0.94/sh vs estimates for just $0.58/sh. Revenue grew 13% for the year as well, coming in at $143.1bn for the third quarter and well above the $141.4bn expected. Not bad.

"... this is the kind of earnings report analysts dream about."

The lone dark spot, or should we say the non-shiny spot as it wasn’t even dark, was AWS growth. Amazon’s cloud unit has been the crown jewel of the firm for years now, posting an annual acceleration of 12% to $23.1bn vs the $23.2bn expected.

Investors did not care, period. Shares ripped anyway, gaining 6.83% before sending employees on a rare sunny weekend in Seattle.

"Shares ripped anyway, gaining 6.83% ..."

The firm’s operating margin clocked in at 7.8% as well, approaching record highs set during the sourdough-bread-and-cocaine-induced spending frenzy of early 2021.

Amazon’s operating cash flow grew 81% as well, while free cash flows ballooned to an inflow of $21.4bn, a complete 180 from the $19.7bn outflow in the year-ago quarter.

Outside of the whole “making a sh*tton of money thing,” Amazon shouted out some cool new additions in the report as well.

Like hipster-filled breweries shilling any new craft beer with douchier and douchier names, every big tech company has its own generative AI product thanks to the now nearly year ago release of ChatGPT. Amazon has been using this to do things like summative reviews and other cool little tricks to make the shopping experience require even less effort. Did not realize that was possible.

Tip of the cap to the everything store on becoming the everything stock/company this quarter, too. The only thing they’re missing is a dividend, but to Amazon shareholders, the idea of not reinvesting in the business is pure blasphemy, and it seems to be working out.

The big question: Can Amazon continue this success into the paramount fourth quarter? How will competitors like Shopify compare when they report later this week?

Banana Brain Teaser

Friday —

I need to get a new watch. The one I have loses exactly 20 minutes every hour. It now shows 4:00 am, and I know that it was correct at midnight when I last set it. I also happen to know that the watch stopped 4 hours ago, so what is the correct time now?

Answer

10:00 am

Today —

Which would be worth more, a pound of $10 pure gold coins or half a pound of $20 pure gold coins, or would they be worth the same amount?

Shoot us your guesses at vyomesh@wallstreetoasis.com

Wise Investor Says

“The two greatest enemies of the equity fund investor are expenses and emotions” — John Bogle

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team