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- The Weekly Wrap-Up - January 27th, 2023
The Weekly Wrap-Up - January 27th, 2023
Cooling inflation and an earnings extravaganza!
CMG Venture & Mark Roussin
January 27, 2024
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Market Talk
The S&P 500 makes new all time highs as earnings season roars on.
👉 EARNINGS EDGE: It was a busy week for earnings. Tesla and Netflix…upgrade to VIP to read the full Earnings Edge.
5 Stories Moving the Market
These are some of the biggest stories from the past week that had an influence on market action.
Fed’s preferred inflation gauge rose 0.2% in December and was up 2.9% from a year ago
In December, U.S. prices saw a moderate increase, maintaining the yearly inflation rise below 3% for the third consecutive month. According to the Commerce Department's report, the personal consumption expenditures (PCE) price index edged up by 0.2% last month, rebounding from an unrevised 0.1% drop in November. Over the 12 months through December, the PCE price index climbed by 2.6%, aligning with November's unrevised gain.
The more important metric is the Core PCE, which peels away the volatile layers of food and energy, the core PCE price index showed a 0.2% uptick in December, following a 0.1% rise in November. On a more positive note, the year-on-year increase stood at 2.9%, marking the smallest gain since March 2021, a step back from November's 3.2% surge.
This latest release contributes to the growing evidence that, while inflation remains elevated, it is gradually moving lower. Analysts speculate that this trend might offer the Federal Reserve a window to consider cutting interest rates later this year.
The economic stage is set, and the drama continues on!
Tech layoffs balloon in January as Wall Street rally lifts indexes to records
This past week, the S&P 500 hit record highs and the Nasdaq is at its highest levels in two years, with Alphabet, Meta, and Microsoft shares reaching new peaks. Microsoft has also entered the exclusive $3 trillion market cap club, as the company recently surpassed Apple as the largest Market Cap.
However, amidst this success, the tech industry is witnessing a wave of layoffs, with 24,499 job cuts in January alone from 89 tech companies, marking the highest since March 2023.
Major players like Microsoft, eBay, Salesforce, Google, Amazon, Unity, and Discord have announced significant workforce reductions.
Investors are praising the cost-cutting measures ahead of next week’s quarterly earnings reports from Alphabet, Amazon, Apple, Meta, and Microsoft but it's a high-stakes dance between record-breaking successes and a tech workforce facing turbulence.
U.S. economy brushes aside recession fears with strong Q4 performance
The U.S. economy outpaced expectations in the fourth quarter, defying recession fears despite the Federal Reserve's robust interest rate hikes.
According to the Commerce Department, the Gross Domestic Product (GDP) rose at a 3.3% annualized rate, following a 4.9% surge in the third quarter. Growth for the full year hit 2.5%, driven by increased exports, government spending, and business investment.
Even more encouraging, the GDP report showed inflation pressures are easing, though the strong economic performance suggests that any talk of the Federal Reserve cutting interest rates in March might be premature. While rate cuts may be on the horizon the current economic momentum leaves the risk for inflation to rise near term and the Fed can not take that risk. As a result, the market is no longer pricing in a rate cut in March.
U.S. home sales rise by most in over 3 years
Pending U.S. home sales experienced a remarkable surge in December, marking the most significant increase since June 2020. The Pending Home Sales index soared by 8.3%, bouncing back from a November low of 71.4.
This robust rebound, surpassing economists' expectations of a 2.0% increase, hints at the impact of stabilizing mortgage rates drawing prospective buyers into the market.
Simultaneously, new home sales rebounded by 8.0%, reaching a seasonally adjusted annual rate of 664,000 units.
The icing on the cake – the 30-year fixed-rate mortgage dropped to 6.60%, the lowest since May, fueling optimism for a residential real estate rebound in the coming year.
PayPal to launch AI-based products as new CEO aims to revive share price
PayPal unveiled its new artificial intelligence-driven products as well as a one-click checkout feature, as its new CEO, Alex Chriss, tries to inject new life into the payments giant.
The company plans to launch a platform utilizing AI, allowing merchants to tap into new customer bases based on their previous shopping history, leveraging data from over half a trillion dollars' worth of global transactions. Additionally, a separate AI tool named "smart receipts" will enable merchants to suggest personalized items and offer cashback rewards through email receipts.
The company also introduced "Fastlane," a one-click checkout feature, which has shown a 40% acceleration in checkout speeds during early testing.
Despite the hype of AI, investors were unimpressed, leading to a 6% decline in PayPal shares by the end of the week.
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Here’s a sneak peek of an options strategy we offered in The Edge Report on January 16th:
U.S. Oil
Oil prices are appearing to find solid support around $70, which could provide some upside opportunities with stocks within the sector. Chevron is a name we are taking a closer look at this week in terms of opening a potential position within the portfolio.
Chevron Options Play
If you are looking to add shares of Chevron (CVX), a possible route is via options. The route would be via a Cash Secured Put or CSP. By selling a CSP, you will receive a premium, and get the potential opportunity to purchase shares at a lower price.
Right now, shares of CVX trade at $147. Analysts are looking for EPS of $12.89 per share in 2024, which equates to a P/E multiple of 11.5x, which is well-below the company’s five-year average of 14.5x.
We currently see the $140 level as the next level of support for the stock from a technical perspective and that would have the stock trading at a P/E multiple of 10.8x, which is extremely intriguing.
As such, this week we are looking to sell the CVX 2/16 $140 put, which would earn a premium of $1.84 per contract or $184. ✅
Since sharing this, oil has moved 9% higher and the Chevron play performed exactly how we thought it would.
Chevron fell to $140 on January 18th and, as predicted, support held and the stock bounced higher. The stock is currently back above $148 as of writing this. Our strategy worked as we hoped — we were able to earn a premium and play the support perfectly.
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Premium Posts of the Week
We continue to push out more and more content every week to give investors that edge. Here are the posts premium subscribers received this week.
Edge Report
Mondays are for the investors. Every Monday morning we share exactly what we’re watching in the week ahead, how we’re positioning, and even get a sneak peek into our systems and models. This week we offered our view on upcoming earnings and shared an options strategy for a specific EV company that reported last week. See the full report here:
Stock Deep Dive - Starbucks
Our Deep Dive focused on Starbucks this week. We not only broke down the financials of the world’s largest coffee chain but we also shared our valuation models and price targets for 2024. You can see the full analysis here:
Earnings Recap
Every week during earnings season we share a recap of the quarterly reports from stocks that we cover. You can see this week’s earnings recap here:
The Week Ahead
Earnings reports and jobs data will shape the week ahead.
Earnings Reports
This will be the biggest week of the earnings season as 5 of the Mag7 stocks report, along with a number of other large cap stocks. We will be covering all of the major names and then some.
Economic Reports
The labor market has held up surprisingly well in the face of higher interest rates. As we’ve been saying, the jobs market is the indicator to watch when it comes to the overall economy. This week’s data should give us a clearer picture.
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Chris (CMG Venture)
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Until next time investors!
Mark & Chris
The Investor’s Edge
Disclosure
This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
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