Good morning investors!

If this is your first time reading, welcome to The Investor’s Edge — a thriving community of more than 15,000 subscribers striving to be better investors with an edge in the market.

Every weekend we publish “The Weekly Wrap-Up” — your ticket to being well informed and staying ahead in the investment game!

This report is designed to help investors of all skill levels break down important stories/topics within the stock market. And best of all, we cut through all of the BS and give you exactly what you need to know in easy to digest, bite sized pieces of content.

Grab your coffee and let’s dive in.

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The channel is tailor-made for investors like you who want to dive deeper into stocks, share insights, and engage directly with us.

Here's what happened in the Discord this week:

🗨️ Chat rooms: Investors discussed the stock moves and shared insights, including the huge moves from names that reporting earnings like Costco, Salesforce, Dick’s Sporting Goods, and Ulta Beauty.

🚨 Trade Alerts: Chris and Mark shared several trades, including additions to the portfolio and trades that set up their portfolios for the week. Here’s a sneak peek 🤫

Join us on Discord and let's level up our investing game together. The future of trading awaits—and you're invited to be a part of it! 🌟

Market Talk

The major indexes closed the week lower due to an inflation report indicating rising prices and several major earnings reports that negatively impacted the market.

3 Stories Moving the Market

These are some of the biggest stories from the second half of the week that had an influence on market action.

The Fed’s preferred inflation measure rose 0.2% in April, as expected

Inflation rose as expected in April, as markets remain anxious about when interest rates might decrease.

The personal consumption expenditures (PCE) price index, excluding food and energy, increased by 0.2% for the month, aligning with estimates. Annually, core PCE rose 2.8%, slightly above expectations.

Including food and energy, PCE inflation was 2.7% annually and 0.3% monthly, both in line with forecasts.

Along with the inflation reading, Friday’s release included data about income and spending. Personal income increased by 0.3%, meeting estimates, while spending grew by 0.2%, below the 0.4% estimate.

Adjusted for inflation, spending showed a 0.1% decline, mainly due to a 0.4% decrease in spending on goods and a 0.1% rise in services expenditures.

📚 EDGE-UCATION: What is the PCE index and why does the Federal Reserve prefer this measure for inflation?

The Personal Consumption Expenditures (PCE) price index is a measure of the average increase in prices for all domestic personal consumption. It reflects changes in the prices of goods and services purchased by households throughout the United States. The PCE price index is produced by the Bureau of Economic Analysis (BEA) and is a part of the broader PCE data, which also includes measures of personal income and spending.

Why the Fed Prefers the PCE Price Index:

1. Broader Scope: The PCE price index covers a wider range of goods and services than the Consumer Price Index (CPI). It includes both direct purchases by consumers and indirect purchases made on their behalf, such as healthcare services paid by employers.

2. Weight Adjustments: The PCE adjusts the weights of various items in the index more frequently than the CPI. This reflects changes in consumer behavior, such as substituting cheaper goods for more expensive ones, thus providing a more accurate representation of consumer spending patterns.

3. Inclusion of Services: The PCE price index includes a more comprehensive range of services, such as healthcare, which is a significant and growing part of consumer expenditures.

4. Measurement of Inflation: The PCE price index generally shows a lower rate of inflation compared to the CPI. This is partly because it uses a different formula that accounts for changes in consumer behavior and has a broader measure of goods and services.

5. Policy Decisions: Because of its broader scope and more frequent adjustments, the PCE is seen as a more reliable indicator of inflationary trends. This helps the Federal Reserve make better-informed decisions regarding monetary policy to ensure price stability and economic growth.

Overall, the PCE price index is preferred by the Federal Reserve because it provides a more comprehensive and accurate measure of inflation, reflecting the changing consumption habits of households.

Volatility returns to the market as stocks are either being rewarded or punished

Stocks reporting earnings are experiencing significant volatility. Companies exceeding expectations are rewarded, while those that miss or only meet estimates face sharp declines. Here are the latest examples:

• Gap: +36% after exceeding top and bottom line expectations and raising guidance

• Chewy: +26% after beating expectations and authorizing a share buyback

• Foot Locker: +18% after beating earnings expectations and reaffirming guidance

• Dick’s Sporting Goods: +17% after surpassing estimates and raising guidance

• Salesforce: -17% after missing revenue estimates for the first time in 18 years

• Celsius Holdings: -18% after reporting slowing sales

• MongoDB: -33% after cutting its full-year outlook

In this high valuation, uncertain economic environment, stocks must perform well or risk sell-offs as investors seek to secure profits.

👉 EDGE ALERT: Want to learn more about these earnings. We covered many of these stocks in our latest Earnings Recap.

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Bill Ackman selling stake in Pershing Square at $10.5 billion valuation, aiming for IPO one day

Billionaire investor Bill Ackman is selling a 10% stake in Pershing Square, aiming to eventually take his investment firm public.

The firm is raising $1.05 billion, implying a valuation of $10.5 billion. While an IPO is planned, the process has not officially started.

Two years ago, Ackman appointed Ryan Israel as chief investment officer, the first time the billionaire hedge-fund manager delegated day-to-day investment responsibilities to someone else.

Pershing Square manages $18.6 billion, mainly through a European-traded closed-end fund.

Ackman’s hedge fund held six stocks at the end of March, including Alphabet, Chipotle Mexican Grill and Hilton Hotels. The fund gained 26.7% last year.

📚 EDGE-UCATION: Who is Bill Ackman?

Bill Ackman is a prominent American investor and hedge fund manager. He is the founder and CEO of Pershing Square Capital Management, a hedge fund management company.

Ackman is known for his activist investment style, where he buys significant stakes in companies and advocates for changes to improve their value. Over the years, he has been involved in high-profile investments and public battles with companies such as Herbalife, Target, and Valeant Pharmaceuticals.

Ackman's investment approach often involves extensive research and taking substantial, sometimes controversial, positions in companies. He has been both praised and criticized for his bold investment strategies and public persona.

Despite facing significant losses in some ventures, Ackman has also achieved notable successes, solidifying his reputation in the financial world. He is considered one of the most influential and outspoken hedge fund managers in the industry.

IE+ Posts of the Week

We continue to push out more and more content every week to give investors that edge. Here are the posts Investor’s Edge+ 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 share a sneak peek into our systems and models. This week we discussed the PCE report and shared our concerns regarding low volume in the week ahead. See the latest full report here:

Stock Deep Dive - McDonald’s

Our Deep Dive focused on McDonald’s this week. We not only broke down the financials of the world’s largest fast-food restaurant but we also shared our valuation models and price targets for 2024. You can see the full analysis here:

Earnings Recaps

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 recaps here:

The Week Ahead

Next week is all about inflation and retail earnings.

Earnings Reports

Earnings season is winding down but there’s still a few names for us here at The Investor’s Edge that are scheduled to report. Here is the list of names we will be covering:

• Monday 6/3: --

• Tuesday 6/4: Crowdstrike

• Wednesday 6/5: Dollar Tree and Lululemon

• Thursday 6/6: --

• Friday 6/7: --

Here is the full calendar of scheduled earnings releases:

Economic Reports

Next week is all about the jobs reports as investors look to see if there’s any further weakening in the labor market.

There’s also important PMI data, but the nonfarm payrolls on Friday will be the major catalyst next week.

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Thank you for reading this edition of the Weekly Wrap-Up. Have a great weekend!

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.