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Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Blowout Jobs Report shows economy is booming but there are devils in the details
Big Tech Earnings (All these companies make too much DAYUM money).
Apple has lost the crown
Microsoft is the new KING
Google doing well but showing signs of weakness
Facebook rises from the dead (hate myself for not investing)
Amazon turned on its money printer
Stats of the Week
35% more likely to be fired if you are a remote employee
$160.9 Billion spent on gambling in 2023, a record high
21 Million Years spent streaming in 2023
80% increase in STDs
Sports I love
Man U actually won some games
Mbappe to Madrid
Atlanta will host 8 games for the World Cup in 2026
Markets
What a way to start the new year! Powered by great earnings from your favorite tech companies, the Stock Market hit a new all-time high last week. Right now it seems there is nothing that can bring this market down. Even after Papa Powell announced no rate cuts early in the year, the market brushed that news aside like a fly. It is a great time to be an investor.
Gonna be a long newsletter, so much happened last week. Let’s get into it.
Year-To-Dates Returns
Tale of the Tape
Economy
The economy kicked off the year with another blockbuster jobs report.
🔍Details: Despite the greatest efforts by the Fed to slow the economy down, the economy has continued giving a middle finger to Jerome and his Fed buddies. Businesses are hiring at an incredible pace.
The economy added over 350,000 jobs in January.
December's jobs number was also revised higher, adding 117,000 jobs.
Unemployment remained at 3.7%. Unemployment has been below 4% for nearly 2 years, a stretch not seen since the 1960s.
Wage growth remained strong at 4.5% which is finally outpacing inflation.
💬In Their Words: Jared Bernstein, chair of Biden's Council of Economic Advisers said, "We're always happy to see a very strong job market and we're particularly happy to see wages outpacing prices."
Indeed economist Nick Bunker said, "If the dominant labor market narrative in 2023 was slow and steady moderation, then 2024 began fast and furious."
Takeaway: This report emboldens the stance of the Fed not to cut rates early this year. It might even mean the Fed will not cut rates in the first half of the year. If the economy can withstand rates being at 5%, it provides cover for the Fed to have firepower for future economic issues.
My Takeaway: Although it may seem that layoffs are all over the place. However, it seems layoff announcements are just loud because of the companies that it pertains to. Companies like Google (1,000), Microsoft (1,900), UPS (12,000), PayPal (2,500). These are companies we know very so they will be in the headlines. But it seems many companies are hiring and growing their workforce. Even these well-known companies are also hiring but they are hiring for different types of jobs.
Negative Kelechi Once Again Arrives to Ruin the Party
Negative Kelechi: Once again, the headline numbers are great but beneath the surface, there are some worrisome numbers.
The average hours worked per week has been on a constant decline since hitting a peak in 2021. It was 34.1 hours in January down from 34.3 hours. This is the lowest workweek hours since 2010, the only other time it was lower was during the pandemic.
ZipRecruiter chief economist Julia Pollak explained well why this is a big deal. She said in an interview with Axios, "When consumer demand slackens, companies typically cut workers' hours before cutting payrolls. Today's workweek reading flashes a warning sign for the economy that job cuts could be looming."
175,000 people dropped out of the labor force. When someone drops out of the labor force, it means they are no longer actively searching for a job.
This means it is getting harder for people to get jobs that match their skill set.
This is part of the reason unemployment has remained low. Not just because more jobs are being added but because more people are dropping out of the labor market.
The number of people employed has declined over the last 4 months.
My Takeaway: Keep that emergency fund ready at all times. If you are getting an early-year bonus, maybe save it. I have no idea what is going on, but something just seems and feels off. Take care of your personal finances. Get those connections going on LinkedIn. You might just need that recruiter's number.
Earnings
A NEW KING is crowned
Now sitting as the world's most valuable company with a market cap over $3 Trillion, Microsoft kicked off last week's massive earnings week. As expected, they did not miss at all. Microsoft has been surging over the last year with its integration of AI into its various services.
🔍Details: Microsoft made $62 Billion in Q4 of 2023 an increase of 18% from 2022, which is insane for a company that is this large. Profits grew 33% to $21 Billion.
Cloud continues to grow like a weed. Especially now with the addition of OpenAI into its services.
Azure Cloud made $26 Billion, growing 30% from the 2023. Far exceeding all analyst’s expectations
📈Stock Move After Earnings: The stock was flat after earnings. After racing up over 60% last year and already up another 10% this year, the stock needed some sort of breather. Plus, it has been priced for perfection.
👀What to Watch: Microsoft said Azure AI now has over 53,000 customers with a third of them coming in the past year. Amy Hood, Chief Financial Officer said on the call, “While it’s early days for Microsoft 365 Copilot, we’re excited about the adoption to date and continue to expect revenue to grow over time.”
Ultimately this is where the money will be made for Microsoft in the future. Can they convince their enterprise customers to shell out even more money for access to CoPilot on the various Microsoft Office programs? On a first look, seems they are willing to pay for it.
Side note: Microsoft announced more layoffs even as the company continues making more money than it knows what to do with.
After watching Big Brother make a massive splash on its earnings call, Alphabet aka Google followed up with a nice cannonball of its own. Alphabet has underperformed its peers in the stock market over the last year but it seems poised for a massive comeback.
🔍Details: Alphabet reported the best growth it has seen since 2022. Revenue grew 13% in Q4 of 2023 as advertisers returned to spend. Alphabet made $76 Billion in the quarter.
Profits rose 52% from 2023 to $20 Billion in the quarter.
Google Cloud continues to be the shining beacon for growth. In Q4 it grew by 26% and is finally profitable for Google, Bringing in a profit of $864 Billion
Due to laying off about 13,000 people last year, Google took on a loss of $2.1 Billion
📉Stock Move After Earnings: Stock fell 5% after earnings. I believe the saying goes "Buy the Rumor. Sell the news." Like I said about Microsoft, these stocks have been priced for perfection so even when they come out with great numbers, it does not matter. Everything is about what is going to happen next.
👀What to Watch: Can Alphabet hang on to its advertising dominance with Google Search and YouTube? TikTok and Facebook seem to continually be stealing market share from the search giant. Plus younger viewers are beginning to reference TikTok as a search engine over YouTube or Google Search.
Also, can cloud take market share from AWS and Azure? With the release of Google's AI, Gemini, will that be able to challenge Microsoft and OpenAI?
King No More.
Unlike its Big Tech peers, Apple stock has been in a downward trend this year. Its Q4 results did not help change that at all.
🔍Details: Apple reported earnings on Thursday evening. Revenues finally began growing again after 4 previous quarters of decline. However, it was almost an anemic amount of growth.
Revenues grew 2% to $119 Billion (which is so much money.)
The only other companies that make this much money in quarters are Amazon and Walmart. Both companies have single-digit gross margins. Apple has a 46% gross margin.
Explaining Obscure Financial Terms
What is Gross Margin?
Gross Margin is the percentage of profit a company makes on each item sold. The higher the number the better the company is at making money.
For example: With a gross margin of 46%, for every $1 Apple makes, they keep $0.46. The $0.54 is what it costs to make, market, and sell the product.
The gross margin is what is used to pay for other business expenses like other projects i.e. VisionPro, paying down debt, administrative overhead, etc.
Although a great starting point, an even better metric to look at a company is its Net Profit Margin because this takes into account all the costs of a business.
We shall discuss this another day.
iPhone revenue (which is the biggest part of Apple's business) grew 6% to about $70 Billion.
However, sales of iPhones in China declined 13%. The Chinese market is Apple's second-largest sales market.
📉Stock Move After Earnings: The stock dropped 4% immediately after the earnings announcement and has been on a decline since. There is mounting fear that Apple is done, and the iPhone has reached peach saturation. Although Apple may continue making money, the Stock Market loves growth above all else.
👀What to Watch: Will Apple's services business (Apple Music, Apple TV, etc.) grow large enough to keep the growth going? With a hardware install base of over 1 billion devices between the iPhone, iPad, and MacBooks, can Apple get these customers to sign up for one or more of its services and make even more money from their hardware sales? This is the biggest question investors have about Apple moving forward.
The second question is, Can the Vision Pro issue in a new era of Apple dominance in a new device category?
I regret my stupid morality getting in the way of me investing in this company in 2022.
Facebook is flying insanely high. While Alphabet barely grew its advertising revenue. Facebook blew all estimates out of the water. Then announced a dividend for the first time!
🔍Details: Facebook reported earnings at the same time Apple and Amazon reported. Most people may have been more excited for those companies, but everyone quickly tuned in to hear what the Zuch had to say after the revenue numbers were revealed on Thursday.
Revenues grew 25% to $40 Billion. This is the fastest growth rate for Facebook since 2021 as advertising returned in full force in 2023.
Facebook followed up by announcing a $0.50 dividend. The first ever for the company. Something I thought the new Big Tech companies would never do.
📈Stock Move After Earnings: The Stock was up more than 15% after hours. On Friday's open the celebration continued for investors. The stock ripped upwards another 20%. In a matter of hours, Facebook added more than $200 Billion to its trillion-dollar market cap. Not something you see every day.
👀What to Watch For: The turnaround story for Facebook has been unbelievable. After falling more than 60% in 2022, the stock is up nearly 4x. Zuch instituted "The Year of Efficiency" where he fired over 20,000 employees. Plus there was the Apple iOS update that made tracking harder and was believed to be the nail in Facebook's coffin. But regardless of all that, Facebook found a way to continue growing revenues and returned to a dominant position.
At the beginning of 2023, I wrote why Facebook would return from the dead and why it might be a good investment. However, did I buy the stock? NOPE. Why? Because for some reason I was on my moral high horse. 😔
So goes the game of investing. Good thing CrowdStrike went on a tear otherwise I would be so pissed lol.
Amazon followed Facebook's lead and announced great numbers on Thursday.
🔍Details: Amazon reported earnings Thursday evening. Revenues grew 14% to $170 Billion (My goodness that is so much damn money)
Profits went into hyperdrive going from $278 million in 2022 to $10 Billion in 2023 and far exceeding all expectations from analysts.
AWS grew revenue at 13% to $24 Billion which is much slower than Microsoft's Azure and Google Cloud
Advertising revenue picked up the slack and grew 27% to almost $15 Billion.
📈Stock Move After Earnings: The stock was up 8% Thursday evening and finished the week on a very high note. Amazon forecasted higher revenues in Q1 of this year.
👀What to Watch: Amazon is done with its hyper investments in its business. It spent 2022 and 2023 right-sizing the business. Amazon fired over 27,000 employees. They cut investments in a bunch of unprofitable businesses like Alexa and have been heavily focused on the core business. I believe this will be the year Amazon's free cash flow begins to look like that of a Big Tech company. I am predicting it will be around $40 Billion for the year. To provide perspective last year, Amazon had about $1 Billion in Free Cash Flow.
Stats of the Week
According to research from employment data provider Live Data Technologies, if you are a remote worker, you are 35% more likely to be laid off last year versus your coworkers who were in the office more regularly.
$160.9 Billion
Gambling is having a moment. Last year, $160 Billion was spent on gambling at casinos a record. Some say people are feeling really good about the economy hence the willingness to gamble. I have never been one to willingly try to lose money, so I have no thoughts on why this is happening.
The amount of time America spent streaming in 2023. Suits was the most streamed show of 2023 with over 60 billion minutes watched. Breaking the record previously set by The Office and Stranger Things.
Notice a common name popping up all over the list?
Netflix is KING
Cases of sexually transmitted diseases have increased by over 80% since 2018, according to the CDC. The worst part is cases of congenital syphilis, which is when a mother passes an infection to the fetus, have increased by 937% in the last decade. CDC says a decline in the use of condoms and an increase in the use of substances (drugs) are to blame. CDC says we have not seen rates this bad since the 1950s.
You really wanna have the seggs with a random person you met online or at a bar?
Looking Ahead
No big economic news will be released this week. This allows us to fully focus on the Stock Market as earnings season continues.
There is only one company that I will pay attention to and that is Disney*. The drama between Disney’s Executives and the activist investor Nelson Peltz has been an intriguing drama to watch. The earnings report will be a beautiful time to see more fireworks.
Sports I Love
Man U actually Winning?
I cannot believe my eyes, Manchester United won back-to-back games. But I refuse to have faith again in this team. I have been emotionally damaged too much
After leaving Madrid at the alter two years ago and playing hard to get. Mbappe has realized the error of his ways. He reportedly agreed to join Real Madrid at the end of the season. It is about to get so beautiful for Real Madrid for the next decade.
With Vini Jr on the wing, Jude Bellingham in the middle, Rodrigo on the other wing, and Mbappe striking. This attacking force is going to be so destructive to defenses.
HALA MADRID!!
Atlanta is hosting 8 Games!!! Now I just need to know where Nigeria will be playing!!
*I am a tiny shareholder in this company.