Do the things that make you better not for anyone else but for yourself. Be proud of the person you are becoming.
Welcome back to the Rambling Mind Newsletter, this is your Market Update
This newsletter is 1,785 words, a 9 min read
Markets ended last week on a high. After multiple tech companies announced layoffs (more below). The sad reality is layoffs signal to investors a better return on their investment aka more profits. I am not sure how to feel about the positivity.
😕Stock Market Returns:
Tale of the Tape
Economy
According to the Bureau of Economic Analysis, approximately 1 in 5 people Spend more than they make.
🔢By The Numbers: This is not just low-income earners but high-income earners as well:
28% of those earning less than $50,000, an increase from 21% in December
9% of those earning more than $100,000, an increase from 7% in December
Why?: Although inflation is receding, it does not mean prices will come down. It just means prices will stop going up as much. Unfortunately, inflation does not move our wages the way it moves the prices of goods.
Takeaway: Consumer spending was down 4.3% in December (more on this below) from November according to Morning Consult. This is not a great sign for the Economy. Remember 67% of the US economy is consumer spending. One person's expense is another person's income.
My Takeaway: This could be another sign of the recession everyone seems to be preparing for. Regardless, if you have not already learned to spend less than you make. Now is a good time to learn. Here are my tips to help reduce your expenses:
Focus on the big stuff: Insurance Cost, Transportation cost i.e. car loan/maintenance, food, housing cost
This is where you can get the biggest victories.
Track your expenses to get in the habit of being conscious of your spending
Use Cash for the period you are learning how to maintain a budget.
Find ways to increase your income. Just because things look dire does not mean there are no opportunities.
Save up an emergency fund, and start with the amount you need to cover your highest insurance deductible.
🙅🏾♀️¡NO MAS!!
Consumers (you and I) are finally saying “NO MORE!” to price increases and speaking with the only thing that really matters OUR WALLETS
🔢By The Numbers: Retail sales fell 1.1% in December
This might seem small but on a $23 Trillion Economy, we are talking about $253 Billion.
This is the largest drop in spending since 2021 when we had a bunch of supply constraint issues.
WHY?: There are 3 main reasons:
Inflation.
Consumers have finally burned through the excess savings from the Pandemic Stimulus Checks.
Interest rates increased by the Feds, which makes a lot of things much more expensive to finance
Takeaway: See the Takeaway above. The way we choose to spend determines if the economy grows or shrinks. It seems we have decided it is time for the economy to cool off for a bit.
Earnings
Those who expected Netflix to be in the grave after announcing the end to password sharing and adding an ad tier to its subscription options. Were very wrong.
🔢By The Numbers: Netflix flew past the subscription expectations of Wall Street
7.66 million new subscribers, compared to 4.57 million subscribers expected
Revenues came in exactly as expected at $7.85 billion
However, earnings missed by a large margin. 12 cents vs 45 cents per share
The reason for the miss here was due to euro-denominated debt, as the dollar depreciated in the fourth quarter of last year when compared to the Euro
🍿New Era: Netflix also announced that co-CEO and Founder of Netflix, Reed Hastings, will be stepping down as CEO.
He has been at the helm of Netflix for over 20 years, leading all the changes of Netflix going from a DVD-focused business to a Streaming Giant to now creating its own original shows.
He is being replaced by the current COO, Greg Peters. I like the move of using an operations guy and not a Finance Guy.
Takeaway: Netflix for years focused on growth at all costs like most of its fellow Tech brethren. But recently, it has flipped the switch to become a cash-producing company. They are estimating to make $3 Billion in Free Cash Flow this year. It is the only Streaming Company that is generating cash from its streaming business.
My Takeaway: Last year, I wrote an article for Humble Dollar using Netflix as the perfect example of how much we like convenience and hate change. As much as people may talk about canceling Netflix, they never will. Because it takes too much effort and we are inherently lazy. Netflix uses this to its advantage. No matter how much you complain about "password-sharing" being made obsolete or increases in subscription prices or lack of great movies. Neither you nor I will cancel because we like the convenience of knowing if I want to watch something, I can turn on my TV and Netflix will always be right there.
Stats of the Week
The number of employees Microsoft laid off last Wednesday. It represents about 5% of its workforce
Microsoft is the latest Tech company to announce layoffs.
Tech once seemed unfazed by global economic challenges but now Satya Nadella, CEO of Microsoft, is giving interviews and saying, "Microsoft isn't immune to global changes."
The timing of the layoffs is weird. On Monday, Microsoft implemented an unlimited time off policy.
Maybe this was to cushion the blow of the announcement
Will Apple be next? Nope, I was wrong. It was Google
Google joined Microsoft, announcing layoffs on Friday
Google is facing challengers from everywhere including activist investors that feel they have too many employees.
Plus its core business, Search, is being challenged by ChatGPT and Microsoft
After recent layoffs of Google & Microsoft, Tech has now laid off more than 200,000 people over the last year.
On the surface, this seems like a lot but it shows just how heavy-handed tech was during the pandemic with hiring.
Microsoft hired 40,000 people from June 2021 to June 2022. So after the recent layoffs, it’s still up 30,000 employees (or more than one Visa) in 18 months.
Alphabet’s 12,000 layoffs represent ~33% of the 36,751 staff it hired in the single year to September 2022.
Meta (Facebook) hired more than 26,000 employees in 2020 and 2021; it recently cut 11,000 jobs.
Once crowned as the golden industry for work, Tech is quickly looking like every other industry with booms and busts in hirings and firings.
US Mortgage Rates fell to their lowest level since September of 2022.
The drop is mainly because of the belief that the Fed will slow down interest rates hikes moving into the future
This is great news for prospective home buyers as interest rates are a huge factor in how much house a person can afford
Looking Ahead
Economy
On Tuesday, the Bureau of Economic Analysis will release preliminary estimates (that we take as gospel) of GDP for the 4th Quarter of 2022. It is expected the US Economy will grow by 2.5% which is slower than the 3.2% growth in the 3rd Quarter of 2022. This is due to a slowdown in consumer spending which we talked about in the first story above.
My Takeaway: I believe we need a better metric of how the economy is doing other than GDP. It is too simplistic. We cannot use general growth as our only determining factor to answer the question “Is the economy doing well?” We have to find ways to factor in how the economy is growing and how people within the economy are doing. The economy is people and if people cannot even survive on their wages, can we actually say we have a growing economy?
📈Earnings
We enter fully into the 2022 Q4 Earnings Season, as some of our favorite companies report earnings. Here are a few companies that are on my watchlist for entertainment purposes only:
Microsoft*: Post firings, I want to hear the signals they send to current employees and prospective future employees. I will also be listening to how their massive investment in OpenAi (Creators of ChatGPT) is truly beneficial in the long run. Finally, how they are navigating the antitrust lawsuit in their acquisition of Activision Blizzard. Plus how the Zenimax Union will affect the company moving forward.
Tesla: Does Elon still work for y’all?
If you do not follow me on TikTok or YouTube or Instagram, go follow because there will be videos made for each of these companies’ earnings reports.
Sports I LOVE
After shocking the World by beating Man City last week. Man U regressed a bit this week, by drawing with Crystal Palace on Wednesday.
Man U had control of the game but fell asleep towards the end of the second half and gave up 2 points. Then on Sunday, they had a great performance against Arsenal but once again came up right at the end and this time it cost them 1 point.
At this point, I just cannot believe Man U is in 3rd in the Premier League. With the way the season started, I was sure we were done. But hope has been restored!
Extras
Amazon is shutting down its charitable donation program, AmazonSmile, on February 20th. AmazonSmile was launched in 2013, where Amazon would donate 0.5% of your order to your favorite charity. Amazon donated $449 million throughout the program to over 1 million charities.
Amazon said Smile did not have the impact they had hoped so they will be shutting it down to have a more focused approach to their donations. I
In reality, Amazon is looking for as many ways as possible to cut costs. Its over-hiring during the pandemic is biting it in the butt. With now over 1.6 million employees worldwide, it needs to find a more stable way to run its business. Amazon is trying to make the transition of going from a Fast growing company to a stable business like Walmart and that takes a completely different set of skills than what the company is used to.
*I am a tiny shareholder of Microsoft and Google Stock.