Welcome to February and Happy Black History Month.
Just so happens to be the shortest month of the year 🤔. Too bad no Black History will actually be taught anymore (more on this below)
Welcome back to the Rambling Mind Newsletter. This is your Market Update
This newsletter is 2,363 words and an 11 min read
It was Super Bowl week for Economics and Stock Market nerds. With the Fed making decisions on the economy and the largest companies reporting Quarterly Earnings. We will go over all of it in this newsletter so buckle up, this one will be a bit long.
🥳Markets
The Stock Market ended January on a HIGH note. All indices finished very well in the green:
S&P 500 - Up 6.6%
Nasdaq - Up 11.5%
Dow - A Measly 2.87%
Now we just need these positive vibes to last the next 11 months to make up for 2022.
Tale of the Tape
Economy
🥱 25-Point Increase and Then Some
Jerome Powell announced on Wednesday (as we expected) a 25 basis point increase in interest rates. This is the smallest rate hike since March of 2022 as the Fed has been focused on fighting inflation. He also said he expects more rate hikes in the future.
Stocks Rallied on Wednesday once Papa Powell put down the mic. After being down 1% earlier in the day, the S&P turned positive and finished up nearly 1% and the Nasdaq after being down 2% finished up 1.9%.
💬In His Words: Two Quotes from his speech
“Inflation data received over the past three months show a welcome reduction in the monthly pace of increases. And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”
"The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done,"
Meaning: It is the 75th minute of the game but if we let up now inflation can come right back and take away our victory parade.
😒Takeaway: Investors and Traders do not believe Powell at all. They do not believe there will be more rate hikes. They expect the Fed to cut rates in the near future. Although, Papa Powell was clear that he is by no means done playing and is not ready to take his ball home. The rally in stock prices and the fall in bond prices shows how traders and investors digested that news. I believe the market is getting trigger-happy and investors may be digging their own graves.
😨My Takeaway: I get nervous when I see stocks like AMC or GameStop or Bed Bath & Beyond or Carvana doubling for no reason. Sure, it's nice when stocks go up but that is when they are the riskiest.
As Buffett says, "Be fearful when others are greedy." I am personally using this opportunity to sell into the greed and get rid of positions that I was dumb enough to buy into.
The US Economy added 517,000 jobs in December completely smashing the 187,000 estimated by economists. This was absolutely unexpected.
🔢By The Numbers: Unemployment fell from 3.6% to 3.4%, the lowest rate of unemployment in over 50 years.
The unemployment rate for Black workers fell to 5.4%
Unemployment for women fell to 3.1%.
Service Sector continues to drive job growth:
Leisure and hospitality added 128,000 jobs
Professional and business services added 82,000 jobs
Government services added 74,000 jobs
Construction added 25,000 jobs
Retail added 30,000 jobs
Takeaway: The Labor Market has been the secret weapon that has allowed the Fed to raise interest rates as much as they have. With the Labor Market showing no signs of slowing down expect the Fed to carry on with more interest rate hikes and hold interest rates high for much longer. The Fed's goal of bringing inflation down without causing a recession might very well come to pass.
In response to this, the Stock Market stumbled to close out the week.
Earnings
♾Facebook - Back from the Grave
Facebook aka Meta reported earnings on Wednesday and they blew everyone away
🔢By The Numbers: They posted a user growth of 4% and now have over 2 billion Daily Active Users across its platforms
That powered it to revenue of $32 billion and a profit of $4.39 Billion
However, the biggest announcement for investors was Facebook saying it is reducing its capital expenditure on its push to the Metaverse
Takeaway: All these things combined sent Facebook stock up nearly 25%. Since November, Meta Stock has been on a tear. It is up almost 75%. But the ad business is still struggling as TikTok keeps stealing viewership from Facebook's various platforms. However, Facebook has shown that it can weather the storm and remain a money-making machine.
My Takeaway: Whenever people say something is dead, maybe go check it out a bit. You might just make a good bit of money going against the crowd.
For the first time in almost 6 years, Apple reported a decline in revenue and profits.
🔢By the Numbers: Across the board, all Apple products sold much less than expected:
Total Revenue was 5% when compared to the 4th Quarter of 2021.
iPhones sales were $65 Billion vs. an expected $68 billion
Mac sales were $7 billion vs an expected $9 billion
The only bright spots were in iPad sales and Services revenue
iPad sales were $9.40 billion vs. an expected $7.76 billion
Services barely beat expectations, bringing in $20.77 billion vs. $20.67 billion estimated
Why the Slow Down: Apple said it was due to the stronger dollar which affected their sales of iPhones in China and other countries and the overall macroeconomic environment that we all face. In other words, inflation is causing people to choose between buying an iPhone or paying rent.
Takeaway: Apple, unlike other Big Tech companies, did not overhire and increase its expenses. Apple remained disciplined and was able to control its costs much better than the others. Gross margins remained at 43% for the year, this is insane for a hardware company.
It’s crazy when you can make almost $150 Billion and that is a bad quarter for your business. But such is the life of Amazon. The growth of the company has finally begun to plateau.
🔢By the Numbers: Nothing was bad but nothing was great either
Total revenue for the quarter was $149 billion vs an expected 145 Billion
AWS the profit center of the business, grew revenues by 20%. The slowest growth rate ever for AWS.
AWS brought in $21 Billion which was exactly what was expected
The bright spot for Amazon was Advertising. Yup in case you did not know Amazon has advertising on its platform. Pay attention to the first few search results, they are typically ads
Advertising grew revenue by 19% outpacing all other ad-driven companies like Google and Facebook.
Advertising brought in $11 Billion in line with expectations.
Takeaway: Amazon is no longer a growth company. It is now a mature business. There will be a heavier focus on its ability to generate profits over growing revenues. However, Amazon has an open secret up its sleeves. They began offering their fulfillment services to non-Amazon sellers. Amazon wants to and is already challenging UPS and FedEx with its delivery network. This might be a massive growth engine for the company moving into the future.
There is no other way to put it but Alphabet aka Google EFFED UP! They made too many rookie mistakes with the business over the last two years and are now paying the price for it.
🔢By the Numbers: Much like Apple there were slowdowns in every single category of the business
Revenue: $76.05 billion, vs. $76.53 billion expected
YouTube: $7.96 billion vs. $8.25 billion expected
Google: $7.32 billion vs. $7.43 billion expected
But unlike Apple, Google is incurring other costs due to its lack of discipline. The company said it would take on between a $1.9 billion and $2.3 billion impairment charge related to laying off 12,000 people. As it reduces its headcount, it also plans to reduce its real estate footprint which would cost another $500 million.
Takeaway: Google is facing challenges everywhere. TikTok continues to grow like the weeds in my yard during the summer months (like seriously these things just do not die). It also has challengers in the advertising space as Netflix, Disney, Apple, and Amazon are all finding ways to take market share from the company. Also with ChatGPT's release, it faces a challenge to its core business of search. However, I am not too worried about the company. I believe the last year was a good warning shot for the company and it is on high alert.
Stats of the Week
The percentage of educators in the US that say they will limit their discussions of Black history due to the new laws in Conservative states.
Teachers are choosing to scrap plans to discuss noncontroversial history lessons for fear of being fired or facing lawsuits
They have to remove some of Martin Luther King's speeches or not talk about the reason Jackie Robinson was not allowed in the MLB
The College Board changed its AP African American Studies curriculum after Florida Gov. Ron DeSantis said he would ban the class in the state.
As George Santayana said, “Those who forget their history are condemned to repeat it.”
Guess that explains why we keep doing the same things in the US.
Rise in Food Prices over the last year
The cost of Food made at home is up 11.8%
Food bought at restaurants is up 8.3%
This does not mean its cheaper to eat out
Inflation due to supply constraints of fertilizer or bird flu or the Ukraine-Russia War.
According to a survey by Pymnts.com and LendingClub, the percentage of US Consumers who say they are living paycheck to paycheck
This is an increase from 61% from 2021
High-income earners are also not immune to this, 50% of people making $100,000 a year are also struggling to keep up with the rising cost of everything.
See recommended reads for more on the 6 Figure Salary no longer being enough
Ford cut prices on its Mustang Mach-E by 8%
New prices will range from $46,000-$64,000
Ford will be taking a loss on some models
The price war has begun, this was a move in direct response to Tesla's price cuts last week
This is wonderful for us the customers and I hope more manufacturers get spooked and cut prices
According to Kastle Security Systems, 50% of employees have begun using their badges to enter office buildings as of last week.
It's the first time since the pandemic that office rates have exceeded 50%
Like with most things that ended post-pandemic, Remote Work is going the way of Peleton and Zoom-only meetings
ChatGPT is the fastest-growing consumer application in history
It took just two months for ChatGPT to notch 100 million monthly active users
It took Instagram 2.5 years and TikTok 9 months
Not sure if this has more to say about how quickly things spread in our day and age or the platform?
Looking Ahead
After last week, we get a bit of a pause. More companies report earnings but not too much else is happening. But as you and I know, there is always Drama in the world of business and I shall bring it to you.
Sports I Love
MAN U
Premier League returned over the weekend and Man U continued their winning ways beating Crystal Palace.
I am loving watching Man U right now, they seem to finally have a solid team with everyone knowing their role on the team. I hope this continues till the end of the year but it will be tough. Any injuries to the core players and things can go south very quickly.
SUPERBOWL
Who y'all got for the Super Bowl?
Chiefs or Eagles
I like Mahomes but I also want Jalen to take a trophy. But I will be riding with Mahomes cause I know the people I am watching with will probably be rocking for Jalen and I like to be an antagonist. Should be a great game!
Extras
Atlanta is TOO DAMN Expensive
Netflix is set to begin rolling out its password-sharing crackdown method. Like Spotify's family plan, Netflix will lock your Netflix to a single location.
It will require users to pick a primary location.
If a device connected to the account doesn’t access Netflix using the location’s wi-fi at least once every 31 days, the account owner will have to pay an extra member fee or the user will be barred
We shall see what happens once implemented. I personally know a lot more people just adding on as an extra member because it only costs $4 a month. This does not affect existing Netflix account owners but affects people like me who share with my family and we all live in different locations.
Warner Brothers Discover revealed plans to reboot the DC Universe in an attempt to challenge the Marvel cinematic universe. DC has tried and failed multiple times to challenge Marvel but it never seemed like they had a consistent plan for any of the movies they released. This time they are ripping a page from the Marvel page. The idea is to have a consistent interconnected story throughout the Universe. They announced 10 new projects called "Chapter 1: God and Monsters"
*I am a shareholder of Apple, Amazon, and Alphabet