The Big Stonk
The Big Stonk
What you need to know in 5 minutes - Feb 01, 2021
Announcements
Last week, Reddit took on Wall Street by triggering a massive short squeeze. We’ve written a simple and in-depth explanation on what happened. See Reddit takes on Wall Street
Thanks to your feedback we’ve made some updates to our tracker
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What The Market?
Mr. Market was looking forward to some R&R to catch up on the latest slew of executive orders and changes to his neighborhood. As life would have it, just as Mr. Market sat down in his rocking chair, a group of boisterous speculative traders came into town and took over the Street. Mr. Market is hoping they’ll go home this week, so he can catch up on fundamental economic data and the results of the earnings season.
How come?
Reddit takes on Wall Street. A subreddit thread with 7.4m followers, Wall Street Bets, organized an unprecedented movement of retail investors that triggered a handful of stocks to soar, causing brokerages to halt trading and exposing a myriad of flaws in the capital markets system, leading some experts to call the event a “grand awakening.” For an in-depth yet simple explanation of what happened see Reddit takes on Wall Street.
How’s that stimulus coming along? Biden’s stimulus plan, which the president hopes to pass before the current stimulus expires on March 14th, has met some resistance from GOP lawmakers. Democrats have the ability to pass some of the legislation on a party-line basis via the budget reconciliation process but would prefer to pass the entire legislation in a bipartisan deal – though that would require some negotiation. Treasury Secretary Yellen expressed her support to sprint this endeavor along.
Earnings were better than feared. So far, companies have been crushing expectations. Many have aired caution about the short and long-term impact of the pandemic and have been reluctant to adjust estimates despite optimism from various economists.
What’s an investor to do?
Investor mindset:
Stay focused, stay sharp. The “lamestream” media will be covering the fallout of last week’s activity and keeping an eye on any further activity from the Reddit movement, inspired by the likes of Roaring Kitty. This will be mainly whitenoise-induced volatility with limited impact in the long run. Stay focused on the slew of relevant economic data and earnings to provide long-term direction, while keeping an eye out for vaccine deployment and stimulus updates that will influence short-term movements.
Portfolio management:
Talk of an impending market correction is picking up across media outlets despite stable economic and earnings data. Expect volatility and consider taking advantage of the drops to increase positions in undervalued stocks and those companies you trust for the long haul.
Keep an eye on the economy:
The ISM manufacturing report, ADP’s private payrolls data, and the January jobs report should provide insight into how the year started helping gauge the effectiveness of the Fed’s actions on the backdrop of the second stimulus package.
Eurozone GDP and retail sales should provide depth into the economic state of the US’s largest economic partner.
For the curious Investor:
Visa’s doing all right! (Disclosure: WTM is long Visa) Visa reported better than expected earnings despite continued headwind in cross-border volumes due to travel declines and the failed acquisition of Plaid. As the world’s largest payments processor, Visa’s performance provides numerous insights into the state of the global economy. A few highlights:
Announced it is now “back to [its] pre-pandemic growth trajectory” as strong retail sales helped balance the decline in travel, entertainment and fuel.
Communicated sustained support for cryptocurrencies and the possibility of including digital currencies to the network as they become a recognized means of exchange.
Accelerated growth of ecommerce payments in Latam and EMEA.
Keep an eye on: Vaccine deployment and lifting of cross-border travel restrictions, as they will directly impact Visa’s performance this year. Be sure to compare with American Express and Mastercard earnings to identify common themes and threats.
Satya in the clouds with Azure: (Disclosure: WTM is long MSFT)Microsoft reached new all-time high’s last week after beating analyst expectations. Microsoft’s cloud platform, Azure, continued to beat growth expectations growing revenue by 50%. Analysts expect Azure to continue growing albeit at a decelerating pace.
Keep an eye on: Management did not discuss what drove demand for cloud services. The shift to work-from-home certainly has a role to play, but keep an eye on additional strategies employed by cloud providers (e.g., Google, Amazon, Oracle). In an apparent bet on autonomous vehicles driving cloud growth, Microsoft invested over $2B in driverless-car startup, Cruise, which is owned by General Motors.
Emerging Markets eCommerce: (Disclosure: WTM is long BABA) In a context of low interest rates and a perceived expected weaker dollar, emerging markets are expected to outperform this year. Additionally, expected global economic recovery and unprecedented technological adoption in developing nations, ecommerce giants like Alibaba, MercadoLibre, and Jumia have consolidated and are expected to continue gaining traction and market attention. Consider a wide approach through an ETF like EMQQ, or playing directly to these stocks as they aim to become the “Amazons” of their regions.
Bottom of the 7th for Earnings Season: With earnings season going strong, this week a number of tech and ecommerce companies will report; focus on commentary regarding regulatory concerns and guidance for 2021.
Tech: Alphabet, Unity Software, Snap, Activision Blizzard, Match Group, Zendesk
Pharma: Regeneron, Pfizer, Thermo Fisher Scientific, AbbVie, Merck, Gilead
Other notables:Qualcomm, UPS, Peloton, Intercontinental Exchange, Estée Lauder, Clorox
Economic Calendar:
Monday: US, UK, Eurozone, and Chinese Manufacturing PMI, Eurozone unemployment rate, German retail sales
Tuesday: Eurozone Q4 GDP, US Redbook Index
Wednesday: Eurozone CPI, US employment report, and services PMI
Thursday: Eurozone retail sales, Bank of England Monetary Policy speech and interest rate decision, US jobless claims, and factory orders
Friday: US non-farm payrolls, labor participation, unemployment rate, Japanese Leading Economic Index, Australian monetary policy statement and retail sales
If you didn’t know, now you know
For the past two months thousands of farmers have set up camp outside of Delhi, India to protest new regulations. The farmers’ unions argue that these regulations will greatly benefit large corporations at the detriment of the nation’s farmers and have demanded a full repeal of the laws. The government offered to suspend implementation of the laws for 1.5 years, but the unions said “nah bro, all or nothing.” Needless to say, negotiations are at a deadlock, and the farmers continue to protest outside the city.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
Freakonomics by Steven Levitt and Stephen Dubner. A simple introduction to the study of behavioral economics, and how people behave irrationally in decision-making.
Anjunadeep 12 by Anjunadeep. An outstanding 3-disc compilation of some of the best deep house music out there. Fantastic for studying, working, or relaxing. We cannot recommend this enough.
Volunteers removed 9000 pounds of trash from the Tennessee River
Super Bowl parties from back in the day (hint: no masks are involved!)
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WTM Mentions Performance Tracker
Disclaimer
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.