Arm's Fantastic IPO

In this issue of the Peel:

• Retail sales, which feel the pulse of spending at retail stores, online, and in bars/restaurants, jumped 0.6% in August.
• Carvana and Penn Entertainment had a ripe day while the CBOE Volatility Index and Adobe struggled to keep afloat during the day.
• Arm, the world’s “leading technology provider of processor IP” went public in 2023’s biggest IPO. And it was a hit.

Market Snapshot

Happy Friday, apes.

Sorry if your biceps are feeling sore but that Arm day yesterday sure was intense. On top of a massive and successful IPO, optimism abounded thanks to surprisingly non-garbage economic data.

Equity markets, needless to say, took it in stride. U.S. equities were up across the board with all 4 major indices gaining. Small caps led with the Russell 2k gaining 1.41% while every single S&P sector was in the green. But it wasn’t necessarily a risk-on day with real estate, utilities, and materials leading while technology and healthcare brought up the rear.

Meanwhile, treasury yields gained in response to Dwayne ‘The Rock’ Johnson-strong macro numbers. The longer end of the curve naturally gained more, with the 30-year flirting with 4.4% as the 2-year held above 5%.

Let’s get into it.

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Macro Monkey Say

Donating to the Economy

Believe it or not, we’re all great philanthropists. Sure, we’re not at the Warren Buffett level of donating $50bn-great, but every time a dollar moves out of your account, you’re contributing to a damn good cause.

Those donations, regardless of what they’re given towards, all serve to fund the wonderful, fair, and generous cause that we call the economy.

So, when you spend $72 on Amazon because you’re slightly buzzed and something on the site “looks dope”, you’re not wasting money; you’re contributing to the economy, and we all thank you for it.

"... every time a dollar moves out of your account, you’re contributing to a damn good cause."

And, as we learned yesterday, your contributions last month were absolutely stellar. As measured by retail sales, which feels the pulse of spending at retail stores, online, and in bars/restaurants, donations to the economy jumped 0.6% in August.

Source

As you can see above, that marks 5 consecutive months of retail spending growth. Not bad, but taking a look under the hood gives us a more mixed message.

For starters, we can thank higher gas prices for most of the gains in donations to the economy. Stripping out spending at the pump, we can see that overall retail spending only increased 0.2% for the month. And it’s not like we were driving that much more either. Prices jumped nationwide, bringing the average gallon from $3.60 in July to $3.84 in August.

Despite this indicator’s focus on goods spending, we do still get a glimpse into service demand via bars and restaurants. Since you and your college friends are back to blacking out and then hitting Chili’s Thu-Sun, we saw this segment rise 0.3% last month.

Speaking of terrorizing college towns once again, the back-to-school wave in August also drove support in spending on items like clothes, electronics, appliances, and the like.

"Taylor Swift, Beyonce, and Barbenheimer dragged spending higher ..."

Certain idiosyncratic drivers both helped and hurt as well. Taylor Swift, Beyonce, and Barbenheimer dragged spending higher by continuing to spur the pent-up demand for experiences created by the pandemic.

At the same time, Amazon’s July Prime Day event likely pulled some of August’s budget into the prior months, leading to lower growth than otherwise on that side.

All in all, the demand for experiences not easily accessible during the heights of the C-19 days continues to carry the team. Increased costs of goods thanks to growth in commodity prices along with wage growth driving the costs of services means consumers are often paying more to get less, but maybe that’s all just part of the sacrifice we make in our highly generous and charitable donations to the poor, sweet economy.

What's Ripe

Carvana (CVNA) ↑ 13.47% ↑

• Prior to meme stocks like GameStop, AMC, and all that other BS back in 2021, having a high short interest was typically seen as a bad thing. Not anymore.
• Carvana, with a short interest of nearly 50%, surged 13.5% on the day amid minimal news that probably won’t actually matter. Remember that pending UAW strike we talked about the other day? Well, that happened last night.
• As a result, delays in new car production will likely be impending, bringing more attention to the used car market in which Carvana operates. That slight green shoot along with strong retail sales data seems to have driven the optimism.
• CarGurus, CarMax, Vroom, and the whole market were hyped up too, all rising at least 2.3%.

Penn Entertainment (PENN) ↑ 8.72% ↑

• Just weeks after dumping Dave Portnoy, Barstool Sports, and all the lawsuits associated with owning that business, Penn Entertainment is causing some to do a double-take watching that stock fly by.
• Penn and all you shareholders can thank Deutsche Bank for the uptick. The German investment bank called out some seemingly unnoticed optimism as the 5.37x P/E combined with the upcoming release of ESPN Bet could create a combination we like to call the dynamic duo.
• That duo includes 1) a low valuation and 2) a strong growth catalyst, which, see above, may just be in play. No pun intended but place your bets now!

What's Rotten

CBOE Volatility Index (VIX) ↓ 4.90% ↓

• Shoutout to the VIX for always falling when the market is up. Really makes it easier to find something to write about.
• Anyway, the index measuring volatility and, more generally, uncertainty, dove in response to strong economic data in the form of a reasonable PPI, the aforementioned strong retail sales, solid jobless claims, and other not-too-shabby data.
• But, to some, a VIX of 12.82, where it closed yesterday, is well below the average level of around 20. That signals complacency among investors, arguably meaning that assets are priced too well and leaving our portfolios more susceptible to downside risks. Happy trading.

Adobe (ADBE) ↓ 0.25% ↓

• Hanging on by the skin of their teeth was the theme of the day for Adobe and its shareholders. Sure shares fell, but look again at the %. Compared to most days, that’s a walk in the park.
• The giant of photo editing and other computer software sh*t that people with art degrees use managed to narrowly escape an earnings miss for the quarter. Revenue totaled $4.89bn on a 10% annual rise while EPS of $4.09/sh outperformed the $3.95/sh that analysts were looking for.
• Needless to say, the reaction wasn’t huge, and we’re sure management is thankful for that.

Data Peel

Thought Banana

Strong Arming the Market

Today was bicep, tricep, forearm, and delts day for the U.S. stock market as the long-awaited Arm IPO dazzled eyes and Bloomberg terminals from start to finish.

Basically, the U.S. hit a solid Arm workout on the day as the largest IPO of the year hit markets. From Cambridge, England, Arm—the world’s “leading technology provider of processor IP”—went public in 2023’s biggest IPO. And it was a hit.

"... the U.S. hit a solid Arm workout on the day as the largest IPO of the year hit markets."

Arm designs processor layouts, and however else that sh*t works to optimize chips produced and used by other companies to best fit a specific purpose is beyond me.

Needless to say, Arm was undoubtedly green with envy (and money) watching Nvidia run up recently and decided that maybe it’s now or never.

Listing at a price of $51, the stock opened at $56.10 when it began live trading yesterday afternoon and ended up closing at $63.59. That’s a 24.7% jump on Day 1, just the way you wanna start.

While a good IPO day is just that—good—the primary benefit of it is that, historically, when companies have a bad opening day, it can sour the reputation of the name for large investors, thus delaying, obfuscating, or outright stopping chances of future success.

So, it’s a big win in the sense that shares went up a lot, but the key win is that shares did not go down.

"... the key win is that shares did not go down."

As of now, Softbank still owns ~90% of Arm, listing only a small portion of the float. Ownership of this thing has been an absolute saga since Softbank dropped $36bn to buy the company back in 2016.

Masa and the rest of the team at the Japanese investing giant then tried to sell Arm to Nvidia themselves back in 2022 at a $40bn price tag, but regulatory haters stopped that before it got out of the gate.

And now, ownership is split between you, me, Softbank, and the owners of the 95.5mn outstanding shares. Best of luck to us all.

The big question: Would you still get in on Arm at its sky-high price of $63.59? Do you think it’s overvalued, or do you think it’s still got ways to go?

Banana Brain Teaser

Yesterday —

What day would tomorrow be if yesterday was five days before the day after Sunday's tomorrow?

Answer: Saturday

Today —

What is a liquid at room temperature in its original state but solidifies when heated?

Shoot us your guesses at [email protected].

Wise Investor Says

"Investing is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage.” — Bill Gross

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team