Best Friends Again?

In this issue of the peel:

• Earlier this week, Chinese President Xi Jinping got a standing ovation from U.S. business leaders, as his speech during a banquet hinted at cooperation between the U.S. and China.
• Macy's and Sonos had a ripe day, whereas Walmart and Palo Alto Networks suffered share price declines.
• Crude prices have been falling for much of 2023 as fears of a U.S. and global economic slowdown abound.

Market Snapshot

Happy Friday, apes.

It’s about damn time, huh? Not only is it Friday, but the Friday before what is (hopefully) a shorter-than-average week for you. First-year analysts might get to experience only 60-70 hours in the office this week, and next year that could be you! Just take a look at the WSO Academy.

Or, you could simply get rich on your own through your brokerage account. We’re sure trying our best, but between the single-digit brain cells found on the WSO Alpha team, we shed 0.18% on our portfolio yesterday. A sale of Costco shares helped pad the stats, but there goes our plan to “just make 1% a day!”

Compared to some U.S. indices, though, that wasn’t a bad performance by any means. The Russell 2k, leading the way lower, lost 1.62% on the day, while Thursday’s leader, the good ol’ S&P, gained just 0.12%. Both consumer sectors and energy were the only 3 of the 11 S&P sectors to fall on the day, so let’s just call it a wash and get to the bars as soon as we can.

Let’s get into it.

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Banana Bits

• Chinese President Xi Jinping is met with a welcome from American business leaders that was so warm rumors indicate his staff had to check him for minor burns afterward.
• Walmart CEO Doug McMillon used the scariest word in macroeconomics yesterday on the company’s earnings report: deflation.
• Local news outlets are almost as gone as Aaron Hernandez , and it’s only gonna get worse in 2024.
• The humiliating, pathetic saga of “Congressman” George Santos just gets better and better. Turns out the guy stole campaign money for clearly very professional purchases like Botox, OnlyFans subscriptions, and other stuff we really don’t want to imagine.

Macro Monkey Says

President Xi Cha-Ching

Earlier this week, Chinese President Xi Jinping achieved something no U.S. politician has been able to dream of since, like, the inauguration of George Washington—he got a standing ovation from U.S. business leaders.

Now, you might be thinking, “Whatever, Travis Kelce’s girlfriend gets a standing ovation every time she steps on stage,” but Travis Kelce’s girlfriend was only recently put on the map thanks to her association with the tight end. It’s a strong start to her career, but we’ll see if the standing O’s continue.

Plus, she actually has a talent for entertaining. Xi, on the other hand, has spent most of his time—along with U.S. leaders—scaring us into various trade wars as we dance around a “new Cold War” and, much more nihilistically, World War III.

But this time, the attitude of leaders on both sides of the Pacific was a refreshing change. Don’t get crazy on me and start thinking that Xi actually talked about things like trade, foreign investment, and all the other sh*t that actually matters, but at least we made some progress on the international geopolitical tension around panda bears.

"... the attitude of leaders on both sides of the Pacific was a refreshing change."

“We are ready to continue our cooperation with the United States on panda conservation,” spoke the Chinese leader, and as absurd as it sounds, this is actually a great step in the right direction.

Recall that in 2023, politics has officially become indistinguishable from satire, especially in the U.S., it seems. It’s not one party or the other or some other nonsense. It’s just that political ongoings seem to get more absurd with time… but that’s a story for another day.

President Xi focused his speech at the dinner, held in the Chinese leader’s honor out in San Francisco, on revitalizing relations with the U.S. and the West. Specifics were lacking, but the sentiment was clearly meant to be positive for both U.S. and Chinese business leaders.

And with power players like Tim Appl- I mean, *Cook, Elon Musk, Marc Benioff, and other CEOs like those of Pfizer, Boeing, Qualcomm, and more present, it was a breath of fresh air to these stressed-out billionaires.

Xi’s speech essentially boiled down to a few points. Some of his most notable lines included:

• “China is pursuing high-quality development, and the United States is revitalizing its economy. There is plenty of room for our cooperation.”
• “I stayed at the Dvorchaks’ in Iowa. I still remember their address.” (recalling his first visit to the U.S. back in 1985 and the beginning of his ties to rural Iowa ).
• “I have always had one question on my mind: How to steer the giant ship of China-U.S. relations clear of hidden rocks and shoals, navigate it through storms and waves without getting disoriented, losing speed, or even having a collision?”
• “China is ready to be a partner and friend of the United States.”

And, of course, can’t forget about the pandas’ comment above.

Although no concrete plans were discussed, the soft diplomacy in this meeting implicitly spoke volumes. That last line really sums it all up—Xi claims that China is ready, willing, and able to be friends with the U.S.

"... U.S. business leaders present seemed pleased with the developments."

Of course, that’s the same thing I tell flight attendants when I’m in the emergency exit row, even though we all know damn well I’m grabbing the parachute and dipping.

So, while we don’t know how much validity there is to that sentiment, U.S. business leaders present seemed pleased with the developments. Foreign business and capital have been fleeing China for years as crackdowns, restrictions, tariffs, and more weigh on efficiency in the country, but this meeting clearly alludes to an alleged desire to change that.

But geopolitical events like this take time to materialize into tangible developments and potentially even longer to turn into gains in your portfolio. As always, we’ll keep you updated and let you know when to smell the money.

What's Ripe

Macy’s (M) ↑ 5.71% ↑

• Sometimes, having low expectations is the perfect strategy as it doesn’t take much to call it a W. Apparently, that was the earnings strategy Macy’s chose to pursue last quarter.
• Analysts were expecting a resounding $0.00/sh on the bottom line, so when the firm delivered $0.21/sh in earnings, Wall Street was pumped despite the literal nonexistent hurdle of their expectations. Sales beat, too, raking in $4.86bn vs. the anticipated $4.82bn.
• Inventory controls, giving them more flexibility going into the Holiday quarter, along with improved margins, were the primary drivers. The company is looking to dip out of the department store chain model for part of its business, announcing plans to open smaller locations in the American 8th Wonder of the World: strip malls!

Sonos (SONO) ↑ 17.09% ↑

• There is an 11th Commandment we all too often fail to remember: s/he who controls the speaker controls, thus controls the vibe. To Sonos, the vibe is everything.
• And yesterday, that vibe was as immaculate as they come. Earnings on Wednesday weren’t as bad as expected, despite a ~5% drop in sales primarily due to consumers putting discretionary/premium purchases on pause. The company beat on the top line, but the loss of $0.07/sh was just a tad wider than the $0.05 loss expected.
• Still, Wall Street couldn’t have cared less. Along with the report came upbeat guidance and CEO Patrick Spence teasing a looming foray “into a new multi-billion dollar” category in the latter half of next year as if everyone on Earth didn’t know he was talking about headphones, likely similar to the AirPods you have in right now.
• The smart speaker maker plans to cut jobs in the meantime, but don’t worry, shareholders, they’re still doing a $200mn share buyback. But damn, if only they had the money to keep those employees…

What's Rotten

Walmart (WMT) ↓ 8.09% ↓

• We know the answer to the “If a tree falls in the woods and no one is around to hear it…” question, but what about when a stock falls, and everyone can see it because it’s just so damn big?
• Well, that’s exactly what happened to Walmart yesterday, and the clear answer was, “It just falls more.” Shares in the company that still earns more revenue than any other company on Earth (barely beating Saudi Aramco) tanked thanks to a depressing outlook on the U.S. consumer.
• Last quarter’s earnings weren’t bad, clocking $1.53/sh on $160.8bn in revenue vs the $1.52/sh on $159.7bn expected. However, the outlook for Q4—the most important holiday quarter—brought the firm’s projections for the full 2023 fiscal year below expectations.
• Walmart, known for its low-priced goods but high-quality entertainment in the form of the customers they attract, generally holds up better than most retailers during economic pullbacks. If they’re scared, maybe others should be too.

Palo Alto Networks (PANW) ↓ 5.42% ↓

• Allegedly, this was a name the team at WSO Alpha was strongly considering getting into last quarter… I guess sometimes they can make smart decisions, as even a blind squirrel is right twice a day, or whatever the saying is.
• Palo Alto Networks, based out of Santa Clara, CA, reported earnings late Wednesday, much to the disappointment of investors. The cybersecurity name beat on revenue and earnings, but weak guidance for Q2 bookings (yes, that’s the next quarter, according to these anti-counting execs) pulled shares for the day.
• But, according to analysts, bookings aren’t even the best measure of upcoming revenue growth for cyber names. RPOs, or remaining performance obligations, are allegedly a far superior driver, and those grew 26% for the period. Not too bad, eh?

Thought Banana

Low-Energy Oil

If you think your portfolio plunged yesterday (well, maybe WSO Alpha can help…), just wait until you see oil. You probably didn’t know this was possible, but crude fell even further. Thank your stocks if it didn’t (I hope).

Wild stuff, I know, but leading into next week’s OPEC+ meeting, prices for the commodity plummeted both here in the U.S. as well as internationally, according to WTI and Brent crude prices, respectively.

By 4 pm ET, U.S. crude was off 4.83% from open while Brent had fallen a marginally less 4.58%. Demand weakness out of the U.S., China, and pretty much everywhere on Earth is the primary suspect.

"Demand weakness out of the U.S., China, and pretty much everywhere on Earth is the primary suspect."

In fact, it’s not only the suspect. Demand weakness has already been convicted in this case. Remember yesterday’s discussion on retail sales and gasoline here in the U.S.? If you don’t, recall that gasoline sales lost 7.5% compared to last year, a performance almost as bad as Patriots QB Mac Jones in the 2023 season.

Researchers at Goldman following the oil and gas trade point to the fact that OPEC+ countries have been open to cutting supply when crude prices are in the range of $82-$85/bbl. As of the time of writing, Brent is trading at $77.53, while WTI is similarly priced at $73.13.

American O&G trades at a discount, by the way, compared to international markets for supply, transportation, and other reasons we don’t have time to get into, but the point is: seeing declines like this leading into the Nov 26th OPEC+ meeting in Vienna suggests the cartel is far more likely to increase/extend production cuts in order to artificially raise prices.

"In fact, it’s not only the suspect. Demand weakness has already been convicted in this case."

Crude prices have been falling for much of 2023 as fears of a U.S. and global economic slowdown abound. It might not be as bad when the commodity literally went negative back in 2020 (never forget ), but to many, it would be a surprise if a production cut wasn’t in store.

Needless to say, that’s far from ideal as the northern hemisphere continues to pull a Ned Stark and realize that “Winter is Coming.” Oil and other heating products should only grow in demand over the next few months, and the odds are that OPEC+ sees a whole lotta dollar signs coming with that.

The big question: Will OPEC+ extend or increase their production cuts? If so, how high will the price of oil go?

Banana Brain Teaser

Yesterday —

What do you get when infinity divides infinity?

Answer

It is most definitely not 1. However, that isn't because it is something else.

The fact is that it is not defined, and that, in turn, is because:

• Infinity isn't a number. It is a concept and has different meanings in different contexts.
• There is no way to define it that does not result in overturning the rules of arithmetic that apply normally.

Today —

This year, if you reverse the digits of my age, you will have the age of my son.

Last year, I was twice his age. How old are we both now?

Shoot us your guesses at [email protected]

Wise Investor Says

“Oil price increases can lead to recession, but they can also lead to inflation."—Christina Romer

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team