Best Friends (Hopefully) Again?

In this issue of the Peel:

• Yesterday, the Senate continued to advance a bipartisan stopgap bill set to avoid a government shutdown.
• Jabil and Peloton had a ripe day, while CarMax and Micron Technologies struggled to remain green for the day.
• Top diplomats in China and the United States are lining up to meet, paving the way for an ultimate summit between Joe Biden and President Xi.

Market Snapshot

Happy Friday, apes.

Something about Thursday Night Football on Amazon still feels wrong… but since everyone has an Amazon Prime subscription, we can’t be mad.

The only ones that could be mad yesterday were the bears. Market breadth was on the stronger side, with gainers in the NYSE outpacing losers by 2 to 1.

The rate-sensitive utilities sector was the only one down on the day, and naturally, large-cap tech led the way. Despite it still being September (the worst month historically for stocks), markets are trying to go out on a high note.

On the other hand, yields had quite a day of mixed volatility. The 2-year note settled almost flat but slightly lower during the day session stateside, but the 10-year ripped nearly to 4.7% on the day, setting records for multi-year highs on the way.

Let’s get into it.

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Macro Monkey Say

“How Often Do You Think About the American Empire?”

In the year 235 A.D., plagues, economic collapse, and other crises began what is traditionally viewed as the fall of the Western Roman Empire.

This was decades after the traditional end of the “Pax Romana” (or Roman Peace) and was followed up by attacks and occupation from various barbarian groups, culminating with Odoacer’s overthrow of emperor Romulus Augustulus (who was ~ ten years old at the time) and officially marked the Fall of the Roman Empire.

Purely coincidentally, the period that historians define as the “Pax Americana”—beginning in 1945 and ending in 20XX, depending on your view of wars in the Middle East and Russia’s invasion of Ukraine—could be coming to an end.

At the same time, we just lived through a damning pandemic, and despite the short-term economic strength we’ve seen, our debt levels and other fiscal f*ckery may have something to say about that.

"... there might be some reason to be at least a little worried ..."

Alright, the history lecture is over, and we don’t want to fearmonger, but… there might be some reason to be at least a little worried. After this week, seeing our Representatives and Senators display their skills of compromise and negotiation almost as well as a 2-year-old screaming in the candy aisle, it’s hard to feel better.

Throughout the course of this week, deals have been flying back and forth from the Senate to the House, Republicans to Democrats, and every way in between. The one thing they haven’t done? Their job(s).

Yesterday, the Senate continued to advance a bipartisan stopgap bill set to avoid a government shutdown, one which House Speaker McCarthy has already all but rejected.

"Throughout the course of this week, deals have been flying back and forth ..."

Between a rock and a hard place is where McCarthy would love to be. The guy is negotiating with members of his own party in the House, as the hard-line flank refuses to give way to any kind of funding to Ukraine or leniency to funding the Southern border.

As currently proposed, those measures are almost assuredly DOA in the upper chamber. So, McCarthy is in a position where he could further the Senate's CR (continuing resolution, aka a stopgap; a bill that allows temporary funding of government services while a new budget is worked out), but this could very well get him removed from the sought-after Speakership.

In case you forgot (like I did), McCarthy himself has already agreed to the ~$1.6tn budget for Fiscal 2024, way back in May. House hardliners, on the other hand (literally), continue to seek to knock that down to $1.47tn primarily over concerns of border security, deficit hawkishness, and attempts at avoiding a fiscal collapse.

It’s one of those things where, unfortunately, both sides seem to have some merit, which, in modern U.S. politics, probably means both won’t get anything done. Where is Henry Clay when you need him?

What's Ripe

Jabil (JBL) ↑ 18.80% ↑

• Being everywhere and nowhere at the same time takes talent, but for the engineering design firm Jabil, it’s just another day at the office.
• With designs incorporated in products ranging from your smartphone to your coffee maker and even into industrial applications, Jabil has an extensive reach in various sectors that most companies would kill for.
• And that’s probably why their earnings were so solid. The firm pulled in $2.45/sh on $8.5bn in sales against estimates of $2.32/sh on similar revenue.

Peloton (PTON) ↑ 5.38% ↑

• Last I checked, Peloton was only downshifting on its way to some kind of bankruptcy. But apparently, things are going (much) better than many anticipated.
• As usual in these situations, another way cooler company is giving them the hookup. Lululemon yesterday announced a deal with Peloton to partner with the firm as the exclusive at-home exercise provider for the athleisure company.
• Some Peloton instructors will take on roles as Ambassadors for Lululemon, and additionally, let’s just say it will be “strongly encouraged” for Peloton employees to wear the Lulu brand.
• It’s an interesting deal and one that traditionally may have been thought of as a precursor to a flirty acquisition. There's no word on whether that’s in the cards yet, but depending on how the deal goes, this might be a match made in heaven.

What's Rotten

CarMax (KMX) ↓ 13.40% ↓

• 13 is an unlucky enough number already. But, when quarterly revenue declines by 13%, odds are you’re in for a world of hurt.
• And on Thursday, that played out in CarMax’s more than 13% plunge. The used car retailer dove on poor earnings as the 1-2 punch of lower prices and lower demand hit them hard.
• For those of us halfway through an economics degree, that might sound like the opposite of making sense. We won’t deny it, but basically, used car prices are finally starting to downtrend as supply chains figure themselves out right at the same time in which consumers are pulling back from big-ticket purchases.
• Earnings fell as well, all the way to $0.75/sh from $0.79/sh for the same period last year.

Micron Technologies (MU) ↓ 4.41% ↓

• Semi-stocks have been the hottest trade on Wall Street so far this year. But yesterday, Micron was treated the exact opposite of the belle of the ball.
• After reporting a $1.07/sh loss—narrower than the $1.18/sh loss expected—and a sale of $4bn that came just in line with estimates, shares tanked. Not only are semi-stocks broadly priced for perfection as is, but any downbeat on anything seems to trigger a lotta red.
• And that’s where guidance comes in. Micron told analysts not to expect the firm to outperform that $1.07/sh loss next quarter, and given the fact that the Street was pricing in a $0.95/sh loss, things got ugly fast.

Thought Banana

Make Up Sets

Studies show that relationships are the most important part of our lives to keep us happy and fulfilled. So when they deteriorate, getting them back in action is maximally important.

We don’t have scientific studies to support this as it is (unfortunately) economics, but China and the U.S. having a non-terrible relationship is arguably most important for all of humanity to feel happy, fulfilled, and most of all, not in a nuclear graveyard.

This week, signs are allegedly pointing toward Big Dawg Joey B and China’s President Xi, as they are preparing to hold a geopolitical “kiss and make-up” session. Basically, top diplomats on both sides of the Pacific are lining up to meet, paving the way for an ultimate summit between Joey B and Xi.

"... China and the U.S. having a non-terrible relationship is arguably most important for all of humanity ..."

Needless to say, tensions have been spiking since the 2018 trade war began. The C-19 pandemic didn’t help, and various military provocations, movements of warships, and (alleged) spy balloons have only elevated those tensions.

It’s been almost a year since Biden and China’s President Xi Jinping have met face to face. That was at a G20 meeting, which is more of a geopolitical orgy compared to the makeup meeting set to occur (potentially) soon. As of November 2022, the two left talks stalled and thus had their respective minions sojourn the relationship in the meantime.

Not only is a strong relationship between the U.S. and China beneficial for all of us staying alive, but short-term benefits exist as well.

"It’s been almost a year since Biden and China’s President Xi Jinping have met face to face."

Strong trade ties (aka lower or no tariffs) promote a strong trade network between the world’s largest economies, which can only help our portfolios, as far as we can tell right now.

We’ll see if the meeting ever actually goes down, but for once, we’re just glad it’s not the country’s relationship, that is.

The big question: What does the future hold for the relationship between the U.S. and China? How will this impact the rest of the world and, most importantly, my portfolio?

Banana Brain Teaser

Yesterday —

What two words, when said or written, seem as though they are opposite but really mean the same thing?

Answer

flammable and inflammable

Today —

Half a crate of eggs holds half a dozen cartons, each of which holds half a dozen eggs. The truck just delivered a crate and a half. How many eggs did the truck deliver?

Shoot us your guesses at [email protected].

Wise Investor Says

“It is better to be roughly right than precisely wrong.” — John Maynard Keynes

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team