Continuing the Continuing Resolution

In this issue of the Peel:

• Headline CPI clocked in at 3.2% annual growth from October of last year. Core CPI, which strips out food and energy costs, registered 4.0% annual growth.
• Solar stocks and Snap Inc had an absolute day for themselves, whereas Sea Limited and Fisker suffered share price declines.
• As of 6:28 pm yesterday (time of writing), the House had just passed a Continuing Resolution funding the government through at least January 19th.

Market Snapshot

Happy Wednesday, apes.

If your bets didn’t hit Monday night, they sure as hell better have yesterday, as apparently anything and everything ripped yesterday on the back of a dovish CPI report. Well, maybe not everything, as you’ll see below…

But, mostly everything, and that’s largely why every major U.S. index was up at least 1.43% yesterday. The Dow was carrying the rear, but the Russell 2k’s enormous 5.49% leap easily led the way as rate-sensitive banks, real estate firms, and other small-cap-dominated industries rode the wave of the day’s CPI report (more below). Needless to say, every S&P sector was up, and every trader’s account was, too (unless, of course, you’re chilling in the bear cave).

Largely for the same reason, yields absolutely plummeted on the day. The 10-year finished well under 4.5% after clocking nearly 4.7% on Monday, while the 2-year followed suit, crashing below support at 5% and settling right around 4.8%.

Let’s get into it.

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Banana Bits

• The House passed a stopgap bill to avoid a government shutdown during this month, at least. Now, we’re just waiting on the Senate, but this could be stale by the time you open it…
• After yesterday’s beautiful inflation report, Central Bankers might want to settle down a bit on all that “higher for longer” talk.
• Amazon gave out a bunch of wins yesterday (as you’ll see below), including one to C3.ai in a renewal of the firm’s AI collaboration.
• Your parents were out and spending BIG last quarter, apparently, as Home Depot’s earnings and guidance raise got Wall Street excited.

Macro Monkey Says

CP-Fly

Rumors are swirling that Fed Chair Jerome Powell was seen at 8:30 am yesterday dancing in a Washington cemetery on a gravestone that simply read “Inflation: 2021-2023.” It was a short life but an unforgettable one, to say the least.

Unfortunately, unlike humans, this thing certainly has the power to revive itself from the dead, but let’s just keep our fingers crossed that it doesn’t happen again until the next pandemic.

Yesterday, the Bureau of Labor Statistics released the latest report on consumer inflation with the October CPI report. Wall Street threw an absolute banger of a party in response across both equity and bond markets, so let’s see what happened.

"Headline CPI clocked in at 3.2% annual growth from October of last year ..."

Headline CPI clocked in at 3.2% annual growth from October of last year, along with a delicious monthly reading we’ve all been waiting for at 0.0%. Core CPI, which strips out food and energy costs, registered 4.0% annual growth and a cute little 0.2% monthly acceleration.

The report can really be summed up in 3 letters: LFG!

Traders, analysts, and anyone else with a Bloomberg Terminal were hyped, to say the least. Equity markets ripped, but the real movement that deserved our attention was the cliff dive seen in treasury yields. The 10-year yield crashed from 4.65% back below 4.45%, while the 2-year ripped through the 5% level and sat near 4.8% for most of the session.

Although it was a helluva report that really got the people going, don’t let that fool you into thinking all is fine and dandy. Some inflation is a good thing, as the true economic nightmare that keeps JPow up at night is deflation. So, the 0.0% monthly reading—while good in comparison to others over the past few years—is a bit of a heart-stopper, given that it straddles the line between these two forms of price changes.

What Wall Street saw, however, was not necessarily with regard to what this report meant for the real economy. Low-and-no inflation means Powell and the FOMC are even less likely to raise rates again than we already thought, and maybe more importantly, they’re probably closer to a rate cut as well.

But once again, the primary factor driving the 4.0% annual increase in core inflation was the damn housing market. Shelter costs increased 6.7% annually and again accounted for 70% of the annual core increase. The index for shelter also rose 0.3% in October, the largest increase among all factors in the core reading, but if we look at actual shelter cost data instead of the nonsense bullsh*ttery done by our government, we see a very different story.

According to data from Apartments.com, rent prices continue to fall nationally, although at a slowing rate, as observed in October. On the more adult side of things, Redfin data shows that median sale prices on an absolute and per-square-foot basis have been declining since at least the spring of this year, as you can see below:

"... the primary factor driving the 4.0% annual increase in core inflation was the damn housing market. Shelter costs increased 6.7% annually ..."

Source

If it really is the case that the federal government is so bad at collecting data on shelter costs that they can’t see the decline that more frequent readings consistently have observed, JPow and the FOMC might want to start worrying a lot more about deflation… adding further credence to the probability of a rate cut to occur sooner than the current consensus of 2H’2024.

Energy costs declined 2.5% while food prices rose a tolerable 0.3% for the month, with a 5% drop in gasoline prices staving off increases in almost every other major energy category.

What's Ripe

Solar Stocks (TAN) ↑ 10.36% ↑

• Finally, we got another solar eclipse. Not in the way that actually matters, of course (I don’t think?), but in the stock market for sure.
• Yesterday’s CPI report, as rambled about above, has convinced Mr. Market that there’s no longer a 15% chance of a rate hike in December but instead a ~0.2% chance of such a move. With that, rate-sensitive stocks (*cough* cough every solar name cough) soared.
• Further, these stocks have been so beaten down in 2023 that they seem to have gotten to the point where any even slightly good news leads to an outsized positive reaction in their value. Basically, things were incredibly terrible before, and now they’re less terrible. Let’s just hope there are no Icarus-es among them that fly too close…

Snap Inc (SNAP) ↑ 7.38% ↑

• Oh, Snap—this company just got its first break of good news since that global pandemic forced everyone to sit at home and send n*des all day.
• Amazon giveth and Amazon taketh away, and luckily for Snap, they were in quite the giving mood yesterday. The firms announced a partnership in which Amazon will now allow Snapchat users to purchase products without even leaving the bright, yellow ghost app.
• Payments will still go through the Big Tech Behemoth but will be sold via Snapchat ads, driving new ad dollars to the official social media app of f*ckboy nation. Snap was already essentially a pure play on the digital ad market, and it looks like this was only further solidified.

What's Rotten

Sea Limited (SE) ↓ 22.07% ↓

• Apparently, the >87% fall from the peak wasn’t enough punishment for Sea Ltd and its shareholders going into this report. Let’s take a look at how warranted that projectile vomit of a response from the market was.
• Well, it’s not great when you surprise investors with a big, fat loss of $0.26/sh when they were anticipating EPS of $0.12/sh. Sales only grew 5% annually as well, disappointing figures for a company that promised so much growth.
• Sea’s products include Shoppee, SeaMoney, and Garena, providing e-commerce, payments, and game development services, respectively. This seems to be the wave that everyone in the Southeast Asian region joined Sea in venturing into back when the pandemic was raging, but now, competition is starting to do its thing.

Fisker (FSR) ↓ 18.73% ↓

• Like when all your friends are chosen to be on the local All-Star team, but you’re not, Fisker spent Tuesday watching its buddies have an absolute blast. Meanwhile, they lost nearly 1/5th of their value in a single day.
• As we learned above, solar stocks had their first great day since someone said, “Let there be light!” EV stocks like Tesla (TSLA, +6.12%) and Rivian (RIVN, +4.39%) also popped off. Fisker’s earnings report kept them far away from joining the party.
• The EV startup, which is perpetually lagging the rest, plummeted thanks to a garbage earnings report even my dog would laugh at. The company reported losing $91mn, or $0.27/sh, for the quarter, which is 42% wider than the expected loss of $0.19/sh.
• Sales were well below estimates as well, clocking in at $72mn vs the $109mn expected. Deliveries simply weren’t there last quarter as the company only put 1,100 customers behind the wheel of their Ocean SUV, but they did claim over 1,200 had been delivered in October alone. Sadly, Wall Street couldn’t have cared less.

Thought Banana

Here We Go Again

If you don’t do your job, you get fired. If your elected representative doesn’t do theirs, they get re-elected, more donations, and even more information to insider trade on. Sounds like a fair deal to me, huh?

Welcome to the American political system. In this week’s news that not nearly enough people are talking about (yet), we’re gonna check in on the status of the looming government shutdown set to occur at 12:01 am this Saturday, November 18th.

Since the U.S. almost never, ever deals with this kind of nonsense, and it’s been a whole 7-weeks since our last near-shutdown, let’s take a trip down memory lane.

On September 30th, the U.S. government passed a continuing resolution (“CR,” a.k.a “stopgap bill”) that provided funding for the federal government through this coming Friday. Now, that Friday is about to emerge, and we just got our first step to solving this problem at around 5:55 pm last night.

"... we just got our first step to solving this problem at around 5:55 pm last night."

The last time this happened, then-Speaker Kevin McCarthy essentially lost his job over his move, opening the door for a new Speaker. Recently, that role was filled by the (formerly) nameless Mike Johnson—no, not the Mike Johnson that lives down the street from you—the Representative of the 4th district of Louisiana.

Several members of Congress had to Google this guy to figure out who the hell he was, and when I just Googled him to see which district he represented, I had to specify him as “rep Mike Johnson” to get something other than a myriad of middle-aged Facebook profiles.

"... the House had just passed a CR funding the government through at least January 19th."

So, as of 6:28 pm yesterday (time of writing), the House had just passed a CR funding the government through at least January 19th. Big Dawg President Joey B was apparently awoken from his 4th daily nap to respond and say that he would, in fact, sign the bill if/when it gets through the Senate.

And obviously, the bill is about as convoluted as they come. Random parts of the government, including Veterans Affairs, military construction, transportation, housing, and… the Energy Department (?), will have only their funding run through Jan 19th. All other funding is set to run through February 2nd. No aid for any ongoing conflicts was mentioned, however.

While Representatives may be hoping that the February 2nd date will allow them to ride the Groundhog Day wave like Bill Murray in the eponymous holiday movie, we can’t begin to imagine how bifurcation got decided on, and to be honest, it’s hard to believe that anyone in Washington does either.

As we said, welcome to the American political system.

The big question: Will the Senate approve this CR? If not, what’s next? What will happen on January 19th?

Banana Brain Teaser

Yesterday —

There are two dogs, a black one and a white one. One is male.

What is the probability they are both male?

Answer

1/3

There are three combinations:

Black is male, white is male, Black is male, white is female, Black is female, white is male.

Today —

A farmer knows that 20 of his hens, housed in 3 coops, will hatch 30 eggs in 21 days. How long will it take 30 hens housed in 4 coops to hatch the same number of eggs?

Shoot us your guesses at [email protected]

Wise Investor Says

“You make most of your money in a bear market, you just don’t realize it at the time” — Shelby Cullom Davis

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team