It's Raining Money!

In this issue of the Peel:

• ?? Consumer sentiment jumped higher than Snoop Dogg in January
• ?? AI-wave riding is still a great stock strategy, while Celsius lost energy
• ?? Just as we reach all-time highs, consumers are getting more passive

Market Snapshot ??

Banana Bits ??

• Markets are coming in HOT this week as Friday closes at all-time highs
• Meanwhile, optimism for holders of iRobot is just about at all-time lows
• Just a few short years later, Hertz is ditching its foray into EVs
• One high-heeling-wearing Floridian drops out of the U.S. Presidential race

CapLinked’s Enterprise VDR Comes with a Trip to Thailand

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Step two: Enjoy your dream vacation in Thailand.

Macro Monkey Says ??

Consumer Sentiment

Every U.S. consumer must be a Detroit Lions fan or something because they’re suddenly the happiest they’ve been in a long, long time.

Speaking of Detroit, if we take the quick 45 min ride over to Ann Arbor, we can see exactly why.

And now, it’s not because Michigan just won the National Championship, either.

On Friday, The University of Michigan released its latest preliminary results measuring consumer sentiment in the U.S. In short, consumers are ready to roar.

Roaring 20s 2.0?

Researchers at the University of Michigan began measuring sentiment back in 1978, using sentiment in 1985 as the index’s benchmark of 100.

As we can see in the below chart, the 2020s haven’t exactly brought about those Great Gatsby feelings of fun just yet. But like Daisy’s feelings towards James Gatsby, that could certainly change on a dime.

Sentiment leaped into 2024, much like that guy who leaped at that judge in a Nevada court a few weeks ago.

21.4% is how much more optimistic consumers are feeling than at the same point last year. Overall sentiment clocked in at 78.8 this month, much better than the 64.9 reading last January and the nice 69.7 seen in December, a 13.1% increase.

Since January 2021, sentiment hasn’t been higher.

Plus, when adding in the leap from November to December, Michigan consumer sentiment has posted its largest two-month gain since 1991, over 30 years ago.

Even better ??…

When sizing up current macroeconomic conditions, which we all know the average consumer is clearly an expert in, sentiment jumped even more on an annual basis.

21.6% is how much of a jump our collective assessment of current economic conditions took.

Obviously, this group of U.S. consumers who largely probably couldn’t identify more than 3 European countries on a map aren’t exactly masters of econometrics, but like we always say, sentiment drives outcomes in the art and science of economics.

If consumers are optimistic, they’ll save, spend, and generally act like it. That implies steady or even increased spending, which is almost the only thing that matters for U.S. GDP growth.

Looking ahead, consumers are feeling much more “glass half full” as well.

Expectations for economic conditions jumped 21.2% in January as well, with year-ahead inflation expectations leading the charge of optimism.

Consumers now expect annual price increases of 2.9%, the lowest since December 2020. In the long term, expectations fell to just 2.8%—outside of the 2.9%—3.1% seen in 26 of the last 30 months, according to the University of Michigan.

The Takeaway?

As you can see in the chart below, all 3 major sentiment readings stormed higher in January. While few things in the macroeconomic environment have actually changed in that time, seeing this boost in sentiment could be the start we need.

Source

And really, it’s not like the economy has been particularly bad for a while.

But consumers hate uncertainty almost as much as investors do. If they’re feeling themselves enough to hype up these sentiment readings, that could suggest we’re actually getting some clarity back in the U.S. economy.

Whether that clarity turns out to be seeing something good or bad, well, I guess we’ll find out together. Fingers crossed apes.

What's Ripe ??

Super Micro Computer (SMCI) ??35.94%

• Like how Kanye made Taylor Swift famous, Super Micro is a talented coat rider as well, riding Nvidia’s AI wave to a huge up day.
• Their 250% gain in 2023 wasn’t enough for this seller of server equipment focused on AI and cloud—preliminary earnings had the whole market hyped on Friday.
• Super Micro expects quarterly revenue to total $3.6-$3.65bn, far beyond the $2.7-$2.9bn existing guidance. EPS estimates were jacked higher, too.

Wayfair (W) ??10.28%

• Looks like holding a job at Wayfair has an even shorter lifespan than their furniture.
• On Friday, the firm announced plans to cut up to 1,650 jobs, and obviously, markets couldn’t help but celebrate the end of so many livelihoods.
• Wayfair was a frontrunner in the “overhiring” game tech companies played during the ZIRP era. Now, it’s time to “trim the fat” and actually make money again.

What's Rotten ??

Celsius Holdings (CELH) ??12.74%

• Clearly, one analyst at Bank of America is more of a Redbull guy as the firm downgrades shares in energy drink maker Celsius to “Neutral” from “Buy.”
• It’s almost like BofA analyst Jonathan Keypour just said what everyone was thinking as the 108x P/E stock sold hand-over-fist after his updated call.
• With a $65/sh price target, his analysis still implies a >25% upside. Too bad for the company, however, as on Friday, no one seemed to care.

Learning Stocks (COUR, CHGG, DUOL) ??10.32%

• We all know that learning is for losers, and finally, Goldman Sachs analysts are on board as well following their downgrade of 3 prominent educational stocks.
• Coursera (-10.32%), Duolingo (-2.61%), and Chegg (-2.19%) all got hammered on Friday as GS called out the risk to their business models posed by AI tools like ChatGPT.
• All three stocks had their ratings cut from “Neutral” to “Sell.”

Thought Banana ??

Flows > Pros

Nothing is more beautiful to hear than those 3 little words—all-time highs.

And that, apes, is where we are now. The S&P 500, Dow Jones, and Nasdaq 100 indexes all closed at record highs on Friday, causing my Friday night bar tab to hit an all-time high as well.

Anyway, amid those all-time highs, we’ve also received reports from some of the country and world’s largest asset managers to show us exactly how investors are positioned.

And just as you’d expect, investors appear to be addicted to shooting themselves in the foot. According to State Street, BlackRock, and separate data provided by Bank of America, investors are flowing out of equity holdings like the damn Nile River.

Source

Here, we can see BofA sizing up a total of $6.81bn in net outflows from U.S. equity strategies and individual investments.

Basically, investors are looking to soak up gains outside of equity strategies and individual equity investments.

Whether it’s profit taking, a poor outlook, or simply just needing some cash after all that spending we racked up during the holiday season, cash and non-active-equity strategies are continuing to take the W just as we reach all-time highs.

If we take a look at BlackRock’s ETF flows shown below, we can see a massive jump that you might initially think is a sign of investors getting more aggressive:

Source

Taking a look under the hood ???♀?...?

Reveals a similar sentiment to that of BofA’s research.

BlackRock’s retail equity investments saw outflows of $370mn in Q4. Meanwhile, total long-term active equity styles saw outflows of $5.5bn from September to December 2023 as well.

But it appears that on the institutional side, money managers may actually be getting more aggressive, with institutional active equity investments gaining $704mn for the quarter.

Going over to State Street, another massive asset manager and custodian, the data stays nice and confusing.

Long-term institutional equity investments under State Street’s umbrella saw outflows of $13bn while flows into equity ETFs gained $60bn for the same time period.

Don’t worry, though. These behemoths were still able to rake in even more money because, despite the outflows from active equity styles for the quarter, markets absolutely stormed higher over the course of those 3 months.

As markets storm higher, the total pile of investments for these firms to charge fees on continued to grow as well.

To Summarize:

• Equity markets are at all-time highs in the U.S.
• Passive equity investments are dominating flows, while
• Active equity investments continue to suffer, meaning
• Investors want to stay exposed to equities but are de-risking their portfolios and focusing more on capturing beta than seeking to achieve alpha

Don’t get me wrong—we’re all for riding the wave of passive funds and gaining exposure to the indexes, but capturing beta is… boring.

We’re here for the outperformance of those indexes, a.k.a. alpha, and there’s no better place to chase that beautiful Greek letter than with WSO Alpha . We’ll see you there (I hope).

?? The Big Question ??: What is the primary driver of U.S. investors focusing on beta capturing over alpha generation? Can we expect a reversal of this in a market downturn? All-time highs are fun, but how long will they last?

Banana Brain Teaser ??

Friday ??

Each machine at a toy factory assembles a certain kind of toy at a constant rate of one toy every 3 minutes. If 40 percent of the machines at the factory are to be replaced by new machines that assemble this kind of toy at a constant rate of one toy every 2 minutes, what will be the percent increase in the number of toys assembled in one hour by all the machines at the factory, working at their constant rates?

Answer: 20%

Today ??

When a subscription to a new magazine was purchased for m months, the publisher offered a discount of 75 percent off the regular monthly price of the magazine. If the total value of the discount was equivalent to buying the magazine at its regular monthly price for 27 months, what was the value of m?

Send your guesses to [email protected]

Wise Investor Says ??

“Selling your winners and holding your losers is like cutting the flowers and watering the weeds” — Peter Lynch

How Would You Rate Today's Peel??

??All the bananas ? ? ? ? ? ? ? ? ? ? ? ? ???Meh ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

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Happy Investing,

David, Vyom, Jasper & Patrick