The Weekly Drop - November 13th, 2023
So much for that break... quiet week turns to utter madness
Good morning investors!
I know there was a lot to keep up with this week but that’s why you subscribe to this newsletter — I cut through all of the BS and give you what you need to know in easy to digest, bite sized pieces of content.
After what looked to be the start of a nice relaxing week, Jerome Powell’s words and a failed bond auction decided to upend the markets. Both events happened on Thursday and sent huge ripples throughout equities and bonds.
Surprisingly, all was forgotten by Friday and markets ripped higher to end the week. Honestly, you can’t make this stuff up which is why the saying “markets can stay irrational longer than you can stay solvent” is very real.
You have to let go of your ego and play the market as it is. That’s where my levels come into play. But that’s for the premium subscribers so I’ll save that for later.
Grab your coffee and let’s dive in.
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Market Recap
The S&P closed higher the first three days of the week, pushing its green streak to 8 days. Then things got interesting Thursday after a 30 year bond auction did not go well, with seemingly no buyers of the bond. That scared markets, sending equities lower and yields higher.
That fear was exacerbated after Powell reiterated his higher rates for longer stance in the afternoon — something he has said for months — which caused investors to realize rate cuts aren’t coming any time soon.
Luckily, investors have short memory spans and by Friday they forgot everything that happened the day before. And since big money can’t afford to miss a potential Santa rally, once the buying started everyone piled in, ultimately pushing the S&P 1.5% Friday alone.
Also of note is that move came after the University of Michigan consumer report was released Friday morning showed sentiment fell once again while inflation expectations continued to rise.
There’s nothing stopping this train right now. All aboard for the Santa rally!
On top of all the economic news, several major companies also reported earnings:
Berkshire Hathaway
My prediction from last week:
It’s hard to bet against Warren Buffett and Berkshire Hathaway. The stock is up 13.5% year to date and the company blew out estimates last quarter. Expectations are very high for Q3 but I think Buffett and team will still surprise. ✅
The big surprise was the amount of cash the company was sitting on and how much of that was in treasuries.
Berkshire Hathaway reported a big jump in third-quarter operating earnings, while also sitting on a record $157.2 billion in cash. Buyback activity slowed in the quarter as Buffett and team put that money into treasuries yielding 5% or more.
Disney
My prediction from last week:
Disney’s stock has been absolutely punished since 2021, down nearly 60% from the peak. The company has had issues meeting earnings and revenues estimates in the past, partly due to its streaming business. Subscriber growth has plateaued and investors have let the company know they don’t believe they deserve the same multiples as a name like Netflix.
Parks might make up for streaming numbers this quarter but I don’t think it will be enough. And with other names revising their guidance, that could hurt Disney further. Let’s see if the mouse has any tricks up its sleeve. ✅
The trick up the mouse’s sleeve was the additional $2 billion in cost cutting measures.
Disney DIS 0.00%↑ earnings topped expectations thanks in part to profit at ESPN+ and continued growth at theme parks, but a decline in ad revenue weighed on the top line. Disney also said it plans to continue to “aggressively manage” its cost base, increasing its cost cutting measures by an additional $2 billion to a target of $7.5 billion. Meanwhile, the company added 7 million new core Disney+ subscribers from the previous quarter, bringing its total number of users to 150.2 million.
Uber
My prediction from last week:
While revenue growth is impressive, Uber has not been able to consistently show positive net income. The company is hoping it can do that for the second consecutive quarter, and for the third time in the last four quarters. With the strong consumer in Q3, I think Uber will meet expectations. I’m not so sure about the guidance though, we shall see. ✅ ❌
Uber UBER 0.00%↑ did beat earnings expectations, but missed analysts’ expectations on revenue. The company did also show strength in other areas, like gross bookings, which exceeded the company’s guidance from the second quarter.
For the fourth quarter of 2023, Uber said it expects to report gross bookings between $36.5 billion and $37.5 billion, compared with analyst estimates of $36.5 billion, and adjusted EBITDA of $1.18 billion to $1.24 billion.
I did not expect the revenue miss or the upwardly revised guidance.
Realty Income
My prediction from last week:
Realty Income is down 20% year to date. The company recently announced it is acquiring Spirit Realty and investors didn’t like the news. Not to mention their margins are shrinking, partly due to higher interest rates. The bar is pretty low for the REIT this quarter so they may surprise everyone and beat estimates. The key, of course, will be guidance. Same old story this earnings season. ✅
Realty Income O 0.00%↑ not only reported earnings and revenue above Wall Street estimates. The company also increased full year guidance, raising EPS, FFO and AFFO estimates.
Discord
As always, if you want to see a breakdown of all the earnings and economic reports from last week, head to my Discord. Here’s a sneak peek:
The Week Ahead
Several major retailers top the earnings calendar while inflation data and retail sales will be in focus on the economic front.
Earnings Reports
Home Depot, Target, and Walmart are the major U.S. retail earnings to watch this week. Meanwhile, JD.com and Alibaba are major Chinese retailers to watch. All these reports will give us insights into the global economy overall.
Other big names on the docket include Cisco, Palo Alto, Applied Materials and Sea.
As I have been saying all earnings season, there should be no surprises for the last quarter. The consumer was strong, the economy was chugging along and the reports should continue to indicate that. But pay attention to the forward guidance, that is the key.
*Note - I will be creating one page summaries for key reports. Be sure to follow me on Twitter.
Let me know in the comments what stocks you are watching.
And be sure you don’t miss anything by joining the Discord.
Economic Reports
This week is all about inflation as both the CPI and PPI reports will be released. We also get retail sales data on Wednesday which will give us insights into the consumer as well as a few housing reports to close the week.
Again, be sure you don’t miss anything by joining the Discord. I provide full breakdowns of every report as they are released.
What CMG is Watching
It’s time for the moment you have all been waiting for - exactly what I am watching in the week ahead and how I’m playing it. Unfortunately, this is only for the premium subscribers.
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