Dear Readers,
I hope you’re all well, and thanks to your enduring support, we just reached a subscriber count of 400 - quite a milestone! I’m going to set up a discussion thread on my page so we can share opinions and thoughts. There’s always a learning opportunity.
Also, I will be away for the next week, but have prepared this Market Mayhem post for you before I go.
Have a great weekend.
Kind regards,
JL
Intraday Whiplash
The market had a wild ride on Monday, as the main trio of U.S. indices - the Nasdaq, DJIA, and S&P - fell between 3% and 5%, before paring losses to end in the green.
Global markets are correlated, and the rodeo wasn’t restricted to American stocks; the EuroStoxx 600 and MSCI Emerging Markets benchmarks slipped 3.8% and 2.2%, respectively, and neither index recovered in time for the close.
Financial commentators will always fish for simultaneous happenings and frame this is the ‘cause’ of volatile trading. This time, it was ‘anxiety about the Fed’s rate-hike meeting’ - but we already knew the Fed’s anti-inflation approach last year. True, after the latest U.S. inflation rate came in at 7% and GDP growth in Q421 hit 6.9% YoY, there is more pressure for the Fed to reverse its accommodative policies.
Volatility continued throughout the week. Following the Fed’s meeting, traders were apparently concerned about Powell’s ‘hawkish tone’ and determination to combat inflation. Traders are drawing some interesting inferences for sure. What if Powell looked straight into the camera and winked - what would that mean for the central bank’s policy schedule?
Tech Behemoths Report Earnings
I wouldn’t normally comment on earnings, but since Apple and Microsoft are the world’s most valuable firms and darlings of the shaky U.S. market, I’m going to break that rule.
For Q421, Apple posted revenues of $124 billion (an all-time record), up 11% YoY, and operating income of $42 billion, up 19% YoY. The firm’s EPS leapt 20% to $2.1.
All of these figures exceeded Wall Street’s expectations, and, if anything, they point to Apple’s excellent management of supply-chain issues, where its operational and financial prowess must have been indispensable.
“We saw supply constraints across most of our products”.
“We’re forecasting that we will be less [constrained] in March than we were in the December quarter.”
Apple’s CEO, Tim Cook
Microsoft, too, reported stellar results. The software giant’s sales of $52 billion were up 20% YoY, operating income of $22 billion increased 24% YoY, and EPS jumped 22% YoY to $2.48. Wall Street analysts’ estimates fell short.
The importance of these tech firms to the global market should not be underestimated, especially at this point in time. I would assume that disastrous earnings by the FAANG group could cause a market rout in and of itself. Amazon, Alphabet (Google), and Meta Platforms report next week.
Activist Targets Peloton
Blackwells Capital LLC wants Peloton to fire its CEO, John Foley, and explore opportunities to sell the company. The investor’s stake is less than 5%.
“We believe that no board exercising reasonable judgment could leave Mr. Foley in charge of Peloton.”
“The company has gotten too big, too complex and too damaged for Mr. Foley to lead it. And he should have enough self-awareness and enough self-interest, to resign as a director.”
Blackwells Capital’s Letter
As reported last week, Peloton is in deep trouble. The firm attracted further attention in recent days as a character in Netflix’s hit show, Billions, was portrayed to suffer a heart attack whilst riding his Peloton bike. No pain, no gain?
“We did not agree for our brand and IP to be used on this show or provide any equipment. As referenced by the show itself, there are strong benefits of cardio-vascular exercise to help people lead long, happy lives.”
Peloton’s official statement on the Billions episode
It’s not surprising that Peloton has garnered Blackwells Capital’s interest - the company’s demise has occupied headlines for a long time and the hype before that was extreme.
South Korea’s Mega Listing
On Thursday, LG Energy (LGE), a leading manufacturer of electric vehicle batteries, successfully completed its $10.6 billion IPO raise. The deal was heavily oversubscribed, with investors scrambling to get a foot in the door.
For those who did, it appears to have been worth it; the share price popped 68% the same day, and LGE currently trades at $371 with a total market value of $87 billion. The firm’s forward P/E stands at 164, suggesting that growth expectations are phenomenal.
I’m going to put my neck on the line here and repeat Jason Zweig’s wisdom: IPO stands for ‘It’s Probably Overpriced’.
In the electric vehicle battery business, LGE trails only Contemporary Amperex Technology Co. (CATL) - a Chinese firm that operates primarily in its home market. In contrast, LGE’s pitch to investors signalled intent to expand to Western markets.
As per Neil Beveridge, a senior analyst at Sanford Bernstein:
“Given the decoupling between China and the West, it seems likely we’re going to see the growth in non-Chinese battery makers.”
“I think the U.S. market in particular is going to be very important for its [LGE’s] growth over the next three to four years.”
We shall see.
Top Resources for This Week:
Read
“The Best Investment for This Coming Year” - Jason Zweig
“Selling Out” - Howard Marks
Listen
“Joel Greenblatt - Investing Off the Beaten Path” - Value Investing with Legends
“Joel Greenblatt: Investing Made Simple” - The Knowledge Project