🔬The S&P Is On A 4-Month Winning Streak
Plus: Economic indicators are buzz kills; the S&P shuffles its constituents; Musk sues OpenAI for being dirty liars; and much more!
"We don’t have to be smarter than the rest. We have to be more disciplined than the rest"
- Warren Buffett
"The problem with the rat race is that even if you win, you're still a rat"
- Lily Tomlin
The big US markets had a strong end to the week with the S&P 500 +0.8% and Nasdaq +1.1%.
8 of 11 sectors closed in the green, led by Tech (+1.8%) and Energy (+1.2%), while Utilities was worst (-0.7%).
Crude oil closed up 2.2% on Friday, breaching $80 a barrel for the first time since November.
ISM manufacturing missed and new orders fell back into contraction.
Dell (+31.5%) had a big day after beating Q4 estimates for EPS and revenue and posting strong guidance. Spirit AeroSystems (+15.5%) popped on reports that Boeing is considering acquiring them.
Street Stories
S&P’s Streak Continues
With the S&P 500’s +5.2% performance in February, the streak now stretches to four months.
This got me curious: is a four month win streak that rare in S&P Land? Turns out, it’s nothing too special. In the 290 months we’ve seen this millenium we’ve had 21 occasions where the S&P 500 was on a four month streak (~7.2% of the time). The longest streak ended at 10 months in January 2018.
Thankfully, this millenium has seen much fewer big losing streaks, with the worst being just two occasions of five month runs (2008 and 2011). The market has spent only 15.5% of it’s time on a losing streak greater than one month.
Soft Manufacturing & Consumer Sentiment
The ISM Manufacturing Index for February fell to 47.8, indicating contraction in the manufacturing sector for the 16th consecutive month, with a notable decline in new orders and employment, despite some positive industry commentary on demand and outlook.
Meanwhile, the Consumer Sentiment Index decreased to 76.9, reflecting a slight dip in consumer confidence. The drop came after a preliminary reading of 79.6 earlier in the month, and this marks the biggest intra-month reversal since March 2020. And we all know what happened in March 2020.
Breaking Up with AI: Musk Sues OpenAI in Mission to Redirect Its Course
Elon Musk has filed a lawsuit against OpenAI and its CEO, Sam Altman, in California, accusing them of deviating from their original non-profit, open-source mission to benefit humanity, towards profit-making. Musk, a co-founder of OpenAI, alleges the company breached their founding agreement by focusing on generating revenue, particularly criticizing the partnership with Microsoft and the commercialization of GPT-4. He is demanding that OpenAI's research and technologies, including GPT-4 and the future AGI technology Q*, be made public and not used for Microsoft's or any individual's financial gain. OpenAI's leadership has dismissed Musk's claims, emphasizing the complexity of their mission amid anticipated challenges.
Boeing Evaluating Spirit AeroSystems Acquisition
Boeing is considering the acquisition of Spirit AeroSystems, its key supplier and former subsidiary (spun out in 2005), amidst ongoing safety scandals and manufacturing issues. Recall that Spirit AeroSystems initially received part of the blame for the Alaska Airlines doorplug incident before FAA officials placed responsibility squarely on Boeing’s oversight. This move comes after Boeing CEO Dave Calhoun previously dismissed such speculation, but now appears to be reconsidering in light of Spirit initiating talks and exploring strategic options, including the sale of its operations in Ireland. The potential acquisition is seen as a last resort to address Boeing's manufacturing challenges and improve control over its supply chain, despite the risk of further entangling Boeing in safety and regulatory scrutiny. Spirit, heavily reliant on Boeing for revenue, faces its own financial struggles, making reintegration with Boeing a potentially stabilizing move for both entities. And as you can see below, the Spirit shares liked the idea.
Why did they spin-off Spirit in the first place? During this phase of Boeing’s history it increasingly got away from it’s engineering roots into something more emblematic of the MBA-lead, financial engineering style popularized at the time by the likes of GE and Jack Welch. Ostensibly, spinning out Spirit freed up capital and slimmed down the asset base it had to manage, but increasingly spinning out businesses were done so they could now extract financial concessions and squeeze them as the client-supplier dynamic afforded them considerable leverage, especially when they were their largest customer. While this is good for most businesses, you typically don’t want to fly in airplanes built by third-parties that have been squeezed to prioritize cost cutting to this degree.
S&P 500 Shuffle
Super Micro Computer and Deckers Outdoor are set to join the S&P 500 index, replacing Whirlpool and Zions Bancorp, which will move to the S&P MidCap 400 index, effective before trading begins on March 18. This adjustment, announced by S&P Dow Jones Indices, reflects the significant market value growth of Super Micro and Deckers, with their shares tripling and increasing by about 35% this year, respectively.
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Joke Of The Day
Two investment bankers meet at a busy chicken market:Â
A: If I can guess how many chickens you have in that bag, can I have one?
B: You can have both
A: Three
Hot Headlines
Reuters | Reddit is reportedly seeking up to a $6.5 billion valuation in upcoming IPO. Valuation is a noticeable decrease from the $10 billion funding round it completed in 2021. And the company is reportedly looking to sell about 10% of its shares into the IPO.
WSJ | The Pentagon’s plan for more ambitious, affordable jet fighters: AI Pilots. Makes for a pretty lame Top Gun sequel tho.
Barron’s | Stock buybacks are back, and that’s not necessarily a good thing. $205 billion of stock was repurchased during the fourth quarter of 2023, according to S&P Global data, up 20% from the third quarter. Not exactly investing in innovation or shoring up Balance Sheets.
WSJ | British ship Rubymar hit by Houthi missile sinks in Red Sea after two weeks taking on water. The cargo vessel carried fertilizer, threatening the region’s marine ecosystem.
Barron’s | Counter-Strike is one of the world’s most successful video games, and now it’s also become a gateway to gambling. It’s estimated that players spent $980 million opening more than 400 million Counter-Strike loot boxes in 2023. In total, there are some 1.7 billion Counter-Strike skins in existence. The most expensive skins cost hundreds of thousands of dollars. Mind blown.
Trivia
This week’s trivia is on some of the most famous companies. Today’s is on Amazon.
When was Amazon founded?
A) 1992
B) 1994
C) 1996
D) 1998
What is the name of Amazon's cloud computing service, launched in 2006?
A) Amazon Cloud Drive
B) Amazon Web Services (AWS)
C) Amazon CloudFront
D) Amazon Simple Storage Service (S3)
In which city was Amazon's first headquarters located?
A) San Francisco, CA
B) Seattle, WA
C) New York, NY
D) Austin, TX
After surviving the dot-com bubble burst of the early 2000s, what year did Amazon first report a profit?
A) 1999
B) 2001
C) 2003
D) 2005
(answers at bottom)
Market Movers
Winners!
Dell Technologies (DELL) [+31.5%]: Surpassed Q4 EPS expectations with slightly better revenue. FY25 revenue and EPS guidance above Street views, driven by AI server strength and an 80% sequential increase in AI server backlog. Noted caution from large customers and intensifying PC competition.
Sweetgreen (SG) [+28.4%]: Q4 EBITDA exceeded forecasts, with revenue on target. Provided stronger than expected Q1 and FY24 EBITDA and revenue guidance. Growth anticipated from protein plates and margin improvements through labor scheduling and new market profits.
NetApp (NTAP) [+18.2%]: Beat FQ3 EPS and revenue forecasts, with Q4 guidance surpassing consensus. Growth attributed to all-flash arrays and AI demand, with notable gross and operating margins. Mentioned some Public Cloud subscription softness but strong as-a-service model momentum.
Spirit AeroSystems (SPR) [+15.5%]: Reports suggest Boeing is considering acquiring the company.
The Cooper Companies (COO) [+9.2%]: Outperformed FQ1 EPS and revenue projections, with FY24 EPS and revenue outlook raised. The contact lens market remains robust with positive pricing and an increase in users. Gross margin for FY24 expected to mirror last year’s, with analysts noting better-than-expected organic growth in CVI and CSI.
Losers!
New York Community Bancorp (NYCB) [-25.9%]: Reported significant internal control weaknesses in financial reporting related to loan reviews. Alessandro DiNello named President and CEO, effective immediately.
SoundHound AI (SOUN) [-18.7%]: Q4 performance declined; forecasts for 2024 and 2025 align with expectations. The stock had significantly outperformed, surging 250% YTD and over 333% in the last month, fueled by AI excitement.
Ginkgo Bioworks Holdings (DNA) [-15.1%]: Missed Q4 EBITDA and revenue targets; FY24 outlook falls short of consensus. Ended 2023 with over $950M in cash, focusing on revenue growth and reducing operational expenses in 2024.
Zscaler (ZS) [-9.4%]: Exceeded Fiscal Q2 expectations with a slight FY24 guidance upgrade. Despite billing growth slowdown and modest Q3 outlook, continued strong demand for Zero-Trust solutions was highlighted.
Market Update
Trivia Answers
B) Amazon was founded in 1994.
B) Amazon Web Services (AWS) is the cloud computing arm.
B) Amazon’s first headquarters was in Seattle, WA.
C) They recorded their first profit in 2003.
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Haha ya, maybe that was part of it.
Check out ‘Flying Blind’ - great book on the history of Boeing and the MAX 8 disasters. You really get the vibe that they wanted to outsource everything just so they can abuse them as suppliers and grind down unions. I’m a pretty diehard capitalist but these guys made me pretty sick, beyond the fact that they had regulatory capture and put thousands of lives at risk.
The Boeing/Spirit nonsense really highlights some of the foolishness that CEOs can get themselves into when they trust their bankers too much. That some banker made a fee to split apart a company that had no business being separated is only outdone in madness by the fact that some other banker will make yet another fee on the same companies (now 2) to put them back together.