Silver banana goes to…

In this issue of the peel:

• 💸After Wednesday’s GDP report and yesterday’s inflation report, the soft landing is more confirmed than ever. Spending looks good too.

• 🚲Peloton still hasn’t gone bankrupt, and Carvana shares are up over 6,000%. Robinhood missed the mark, while Uber missed Uber expectations.

• 🍎Apple—the world’s most valuable company—just reported record earnings. We’ll break down the rest of Big Tech next week, but check out the King of Cupertino below.

Market Snapshot

Banana Bits

• Halloween lived up to its spooky antics on Wall Street as Big Tech earnings triggered a market-wide selloff.

• U.K. rates spiked on the announcement of a new tax policy.

• Microsoft just had its worst day in 2-years after a weak forecast (more on this and the other Big Tech firms next week).

• Amazon crushed it in Q3, sending shares higher after-hours.

• Intel shares followed suit after strong guidance hyped up investors despite losing $16bn.

• OpenAI has finally added real-time search engine abilities to ChatGPT.

• ADP reported huge private sector job gains in October.

• LMAO—European GDP growth hits a 2 year high… of 0.4%.

• Banks weren’t allowed to do bank stuff in Florida for four weeks.

• Ben Carlson with a much-needed optimistic take.

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Macro Monkey Says

Bullseye?

If it’s really “all about the journey,” then I have some depressing news—we’ve arrived at our destination. 

The Daily Peel has been saying this for about a year now, which was probably way too early, but it’s undeniable—after Wednesday’s GDP and yesterday’s inflation report, the soft landing is confirmed.

Honestly, it makes me hope that you all got fired last month, so today’s employment report looks like a dumpster fire. I need something to freak out about.

We’ll find out shortly. But for now, let’s get into it.

The Numbers

Besides the candy I bagged last night, the real treat Halloween brought yesterday was a quarterly update on employment cost inflation, along with our monthly PCE print.

Beginning with the latter, the Bureau of Economic Analysis (BEA) reported that in September, the Personal Consumption Expenditures price index increased 0.2% monthly and 2.1% from September 2023.

Meanwhile, core PCE prices increased 0.3% for the month and 2.7% annually.

As a reminder, the Fed targets an annual inflation print of 2.0%. We’re 0.1% away, so I get to use my favorite quote from investor Ben Carlson and say, “If we’re arguing over a few basis points, we’ve already won the battle.”

Monthly PCE prices have accelerated their increases since May, when inflation was flat at 0.0% to 0.2% last month. 

However, expanding the decimals allows us to see that September’s print was actually 0.1754%, about 1bp above the target monthly print of 0.165%, which would translate to an annualized inflation rate of 2%.

Meanwhile, annual core PCE inflation has increased from 2.6% in June and July to 2.7% in August and September. Much of this is driven by outsized impacts of shelter inflation and the exclusion of energy prices, which have been on a downward trend.

So, for consumers, there’s little reason to worry. As for employers? They’re ready to throw a party, which means if you’re on their payroll, maybe you should be a little worried…

According to a separate report by the Bureau of Labor Statistics (BLS), the Employment Cost Index grew by just 0.8% in the third quarter.

That gets us right back in line with pre-pandemic trends. From an inflationary and an employer’s cost perspective, that’s great. But, for those of us getting paid by these employers, slowing growth in compensation and benefits is not the vibe.

However, the incomes received by Americans in the final month of Q3 must’ve missed the memo. Remaining elevated, our Snoop Dogg-like incomes powered strong spending as well.

Personal incomes grew 5.5% annually in September, or 0.3% for the month. After adjusting for taxes, disposable personal incomes grew by 5.3% for the year and 0.3% monthly.

Both growth rates increased by 10bps monthly and fell by 10bps on the annual side, just to keep us on our toes.

After adjusting for both taxes and inflation, real disposable personal incomes grew by 3.1% for the year and 0.1% for the month. That’s the 4th month in a row of a 0.1% rise, while the 3.1% annual growth figure is right in line with August’s 3.1%.

Ironically, spending increased by the exact same amount since September 2023. Personal consumption expenditures grew 5.3% YoY and grew 3.1% after adjusting for inflation.

Annually, consumption outpaced incomes, which is so classically American that I think I just heard a bald eagle screech. Spending grew 0.5% nominally and 0.4% real.

The Takeaway?

Boeing could learn a few lessons from JPow on how to land softly.

There’s not much else the U.S. economy could ask for at this point. Lower rates would likely improve liquidity and, thus, activity in financial markets, especially housing, but run the risk of retriggering labor-driven cost-push inflation.

The PCE, CPI, and yesterday’s Gross Domestic Price Index are all hovering right around 2%. Depending on your preferred measure, we’re anywhere between an annual inflation rate of 1.8% and 2.7%. 

As long as wages keep outpacing costs, we’ll take it. 

Now go have some candy or egg a house, as long as it's not mine. 

Career Corner

Question

I have a question about networking and applying for positions on the website. Should I apply to a firm first and then connect with employees to set up calls, or should I reach out to employees at the firm, connect with them, and schedule a call before applying for a position? What would be the best strategy?

Answer

It depends on specific roles and timelines. Ideally, it is great to network before applying, but if the application is open, you need to submit it. You don’t want to be left out of the process just because you were too late! Most of these applications are rolling, so if you wait too long to apply, you could miss it entirely.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Peloton (PTON) 27.82%

• This company must’ve taken some of that Lance Armstrong special as the e-bike maker blew past the competition in Q3. The firm lost $157mn less than last year!

• Total losses clocked in at just $1mn, far narrower than the $51mn expected. Sales of $586mn also beat estimates despite member count down 3% to 6.2mn.

• The market’s favorite news was a new CEO. Peter Stern, former Apple and Ford exec who scaled Apple’s fitness unit, was tapped to run the show.

Carvana (CVNA) 19.29%

• Part of me misses the obnoxiously blinding lights from the car vending machine that lit up my room in Charlotte for a few years. Maybe then I wouldn’t have missed this >6,006% runup since December 2022.

• Imagine if Roaring Kitty picked this instead of the other sh*tcos. Anyway, Carvana continued its miraculous ride higher on solid earnings.

• The used car dealer reported 32% sales growth to $3.65bn, beating estimates on 34% growth in deliveries. Pricing was weaker than last year, leading analysts to low-profit expectations.

• Net income fell 65% from last year to $1.26/sh, but that was still 5x the $0.25/sh estimate. CEO Ernie Garcia put on his hypeman hat, citing Carvana’s current 1% market share to say the firm has plenty of room to run.

What's Rotten

Robinhood (HOOD) 16.73%

• I think it was Ben Graham who said, “The Intelligent Investor only buys a stock when confetti drops on his screen.” Robinhood’s confetti balance is running low.

• The brokerage firm reported strong earnings but not up to the market’s expectations. Total revenue grew 36% YoY to $637mn, below calls for $661mn.

• Cr*pto trading was the firm’s fastest-growing segment, up 165%. Deposits reached $10bn while assets under custody shot up 72% to $152.2bn.

• But that UAC growth was a double-edged sword. Robinhood matches contributions, which amounted to $27mn in contra revenue, causing the firm to miss top estimates.

Uber Technologies (UBER) 9.29%

• Watching this stock fall yesterday was like having an overly talkative driver—there’s no reason for it; you want it to stop, but you gotta get where you’re going. 

• Uber tripled EPS estimates, earning $1.20/sh vs estimates for $0.41/sh. However, gross bookings came in lower than expected, crumbling this highly valued stock.

• 20% revenue growth beat expectations too. Mobility grew 17%, and Deliveries grew 16%, while the Freight unit grew 2%. Margins expanded across the board.

• CEO Dara Khosrowshahi also axed the Expedia acquisition rumors, saying, “We’re not looking at this point to do big deals, transformational deals, one way or the other,” that they’re “focused on smaller deals much closer to home.”

Thought Banana

Earnings Spotlight: Apple Inc.

Over 1,000 companies have reported earnings so far this week. Clearly, they have no regard for how hard that makes my life, but we got the big one today.

We’re gonna use Tuesday’s Macro Monkey to round out the other big tech earnings, but it’s time to focus on the hardware king and the world’s most valuable company.

Let’s dive in.

The Numbers

Apple separates itself from the other non-Nvidia Big Tech firms as most of its revenue comes from goods (hardware) rather than services (software). But they’re clearly trying to change that.

Traders aren’t sure what to do with the results after hours.

Apple delivered $94.9bn in quarterly (quarterly) revenue, beating estimates by ~$500mn. EPS of $1.64/sh also beat expectations for $1.60/sh, when excluding the extortion, I mean fines* from European regulators.

Gross margins improved to 46.22% from 45.17% last year as Services continued to grow their share of total revenue, now comprising 26.3% of sales vs 24.9% last year. 

Despite Apple’s best efforts, the iPhone still rules all. iPhone sales clocked in at $46.22bn on stronger-than-priced-in demand for the iPhone 16. Analysts were expecting iPhone revenue of $45.5bn.

Revenue for both the Mac and iPad missed estimates, which is hopefully a sign of the end of the bull market in iPad kids.

So, analysts were surprised by how well the iPhone was able to keep the ship afloat, but questions emerged as literally every other line item missed sales estimates.

Even services revenue, totaling $24.97bn, missed estimates for $25.28bn.

Given that the long-waited Apple Intelligence software update just rolled out this week, upgrade cycles to the iPhone 15 and 16 are expected to increase from here, which is already faster than the 14 and 15 cycle periods, according to CEO Tim Apple, I mean *Cook.

Nevertheless, there’s one surefire move to calm at least short-term fears of hardware sales drying up—$29bn in share repurchases. Two words of analysis on that: God Damn.

The Takeaway?

Analysts have been worried that Apple has reached or even passed “peak iPhone.” However, this quarter, it was everything else that gave cause for concern.

It’s clear that the “peak iPhone” hasn’t been reached, in my view, but that the long period with an absence of meaningful upgrades made it seem that way. Apple just hasn’t given customers a reason to upgrade in a long time.

Plus, with the largest install base of any hardware thing ever in the history of everything, the opportunity for Apple Intelligence presents enormous upside potential.

We’ll give them a C- on this report, but I’m not selling shares after this.

The Big Question: Do these results change your view on Apple as an investment? Should Apple prioritize service growth or AI hardware integration in the coming quarters?

Banana Brain Teaser

Previous

The value of Maureen’s investment portfolio has decreased by 5.8% since her initial investment in the portfolio. If her initial investment was $16,800, what is the current value of the portfolio?

Answer: $15,825.60

Today

On a field day at a school, each child who competed in n events and scored a total of p points was given an overall score of [(p/n) + n]. Andrew competed in 1 event and scored 9 points. Jason competed in 3 events and scored 5, 6, and 7 points, respectively. What was the ratio of Andrew’s overall score to Jason’s overall score?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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