In this issue of the peel:

• 🔄 Markets gave back some gains from the previous day as optimism fizzles out.

• 📈 “The mother of all short squeezes” was largely responsible for the rally.

• 👔 CPI surprisingly decreased and is getting even closer to the Fed’s 2% goal… for now.

Market Snapshot

Banana Bits

• The big short squeeze among hedge funds led to a surge in equity markets.

• Americans were seeking clarity from Trump’s Cabinet meeting held yesterday.

• Amazon’s CEO believes sellers on its platform will attempt to pass on rising costs to consumers.

• Former Fed Chair Janet Yellen emerged from her cave with criticism of Trump’s economic agenda.

• Inflation surprisingly decreased and is getting closer to the Fed’s 2% goal, according to the latest CPI report.

Student Spotlight

A+ Equity Research Report 📊

Looking for a stellar example of what makes an equity research report stand out?

One of our WSO Academy students put together an impressive deep dive on Veeva Systems, covering valuation, catalysts, and key risks with the kind of insight that turns good pitches into great ones. Find out more about WSO Academy here.

Check out the report here.

The Supply Chain Crisis Is Escalating — But This Tech Startup Keeps Winning

Global supply chain chaos is intensifying. Major retailers warn of holiday shortages, and tech giants are slashing forecasts as parts dry up.

But while others scramble, one smart home innovator is thriving.

Their strategic move to manufacturing outside China has kept production running smoothly — driving 200% year-over-year growth, even as the industry stalls.

This foresight is no accident. The same leadership team that saw the supply chain storm coming has already expanded into over 120 BestBuy locations, with talks underway to add Walmart and Home Depot.

At just $1.90 per share, this resilient tech startup offers rare stability in uncertain times. As investors flee vulnerable companies, this window is closing fast.

SECURE YOUR POSITION BEFORE PRICES RISE

_{Past performance is not indicative of future results. Email may contain forward-looking statements. See US Offering for details. Informational purposes only.}

Macro Monkey Says

Inflation Simmering Down

Remember when the market cared about CPI, and it was the most watched macro report? That was a much simpler time. Now, the market is so chaotic, you probably forgot that this report even existed. 

As a reminder, the CPI report is an extremely important indicator as it highlights the level of inflation consumers are seeing on a month-to-month and year-over-year basis. And holy crap, what do you know? Inflation actually slowed in March. 

Prices grew at a rate of 2.4%, much slower than February’s 2.8% gain and hitting a 6-month low. This slowdown was largely driven by a 6.3% drop in gasoline prices, with declines also noted in airline fares, hotel rooms, and used vehicles. However, prices increased for food, medical care, clothing, and new vehicles. ​

But the key thing to remember here is that these numbers are backward-looking. So, not a leading indicator. On the other hand, some economists warned that inflation could actually rise prior to the implementation of tariffs as businesses buy in bulk ahead of time. Turns out that wasn’t the case. 

Still, the forward picture is murky. Will tariffs impact consumer spending? Who knows. Based on this report, all of the big consumer discretionary items were down, like airfares tumbling over 5% and car prices. So the signs are there.

Also, with this report, Trump now has his foot on the Fed’s neck. While the cooling inflation data might suggest room for interest rate cuts, the looming impact of tariffs introduces uncertainty. 

Fed officials have indicated a cautious approach, emphasizing the need to assess the full effects of trade policies before making any significant monetary decisions. But at the end of the day, Trump might get exactly what he wants (lower rates).

The Takeaway?

While the recent CPI report offers a glimmer of hope in the battle against inflation, the road ahead remains uncertain. 

Tariff-induced price pressures could reverse these gains, making it essential for policymakers and consumers alike to stay vigilant. For now, enjoy the brief respite in prices, but keep an eye on the horizon for potential economic shifts.

Career Corner

Question

I saw this interview question online and was wondering how you would go about answering. "Which valuation method is the best?"

Answer

Go through the pros and cons of each (briefly, or stick to the one most relevant) and then use that to explain why you think the pros of X make it the best in Y situation (or overall, depending on the exact interview prompt).

Head Mentor, WSO Academy

Check out WSO Academy!

What's Ripe

Gold Stocks 

• Gold stocks are back for now. Investors had moved away from the commodity and piled into equities, hoping for a market reversal after that bounce the other day. But now, the gold rush is back on. People are once again looking to pile into safe assets and preserve capital for the impending economic doom that awaits us.

PriceSmart (PSMT) 7.0%

• PriceSmart reported 2Q earnings, and while it wasn’t stellar, they did just enough to keep investors happy. 

• The company runs warehouse clubs in Latin America and the Caribbean, following a similar model to Costco and BJ’s. While the detailed revenue figures and comparisons to analyst estimates weren’t disclosed in the summary, the report suggests consistent profitability.

What's Rotten

Charles River Laboratories (CRL) 28.1%

• Charles Liver is getting hit on reports that the US FDA plans to phase out animal testing in drug development, favoring human-relevant methods like artificial intelligence models and lab-engineered human organ structures. This initiative aims to enhance drug safety, reduce research costs, and lower drug prices. 

American Airlines (AAL) 14.5%

• ​Well, that was the most short-lived rally I’ve ever seen in my time. After the airlines seemed like they were about to spread their wings and fly, reality brought them crashing down. Frontier Airlines’ earnings report sent a negative message to the market, prompting airline stocks to fall across the board.

Thought Banana

The Big Short Squeeze 

​You’ve probably heard the buzz phrase “short squeeze” before, probably in the context of the GameStop shenanigans back in 2021, which caused firms like Citadel to lose a lot of money, and other hedge funds to completely blow up.  

But what actually is a short squeeze? Basically, it’s when a heavily shorted stock sees its price begin to rise, compelling short sellers to buy back shares to cover their positions, thereby accelerating the price increase. 

The way short selling works in practice is that you go to a bank to borrow shares and sell them in the open market. 

Let’s say a stock is trading at $100 and you think the business sucks. You would go to your bank, borrow the shares, sell them to the market, and collect your $100. Well, at some point, you have to return those borrowed shares back to the broker. 

Ideally, the stock goes down to say, $50, you purchase the stock back at that price, give back the borrowed shares, and pocket the $50 difference.

If the stock price rises however, then you're screwed and could lose wayyyyy more than what you originally borrowed. This is because of a neat financial engineering trick called margin. 

Let’s say a hedge fund shorts 1,000 shares of a $100 stock—they receive $100,000 in proceeds, but must maintain, say, 150% of that position’s value in margin. So they need $50,000 of their own capital locked up as collateral.

If the stock jumps to $120, buying back would cost $120,000—meaning a $20,000 loss.

And because this is on margin, brokers demand more collateral as the stock rises—this is called a margin call. If the fund can’t or won’t post more capital, the broker can force a liquidation, covering the short at a higher price and locking in losses.

If too many short positions blow up at once, or if they’re using leverage (which they often are), the fund can quickly spiral. A small price move against a big, levered position can wipe out a massive chunk of capital.

Given all of the tariff fears, hedge funds were mostly net short the market. And they were right at first. After Trump’s day of liberation, markets fell. But then, a few days later, when the administration announced a delay on tariffs, those positions started blowing up in their faces. This accelerated the rate of buying back to cover short positions. 

List of most shorted stocks

The Takeaway?

Hedge funds' reliance on leverage and short-selling strategies can lead to amplified market movements, especially when unexpected policy changes occur. 

Some investing strategies even involve looking at lists of the most shorted stocks, like the one above, to determine where the next big squeeze might come from. 

In fact, that was Roaring Kitty’s entire thesis on GameStop. He saw an overshorted stock and suspected that a squeeze could lead to a huge rally.  

The Big Question: Should hedge funds rethink their addiction to leverage, or is blowing up occasionally just part of the vibe?

Banana Brain Teaser

Previous

What is the difference between the 6th and 5th terms of the sequence 2, 4, 7, … whose nth term is n + 2^(n-1)?

Answer: 17

Today

The letters D, G, I, I, and T can be used to form 5-letter strings such as DIGIT or DGIIT. Using these letters, how many 5-letter strings can be formed in which the two occurrences of the letter I are separated by at least one other letter?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
Chris, Vyom, Ankit & Patrick

ADVERTISE // WSO ALPHA // ACADEMY // COURSES // LEGAL