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Dollar Flexes, Europe Sweats

đŸ’Ș The U.S. Dollar has been working out, eating right, and shooting enough steroids to give an elephant a six-pack. Find out why the rest of the world (*cough, Europe*) is tweaking.

January 27, 2025

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In this issue of the peel:

  • đŸ’Ș The U.S. Dollar has been working out, eating right, and shooting enough steroids to give an elephant a six-pack. Find out why the rest of the world (*cough, Europe*) is tweaking.

  • đŸ€  Twilio’s business model is annoyingly good, and Novo Nordisk is stacking gains by helping others shed theirs. Meanwhile, Texas Instruments is missing the chip boom, and Airbnb suffers from an insider sale.

  • 💾 Earnings look good, revenue could use some help, and Mr. Market just keeps rolling on. Find out how the S&P 500’s earnings szn is going so far.

Market Snapshot

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Macro Monkey Says

Problematically Jacked

People like The Rock, Mike Tyson in the late 80s, and I face this problem a lot—it’s hard being the most jacked guy in the room every single time we walk in.

Luckily, our government understands our pain. Uncle Sam is benching 700lbs for 10 reps while the rest of the world sizes up for another set on the smith machine.

And as all of us insanely jacked guys know, being this ripped comes with its problems. 

Let’s dive in.

What Happened?

The Hawk Tuah girl, Dr. Anthony Fauci, and J.D. Vance—only these people have had a wilder ride over the past 5 years than the U.S. Dollar.

Heading into the pandemic, the strength of the U.S. Dollar (USD) was a problem for other countries. Since then, Uncle Sam’s flexing has only gotten more in-your-face.

After the onset of C-19 around the world, the value of the USD plummeted against the rest of the world’s currencies as the Federal Reserve was expected to lead a global rate-cutting race to the bottom. 

Then, we had the fastest rate hiking cycle in history, bringing fears of a recession as we and the rest of the world tried to tame inflation, leading to a rip in the dollar previously only seen by a torn-in-half Ben Franklin.

Now, we’re right back in the middle of another historic rip. Since late September, when fixed-income markets began calling JPow’s bluff on the Fed’s plan for up to six interest rate cuts in 2025, the Fed has slowly acquiesced—and the dollar’s strength has only grown.

Currencies tend to rise vs others when the issuing country is expected to earn higher investment returns. This manifests in different ways, but interest rates (the “risk-free” rate”) and economic growth are the main elements.

We all know U.S. GDP growth has been as jacked up and dominant compared to the rest of the developed world, especially G7 countries, as Mike Tyson biting off Evander Holyfield’s ear:

Not only has U.S. GDP growth led the developed world, but it’s broadly expected to continue to do so until checks notes Europe comes up with an Nvidia.

This strong relative growth supports a strong dollar. Then, when the Fed called off the plan for rate cuts and faked out the rest of the world, the strength of the dollar felt the steroid’s juice like A-Rod’s bat.

And, for those economies, that’s a problem. As sick as it is to show up in Europe and feel rich because of a strong dollar, that dynamic only exacerbates issues for the foreign country misfortunate enough to call you a “tourist.”

A strong dollar means you can exchange your Ben Franks for more of Europe’s money, whoever the hell is on it. At the same time, that means that European countries are making less off of Uncle Sam.

Now, with a new administration ready for round two, these fellow developed countries know all too well. They know the dollar’s strength is only set to create more problems—that is—if nothing changes.

Tariffs—whether just threats or not—tend to strengthen the currency of the country threatening them. 

Combine that with U.S. GDP growth, which was already expected to outperform and is now expected to outperform even more so, and we can see how the dollar is set to create even more problems.

The Takeaway?

If the rest of the G7 wants out of their economic funk, which is arguably growing in importance given the growing economic force behind BRICS, changes are gonna have to be made.

Luckily (for them), they’re already showing signs of doing so.

Leaders at the World Economic Forum last week declared sentiments as powerful as “we lost” in speeches, referencing the era of over-regulation and de-emphasis on growth.

How the world reacts to the growing likelihood of a continually strengthening U.S. Dollar is anyone’s guess, but my guess is that they’d rather return to growth than switch to BRICS.

Career Corner

Question

As I’ll start my internship in 10 days, do you suggest I reach out to folks in the firm for an early catch-up?

Answer

Maybe the person who is directly managing you, but besides that, you will have plenty of time for coffee chats throughout your internship.

Head Mentor, WSO Academy

What's Ripe

Twilio (TWLO) 20.1%

  • Still getting campaign texts to save everything from democracy to the spotted owl? You can thank Twilio. Turns out the firm is annoyingly good at what they do.

  • During its 2025 Investor Day last Thursday, the communications platform provider disclosed guidance that was the corporate equivalent of LeBron throwing up chalk.

  • The firm issued hyped-up guidance for the next few years, including accelerated sales growth and an operating margin target of 22% by 2027, slightly better than their current margin of negative a million. 

Novo Nordisk (NVO) 8.5%

  • Attempting to do the same to obese people as Jeff Bezos did to malls and department stores, Novo Nordisk’s latest drug will be a big step to getting there. 

  • On Friday, the Danish pharmaceutical giant released trial data on its latest next-gen obesity drug, amycretin, that showed stronger than anticipated effects.

  • Patients showed an average weight reduction of 22% after 36 weeks of using this once-weekly injection. Wegovy, Novo’s current blockbuster obesity drug, showed a 15% reduction after 68 weeks at the same stage of development.

What's Rotten

Texas Instruments (TXN) 7.5%

  • You’d think the company behind legendary products like the TI 82 and BA II Plus would be able to calculate how not to f*ck up Q4 earnings. Instead, they had their worst day since March 2020.

  • A manufacturer of semiconductors and other products, Texas Instruments dove after beating Q4 estimates due to uninspiring guidance and 98 other problems.

  • Industrial demand has been weak for a while, largely driven by overstocking in response to C-19. In fact, Q4 marked the 9th straight quarter of sales declines for Texas Instruments.

  • Still, sales of $4.01bn beat estimates for $3.96bn, despite falling 1.7% YoY. The company guided for Q1 EPS in the range of $0.94/sh - $1.16sh, well below the $1.17/sh the Street was pricing in. 

Airbnb (ABNB) 4.6%

  • Shareholders left their Airbnbs in shambles on Friday. Despite no evidence of a party or much activity at all, there’s gonna be a hefty clean-up fee.

  • The only notable news that happened at the Airbnb on Friday was the sale of over 38k shares by CEO Brian Chesky, totaling over $5.1mn.

  • Chesky’s sale wasn’t out of the blue—it was part of a pre-determined sale. However, with shares down over 15% in the past year, while hotel stocks like Hilton are up almost 30%, investors are asking questions.

Thought Banana

How We Doing So Far?

I hope the S&P 500 has a therapist. Everyone’s always talking all the sh*t in the world about, but the index stays grinding harder than Saquon Barkley’s quads.

Q4 hasn’t been much different. Earnings have looked hotter than the Eagles offense (yes, I am watching the NFC championship as I write this), but revenue has been a bit more like Washington’s.

Let’s dive in.

The Numbers

S&P 500 companies are living up to the hype this earnings szn. 

Following the “pullback,” if we can even call it that, that weighed on the index beginning in mid-December, Q4 results have forced the index higher. 

Valuation concerns have abounded recently as the S&P 500’s forward P/E approaches historical extremes, but this is what we call putting your money where your mouth is.

16% of companies in the index have reported so far. Not exactly much to draw conclusions from, but let’s try to see what conclusions we might be able to draw down the line.

Of the companies that have reported so far, 80% have beaten consensus estimates from analysts, above both the 5 and 10-year averages of 77% and 75%, respectively. 

Financials have led the way on annual earnings growth so far, up 49.4%, but that largely speaks to the weakness of the prior year caused by one-time charges linked to the SVB debacle in early 2023. We should all be glad we have it, though, with energy out here tryna kill the vibe.

On average, firms have beat by 7.3%, above the 10-year average beat of 6.7% but below the 5-year at 8.5%.

Combining the actual earnings results from companies that have reported their Q4 numbers with existing estimates for the companies that haven’t yet reported, aggregate earnings growth for the index so far has clocked in at 12.7%.

That would be the highest annual earnings growth rate for S&P 500 companies since the banger of a quarter that was Q1’2021. We’ll take it.

And that earnings growth right there speaks to the magic of the S&P 500. These companies have been able to generate that earnings growth despite revenue rising slower than my grandmother’s chair goes up the stairs.

62% of companies that have reported so far have beaten estimates. That’s below both the 5 and 10-year averages of 69% and 64%, respectively. On average, companies have beat estimates by 0.7%, similarly weak as f*ck compared to recent history.

Once again, the energy sector is tryna kill the vibe. But, shoutout to the tech companies, communications firms, and obesity drug makers for carrying the team.

The Takeaway?

We’re only 16% of the way there, so don’t draw any big takeaways yet. However, we’re seeing a similar trend as we saw in Q3—unimpressive sales growth with stellar earnings growth.

This speaks to a lot of underlying trends, mostly brought in by the pandemic. Companies have had a lot of room for spending cuts, especially on things like headcount, and a lot of cash for things like share buybacks, boosting per-share earnings while ignoring revenue.

Regardless, Mr. Market has liked what he’s seen so far. 

AT&T is the only giant company reporting today. Tomorrow, GM, Boeing, Starbucks, and plenty of others report, followed by giants like Microsoft, Tesla, and 128 other companies on Wednesday. Apple reports on Thursday, and we’ll close the week with the oil majors.

Stay tuned.

The Big Question: With earnings growth significantly outpacing revenue growth, what strategies are S&P 500 companies leveraging to boost profitability in the face of slower sales?

Banana Brain Teaser

Previous

A salesperson who had been driving at a speed of 100 kilometers per hour slowed down to a speed of 47 kilometers per hour. Approximately how many miles per hour was the speed reduced? (1 kilometer ≈ 0.625 miles)

Answer: 33

Today

A dance troupe has a total of 50 dancers split into 2 groups. The costumes worn by Group A cost $80 each, and those worn by Group B cost $90 each. If the total cost of all the costumes if $4,270, what is the total cost of the costumes worn by Group B?

Send your guesses to [email protected]

❝

In the short run, the market is a voting machine. In the long run, it is a weighing machine.

Benjamin Graham

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Happy Investing,
David, Vyom, Ankit & Patrick