Silver banana goes to…

In this issue of the peel:

• 🏪 Calling all American apes—We gotta step it up. December’s Retail Sales report was decent, but I’d expect better from the GOATs of spending money. 

• 🇹🇼 Symbiotic somehow convinced Walmart to pay them $520mn to acquire a business unit, and Taiwan Semi set a record for the number of records it set in Q4. UnitedHealth shares got killed (too soon?) for missing estimates, and U.S. Bank didn’t get the memo to leave bad CRE loans in 2024.

• 🇺🇸 The Most Wonderful Time of Year is back. Earnings szn is here and wasting no time to drop jaws and account balances alike. Find out how BofA did below.

Market Snapshot

Banana Bits

• Talk about a vibe killer—Apple shares sink 4% for its worst day in a while on negative China and AI news.

• TikTok CEO Shou Chew plans to attend the inauguration of President-elect Donald Trump on Monday, giving new hope that a ban won’t be enforced.

• Finally, Nintendo announced plans to release the Switch 2 later this year. Now, stay tuned—we might have a GTA 6 announcement this decade, too.

• America’s next Treasury Secretary warns of risks of financial calamity if 2017 tax cuts are not extended beyond their expiration later this year.

• Mining giants Rio Tinto and Glencore are allegedly considering a merger, which would be the largest M&A deal in the mining industry’s history.

• President-elect Trump has named three envoys to… Hollywood?

The Daily Poll

Previous Poll:

What’s Tesla’s most underrated business segment?

EV production: 11.8% // Energy deployments: 34.9% // Autonomous driving tech: 14.8% // Elon Musk’s tweets: 38.5%

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Macro Monkey Says

Rookie Numbers

I mean, I get it. Jay-Z has a bad verse sometimes, Tom Brady threw 212 picks in his career, and investing legend Jim Cramer has a bad take once in a while.

But before yesterday, no undisputed GOAT had ever put up as lousy of a performance as all of you American apes out there did last month.

I’m disappointed—and disappointed in myself too. We’re supposed to be the GOATs when it comes to spending and, even more so, wasting money. Despite that reputation, we threw a pick-six in December.

Let’s get into it.

The Numbers

The Census Bureau decided to shine a bright light on our weak consumer spending sauce during the middle of the most wonderful time of year (no, not the Holidays, obviously I mean earnings szn), releasing the December Retail Sales report yesterday.

The report sums up total consumer spending at retail and restaurant/bar establishments from sea to shining sea for the month.

In December, retail spending by U.S. consumers grew 0.4% for the month and 3.9% from December of 2023. While those aren’t terrible headline numbers, we expect more from the GOAT, especially during one of the heaviest times of year for spending.

As we can see above, courtesy of the ugliest chart in finance, last month’s spending growth was much less concentrated in the autos category than in October and November, a positive sign and maybe the best part of the report.

Traditional retail stores grew sales by 0.6% in December, a slight step down from the 0.9% growth in November. Reports from Bank of America and the National Retail Federation allege that Holiday shopping began extra early this year, likely explaining at least part of that spread.

Another big driver of the decline in total spending growth is simply a slowdown in auto spending. In November, monthly vehicle sales spiked 3.1%. Meanwhile, December saw a rise of only 0.7%, despite the annual Toyotathon holiday.

No single spending category dominated sales growth for the month. 

Miscellaneous store retailers led the way up 4.3%, typical in the Holiday season when you’re looking for strangely niche gifts for someone you probably don’t know too well (and probably shouldn’t be getting a gift).

Similarly, hobby stores for items like sporting goods, musical instruments, and books rose 2.6%, the next fastest monthly growth. 

To equally little surprise, building equipment spending was the weakest category for growth, down 2% for the month.

But, we always like to look at the more discretionary spending categories to get the best glimpse into the health of the consumer. Discretionary items are the easiest ones to cut back on—think going out to eat, entertainment, most clothing, vacations, income taxes, etc. 

So, if we see consistent performance in either direction in these categories, it’s generally a good indicator of the direction of overall consumer financial health.

Unfortunately for us, the two most discretionary spending categories pulled in opposite directions last month.

Clothing & clothing accessory retailers saw spending grow 1.5% for the month and 2.6% annually.

Restaurants, or as the bureaucrats at the Census Bureau call it, likely because they’ve never been invited to one, “Food services & drinking places,” saw sales decline 0.3% after rising 2.4% monthly in November. Annual spending here was up 4.6%.

Keep in mind—these are all nominal levels of spending growth. Adjust for the 0.4% monthly and 2.9% annual inflation rates we learned of yesterday, and we can see how these numbers look much less impressive.

Factoring in inflation, real retail spending was flat from November to December. In fact, real spending growth has been effectively flat—or worse—for much of this past year. 

Based on this data, real spending growth has only increased by about 1% since December 2023. And honestly, that’s what disappoints me the most.

The Takeaway?

Americans are acting like we don’t have an economy to support. You think shareholder value creates itself?

This is why your donations to the economy via wasting money on things like a third light gray Patagonia or health insurance are so important. Consumer spending makes up ~70% of U.S. GDP, so get your donations up to start the New Year.

With that said the December Retail Sales report reflects a cautious consumer base, comfortable enough to spend big on gifts but selective with additional spending last month and lacking the confidence needed to throw cash at big-ticket purchases. 

Career Corner

Question

I saw this interview question online and was wondering how you would go about answering it. "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

Symbiotic Inc (SYM) 18.9%

• We gotta get the CEO of this company to Nuuk for the Greenland negotiations. Bro just got Walmart to pay him $520mn to buy the retailer’s robotics unit.

• While we wait for Art of the Deal 2.0 to get published, Symbiotic CEO Rick Cohen will be working hard to automate Walmart’s Accelerated Pickup & Delivery Centers.

• The world’s largest retailer tapped Symbiotic, an industrial automation provider, to “develop, build and deploy” part of Walmart’s automation strategy.

• The retailer is only committed to buying 400 automation systems from Symbiotic as of now, but there’s plenty of room to run. I don’t know if you apes are retail experts or anything, but Walmart’s got a lot of stores. 

Taiwan Semiconductor Manufacturing Co. (TSM) 3.9%

• TSMC wasn’t one of our Platinum Banana winners for 2024, but if we have a “Company Most Likely to Start World War III” Award this year, I think I know our top contender.

• The world’s largest semiconductor manufacturer reported Q4 earnings Thursday, delivering a record $11.4bn in profits vs the $11.2bn analysts were expecting. That’s a 57% YoY jump.

• Sales beat estimates too, up almost 40% YoY to $26.4bn, driven by TSMC’s high-performance computing unit. Revenue in this segment grew 53% YoY and a huge 19% QoQ as “demand for AI chips has exceeded expectations.”

What's Rotten

UnitedHealth Group (UNH) 6.0%

• Barely a month after the fatal shooting of its medical insurance internal CEO, UnitedHealth wished it had more insurance on its stock price. Q4 wasn’t bad, but analysts were impressed.

• Reporting EPS of $6.81/sh on revenue of $100.8bn, UnitedHealth beat on the bottom but slightly missed estimates for $102bn on the top line. 

• This is one of those companies that religiously ensures estimates are ~5% below their quarterly results. So, the fact that the firm actually missed was a big surprise.

U.S. Bank (USB) 5.6%

• There are three kinds of loans banks want to avoid reporting on at all costs in their Q4 results. These include Commercial, Real, and Estate. Sadly, it seems like the U.S. Bank missed the memo.

• Despite doubling net income to >$1.6bn, U.S. Bank still managed to miss EPS estimates. Revenue of $7bn was barely in line, and 2.5% growth in non-interest expense ate into margins.

• A 9.5% jump in credit loss provisions gave investors a glaring sign that issues in the firm’s $50bn CRE loan portfolio are persistent. The firm is counting on investments in wealth management and payment services to turn things around.

Thought Banana

Earnings Spotlight: Bank of America

Finally, after all that snowy Santa bullsh*t and pretending like we don’t hate each other all December long, we’re finally back to the most wonderful time of year.

Really, it’s just the first and most wonderful time of year, too, so get excited because we have exactly three more. Welcome to earnings szn.

Let’s dive in.

What Happened?

As always, to ensure analysts can’t pay too much attention to their reports, America’s largest banks kicked off Q4 earnings szn earlier this week with a flurry of reports.

JPMorgan, Goldman Sachs, Citi, Wells Fargo, and others reported on Wednesday. By Yesterday, Bank of America and Morgan Stanley completed the Avengers lineup of U.S. banking giants.

We’ll make our usual attempt at sizing up all six reports in one way-too-long Macro Monkey next week, but for now, let’s focus on the biggest report from yesterday.

The Numbers

Reporting revenue of $25.35bn and earnings of $6.7bn, or $0.82/sh, Bank of America easily beat expectations for an EPS of $0.77/sh on $25.13bn.

But, investors weren’t happy. Shares closed the day down 0.98%, reflecting that Q4’s results weren’t anything extraordinary to warrant a decisive move in either direction.

Strength in the firm’s asset management and investment banking units, along with beating estimates on net interest income, drove these perfectly mid results.

Net interest income clocked in at $14.5bn, beating expectations for $14.43bn and up 3% from last year—the repricing of fixed-rate assets, along with accelerated loan growth, powered this segment.

Total non-interest revenue grew 15% YoY in Q4, or 8%, after excluding a one-time event. 

Investment banking dominated growth in BofA’s non-interest segment, with fees up 44% to $1.65bn. That beat analyst estimates by ~$180m and earned the firm an additional 1.16% of market share.

Asset management revenue, meanwhile, grew 15% on a 23% spike in fees thanks to increased AUM driven by market performance and net positive flows. Client balances grew to $4.3tn, up 12% from Q4’23.

Trading revenues grew 13% annually to $4.1bn, in-line with estimates, and powered by 19% growth in FICC trading. 

Lastly, deposits remained healthy, too, up 2% to $1.96tn, and the firm’s provision for credit losses jumped 36% from last year to $1.5bn.

The Takeaway?

I like my banks just as I like my liquid substances with the ability to dissolve other substances to form a solution—solvent. Based on BofA’s Q4 results, we can check off that box for this one.

Bank of America finished 2024 on a strong note, particularly focused on continuing to support loan growth and a money-printer asset management unit.

As the country’s second-largest consumer bank, seeing deposits return to growth is a good sign that BofA isn’t the next SVB… we hope.

Speaking of hope, maybe someday your despots will earn more than 0.01%.

The Big Question: How did other banks make out (pause) compared to Bank of America? If you were putting on a spread trade, which big bank would you buy and which would you short? What risks are on the horizon?

Banana Brain Teaser

Previous

A worker carries jugs of liquid soap from a production line to a packaging area, carrying 4 jugs per trip. If the jugs are packed into cartons that hold 7 jugs each, how many jugs are needed to fill the last partially filled carton after the worker has made 17 trips?

Answer: 2

Today

In a sequence, each term is 3 more than twice the previous term. If the first term is 1, what is the fifth term of the sequence?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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