Silver banana goes to…

In this issue of the peel:

• 💼 October’s jobs report made the United States look like Europe. Strikes, hurricanes, and big-time revisions dominated last month’s report.

• 🛋️ Intel and Amazon post widely varying quarterly numbers but similar market reactions. Wayfair suffered from a weak housing market, and MicroStrategy is setting records for raising equity.

• 💲 70% of S&P 500 companies have reported earnings so far. And based on their numbers, there’s a damn good reason the market keeps setting new highs.

Market Snapshot

Banana Bits

• Mentions of the word “election” have skyrocketed on company earnings calls.

• JPow and the FOMC are ready for a rate cut amid the WTF economy.

• The states to avoid, I mean the ones with the highest cost of living in the U.S.

• Boeing and the union representing its striking machinists have reached a tentative deal (again).

• U.S. oil production hit a record high last month.

The Daily Poll

Previous Poll:

How do you feel about the average American's financial situation?

Pretty secure: 10% // Somewhat secure, but concerned: 48.7% // Not secure at all: 31.3% // I have no idea: 10%

Tilt the Odds in Your Favor

In the competitive world of high finance, every advantage counts. Our exclusive curriculum, designed by industry experts, sharpens your skills and knowledge, making you a top candidate.

Enjoy personalized coaching, targeted internship opportunities, and a robust network of finance professionals with WSO Academy. 

» Join the Waitlist «

Macro Monkey Says

Americans Go European

The U.S. took a page from the playbook of our across-the-pond neighbors last month.

See, Europeans will trade GDP growth to actually enjoy their lives. An insane concept, I know, but it’s common for many on the continent to take off the whole month of August.

Americans decided to do so in October. I can’t imagine why anyone wouldn’t want to overwork themselves into misery in the name of shareholder value, but according to the October jobs report, a little hurricane and labor strikes threw us off of our game.

Let’s get into it.

The Numbers

In October, the United States added 12k jobs (not a typo), according to the Bureau of Labor Statistics.

That was well below the blind and possible drunken guesstimate from economists of 100k and disgustingly below the 233k private job additions ADP reported.

12k additions is also the weakest since February 2019, excluding impacts from the pandemic. Besides 2019, the last time monthly additions were below 12k was in 2011.

And… absolutely no one cared. Markets barely flinched on the release, with yields edging (pause) slightly higher but little other evidence of a reaction. Expectations for further rate cuts at next week’s meeting were only solidified:

Hurricane Milton and others that bodied the southeastern U.S. put a pause on hiring for many potential additions, while the ongoing machinist strike at Boeing is estimated to have negatively impacted total job growth by 44k, according to the BLS.

So, despite the horrific level of additions, the unemployment rate remained unchanged at 4.1%. There are a total of 7mn “unemployed” persons in the U.S., a growth of 600k over the last year.

Overall, October’s jobs report was a blip, disregarded due to extreme noise in the data created by hurricane szn and a bunch of lazy *ss machinists at Boeing.

With that in mind, two aspects of the report arguably warrant cause for some concern

• Revisions

• Government job additions

Starting with the start, the BLS cut total job additions from August and September by 112k. That’s a 33% reduction in jobs we thought were created in the last few months.

In August, additions were revised lower by >50%, cut from 154k to 78k, an overestimate of 81k.

It’s normal for job additions to get revised lower in the months following a report, but it also seems that the BLS’s counting skills have rapidly declined in the past year or two. Revisions are normal but not necessarily at this size.

Next, taking a look under the hood of where job creation occurred is another sign of a potentially increasingly brittle labor market:

Government additions were the far-and-away Silver medalists of job growth in October, losing only to roles in healthcare and social assistance, which are also largely subsidized by the government.

Government jobs remain below their historical rate as a percentage of the total workforce. But it’s important to follow this trend because all of their jobs rely on tax dollars from literally everyone else. 

Publicly-sponsored job creation cannot outpace economic-wide job creation in the long term. And come to think of it, I haven’t gotten a single Thank You card from a government employee for my hard work paying their salary.

The Takeaway?

October was a weird month for the labor market.

There are not many actionable insights into the performance of U.S. employment, which won’t help Powell with his decision-making before this week’s rate cut.

Unfortunately, before we can get to even more gloriously lower borrowing costs, we have to suffer through what’s sure to be an election that makes the race for 5th-grade class President at your local elementary school look like the damn United Nations.

The only election bet I’m making is we won’t know who the next President is this week.

Career Corner

Question

I just had a great conversation with an executive director banker. I asked for a referral, and he offered to refer me, but I have found trouble getting responses on my thank yous/follow-ups/ referrals. It’s Friday. Should I schedule one for Monday morning?

Answer

When was the last time you reached out to them? I’d generally advise you to wait until Tuesday morning or noon to schedule a follow-up—I have seen the highest frequency of responses.

A good rule of thumb is to wait at least 4-5 working days before following up (unless ofc you’re against a time-sensitive application process, in which case you can breach this rule).

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Intel (INTC) 7.81%

• The real scam in finance isn’t NFTs, it’s majoring in it. Your professor will look you dead in the face and say a $17bn loss is a bad thing, missing out on these gains.

• That’s exactly what Intel reported in Q3, missing estimates (needless to say). But, $13.28bn in revenue beat the $13.02bn expected despite falling 6% YoY.

• Intel is in the midst of a massive restructuring to cut costs, which ironically racked up $2.8bn in charges in Q3 with a related $15.9bn inventory impairment charge. 

• However, investors believe in the cost-cutting plan long-term. Analysts were reassured at the firm’s commitment to this turnaround and smashed the buy button when execs guided for $0.12/sh in EPS in Q4 vs the $0.08/sh expected.

Amazon (AMZN) 6.19%

• It’s gotta be tough when you’re not even the real winner of your own earnings report. Sure, the 6.19% pop was nice, but the firm’s planned 81% increase in capex spending is a much nicer raise for Nvidia.

• EPS of $1.43/sh on sales of $158.88bn beat estimates for $1.14/sh on $157.2bn. AWS revenue of $27.4bn missed but accelerated its growth rate to 19%.

• Sales in Amazon’s advertising unit were surprised by the upside, growing 19% as well. Guidance slightly missed at the midpoint, but analysts didn’t seem to mind.

• All eyes were on the 81% spike in capex and planned $75bn of spending here in 2025. According to CEO Andy Jassy, ”The increase bumps here are really driven by generative AI,” hyping up analysts for an AI x Amazon collab.

What's Rotten

Wayfair (W) 6.26%

• I went bankrupt buying all of Wayfair’s inventory for my house, and shares still sold off? Absurd, but at least I helped ‘em beat earnings. Feel free to Venmo me my cut if you hold shares.

• The online furniture retailed delivered $0.22/sh in EPS, easily beating estimates for $0.15/sh. Revenue fell 2% YoY to $2.88bn, just above expectations.

• However, weak guidance and a 3% decline in active customers tanked the stock. A weak housing market has dented demand for furniture for an annoyingly long time.

MicroStrategy (MSTR) 6.05%

• I mean, just what the f*ck. This levered fund pretending to be a company raised $2.1bn to buy more BTC in Q3… and that’s not even close to enough.

• The “firm” announced plans to raise $42bn from 2025-2027 through three tranches of evenly split debt and equity financing exclusively to load up on BTC.

• As of Sept. 30th, MicroStrategy held 252,220 BTC, worth ~$17.5bn today. The stock market cap is ~2.75x its BTC holdings, so you’re essentially buying a high-priced levered BTC fund. Proceed with caution. I’m gonna go throw up.

Thought Banana

Earnings Szn Temperature Check

Now that more than 70% of S&P 500 companies have reported earnings, we can see that Q3 continued to take steps towards business as usual.

CEOs switched from blaming inflation to blaming the election for their failures, analyst estimates have been curiously correct, and my portfolio is down 83% in the last month.

Seems about right. Let’s dive in.

The Numbers

Shoutout to FactSet for being the absolute GOAT on earnings data.

According to Bloomberg’s younger brother, S&P 500 companies are reporting YoY earnings growth for the fifth consecutive quarter. 

With 70% reporting, 75% of companies beat analyst estimates on earnings. That’s below the average over the last 5yrs of 77%, but right in line with the 10yr average of 75%.

Revenue was a little weaker. 60% of companies that have posted Q3 numbers beat expectations, but that’s well below the 5yr average of a very nice 69% and below the 10yr average of 64%.

When we take the actual earnings reported as well as the remaining estimated earnings that have not yet delivered their numbers, we get an aggregated Q3 EPS growth rate of 5.1% for S&P 500 companies.

That figure isn’t locked in yet, but it would mark the fifth straight quarter of annual earnings growth for the index.

Unsurprisingly, Communication Services, Healthcare, and Information Technology have largely led the way.

Meanwhile, consumer discretionary companies have done a superb job at continuing to rob customers, allowing them to destroy EPS estimates.

The Takeaway?

All the nonsense overpaid CNCB heads talk about when it comes to driving stock price can be boiled down to two things: earnings and the multiple on those earnings.

Continued earnings growth is a great first step to avoid collapsing stock prices.

However, with the Fed’s rate-cutting cycle coming into question as the economy normalized with pre-pandemic trends, multiple expansions may remain elusive.

Oh, almost forgot about the third thing. Another factor that could easily drive returns for the whole market is, of course, how badly Nvidia beats the f*ck out of estimates.

The AI king reports on November 20th. Keep your fingers crossed until then.

The Big Question: How might sectors like Communication Services, Healthcare, and Information Technology continue to impact overall market performance if earnings trends stay on track?

Banana Brain Teaser

Previous

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?

Answer: 10:9

Today

At the opening of a trading day at a certain stock exchange, the price per share of stock K was $8. If the price per share of stock K was $9 at the closing of the day, what was the percent increase in the price per share of stock K for that day?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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