Nasdaq Hits 20K Milestone

đź“Š CPI numbers came in-line with expectations, leading to a party for equities and the Nasdaq crossing 20,000 for the first time ever.

December 12, 2024




In this issue of the peel:

  • đź“Š CPI numbers came in-line with expectations, leading to a party for equities and the Nasdaq crossing 20,000 for the first time ever.

  • ⚖️ The Supreme Court throws out Nvidia’s case to stop shareholders from suing, enabling the shareholder lawsuit to continue.

  • 🏡 Great news for millennials as apartment rent asking prices fall to their lowest point since March 2022.

Market Snapshot

Banana Bits

The Daily Poll

Is rate cut incoming?

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Previous Poll:

Should Kroger and Albertsons Regroup?

Focus on tech and efficiency upgrades: 15.5% // Pursue smaller, smarter acquisitions: 32.4% // Just stay independent and competitive: 29.6% // Merge later when the timing is right: 22.5%

If You Want to Work in PE, You Need to Understand LBOs

If you heard “walk me through an LBO” in an interview tomorrow, how would you answer? If a long pause followed by some BS explanation is the best you got, we have a course for you.

Understanding LBOs is essential for thriving in a private equity role. But these concepts are complicated to get your head around—knowing the implications of leverage, modeling IRR, and other intricacies take time to learn.

That’s why we created the WSO LBO Modeling Course. Through interactive video lessons and a real-world case study, we take you from start to finish so that you can learn how to build a fully dynamic LBO model from scratch so you can lock down key concepts to help you land at a top finance firm (and thrive).

Macro Monkey Says

Give Me The Green Light

The results are in, and it’s a… rate cut! Well, that is the most likely scenario at the Federal Reserve's final meeting of the year, taking place on December 18th. 

Yesterday’s CPI report was the final major indicator for next week’s decision, and markets gave a clear response as stocks were up big.

What Happened

The Fed has been cautious, wanting to take rates out of restrictive territory and into a more neutral territory while also not wanting to stoke inflation even more. 

However, the latest inflation report showed that CPI increased 2.7% year-over-year, a slight uptick from October’s number but still in-line with expectations. 

Core inflation, which excludes the volatile costs of food and energy, rose 3.3% year-over-year. In other words, it’s not much, but it’s honest work.

Markets are now almost fully pricing in a 25 basis point cut next week with odds at 96%. The S&P jumped 0.7%, and the Nasdaq even higher at 1.79%. Let’s dig into the details of the report.

The Numbers

  • Core Goods - Major items in this category include things like new cars, rental cars, and apparel. Core goods rose 0.3% on the month but were still down 0.6% from last year. When parsing through the data, it becomes evident that this is one reason markets reacted favorably.

  • Food - Food prices, which are excluded from the core number, rose 0.4%. That’s not terrible news considering where food prices were post-COVID and even as early as last year, but there is still some work to do. 

  • Services - Inflation growth for core services eased up for a second straight month. Services like ground and air transportation were unchanged, which is a miracle when you remember how outrageous airline prices were last year.

  • Housing - Housing inflation, which is the big one that impacts us all the most, has been trending in the right direction pretty consistently after reaching a peak in April 2023 at 8.3%. Yesterday’s 4.7% increase is encouraging for renters. Still, the shelter component accounts for about 40% of November’s overall monthly CPI increase. 

Investors are set to receive PPI data today to complement yesterday’s report, but the Fed seems to have a clear-cut decision in front of them, barring an insanely out-of-whack PPI print. 

PPI components include price-sensitive services such as healthcare, airline fares, and portfolio management fees.

The Takeaway

All signs point to the Fed giving the markets what they’ve been waiting for—a green light in the form of a rate cut. 

With inflation trending in a manageable direction and markets rallying in anticipation, the stage is set for a more accommodative monetary policy. While challenges like housing and food prices remain, the latest CPI data suggests the Fed can afford to ease up without losing sight of its mandate. 

Whether this marks the start of a prolonged dovish turn or just a temporary adjustment, investors seem ready to embrace it with open arms. Buckle up, the year’s final act is about to begin!

Career Corner

Question

How do you recommend staying in contact with people who are willing to help when recruiting for full-time rolls around next year? Is wishing them a Happy July 4th a good way to maintain that connection?

Answer

Yeah, not bad if it's been a few months since you last touched base and you dont have any specific internship news to update them on.

Head Mentor, WSO Academy

What's Ripe

Patterson Companies, Inc. (PDCO) 35.87% 

  • Fly me to the moon along with Patterson. The stock hit a 13-month high Wednesday after agreeing to be purchased by PE firm Patient Square Capital. Patterson, a dental supply provider, has struggled with other dental companies after years of macroeconomic troubles. I guess people have been too busy to go to the dentist anymore.

  • Patient Square, which specializes in healthcare investments, believes it can turn things around. They’ve agreed to purchase the company for $31.35, a 35% increase from its last close. Patient Square believes it can sprinkle some of its private equity magic to make people care about their dental hygiene again. I’m here for it. 

  • Wall Street is bullish on the acquisition, given the PE firm’s strong reputation for turning around “troubled assets” using a mixture of debt and equity. The transaction also seems to have a low legal barrier to cross, and analysts widely expect it to pass all regulatory checks and close sometime around April 2025.

MicroStrategy (MSTR) 9.03% 

  • MicroStrategy gets the award for the most times mentioned on the Daily Peel, either for launching to the moon or completely shitting the bed. Does anybody know what this company actually does? At this point, actual business performance at MicroStrategy doesn’t matter. The company might as well be a proxy for B*tcoin prices because that seems to be the only thing that moves the stock nowadays.

  • With B*tcoin perpetually edging us at a price of $100k, MSTR reacted accordingly. Makes sense for a company that completely replaced all the cash on its balance sheet with cr*ptocurrency. There was also some online chat room lore about the company potentially being added to the Nasdaq 100, but it is largely unsubstantiated.

  • While it’s fun to see the meteoric rise of MicroStrategy, I have to admit I simply wouldn’t have the stomach to withstand the volatility associated with being a shareholder, let alone an employee seeing my net worth whipsaw on a daily basis. 

What's Rotten

Bausch + Lomb (BLCO) 12.06%

  • Eyecare company Bausch + Lomb fell despite acquiring Elios Vision, developer of a novel minimally invasive glaucoma surgery procedure. The deal expands B+L’s portfolio to include glaucoma treatment, which has been rising steadily in the US and abroad.

  • The company projects a 47% increase in glaucoma cases from 2020 to 2040. The new treatment is known for being minimally invasive for patients with high success rates and quick recovery times. The technology is already approved and available in the EU, with FDA approval in the US pending.

  • Still, new medicines and therapies carry risks along with them, as well as high R&D costs to get them off the ground. Investors may need some more time to fully flesh this out before diving back into the stock.

C3.ai (AI) 8.51%

  • Shares of the artificial intelligence software provider got hit, and a JP Morgan Analyst was the hitman. JPM downgraded the stock from neutral to underweight with a $28 price target (more than 26% below where the stock is trading now). 

  • The culprit was an already stretched valuation. He believes the market is overzealous in its estimates for future growth based on competitive pressures and other market dynamics. Also, a key partnership with Baker Hughes may expire in April 2025, taking away a major revenue source.

  • On the bright side, though, the company’s expanded partnership with Microsoft could help spark growth, but the market isn’t giving it credit just for slapping a big name on its presentation. Investors will need to see how the partnership pans out. 

Thought Banana

From Wrenches to Riches

Grab your tool belts and financial apps because ServiceTitan absolutely crushed the pricing on its IPO. 

This software unicorn for plumbers, electricians, and other tradespeople raised a chill $625mn by pricing shares at $71—way above its expected range. That’s some serious overachievement vibes.

If you’re not familiar with ServiceTitan, think of it as the tech backbone for all those people who fix your clogged sinks and install your overpriced AC units. They’ve got a cloud-based platform that helps manage everything from scheduling and invoicing to payment processing, making life easier for tradespeople. 

Pretty wholesome stuff, honestly—like making a difference and making a bank.

What Happened

This IPO has ServiceTitan flexing with a valuation worth of $5 billion. To put that in perspective, it’s as if every college freshman emptied their ramen budget for the next decade. 

The company, founded in 2007 by the sons of tradespeople, grew from a heartfelt mission to empower small businesses into a Silicon Valley darling.

The Numbers

Here’s where it gets dicey: ServiceTitan is still in the red. They reported a net loss of $183 million on $685 million in revenue for the year ending July 2024​

Sure, that’s a lot of zeros, but the losses are shrinking, and revenues are climbing. Investors are betting that once the trades fully digitize, ServiceTitan will be laughing all the way to the (cloud-based) bank.

Because this IPO isn’t just about plumbing apps—it’s about tech eating every industry, even the ones you thought were too old-school to care about software. 

Plus, ServiceTitan's success could inspire more niche tech companies to hit Wall Street. Translation: You might not have to rely on your parents’ Netflix password forever.

The Takeaway

In the short term, the big winners here are the early investors and founders. But if ServiceTitan follows through on its growth plans, it could become a giant in the service tech sector—meaning today’s frat bros might be tomorrow’s shareholders.

ServiceTitan’s IPO is a reminder that even the trades are going high-tech. Whether you’re rooting for them, considering buying in, or just wondering if this means plumbers will stop ghosting you, one thing’s for sure: they’re here to shake up Wall Street.

The Big Question: Does ServiceTitan's successful IPO signal a broader trend for niche tech companies transforming traditional industries to thrive on Wall Street?

Banana Brain Teaser

Previous

A manufacturer of a certain product can expect that between 0.3% and 0.5% of the units manufactured will be defective. If the retail price is $2,500 per unit and the manufacturer offers a full refund for defective units, how much money can the manufacturer expect to need to cover the refunds on 20,000 units?

Answer: Between $150,000 and $250,000

Today

The sum of the weekly salaries of 5 employees is $3,250. If each of the 5 salaries is to increase by 10%, then the average weekly salary per employee will increase by?

Send your guesses to [email protected]

âťť

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