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Nvidia CEO Kills Quantum’s Dream

🌐 RIP to President Carter. And thanks for the day off. Anyway, on Wednesday, eBay shares ripped on a new partnership with Meta and Roku, which reminded Wall Street that it exists. Quantum stocks realized they have to make money and investors are selling anything close to the LA wildfires.

January 10, 2025

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In this issue of the peel:

  • ⏱️ Fed officials know as much about the path of monetary policy as you do. The December Fed Minutes reveal a JPow more confused than me at a K-Pop concert.

  • 🌐 RIP to President Carter. And thanks for the day off. Anyway, on Wednesday, eBay shares ripped on a new partnership with Meta and Roku, which reminded Wall Street that it exists. Quantum stocks realized they have to make money and investors are selling anything close to the LA wildfires.

  • 💰 The Previews are in. We’ll get the real jobs report later today, but on Wednesday, ADP gave us the previews. Check them out below.

Market Snapshot

Banana Bits

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Macro Monkey Says

Let’s Wait A Few Minutes

We’re all adults here. We know the struggle of making plans.

For example, you can make plans to go on a weekend vacation with your friends. Getting it out of the group chat and into Airbnb is harder than convincing your girlfriend the Fartcoin you bought is an “investment.”

And you can expect more than a few changes of plans. So, if it’s that hard to plan a trip down the Cape, no wonder JPow’s having a tough time planning rate cuts.

Let’s get into it.

What Happened? 

On Wednesday, The Federal Reserve decided that the rest of us are finally worthy of seeing the deep, dark secrets of their minds born out in conversation over monetary policy.

In other words, the central bank released the latest Fed Minutes. Essentially, the Minutes are just the written account of the discussion at the latest FOMC meeting, which is the policy-setting arm of the Fed.

We already know the what—the Fed cut rate by 25bps on December 18th. But, the Minutes gives us the why and, most importantly, the what next.

The Details

In these Minutes, the Fed effectively said, “We might’ve f*cked up.”

Despite calling it a “finely balanced” decision to cut another 25bps in December, Fed officials almost universally saw increased risks to inflation.

Recent spikes in the CPI and, to a lesser extent, PCE inflation, along with promises to tariff the world from President-elect Trump, have slowed the timeline for rate cuts going forward.

Fed officials mostly still have confidence that inflation is headed towards their 2% target, however, “the process could take longer than previously anticipated.”

At the end of last summer, markets were planning to blackout on as many as 6-7 rate cuts in 2025. Economists, traders, and even Fed officials themselves routinely preached that the 5.3% effective level of the Fed Funds rate in 2024 was “restrictive.”

At the time, the fear was that the record-setting rate hike cycle from 2022-2023 would slow the economy into recession or freeze the labor market if left elevated for too long.

But now, after kicking the party off with a 50bp slash followed by two more of 25bps, which has coincidentally lined up very well with the return to upticks in inflation, we realize that “restrictive” might’ve actually been “appropriate” for a little bit longer.

According to the interest rate futures market, the next 25bp cut isn’t expected until July, a stark reversal from anticipating cuts in January, March, and May, as the same market anticipated just a few months ago.

Meanwhile, on Wednesday and Thursday, FOMC participants were yapping on their own, straight from the source.

On Wednesday, Fed Governor Waller told markets he anticipates more than 2 rate cuts this year, saying that he’s confident in inflation’s current path to 2%.

Then, on Thursday, Fed Governor Bowman took the other side of that trade, saying that December should be the “final step” in the policy easing process.

The Takeaway?

It seems that there are two things preventing the Fed from knowing what the hell is going on. The first you can see right here is that inflation has been on the rise since September. 

The second is unfortunately unanswerable, as no doubt he himself doesn’t know yet, but whatever the President-elect decides to do with tariffs could impact the narrative.

The good news is that unemployment remains low, at 4.2%, and wage gains remain strong. Now, just make sure you go out and waste a bunch of money this weekend…  you know, to support the economy!

Career Corner

Question

I have been talking with some upperclassmen at my school, BC, and a lot of them have told me that for the banks that target us, we should always be emailing with our school email.

Is there any way I could get the right inbox for my school email and just separate everything into another folder? If not, is there any validity to what they're saying? Their rationale, from interns, is that the banks auto-sort emails from certain domains.

Answer

Unless the school email is run through Gmail, I don't think the right inbox will work.

For alums, if upperclassmen are telling you that, I'd listen to them and use your Gmail and right inbox for the non-alums.

Head Mentor, WSO Academy

What's Ripe

eBay Inc. (EBAY) 9.9%

  • Taking a break from figuring out how to steal even more of your private, personal data, Meta Platforms is partnering with eBay to shove more useless crap down your throat!

  • The ancient e-commerce platform ripped Wednesday after announcing that “some” of its listings will soon become available on Facebook Marketplace.

  • Investors love the increased touchpoint for eBay. Marketplace users love that they might not have to sit in a Walmart parking lot for 20mins awkwardly hoping not to get stabbed to get their sh*t anymore.

Roku (ROKU) 6.4%

  • Following their quarterly tradition of remembering that Roku exists, traders got hyped on a few announcements from the streaming platform provider.

  • First, Roku announced on Wednesday that they’d grown to over 90mn households, adding 4mn last quarter, as I’m assuming a lot of grandmas asked Santa to help them simplify their TV.

  • Secondly, Roku is launching a data analytics platform called the “Roku Data Cloud” to provide insights to advertisers on the platform.

What's Rotten

Quantum Stocks (RGTI, IONQ, QBTS) 45.4%, 39.0%, 36.1%

  • Live by the hype, die by the hype. I think that’s a Jesse Livermore quote, but I know it’s what just happened to every stock in the quantum computing space.

  • Analysts went from expecting a quantum computer to crack the BTC code this weekend to now, after comments from Nvidia CEO Jensen Huang, not expecting a functional quantum computer for “10-15yrs.”

  • Didn’t we know this already? I can’t imagine why a stock like Rigetti Computing—which made $11mn in revenue in 2023—doesn’t deserve the 350x P/S ratio it held before yesterday.

Edison International (EIX) 10.2%

  • Shares in this utility provider, which owns and operates Southern California Edison, were burning up almost as fast as the area surrounding LA Wednesday.

  • After northern CA wildfires bankrupted PG&E in 2019 and the 2023 Maui fires forced a $2bn settlement from Hawaiian Electric, a disaster like this burned in the back of investors' minds.

  • Although it’s unclear if Edison will be on the hook for any damages, investors—like residents—weren’t sticking around to find out. 

Thought Banana

The Previews

Today is kind of our Christmas Eve. For market nerds like us who know what a “bp” is, the next few days and weeks promise a helluva lot of presents.

I just hope we made it onto the nice list. But based on ADP’s jobs report for December, it looks that way already.

Let’s dive in.

The Numbers

122k poor bast*rds sold their souls last month. That’s how many private payrolls were added by U.S. employers, according to the December ADP Employment report.

ADP and its bean counters, as the largest payroll provider in the U.S., each month give us a preview of the actual, big dawg employment report set to drop later today (or, more likely, several hours ago for when I assume most of you wake up). 

Economists were anticipating 136k additions. While it’s no surprise they were wrong, I wouldn’t expect anything less. It’s a surprise that they were wrong to the downside.

In November, ADP counted additions of 146k, meaning private hiring in December slowed as much as 16.4%.

Wages grew 4.6% compared to December 2023, solid growth easily beating inflation, but also the slowest annual increase ADP has reported since July 2021.

Part of that could be due to the sector dynamics underlying private payrolls. Some of the higher-paying industries categorized by ADP saw net job losses.

Don’t worry—Financial Services were fine. Our beautiful segment of this glorious economy added 12k jobs in December—hopefully, you were one of them.

However, high-paying jobs like Natural Resources & Mining, Manufacturing, and professional & Business Services collectively lost 22k roles.

The Takeaway?

Similar to the ISM PMI reports we yapped about earlier this week, strength was concentrated in services.

The U.S. doesn’t really make things—we let China, Mexico, Vietnam, etc. focus on that. We’re busy servicing each other, with well over 2/34rds of consumer spending tied to services, which itself makes up over 2/3rds of GDP.

So, as long as the services side of the economy holds up, the rest of it should make out alright.

We get the real numbers for December today at 8:30am EST. Eyes will be all over December’s additions, wage gains, and any revisions to the November or October data.

Stay tuned.

The Big Question: Will today’s employment report be similarly disappointing? How did wages change during one of the most spend-intensive months of the year?

Banana Brain Teaser

Previous

A doctor prescribed 18 cubic centimeters of a certain drug to a patient whose body weight was 120 pounds. If the typical dosage is 2 cubic centimeters per 15 pounds of body weight, by what percent was the prescribed dosage greater than the typical dosage?

Answer: 12.5%

Today

Three-fourths of the area of a rectangular lawn 30ft wide by 40ft long is to be enclosed by a rectangular fence. If the enclosure has full width and reduced length rather than full length and reduced width, how much less fence will be needed?

Send your guesses to [email protected]

❝

The country is strong as long as it is strong in labor.

Henry Ford

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Happy Investing,
David, Vyom, Ankit & Patrick