Silver banana goes to…

In this issue of the peel:

• 🏘️ Nature is healing, and so is the housing market. Find out if these changes are here to stay or are as temporary as a gym membership signed up for in January.

• 💉 U.S. Steel just increased its odds of becoming Japan steel. Moderna has new bulls behind it, while another biotech firm, Sangamo Therapeutics, just got ditched by its biggest bull. Finally, Dave Inc is beefing with Uncle Sam.

• 📈 2024 was a helluva year for any investor with the rare skill of sitting down and shutting up. Find out how well doing nothing worked in 2024.

Market Snapshot

Banana Bits

• U.S. markets closed 2024 on their best 2-year stretch in 26-years.

• One of the most bullish sectors in early 2025? Horse racing.

• The SEC has a monetization problem, writing off $10bn in bad fines.

• 2025 is creating a generational divide—no, like, literally, babies born in 2025 are the start of “Gen Beta,” which will run through 2039.

• Bill Ackman says he expects Trump to privatize government-sponsored lenders like Fannie Mae and Freddie Mac.

The Daily Poll

Previous Poll:

What will shape the U.S. economy most in 2025?

AI and productivity: 31.3% // Labor market and spending: 21.1% // Private markets: 11.5% // Inflation and interest rates: 36.1%

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Macro Monkey Says

New Year, New Me, New House?

What resolutions do you have going into this year? And how quickly do you think you’ll give up on them?

Personally, I made it about 13 minutes before failing on my resolution to quit nicotine. Guess we’ll just have to try again next year.

But, another resolution shared by many across the U.S.—one that’s much more achievable than mine—involves buying a house. The market has been in an ice age since 2022, so let’s see how things are looking three years later.

Let’s get into it.

What Happened?

Earlier this week, the most catchily-named index in all of macroeconomics was released. The S&P CoreLogic Case-Shiller National Home Price Index, which tracks the value of housing across the U.S. over time, declined 3.6% from last year.

Now, keep in mind—the S&P Home Price Index, as we’ll call it, is stuck in the past. 

First of all, the index quantifies home values in its indexes by using three-month rolling averages to smooth out short-term fluctuations. 

Second of all, due to the amount of time it takes to cut down all the trees you’ll need for the documents you have to sign, reporting home purchase closings typically takes another 2-3 months.

The report we’re looking at today is the S&P Home Price Index for October, meaning we’re looking at purchase decisions likely made in August and early September.

Now that we know how borderline useless this data is, let’s break it down.

The Numbers

As mentioned above, home prices declined 3.6% annually for the United States in October 2024. However, on a monthly basis, home prices increased 0.18%.

Leading the increase, somehow, was home prices in New York, up 7.27% annually. Tampa, Florida, to no surprise, was the slowest market, up only 0.39% in that time.

As far as regional dynamics go, most are trending in line with the broader nation. The only regional takeaway of any significance in October can be found in the concentration of monthly home price increases within Northeast cities.

New York, Washington D.C., and Boston were the only three cities to post monthly gains in home price values. I have no idea how that’s possible as someone living in Greater Boston, but this tracks well with other related data released on Monday.

The National Association of Realtors gave us the rundown on pending home sales in November earlier this week, showing a 2.2% increase in pending home sales from October to November.

Pending home sales are just home purchases in which a contract has been signed, but a deal isn’t closed. For the dealmakers out there, it’s like getting an LOI signed.

Annually, pending home sales increased across the board. But, on a monthly basis, while the Midwest, South, and West continued to rise, pending home sales decreased in the Northeast region.

As home prices fall, homeowners who want to move but feel locked in by a cheap mortgage will gradually become more and more willing to sell, move, and take on a higher mortgage in order to get the most value out of their home sale.

And it appears that that is exactly what’s playing out across the nation, except the region most lacking in supply.

From a national perspective, the 12% jump in annual pending home sales is a strong sign that the housing ice age is beginning to thaw. At the same time, according to Redfin, U.S. home listings—a proxy of supply—jumped 11% YoY.

The Takeaway?

As has been the case for at least the past 6-months, the U.S. housing market is healing.

The timing of a potential return to pre-pandemic activity levels will likely depend on the path of mortgage rates, but it’s clear that Americans are starting to accept that sub-4% mortgages were a fad and not the new standard.

As supply continues to increase via listings and then pending home sales, we’ll likely continue to see price decreases that could bring the market back closer to equilibrium.

We don’t know when or if that will happen, but we do know it will happen unequally across the U.S. as this is an extremely regional market, at times coming down to things as local as the school district, flood zones, or the volume of your neighbors.

Best of luck to any apes in the market this year. Godspeed, soldiers.

Career Corner

Question

When connecting with the mentors from the roster on LinkedIn, should I add a note mentioning I’m in the WSO academy, or should I just send a connection request without a note?

Answer

Yes, I strongly suggest it. I get connection requests, and it is not entirely clear from the Academy; it just makes a quick acceptance easier.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

U.S. Steel (X) 9.54%

• Deciding if we should allow U.S. Steel to sell to a Japanese buyer is a tough question with infinite implications for national security, domestic supply chains, commodity markets, and more. But I’m not worried—we got Joe Biden on it.

• The $14.9bn deal just jacked up its odds of being approved. According to the Washington Post, Nippon Steel—the Japanese acquirer—sweetened the deal.

• Essentially, Nippon offered to allow the U.S. government to veto any future planned reductions in output, with some limits. Joe’s got 18 days to approve it before it becomes a matter for the Trump Admin.

Moderna (MRNA) 5.59%

• Planning to start another pandemic, Barron’s is hyping up Moderna as we enter 2025. The newspaper named the biotech firm a Top Pick for next year.

• What Moderna lacks in, y’know, earnings, according to Barron’s, they make up for in ideas. The firm has a strong pipeline, but the question is how quickly they can turn that into dollars.

• Respiratory vaccines and cancer treatments being developed together with Merck stand out as top prospects, but we’ll have to wait and see.

What's Rotten

Sangamo (SGMO) 56.41%

• Here is your textbook example of when meat riding goes wrong. Like Belichick after Brady left, Sangamo is nothing without Pfizer.

• The two pharma firms were working together on a hemophilia treatment of adults, but Pfizer just axed the deal. 

• For a firm that makes ~$100mn in revenue each year, losing this deal crushed future revenue prospects. Sangamo plans to continue developing the drug but with much less optimism from investors.

Dave Inc (DAVE) 7.98%

• You can do almost anything and get away with it in the U.S., but the one thing you cannot do is f*ck around with money—rookie mistake by Dave Inc.

• Dave, which calls itself a “provider of banking services” but basically just dishes out cash advances online, just received a complaint from the Justice Department.

• The complaint against Dave and its CEO (ironically not named Dave) seeks an undisclosed sum of money as compensation for having “lured” users to its platform by promising $500 cash advances that many didn’t actually get.

Thought Banana

S&P 2024

Happy first trading day of 2025. Hopefully, you made it through the first six and a half hours of trading this year without blowing yourself up, but even if you did, just remember that it can only get better from here.

The numbers are finally in. Let’s see what the People’s Index did in 2024.

What Happened?

It’s official—in 2024, the S&P 500 returned a total of 25.02%. 

Of that total, 23.31% came from price appreciation of the shares that underlie the index, and the remaining 1.71% from dividends paid over the course of the year.

That marks the 28th best year in the history of the S&P 500, going back to 1926—a 25.02% fall in the second quintile of historical returns, with the first quintile reserved for +30% performances only.

In other words, it was a damn good year. Building off of 2023’s 26.29%, $100 invested in the S&P 500 at close on December 31st, 2022, would be worth $157.89 today—as long as you reinvested dividends.

Last year, the average annual return figure was smoked, which falls between 7-10% depending on 1) when you start and 2) if you include dividends.

However, that annual return was not felt equally by the index’s underlying companies.

Discussed frequently throughout 2024, the index’s largest companies hogged all the returns, with the “Magnificent 7” stocks accounting for more than half of 2024’s total return.

To really make you feel confident to kickstart 2025, the S&P 500 is—as we speak—way more concentrated than it was ever during the dot-com bubble. Back then, the 10 largest companies only ever made up 27% of the total index. Today, the top 10 companies make up an astounding 38.99%.

Getting even more insane, just 4 companies alone—Apple, Nvidia, Microsoft, and Amazon—account for 24.8% of the total index, nearly equivalent to that of the top 10 during the dot-com crash.

Despite all this talk about “diversification” and lately about “diversity,” the S&P has no clue what those words mean.

But no one cares about how diversified the index is when it’s at all-time highs. At least 57 times in 2024, the index closed at a new record high, with the last coming on December 6th. 

From the data I can see (aka what Perplexity AI is telling me), that’s the 3rd most all-time high ever hit in a single year, falling behind only 2021’s 70 record closes and 1995’s all-time high of 77.

The Takeaway?

Investing in the S&P 500 today is not like it was for your parents and grandparents.

For starters, you can do it, which is a big change from grandma and grandpa. But while the S&P 500 remains the best way to get exposure to the top companies in the world’s top economy, it just so happens those top companies coalesce around one industry.

This has caused the index to be more tech-heavy, partially explaining the increased standard deviation in annual returns seen in recent decades. 2025 may act as an inflection year for this trend, but we’d be surprised.

Let’s just hope JPow doesn’t f*ck it all up for us.

The Big Question: What’s your gut telling you as we enter 2025? Bullish or bearish? Let us know why or why not! [email protected]

Banana Brain Teaser

Previous

Pumping alone at their respective constant rates, one inlet pipe fills an empty tank to ½ of capacity in 3 hours, and a second inlet pipe fills the same empty tank to 2/3 capacity in 6 hours. How many hours will it take both pipes, pumping simultaneously at their respective constant rates, to fill the empty tank to capacity?

Answer: 3.6

Today

If the range of the six numbers 4, 3, 14, 7, 10, and x is 12, what is the difference between the greatest possible value of x and the least possible value of x?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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