📈 S&P on sale? – The Average Joe
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    📈 S&P on sale?

    victorlei

    February 17, 2024

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    Good Morning. In a tense election year, getting good information is as important as ever. So where are people going to get their news?

    • Mainly social media, where news-centric influencers and ordinary posters are becoming increasingly influential, especially among younger users.

    • The share of social media users getting their news from TikTok rose from 3% in 2020 to 14% in 2023 — while Facebook and X saw their share of news consumers slip.

    As for where you get your financial news… we think you’ve made the right choice.


    MARKET OUTLOOK

    Stocks Are At All-Time Highs. Wall Street Keeps Buying Them Anyway.

    “Buy the dip” is so 2020. Nowadays, investors are buying the highs. The Nasdaq and S&P 500 have risen in 14 of the last 15 weeks, breaking record highs in a streak unlike anything we’ve seen this millennium. Understandably, investors are now wondering whether markets have become irrational.

    Uncapped ambitions: Conventional knowledge might make investors fearful of investing at all-time highs, but Wall Street is doing it anyway — with data to back it up. Historically, the S&P 500 returned an average of 14% in the year following a record, provided that more than a year had passed since its previous high (FT). But the S&P could have other reasons to run if the fundamental analysis is any indicator:

    • The S&P 500 is cheaper than during its 2021-2022 bull run. The forward price-to-earnings (P/E) ratio, which measures the stock price relative to earnings, peaked at 30.18x during that period ****but dropped to 20.38x, close to its long-term average of 17.96x, ****as reported by the WSJ.

    • Similarly, the forward price-to-book (P/B) ratio, comparing the stock price to the value of company assets, is also favorable at 4.15x compared to its long-term average of 2.76x.

    Does Corporate America have the juice to back it up?

    According to FactSet, Wall Street expects sales and earnings among S&P 500 companies to grow 5.4% and 10.9%, respectively, this year — which could translate into a 9.1% rise to 5,452 over the next 12 months, although it’s wise to take analyst predictions with a grain of salt. However, for markets to keep rallying, companies will have to beat these forecasts, which hinges on consumers and businesses keeping their wallets open.

    • US consumer sentiment soared to its highest level since 2021 last month — but remained below its long-term average, with room to grow.

    • Investors have “high confidence” in the US economy and policy, according to DataTrek’s Nicholas Colas, believing “it will likely take an exogenous shock to change their minds.”

    What shocks? Investors are grappling with greater uncertainty in the Middle East and Ukraine, which have already destabilized shipping patterns, energy markets, and manufacturing. The 2024 Presidential Election could also sway markets, especially if Republican frontrunner Donald Trump wins and renews trade war policies, potentially putting America at odds with China or Mexico.


    PARTNERED WITH CONSUMERDIRECT

    Since 2019, This (Profitable) Company Has Grown 540% in Revenue1 Providing Tremendous Value to Customers

    There’s two ways to build a successful company:

    1/ Help your users save time.

    2/ Help them save money.

    That’s what ConsumerDirect has done by helping 250K active subscribers save an average $8.8K per member on their auto and mortgage loans2 .

    Why invest?

    They’re tackling the great American affordability crisis — helping people with their credit score and in turn, lowering their loan payments. And when you help your customers solve real problems, value tends to accrue to the company.

    • So much that ConsumerDirect’s revenue has grown 540%1 and has driven an impressive $91M3 in sales — while doing it profitably.

    • The company is led by CEO David Coulter, who has taken two tech companies to an IPO with an exec team that includes alumni from the credit bureaus.


    LargeCap Recap

    🛢️ The world’s largest oil company is pivoting on energy

    For Saudi Aramco, it’s out with the old (oil) and in with the (re)new(ables). The state-owned oil giant, which leads the OPEC+ oil cartel and generated more than $500B in revenue selling its oil in 2022, announced it would postpone a proposed expansion to its oil production capacity — and prioritize “transitioning” its business.

    • Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said the postponement will help the kingdom invest beyond its oil roots — expanding natural gas, geothermal energy, and renewables like solar and wind power.

    • The company also hopes to boost its involvement in chemical production, recognizing it as “the fastest growing segment for crude oil demand.”

    Less is more: Aramco’s refocusing comes after a record year for US oil production, reducing the influence of OPEC+ producers. Last year, they cut oil production targets — which has Aramco operating at just 75% of its total capacity, the lowest output the company has seen since late 2020. And until there’s a significant rebound in oil demand, a large-scale expansion plan may not benefit the industry leader.

    ⤴ Mutual funds finally have the ammo to compete against ETFs

    Back in 2001, Vanguard shook things up by introducing a new ETF share class for its popular mutual funds. This move aimed to ride the wave of exchange-traded funds (ETFs) — offering investors easier and cheaper ways to invest while enjoying tax benefits. One of their first creations was the massively successful Vanguard Total Stock Market ETF (NYSE:VTI), which has over $200B in assets today and charges a lower fee of 0.03% compared to its mutual fund counterpart’s 0.04%.

    • However, last May, Vanguard’s patent on its ETF share class expired — opening the floodgates for competitors to jump in with their own versions of their popular mutual funds.

    • This development could be the savior for mutual funds — which have recorded net outflows every year since 2014 — totaling $1.9T, while stock ETFs raked in $2.9T.

    How does this impact you? Thanks to ETFs, the average fees paid by investors have halved between 2002 and 2022, down 0.37% per Morningstar. Jason Zweig of WSJ believes that “investors would benefit if ETF share classes were launched at existing index funds.” However, there are still potential downsides that investors should be mindful of.


    JOE’S MARKET PULSE

    🔗 Microsoft / Arm

    This AI startup isn’t messing around: RAD AI has attracted big customers including Skechers, Sweetgreen, and MGM — and has raised $27M from over 6K investors, including big shots from Google, Amazon, Meta. The company helps marketers improve their ROI on marketing investments with the help of AI — with revenue growing by 3x in 2023. And now investors can finally get in. Learn more about the investment →

    Markets & Economy

    Another massive energy deal: Diamondback Energy (NASDAQ:FANG) is buying privately-held Endeavor Energy in a $26B deal. It’s not as big as Exxon’s $60B acquisition of Pioneer last year, but it positions Diamondback as the third-largest oil and gas producer in the Permian. [Read]

    Inflation expectations at their lowest since 2013: Long gone are the days of 6% inflation. Instead, a Federal Reserve Bank New York survey shows inflation to land at 2.35% in three years. Markets are still expecting the first rate cut to come in May. [Read]

    Don’t count on housing to get more affordable: Even with interest rates at their highest in 23 years, home prices are still 5% higher than a year ago. The housing shortage is still an issue, and falling rates risk driving prices higher, which also depends on your city… [Read]

    Business & Wealth

    Another massive energy deal: Diamondback Energy (NASDAQ:FANG) is buying privately-held Endeavor Energy in a $26B deal. It’s not as big as Exxon’s $60B acquisition of Pioneer last year, but it positions Diamondback as the third-largest oil and gas producer in the Permian. [Read]

    Inflation expectations at their lowest since 2013: Long gone are the days of 6% inflation. Instead, a Federal Reserve Bank New York survey shows inflation to land at 2.35% in three years. Markets are still expecting the first rate cut to come in May. [Read]

    Don’t count on housing to get more affordable: Even with interest rates at their highest in 23 years, home prices are still 5% higher than a year ago. The housing shortage is still an issue, and falling rates risk driving prices higher, which also depends on your city… [Read]


    CHART


    DIGIT OF THE DAY

    US Scripted TV Shows Fell 14% in 2023, The Biggest Drop in 15 Years

    As American cable usage dwindles, television’s heyday could finally reach its series finale. Studios used to churn out shows relentlessly, but budget cuts and strikes have disrupted the release schedule for new programs — and the costly transition to online streaming platforms has left cable-dependent media giants in a financial pickle.

    • In 2023, Hollywood produced 516 scripted series — a 14% drop from 600 shows in 2022, according to FX research.

    • In the first five weeks of 2024, scripted programming witnessed a substantial 31% decline compared to the same period last year.

    The future of TV: While some industry analysts speculate that traditionallegacy TV will continue to decline, former CNN President Jeff Zucker believes cable TV will survive because “news and sports will keep it alive.” However, lower media investment may reduce both TV and streaming offerings — Netflix released 130 fewer original programs last year compared to 2022. The result? Subscribers will be paying more for less.


    EXTRA JOE

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