The Weekend Edition # 17

Welcome to another issue of the Weekend Edition. 

Thank you to all who’ve read and subscribed to the newsletter this week!

We’re going to have a short edition this week because unfortunately, I haven’t been able to cover earnings in detail.

Now, let’s grab a cup of coffee ☕️, while we take a look at what happened in the markets this week. 

Here’s what we cover:

• Market Recap - Red Hot Economic Indicators

• Macro of the Week - Commodities Heating Up

• Earnings through Macro - No coverage this week!

• Around the Markets - Break ups and EVs

• The Week Ahead - Retail and Housing

• Closing Thoughts

Let’s dive in ⬇️

Market Recap - Nov 8 - Nov 12, 2021

Mixed week in the market this week with three days of the S&P falling. While we close in the green on Friday, the weekly data shows we’re in the red.

Markets on Nov 12 ⬇️

So what happened?

• CPI data which is a measure of inflation came in HOT, HOT, HOT! Year on year increase came in at 6.2% vs. the expected 5.9% and the previous month’s 5.4%. Inflation concerns = Red Alert!!

• Elon Musk started selling his Tesla shares. Tesla’s become a market in and of itself, and looks like it has the power to move the S&P.

• Consumer Sentiment Data came out worse than expected. The last time I’d covered Consumer Sentiment was back in August when people were still reeling from “Sticker Shock”. Well looks like the shock hasn’t worn off! The Sentiment Index decreased to 66.8 from 71.7 in October, the lowest since 2011. And what does that mean? People are simply not happy with the surge in prices for food, gas and housing.

Macro for the Week - Spike in Precious Metals

So every time we see inflation data, people suddenly seem to remember that gold is a hedge for inflation and by extension, other precious metals.

But the winner last week was Silver. This is a chart that shows the ratio of Silver to Gold so up candles mean silver outpaced gold.

Gold still has some way to go and if you want to a good perspective on Gold, I suggest you look at these videos by Vik Aggarwal from Vikinsa Capital Management. Vik is a highly experienced trader with a very clear process, and he’s been following Gold for a very long time. Please go have look!

Earnings thru a Macro Lens - No Coverage this Week

I’ll definitely be pulling double duty next week!

Around the Markets

Breakup’s are all the Rage on the Street

We had not one, not two but three breakup announcements this week, starting with GE, then Toshiba and finally J&J.

So a big reason is focus. Some of these “conglomerates” have very distinct businesses that have gotten so big that it make sense to run them as separate companies.

Another reason is probably valuation. Breaking up a company means that you can potentially value each of the parts at a higher level than the total value of the whole company. The question is, does it stop with these three or could companies like 3M and Honeywell also be considering a similar strategy.

• GE - CEO Larry Culp’s taken the bold decision to split GE. The divisions will be GE Healthcare, GE Power (including Renewables and Digital) and GE Aviation. The aviation services unit has already been sold to Aercap. It feels like the end of an era honestly and rightfully so. It’s completely understandable that GE needed to do this. The businesses are significantly different enough to warrant their own existence. I haven’t looked at the numbers as yet but, it’s a story I will follow with interest. [I’m particularly keen on GE Power!]

• Toshiba - Japan has always been famous for their conglomerates, with Groups manufacturing everything from jet engines to cars to even pens. Toshiba announced on Thursday that they had decided to split the company into three as well - infrastructure, semiconductors and devices. The third company will keep the Toshiba name and manage its 40% stake in memory chip maker Kioxia. The split comes after accounting scandals racked the company in 2015 and activist investors have been calling for a change ever since.

• Johnson & Johnson (JNJ) has decided to split off their consumer health division. According to the company, the customer bases have diverged so much over the years that it no longer makes sense to keep it as one company. The New Consumer Health Company include the brands such as Neutrogena, Aveeno, Tylenol, Listerine, Johnson's and Band-Aid. The Consumer Health Division is set to close FY2021 with $15B in revenues. Overall Dividends will remain the same and the company firmly believes that the two divisions will thrive if separated. It will be an interesting exercise to value the two separately, as previous pharma-consumer splits have not always done too well.

Rivian IPO - quite the debut - Wednesday Nov 10, 2021

One of the most anticipated IPOs of the year launched with Rivian coming public on Wednesday. The day before launching they announced an increase in the number of shares to 153M shares at $78.00. Despite that, the stock price soared on debut and retraced some of its gain on opening day, still closing above the launch price. The stock rallied again over the past two days closing at $129.95.

The Week Ahead

13F Filings for quarter-end Sep, 2021 is due Monday Nov 15, 2021

Economic Calendar

• Retail Sales, Manufacturing and Production Data on Tuesday

• Housing Stats on Wednesday

Earnings

Major retailers report next week - Walmart, Home Depot, Lowe’s, Target, TJX, Foot Locker, Macy’s, Willams-Sonoma, Kohl’s.

Not to mention we also hear form NVDIA, Lucid, Sea, Ginkgo Bioworks. Exciting week!

Closing Thoughts

You can’t look anywhere without the word “inflation” popping up. With the CPI news, of course rates started going up again. Most people seem to think that Fed Chair Powell will have no choice but to raise rates sooner, if he’s still around as Chairperson.

The S&P seems to be gong into a consolidation phase as we knew it probably would and we see one more rally before the year comes to an end.

Here’s wishing you a happy weekend and safe investing. 

Sincerely yours,

Ayesha Tariq, CFA

@ayeshatariq

There’s always a story behind the numbers

None of the above is Investment Advice. I may or may not have positions in any of the stocks mentioned. I have no affiliation with any of the companies that are mentioned.