🎙️ Comeback Kid

[5 minutes to read] Plus: The case for owning U.S. stocks

Written by Matthew Gutierrez and Shawn O’Malley

A tale of two vehicles: the car and the bicycle. One is zooming. The other is stuck in neutral.

🏎️ Ferrari, the luxury sports car manufacturer, posted record profits in 2023. Over the past five years, its rising stock price (213%) resembles a big tech stock, not a car company.

🚲 Meanwhile, Peloton has cratered to a new all-time low, down about 97% from its December 2020 peak after posting more dismal guidance this week. It’s another reminder that a product beloved by millions of customers doesn’t necessarily translate well on the balance sheet.

Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

  • What Meta, Amazon, and Apple earnings mean

  • The argument for betting on U.S. stocks

  • Why one American city hopes to lure migrants

All this, and more, in just 5 minutes to read.

POP QUIZ

On average, how many cars does Ferrari sell in a year? (Scroll to the bottom to find out)

Chart of the Day

In The News

🧐 Diving into Meta, Amazon, and Apple Earnings

Amazon CEO Andy Jassy

Meta

Is Meta’s Mark Zuckerberg the comeback kid? We’d say so.

Two years ago, Facebook’s parent posted the biggest market valuation loss in stock-market history. But Thursday, it reported more impressive quarterly earnings, and its stock rose about 21% on Friday — adding $200 billion to its market cap, the biggest single-session market value addition. 

  • More robust earnings growth allows Meta to announce plans for $50 billion in stock buybacks and its first quarterly dividend, inspiring investors. 

Staying lean: Zuckerberg, who will earn about $700 million a year from the company’s dividend, said the stellar fourth-quarter earnings included a 25% gain in sales. Profits tripled, but Zuckerberg says he doesn’t plan to invest heavily any time soon. 

  • “The biggest thing that’s holding me back from doing that is that at this point I feel like I’ve really come around to thinking that we operate better as a leaner company,” he said. “There are always these questions about adding a few people here or there to do something, and I guess I just have more of an appreciation about how all of that adds up.”

Amazon

Amazon shares also soared Friday after posting its best online sales growth since 2020. Quicker shipping times and the busy holiday season buoyed growth, and it’s cutting more jobs in Prime Video and other units to be more efficient. (Amazon has laid off nearly 30,000 employees under CEO Andy Jassy, who took over for Jeff Bezos in 2021.)

  • As Amazon’s CFO commented, “Where we can find efficiencies and do more with less, we’re going to do that as well.”

  • Even in a difficult ad market, Amazon’s profitable ad business saw sales grow 27% year-over-year.

  • Amazon Web Services (AWS) growth continued, and Jassy says there’s been “a lot of interest” in AWS generative AI products. 

Apple

Apple didn’t “crush it” like Meta and Amazon, but the iPhone maker showed steady progress.

Apple recorded a sales jump for the holiday quarter, ending one of the company’s worst earnings streaks in 20 years. It reported $120 billion in revenue, up 2.1% from a year earlier, exceeding expectations. 

Apple’s iPhone business — its bread and butter — grew about 6%, with $69.7 billion in sales. It eclipsed 2.2 billion users for all of its products, from iPhone to Mac to iPad and the Apple Watch, all of which help it generate services recurring revenue stream and keep the flywheel going.

  • “This is obviously the engine for the company and for the future,” Apple’s CFO noted. 

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🇺🇸 The Argument For Continuing to Bet on U.S. Stocks

Happy World Cup GIF by FIFA

Gif by fifa on Giphy

Mean reversion is a famously controversial topic in finance. After big price runs or selloffs, things are usually expected to return to “normal.”

At the heart of the debate is always whether a price move was justified or driven to excesses by emotion.

  • For example, Tesla bears have argued for years that the company’s stock is expensive and will revert to a valuation more similar to other car companies, while bulls contend Tesla is an innovative tech firm, so that potential justifies its valuation.

Another familiar mean reversion debate surrounds the U.S. stock market itself, with some arguing U.S. stock indexes are more expensive than global peers and their own historical norms. While true, others, like the Wealth Management Investment Strategy Group (ISG), think the premium on U.S. stocks is justified.

Leading the world: Last year, U.S. stocks delivered a total return of 26%, beating out the 19% returns on developed economy stocks ex-U.S. Emerging market stocks earned just 10%, and Chinese stocks lost 11%.

Mean reversion logic suggests such U.S. outperformance isn’t sustainable, and the odds are stacked against the U.S. to once again lead global stock markets higher in 2024.

  • Supporting that belief, according to Goldman Sachs, is that U.S. stocks have been cheaper compared to their own past valuations about 90% of the time.

Why it matters:

ISG’s bullishness on the U.S. boils down to a few factors. Firstly, price-to-earnings comparisons between the U.S. and other countries’ markets are misleading.

Countries have a distinct blend of more or less prominent industries, and U.S. markets are particularly driven by tech stocks, which tend to grow earnings faster than other sectors, justifying higher valuations today.

  • While tech earnings represent about 29% of U.S. stock indexes, they represent just 1% of corporate earnings in the U.K. stock market.

  • And Goldman Sachs adds, “Another reason to stay invested in U.S. stocks is that valuation differentials haven’t historically been a useful signal for countries’ future relative performance.”

While ISG expects non-U.S. stocks to slightly outperform in 2024, any advantage in stock price gains is lost when accounting for currency fluctuations. They anticipate the dollar will strengthen against other major currencies this year.

  • Whether you believe U.S. stocks will lead the world in 2024 is largely driven by whether you think their past outperformance is justified (more tech stocks, faster growth, strong currency, etc.)

More Headlines

🏈 This year’s Super Bowl ads will be light on AI and crypto, heavy on mayo and insurance

🎙️ Joe Rogan signs new multiyear podcast deal with Spotify worth $250 million

📈 U.S. adds 353,000 jobs in January, much better than expected

💼 IBM tells managers to come to the office or quit

📝 Dealmakers face dilemma after Fed meeting

🚜 Farmers block Dutch-Belgian border as anger spreads across Europe

🏙️ American City With a Message to Migrants: We Want You

Topeka, Kansas — about 60 miles west of Kansas City

Choose Topeka.

That’s the Kansas capital’s marketing effort toward immigrants as it tries to lure migrants with work authorization to fill some of its thousands of open jobs

  • Topeka is trying to break out of stagnant population growth and an unemployment rate well below the national average. It also has about 6,600 open jobs.

  • The “Choose Topeka” campaign launched in 2019, but it only recently directed efforts toward migrants, especially people from Spanish-speaking countries like Mexico. 

Stagnant to prosperous? While officials in New York, Chicago, and Denver have grappled with the large numbers of new migrants entering their cities, Topeka is practically begging people — anyone who is authorized to work — to move there.

  • “We know that for our community to prosper, we have to have a diverse community,” said the city’s mayor. “We have to have people here who are willing to work and make this the city they want to raise a family in, get a career in.”

Please come here! The mayor noted that TikTok videos have helped Topeka rack up about 10,000 resumes of people looking for job placement help there. In some cases, the city gives out up to $15,000 per person to assist with relocation expenses. 

  • The city has spent roughly $50,000 on luring Spanish speakers to the area, or 10% of the tourism office’s annual marketing budget, per The Wall Street Journal.

  • The question remains: Will the investments jolt the stagnant Topeka economy?

Why it matters:

If the plan goes well, Topeka could be a model for other mid-size cities looking to improve their economy and fill open jobs. 

The area’s fairly low cost of living could attract new residents. But there’s no guarantee that migrants will flock to the middle of America in a city with relatively scarce economic resources.

  • Even still, the push to attract Spanish speakers aligns with a trend: Roughly 17% of the city’s 126,000 people are Hispanic.

  • The number of Hispanic people living in the region has grown by 25% in the last decade, even though the overall population has grown by only 1%

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Quick Poll

Do you subscribe to Peloton or another fitness subscription service, from gyms to meditation apps and sleep trackers?

Login or Subscribe to participate in polls.

Yesterday, we asked: Are you interested in purchasing Apple’s new Vision Pro Headset?

—Nearly half of respondents said “yes” or maybe. Wrote one: “I wish to have one to be able to work more effectively.”

— On the other end of the spectrum: “Waste of money and time. Real life is plenty entertaining.”

— Wrote another, “WAY too expensive for what I would consider a device that is only useful if you are fully 'living' in an Apple world, and even then you'd need to consider what value does it really add to your life at that price tag. To me, it's a nice toy.

TRIVIA ANSWER

Ferrari is now selling just over 10,000 new cars annually — roughly 27 new cars per day, which contributes to its exclusivity and scarcity. England, Germany, and Italy are its leading markets.

See you next time!

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