Market Momentum

We got FOMC this week along with a myriad of earnings - I think it’s only right we get an update on rates and the macro picture. Let’s dive right in. We have some electric charts today in my opinion. Sorry for this volume being late was busy watching the football games last night. Looks like the San Francisco 49ers gotta win this for America now.

Decoding Wall Street’s Lingo

Initially, the prevailing sentiment suggested an anticipation of rate cuts, prompting expectations for a shift in March. However, recent developments indicate a deviation from these expectations, as the likelihood of rate cuts has decreased. This alteration in market dynamics suggests that the Federal Reserve may maintain its current stance for a few more meetings, potentially until May, contrary to earlier assumptions. Intriguingly, the market surge observed from the end of October to the close of the previous year was propelled by a surge in rate hike odds for March. The current debate, however, is centered around diminishing rate cut probabilities. There’s two ways to think about this — either people are just simply gambling on these rate cut odds or two this is signaling a healthier economy as we know what comes after rate cuts isn’t always great. I almost feel like we don’t want Powell to cut when he needs but when he wants to. Kind of unhinged I know but.. let the man do his job let’s see if he screws it up again — (man.. it seems like it was just yesterday people were gambling on rate HIKE odds.. how far we’ve come).

What’s going on across the pond? The ECB (European Central Bank) is being pretty explicit on the timing on their cuts which is interesting as they are kind of hand in hand with our Fed. Let’s keep an eye on these other Federal Reserves to see what they do, Japan, India, Canada etc. Last year the other countries started pausing first before we did.

Should the Federal reserve be keeping financial conditions in mind whilst inflation is this low? They were worried when inflation was running 3x their target why are they still worried? Let the bulls out if they haven’t already come. There is a ridiculous amount of money still on the sidelines and somehow they still haven’t FOMO’d in. I am wondering if they are being too hesitant as they are scared for the wealth effect of the stock market causing inflation again as everyone feels that they are rich or something.

Keep an eye on some of the data near the end of the week - all of the action will happen in the morning on Thursday and Friday - we know this Fed loves the Non-farm Payrolls number so expect some price action then. Until then it we continue to ride on the backs of the semis.

Notable — look at $XLI, $XHB, $SMH, $XBD and then look at the names inside of them. Until these roll over the bull market continues onwards.

🧠 Bigger Ideas

The current trend of emerging markets (EM) showing an upward trajectory and the prevalence of discussions around companies considering Initial Public Offerings (IPOs) can be interpreted as indicators of risk-on trading, suggesting a bullish sentiment in the US markets.

The upward trend in emerging markets often signifies increased investor confidence and a willingness to take on higher-risk assets. Investors may be seeking higher returns in these markets, indicating an overall positive outlook for global economic conditions. Additionally, the discussions of companies planning IPOs suggest a favorable environment for capital raising, as companies may be optimistic about their growth prospects and potential market reception. Reddit trying to go public at a $5 billion valuation when it tried in 2021 for $10-15m, we were talking about Shein, and Vuori and possibly Skims in a group-chat of mine later this year. Could really start opening the IPO window for some of the bigger players we’ve been waiting for — Stripe looking at you.

Let’s talk about India though - India is a story I need another newsletter to write about and we will this weekend I think. It needs an entire volume I believe and I think it will be really interesting to dive into — for now I will leave you with this chart and to think about whether or not India is the new China. The tech landscape is changing fast in India, new unicorns are being raised every month just recently I read there is a company there that just came out with a large language model for AI, Prime Minister Modi is expanding infrastructure and building new bridges literally like it’s his job. He seems to bringing India onto the playing field and at a perfect time, while China is out of favor in everyones eyes. Most populous nation in the world finally having it’s moment. Love to freaking see it. More on India this weekend.

📊 The Alpha is Made in China

Can’t talk about EM without talking about China…

If you go and listen to the talking heads on the TV you will see multiple headlines like China is un-investable, you will see news that there are global ETFs that are coming out that are “ex” China. Evergrande, the largest property developer in the country was ordered to liquidate by order of the judge — this coming just after last year when they defaulted and were unable to pay their debts. Historical charts and long term trend lines on China being broken. The sentiment is VERY negative. No one wants to confidently put their money there. This makes me salivate.. I don’t know why but maybe I have been spoiled by the absolutely vicious reversal by Zuckerberg this past year. ($88 → $400). What a combo too - fear at all time highs and big money piling in with weekly flows into China being at all time highs. Seems like there are a bunch of bargain bin hunters.. like me? Please don’t be a falling knife.

🧠 Stocks Unboxed

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“How do you know this ticker? What company is that? That’s what Stocks Unboxed is for. Every week we’re gonna go through and briefly overview a random company, its recent performance and anything regarding the company that could be viewed as a good first step to starting to dive deeper into unbox. This week on Stocks Unboxed is Duolingo ($DUOL) — this is actually a company I am looking to add to my longterm portfolio as a thought experiment. Reading that Duolingo is breaking new grounds into new subjects and overall trying to be the all in one education tech platform. They are building the “Internet’s University”. They are expanding into math and music and I think that’s really interesting as Duolingo has taken over as the preferred way of learning languages and their app is a true testament to UI design and the keeping things user centric whilst gamifying the HELL out of the app. We love that - keep enticing younger audiences it has been working quite nicely. Last quarter Duolingo reported a 64% YoY increase in DAUs (daily active users) and a 60% increase in paid subscriptions.. from 3.7m to 5.8m paying customers. Rosetta Stone could never… you guys remember those dusty commercials? Keep an eye on this one, I love the story and the company and with a nephew now I can see this way of learning being the way these kids learn in the future, colorful and interactive apps to connect screen time to brain time.

🎨 My Chart Artwork(s) of the Week

Charting tools and comprehensive financial data analysis from Koyfin - use link provided to receive 15% off Koyfin Plus

The Art Gallery

Like I said earlier earnings this week will be pivotal for the following few months of our stock market here and we have somewhere around $10 trillion of company market cap reporting their earnings this week. Should be a firework show or we will all be employed at McDonalds once again. Super Micro Computer ($SMCI) and $AMD to start out the week should start raising implied volatility on all of the option contracts for everyone else reporting.