Weekly Insight

Greeting to everyone! We at the Longhorn Investment Team hope that our readers are safe and healthy with their families during this current global pandemic. We hope that you all are indoors and abiding by shelter-in-place and social distancing policies while washing your hands. Additionally, we thank anyone at the front lines of the crisis working in hospitals and other industries taking care of the many people in need of your support.

At this time, the Longhorn Investment Team’s operations have been paused due to our school’s closure for the rest of the semester. However, we continue to monitor and update our portfolio during this time, while sharing training resources with our new members. While we monitor and update our portfolio, we wanted to share some market insights to our readers one more time this semester to update them on the latest. With that said, let’s answer some questions.

• When do I enter the market for investing?
  • People keep waiting for the stock market to hit a bottom so that they can enter the market at an optimal time.
    • However, the market won’t bottom out until people adjust to the new normal and after the hiatus of business.
    • These mini-bull runs and short squeezes will continue as each new stimulus policy and positive headline passes.
    • Q1 numbers are going to drive the market down as the GDP plummets and unemployment skyrockets.

• The volatility looks high in the market…but recently, the market’s been going up!
  • It is worth remembering that the market 12 years ago took several months of violent moves up and down before ultimately putting in a lasting bottoming on March 9, 2009 (Goldman Sachs chief equity strategist).

• So then when will the stock market rebound?
  • Investors tend to agree that we don’t know when the stock market has bottomed until it is in the rearview mirror, but generally, until the growth rate of coronavirus cases begins to flatten and drop off, do not expect the market to rebound any time soon.
    • Watch transport stocks, weekly jobless claims, reopening of schools, corona growth slowdown, stock buybacks, and Warren Buffet to monitor the situation and the economy

• Who’s hurting right now?
  • Oil prices plummeted with the Saudi Arabia and Russia price war
  • Restaurants, retail, and entertainment will suffer short-term
  • Airlines are suffering as barely anyone is flying places with social distancing
  • Cruise lines are tanking right now with zero revenue this quarter
  • Silver and gold (precious metal) market isn’t as safe anymore but could buy if bottomed
  • Many companies and investors went into this episode highly leveraged 
    • With these bad times, they’re less likely to survive and an increase in defaults is probably
    • An increased number of margin calls and forced selling will occur as well

• The magic question: How should I invest in the market right now? (These are simply suggestions.)
  • “Intermittent purchases on down days throughout the volatility could make sense for investors with longer time horizons” (Invesco analyst).
  • Invest in Chinese equities since they are in recovery mode
  • Invest in tech since growth potential is larger e.g. FAANG stocks
  • Invest in content e.g. Netflix, Apple, Facebook
  • Buy quality recession-proof stocks e.g. necessities!
    • Open your cabinet and see what you have.

Thank you so much for reading our quick update! Stay tuned for future articles, posts, and updates, and consider following us on our social media (Facebook, Instagram, LinkedIn)!

To our readers, consider donating to Feeding America and Combat Coronavirus: CDC Foundation Emergency Response Campaign.

Feeling anxious during this climate? Care for Your Coronavirus Anxiety is a great resource that addresses many anxieties that people have at the moment.

Incidentally, as this is my last semester at the University of Texas at Austin, I wanted to take an additional moment to thank our dedicated and supportive readers for their ongoing support, and for being a strong motivation to our team. It has been a privilege to be the Longhorn Investment Team’s Editor in Chief and Vice President of Marketing. Stay safe and remain optimistic. This is all temporary – a bright future is ahead. – Shravan Davuluri (@ShravDav on Twitter for market and politics updates)

Thanksgiving is around the corner, and it looks like the markets are responding positively this week. As our students gear up for finals and work on additional market research for the Longhorn Investment Team portfolio, we thought it would be best to recap the market this week and give you a brief highlight for you to navigate through the news this week and stay up to date on what’s happening. Here’s this week’s market snapshot:

S&P 500 (^GSPC): +0.22%, or 6.75 points

Dow (^DJI): +0.39%, or 109.33 points

Nasdaq (^IXIC): +0.16%, or 13.67 points

10-year Treasury yield (^TNX): -0.1 at 1.771%

Biggest political news for the market?

The Trade Deal Continues to Develop

Although there may be US-China trade uncertainty, Chinese leader Xi Jinping said during a meeting Friday that he wants to reach a Phase One trade agreement that is on the “basis of mutual respect and equality.” Despite ongoing trade uncertainty, Chinese officials have insisted for weeks that a trade deal is on the way, which has assured many investors and explains why the markets continue to be on the rise despite any uncertainty.

In more news, there are three big stories we’d like to discuss…

This Week in Stonks

1. The All-American Dream: Trucks, Trucks, and Trucks

• Ford announced the new Mustang Mach-E this week
• Meanwhile, Tesla announced its new truck, the Cybertruck
  • The new truck made Tesla’s stock drop more than 6% after the design raised questions and the demonstration of the truck’s supposedly bulletproof windows failed
  • Ford announced that despite Musk’s words, they are not afraid of the competition as they remain the #1 truck company in terms of owners and they are working on a hybrid and eventual all-electric truck that will be released in the next few years
• GM stock fell since it recalled 600k trucks

2. The Retail Shake-Up

• Victoria’s Secret’s parent company L Brands suffered another poor quarter
• TJ Maxx and UO made large discounts last quarter, one slipped 2% and the other 15%
• Paypal is acquiring online coupon company Honey for $4B
• Kylie Cosmetics sold 51% to Coty for $600M
• Macy’s stock fell 3.2% after it faced a data breach and after it missed sales expectations
• Louis Vuitton announced that it would be buying Tiffany and Co.
• Disney stock up after a successful Frozen 2 release

3. The Tech World Continues to Evolve

• Microsoft announced that its user base for Microsoft Teams has outpaced its competitor, Slack, by 8M+ users (20M users vs. Slack’s 12M)
• Spotify stock dropped as Amazon announced its music service would allow users to stream music for free
• Home Depot’s stock lost 5% due to failed website job targeted at those experienced in construction
• Charles Schwab announced that it plans to acquire TD Ameritrade

 That’s all for now! Thank you so much for reading this week’s weekly insight, and make sure to subscribe for more weekly updates and follow us on Facebook, Instagram, or LinkedIn.

With a few weeks left of 2019, the S&P 500 is up 23% and on track for the best annual return since 2013. This is on top of encouraging news from Fed Chair Powell, who testified before the House Budget Committee, saying that the economy will continue to grow moderately as trade uncertainty will continue to resolve and that the labor market remains strong. Additionally, there was so much news that came out this week, but this report’s going to focus on the news our students analyzed this week.

Here’s a quick market check-up from Friday:

S&P 500 (^GSPC): +0.77%, or 23.73 points

Dow (^DJI): +0.8%, or 222.18 points

Nasdaq (^IXIC): +0.73%, or 61.81 points

And so, what was our biggest news of the week?

 

U.S. China trade talks stall over agriculture and IP

To recap, Trump put tariffs on more than $500 billion in Chinese goods, while Beijing has put duties on about $110 billion in American productsCurrently, China hesitating to commit to a specific amount of agricultural products, despite Trump claiming the country agreed to buy $50b in US farm goods. White House economic advisor Larry Kudlow told CNBC Tuesday that no tariffs will be adjusted until a deal is reached, and as of right now, progress is being based regarding “IP theft, financial services, currency stability, commodities and agriculture.” Although trade talks stalling might be worrisome to investors, a long-term hope for a resolution continues to exist amongst investors.

Also worth noting…

 

10-year Treasury note yield fell

China actually buys a lot of our bonds, and they own about $1.1t of our debt. This week, demand from China fell as trade talks falter. This is on top of China’s economy weakening due to increased inflation and output, as well as decreased consumption. That doesn’t bode well for the yield curve, which we discussed last week, as an inverted yield curve (short-term yields are higher than long-term ones) tends to signal recession as interest rates start to reduce with the assumption that long-term income will continue to fall.

Speaking of debt…

 

Household debt and auto loans

This week, household debt nearly reached nearly $14 trillion dollars. This is part due to mortgage, student, and auto debt soaring this quarter, as people took advantage of recent low-interest rate environments (in part due to Fed’s rate adjustment). There may be some room for concern, as fear of a recession may make many families hurt with increased interest rates in the future.

More on consumers…

 

Producer Inflation and Higher Healthcare Costs

This week, the producer price index for final demand rose 0.4% last month. The government reported on Wednesday that consumer prices rose solidly in October amid large gains in healthcare costs and prices of used cars and trucks. This is on top of the report from the Labor Department on Thursday showed healthcare costs accelerated last month, with the cost of outpatient care at hospitals posting its largest rise since 2009. The jump in healthcare prices mirrored gains reported in October’s consumer price index report on Wednesday.

 

Now this week, with so much news regarding the stock market, I thought I’d rapid fire through a bunch of note-worthy events in a segment I’d like to call…

Here we go!

 

Walmart stock trading at a record high

• Earnings beat by 7 cents
• Sales expectations were beat by 1%
• E-commerce expectations beat 4%
• Operating income soared despite lower merchandise prices and heavy infrastructure investments
• Sales in China were much higher than expected – they rose 3.7%
• Outlook is high with the holiday shopping season among us

Alibaba and Single’s Day

• Alibaba’s stock soared as Single’s Day (11/11) saw a record number of sales broken
• Over $38.3 billion of merchandise was sold on the website
  • That is now the record for most amount of merchandise sold in 24 hours
  • CEO Jack Ma was underwhelmed as he said the sales would have been even more if the weather wasn’t hot and the event wasn’t on a weekday

Disney continues to be on the rise

• Disney+ came out this week and saw its market value ($268b) reach twice of Netflix’s
• 10m customers subscribed to Disney+ and their shares rose 7.4%

Cisco’s disappointing earnings

• Cisco beat earnings last quarter but projected [5%] lower revenues in the future
• The CFO said that “large businesses were putting purchases through more review processes, meaning orders were taking longer to get done.”

Apple Card’s bias

• Shocking revelation that rates and credit limit are worse for women compared to men
• Warren calls for Apple’s transparency in algorithm

Google wants a part in the financial services 

• Google wants to offer “smart checking” accounts to users
• This is on top of Goldman Sach’s partnership to create a product for Android Pay that rivals Apple Card
• This is a move made after seeing Amazon, Facebook, Uber, and Apple create new payment methods and credit cards
• “They’re all competing for consumer attention and for their ecosystem and platform to win,” Bain and Co partner says.

Google’s in trouble with Nightingale

• Google is working with Ascension, a Catholic health care system, to build a healthcare related product that has access to millions of patient records
• Worry of HIPAA compliancy led to a federal inquiry
• It is worth noting that there’s a lot of Google news but Alphabet’s stock is rising since the sum of the parts is greater than the whole.

Cannabis disappoints

• Canopy Growth Corp. shares slid more than 17% and overall weed stocks posted much lower earnings compared to expectations, proof that the sector is troubled overall
  • Smith Falls, Ontario-based Canopy  posted a loss of C$374.6 million ($282.4 million), or C$1.08 a share, in the quarter

Tesla in Germany

• Tesla about to reach Model 3 target production output with new Berlin factory they announced this week

 

That’s all for now! Thank you so much for reading this week’s weekly insight, and make sure to subscribe for more weekly updates, and follow us on Facebook, Instagram, or LinkedIn!

 

 

This first week of November was quite an eventful week for students here at The University of Texas at Austin. Jimmy Fallon even visited campus and recorded his show here on Thursday, so you’ve probably already had your fill of bad jokes for a while -we’ll be pretty straightforward in this addition. As we enter the grueling winter and adjust to Daylight Savings, the market continues soar. In fact, 14 S&P 500 companies, including Apple, Alphabet, JP Morgan, and Microsoft, hit stock price record highs this week. Here’s a quick snapshot of the market:

S&P 500: 3,093.08 (+7.90, +0.26%)

DJI: 27,681.24 (+6.44, +0.02%)

Nasdaq: 8,475.31 (+40.80, +0.48%)

Things are looking up for US-China relations (despite Trump’s announcement):

After weeks of investor uncertainty regarding the trade wear, China’s Commerce Ministry has officially announced its agreement with the United States to cancel tariffs over several phases. Phase One is making progress, and the higher optimism in the market regarding trade reflects that. However, on Thursday, Trump then told reporters “They’d like to have a rollback, I haven’t agreed to anything,” which led Thursday’s market to slightly fall. That being said, although the future still remains somewhat uncertain regarding trade relations, any progress is good progress after all.

Even better news?

The yield curve: normal is the new normal

To re-explain the yield curve in simple terms, the yield curve is the yield expected over time from investing in the U.S. Treasury market. An inverted yield curve indicates that longer-term Treasury bond yields will be lower than short-term ones. Historically, this is why investors and economists alike have believed that an inverted yield curve strongly indicates an incoming recession.

That said, this week, the spread between the 3-month bill yield and the 10-year note yield traded at a +10 basis point differential after inverting as low as -51 basis points in August. This is great news, since investors closely monitor yield curves and believe that positive yield curves indicate expectations for future growth.

Are we in the clear?

Time will tell. Last week, we reported that the manufacturing index for October was very low. Low manufacturing isn’t a good sign for an economy, but with trade relations with China improving, we may see a future increase for November’s index.

Additionally,…

The VIX has been consistently low.

The VIX, or the Cboe Volatility Index, has been trading at a three-month low this week. However, with events such as the U.S. election and ongoing trade tensions remaining in store for the future, many investors are looking to invest in the VIX with expectations of future risk in store for the economy.

But how are investors feeling about recent risk?

Investors still love bonds.

Investors seem to be worried about high risks this year. According to Goldman Sachs, US equity funds saw net outflows of $173 billion in the past 12 months, whereas bond and cash funds saw inflows of $259 billion and $592 billion, respectively, the highest amount since 2009. Additionally, according to PwC, U.S. corporate balance sheets are holding more than $2.2 trillion in cash, the highest number in decades.

With more recent optimistic economic news, however, we may see a reversal of this and see more inflows into equity funds coming soon.

But now on to our favorite time of the week…

Earnings, Earnings, Earnings!

Boeing’s earnings:

Boeing shares climbed 1% as they double down to a timeline for the return of their 737 Max, despite terribly missing analyst expectations. The company reported a profit of $1.45 per share, compared to investor expectations of $2.09.

Roku’s earnings:

Roku’s shares plunged 16% after several quarters of surpassing earnings expectations. This quarter, Roku reported a loss of $0.22 per share, worse than the $0.18 loss investors were already expecting. Roku still clings to the advantage of being a distributor of content like Apple, Amazon, Netflix, and Disney, but the streaming battle is only getting more intense.

And speaking of Disney…

Disney’s earnings:

Disney’s earnings per share might have fallen by 28% to $1.07, but revenues increased by more than 3% to $19.1 billion. Either way, investor expectations were surpassed as analysts predicted earnings of $0.95 per share on a revenue of $19.03 billion. With more positive news about Disney+ and its future bundling on Amazon Fire TV, as well as Samsung and LG smart TVs, Disney’s stock continues to have a bright future. 

Uh-Oh’s and CEOs

 This month has faced a series of CEOs stepping down from companies. These CEOs so far include those from Nike, Under Armour and Bed Bath & Beyond. And as of this week, we can now add two more to that list.

McDonald’s CEO steps down.

Looks like Steve Easterbrook, the CEO of McDonald’s, is stepping down from his position after it was found that he was having a consensual relationship with an employee. More surprising is the fact that Easterbrook will forfeit millions of unvested stock options while receiving 26 weeks of pay that add up to more than $670 million. By millions, we mean that by the end of 2018, Easterbrook had more than $21 million of unvested options.

During his tenure since 2015, stock prices rose by 96% to $193.94. However, this last quarter, McDonald’s shares fell by 4% for the first time in two years. Where will McDonald’s go from here? That all depends on new CEO Chris Kempczinski and his direction.

Gap’s CEO also steps down.

Another highly paid CEO is stepping down from his company. Gap CEO Art Peck announced he is leaving the company this week. This may be good news for Gap, considering the company’s share price has fallen by more than half its value since the beginning of his 15-year tenure. Peck was expected to stay on with Gap through the process of the company spinning off Old Navy, which successfully topped $7 billion in sales this year. However, investors responded poorly to the announcement, and Gap’s stock fell by 12% during after-hours trading.

Enough about these CEOs, though. Let’s talk about a CEO that’s doing much better…

T-Mobile’s CEO announced three new objectives during New T-Mobile’s Uncarrier 1.0 while providing a positive direction for the Sprint merger.

While providing optimism regarding the approval of T-Mobile’s merger with Sprint, T-Mobile CEO John Legere announced three new objectives for the company in the coming years. As TechCrunch highlighted, this includes “10 years of free 5G for all police, fire, emergency medical services and other first responders countrywide, free wireless service and reduced cost devices to 10 million disconnected households in the U.S. and Puerto Rico, and a new $15/month prepaid plan with unlimited talk and text and 2GB of data.”

What does this mean for the future of T-Mobile? If and only if the merger with Sprint is approved, T-Mobile will have the ability to significantly expand their network and customer base while making more rapid progress on their 5G technology. In the carrier industry, investors see 5G as the competitive strategy to win. With so much at stake, you bet that T-Mobile is crossing their fingers the merger is approved.

Thank you so much for reading this week’s weekly insight! Make sure to subscribe for more weekly updates, and feel free to follow us on Facebook, Instagram, or LinkedIn.

Articles to Read for More Information

Things are looking up between US-China relations:

https://www.usatoday.com/story/money/2019/11/04/dow-jones-industrial-average-marches-toward-record-trade-optimism/4157323002/

https://www.bloomberg.com/news/articles/2019-11-08/trump-says-u-s-hasn-t-agreed-to-full-tariff-rollback-with-china

https://www.cnbc.com/2019/11/07/china-says-it-has-agreed-with-the-us-to-cancel-existing-tariffs-in-different-phases.html

S&P stocks are at an all-time high:

https://www.marketwatch.com/story/these-sp-500-stocks-just-hit-record-highs-2019-10-28

The yield curve is no longer inverted:

https://www.marketwatch.com/story/heres-what-a-positive-yield-curve-may-mean-for-the-us-economy-2019-10-16

https://www.forbes.com/sites/forbesbooksauthors/2019/10/18/does-an-inverted-yield-curve-predict-recession/#64580b766186

VIX is low:

https://www.bloomberg.com/news/articles/2019-11-01/volatility-future-gap-an-opportunity-for-macro-risk-advisors

Investor Sentiment:

https://markets.businessinsider.com/news/stocks/shift-from-stocks-to-bonds-cash-biggest-2008-goldman-sachs-2019-10-1028636408

https://www.axios.com/businesses-spending-indicators-recession-533481fc-dba7-4b5c-add4-c11628c335bc.html

Boeing’s Earnings:

https://www.cnbc.com/2019/10/23/stock-market-earnings-and-economic-data-in-focus-on-wall-street.html

Roku’s Earnings:

https://www.cnbc.com/2019/11/07/roku-shares-plunge-15percent-after-streaming-device-maker-breaks-earnings-win-streak.html

Disney’s Earnings:

https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-dont-fight-china-trade-news-disney-stock-soars-alibaba-costco/

McDonald’s CEO steps down:

https://www.cnbc.com/2019/11/03/mcdonalds-steve-easterbrook-is-out-as-ceo-due-to-a-consensual-relationship-with-an-employee.html

https://www.cnbc.com/2019/10/22/mcdonalds-mcd-earnings-q3-2019.html

https://www.usatoday.com/story/money/2019/11/04/mcdonalds-ceo-severance-easterbrook-expected-payout/4159083002/ 

Gap CEO also steps down:

https://www.cnn.com/2019/11/07/business/gap-ceo-art-peck-old-navy/index.html

T-Mobile and Sprint Merger:

https://techcrunch.com/2019/11/07/t-mobile-sugar-coats-sprint-merger-with-promises-of-free-data-but-only-if-its-approved/

Hope everyone had a wonderful Halloween and are ready to enter the colder months of the year! It looks like the market this week has been doing well, as seen below:

S&P 500: 3,066.91 (+29.35, +0.97%)

DJI: 27,347.36 (+301.13, +1.11%)

Nasdaq: 8,386.40 (+94.04, +1.13%)

The biggest contributor to a great Friday market close?

On Friday, the U.S. Bureau of Labor Statistics released their October end-of-month report on job statistics, and investors lost their minds. 128,000 jobs were just added to the economy with wages up 3% yoy. In the face of slowing business investment and a massive labor strike with GM autoworkers last month, investors were shocked by the impressive job gains. Importantly, the labor force participation rate rose to 63.3%, the highest it has been since 2013. These results have encouraged investing and optimism about the future, allowing for the market to perform well overall. Remember that yield curve we were freaking out about earlier? It’s returning to its normal upward-pointing shape as investors are more and more willing to turn to riskier assets.

However, despite the market performing well, the economy grew only 1.9% this last quarter compared to the White House forecast of 3%. This may be a sign of more foreboding economic news…

It looks like manufacturing is down this month.

According to the Institute for Supply Management (ISM), manufacturing slumped last calendar quarter even after slight improvement since September. This indicates a contraction in the sector, as people are more cautious in investing in manufacturing due to the current political climate. The report explains that demand, prices, new orders, and productions were down overall. Experts point to the trade war as the cause. Opponents to the trade war claim that by finalizing a deal with China and removing all the tariffs, manufacturing will rebound.

We’re just gonna manufacture a transition real quick and discuss some highlights from tech and energy earnings from the past week . . .

Did Google just come for Apple and the Apple Watch?

This week, Google just announced its acquisition of Fitbit for $2.1 billion. Acquiring Fitbit allows Google the opportunity to strengthen its foothold in the wearables market. Although Google did work on Wear OS for Android smartwatches, it hasn’t developed hardware to compete in the market. Using Fitbit’s developed hardware would allow Google to further develop the technology and release it into a market where Android owns a 75% market share of the smartphone OS market.

Another tech company worth watching…

Things are looking up for Alibaba.

As of this week, Alibaba’s stock is up almost 30% sine the start of 2019. Baba got another boost on Friday thanks to their stellar earnings call, which stated a yoy revenue growth of 40%. To make the report even spicier, cloud segment revenues increased 64% yoy (Amazon Web Services only grew 35%). Most investors consider BABA to be the Chinese Amazon, making them an enticing way for investors to get exposure to foreign markets. Alibaba’s core consumer business still accounts for 85% of revenues.

Speaking of earnings…

Earnings and Energy

This week, the two energy giants ExxonMobil and Chevron announced their Q3 earnings, and the result is quite surprising to investors. Currently, the industry is facing lower prices and higher costs due to company and geopolitical conditions. However, for Chevron, third-quarter earnings exceeded investor expectations, in part due to the strong production that Chevron has had over the last few months. Additionally, although ExxonMobil suffered a 49% decline in third-quarter earnings, earnings exceeded analyst expectations due to the 4% increase in production in the Permian Basin. In fact, when looking at all the major oil companies, every company beat earnings expectations but fell short of revenue expectations and year-ago earnings.

Low oil prices can actually be a good thing for world’s biggest oil producers because as smaller oil companies go out of business (they can’t whether a storm of low prices for very long) their land is acquired by oil giants for relatively cheap. As a result, the largest oil companies are able to replete their oil production without spending as much on land acquisitions.

Does this mean we should all run to invest in energy? Maybe. However, it is important to note that these companies have been experiencing a downward trend in revenues, and it may continue to decline. Additionally, keep in mind that over the last 10 years, the industry has repeatedly faced long-term bearish patterns and there may be additional risk if exposure is taken.

Energy wasn’t the only industry to have earnings calls this week…

Pinterest kills earnings and tanks

Pinterest just announced its Q3 earnings, and both revenue and earnings surpassed investor expectations. They even raised guidance for the next quarter a little. This is in part to an expanding user base and improved advertising platform.

Pinterest has developed their platform by making it more shopping-friendly for users, optimizing the machine learning algos built into their features, and by adding new features such as dark mode. Honestly, the folks here at lit have been waiting for Pinterest dark mode for years. Finally, we can check out macaroni art at 2:00 am without straining our corneas. Overall, it is clear that Pinterest has taken an active approach in improving the user experience.

Their stock tanked 17% after the earnings call. Why? Because the stock wasn’t cheap. Some see this as a case of the company doing fine, but the stock being overvalued because it was overhyped. Overhyped and 2019 IPO stock are synonyms at this point, so it makes sense that Pinterest could fall even after a solid earnings call (the market was valuing them at 10x their revenue before the selloff).

Markets Gassed Up:

The S&P 500 neared another all time high on Friday on investor hopes of a trade deal and another FED rate cut on Wednesday. Sounds like the same bull case we’ve been hearing for a year or so. A mixed earning season seemed to boost stocks even more since investors expected Q3 to go a lot worse.

Earnings Snapshot: Paypal

On Wednesday, the digital payments company had their Q3 earnings call.

Highlights:

Revenue increased by 19% over the last quarter, with EPS increasing by 5% year-over-year.

Free Cash Flow increased by 20% year-over-year.

Customer engagement had also increased heavily during the period, with a 9% yoy increase in transactions per account, a 27% yoy increase in total payment volume, and a 16% yoy increase in active accounts. Two big announcements were also made today regarding Paypal’s prospects.

First, Paypal announced that China approved Paypal’s 70% equity interest in GoPay, allowing Paypal to be the first foreign entrant into the Chinese payments market (a big market).

Second, Paypal showcased its progress on Venmo, which includes new partnerships with many large merchandisers, an increase in users, a $400 million annual revenue run rate, and a new credit card on the way. After reviewing company financial metrics during the call, Paypal made their Q4 2019 and 2020 outlook clear, that Q4 only had more growth (16% year over year) in store and 2020 had even more coming soon (mid 20% growth).

Earnings Snapshot: Amazon

Amazon stock fell 9% as they fell short of revenue and profit expectations. In particular, their operating profit came in 50% below expectations due to higher than expected costs associated with Amazon’s transition from two-day to one-day shipping.

To make matters worse, the Pentagon renewed their cloud-computing contract with Microsoft’s Azure as opposed to Amazon Web Services. Not only does a Pentagon Contract represent $10 Billion in revenue, but it’s huge for credibility in the cloud space. Which service would you rather build your app on? The one used by the Pentagon? That’s what I thought!

Earnings Snapshot: Verizon:

Verizon displayed healthy subscriber growth in Q3, but failed to increase revenue much above consensus estimates. Verizon has lagged other telecom stocks as it invests heavily in a 5G transition that could make or break the future of the business. While management is hoping to have nationwide 5G coverage by the middle of 2020, they don’t expect to see significant revenue gains from the project until 2021. The potential upside? 5G represents a huge growth opportunity in edge-computing, a valuable market for consumers and businesses alike.

Other News:

GM labor strikes officially came to a close on Friday as a final agreement was reached between UAW and GM reached a deal.

Short-sellers of Tesla stock lost over $2 billion this week as the stock soared 20% after better than expected earnings.

Ken Fisher has lost over $2.7 billion in assets under management since he made the sexist joke heard round the world. Goldman Sachs is the latest high profile client to end their relationship with Fisher Investments.

ACL is a lot like the stock market. It’s surrounded by fraudsters, hyped up on cocaine (or low interest rates), and cost us all a lot of money last week. Luckily, our newest class of LIT Analysts are delivering you a digestible look at last week’s top market stories to provide you with S-tier water cooler talk.

WeSuck

WeWork was a startup that was supposedly worth $67 Billion. Wow. Private investors gave them Billions in cash at enormous valuations, and WeWork planned to raise even more capital via an IPO. What could go wrong?

WeWork canceled their IPO on October 3rd because investors weren’t buying into the company or the man behind it anymore. The best analysis on the epic rise and fall of WeWork has been chronicled by multiple publications, but we’ll summarize the key problems here:

Their CEO, Adam Neumann, was outed because of his horrible management style, corrupt decisions, and high level of control over the company. Couple a bad leader with a business that loses $2 billion a year in a looming recession, and people quickly realize you’re a giant fraud. That’s how you go from 67 to 0 real quick.

For some ridiculous Adam Neumann stories, click here.

China’s out…jk.. unless?

Two Friday’s ago, news that the US might delist Chinese companies from US stock exchanges came out and the Dow, S&P 500, and Nasdaq all plummeted. The White House wanted to reduce the number of ways that Chinese companies could access American capital. This would also harm American investors because it flared trade war tensions. Once President Trump announced that the US would not actually be delisting Chinese companies, markets recovered. 

Recession Fears Mounting

Since the beginning of the fourth quarter on Tuesday, the Dow has plunged more than 800 points or 3% after new data showed manufacturing hit its lowest level in a decade. Weaker consumer confidence only adds to economic concerns. Even further, the S&P 500 has fallen below its 50-day moving average, a key technical indicator watched by analysts.

While impeachment announcements by Nancy Pelosi added some volatility to the markets, losses were driven by the economic data. History (and an MIT study) suggests that non-economic events typically don’t have a significant effect on the stock market. Meanwhile, a recession is the primary fear of investors. Barclays claims that there is a 25% – 30% chance that a recession will hit the US in the next 12 months. 

Gold pushed higher into the $1,500s/ounce as investors ticked off the hours until the key monthly U.S. employment report, which ended up coming in below expectations. In the past two months, the amount of hirings has dropped each month by a total of about 60,000.  Nevertheless, the economy still added 136,000 jobs, so the news could’ve been worse. Shares also recouped some of their losses at the end of the week due to investor bets that the FED would cut rates (yet again).

The Other Trade War

On October 3rd, the discount broker Charles Schwab slashed commission price from $4.95 to zero in order to make investing easier and more affordable for everyone (they got disrupted). Since the inception of the Silicon-Valley startup Robinhood in 2013, it was only a matter of time as to when the other major brokerages would be forced to cut down to zero to maintain their clients. Schwab’s shares took a hit, falling about 10% immediately after the announcement, which was pale in comparison to their rivals TD Ameritrade and E-Trade who fell 26% and 19% respectively.

This price war was started last week when Interactive Brokers announced they were cutting commission prices in order that they don’t lose out on business to rising zero-commission companies like Robinhood. After taking a loss after that announcement, Schwab decided to be proactive and minimize their losses in the price war by following suit. A spokesperson for the firm has said the price will result in about a 3-4% decline of total annual revenue, a loss they anticipate will be offset by the future increase in client base now that their services are more affordable. Now that the brokerage tycoons are giving up fees one by one, the stock market will move towards a true zero-commission environment. Victor Jones, CEO of Dough, said this week, “In five years, paying commission fees for trading stocks will be as obsolete as paying for a landline.” 

Profit Fell Naturally

United Natural Inc. was supposed to have amazing sales of $21.5 billion for this year, but sadly, their dreams were spoiled. As the largest supplier of natural goods, United Natural Inc. expected profits similar to those of last year ($32.8 million). Its profits were cut in half – totaling $18.9 million. As more and more companies enter the organic food sector, consumers have more and more options to explore. United Natural’s stock plummeted 25.11% on Tuesday when this news broke out. This may be indicative of the recent nationwide decrease in manufacturing. More and more companies are being forced to cut down on expenses and this may foreshadow a contraction in the near future. 

Welcome back to news town, baby! Sorry for the wait – our writers fought an epic battle with FINRA and lost. Learn about that here. We’ve missed a lot since late June, so we’ll begin by catching you, the reader, up on key highlights from July and then discuss what’s happening right now.

July in Review

In large part, markets reacted to two key developments last month: earnings season and the fed rate cut.

Earnings SZN: While a majority of S&P companies beat earnings and revenue expectations last month, corporate profits grew at a slower rate for the second time in two quarters.

Additionally, a majority of the firms that gave guidance for next quarter’s earnings weren’t very optimistic. Companies like Align Technologies, AMD, and Square were among the stocks that fell despite beating earnings due to poor guidance.

Overall, earnings were good enough to sends plenty of stocks to new highs thanks to everyone’s expectation of a rate cut.

FED Cut: The market soared when chances of a rate cut seemed high. Remember: the FED cuts rates when they think the economy might need a boost from cheap capital soon. It got to the point where stocks would go down in response to positive economic data because people wanted to be certain the FED would cut rates.

So, why would investors want the FED to cut interest rates so bad if cuts could signal trouble?

The short answer: a rate cut could serve as insurance if, say, the trade war worsened, or GDP growth slowed down (foreshadowing).

The FED ended up cutting rates by .25%. Markets tanked initially on the outlook that it may be the only time the FED cuts rates for a while. Additionally, some investors wanted a bigger rate cut and were disappointed. Stocks recouped their FED announcement losses the next day only to be pummeled again by… a worsening trade war and slower GDP growth.

Dirty August: Market Panic

Vix Today: +32%

Dow Today: – 800 points

On Thursday, Donald “Decepticon” Trump issued a 10% hike on tariffs on China. Markets fell off their record highs. China retaliated by letting the Yuan tank in value to stimulate exports.

“The less your currency is worth, the more you can export. “

China was probably thinking this

The president called out Xi Jinping for currency manipulation today. The administration hasn’t ruled out devaluing the US dollar as a countermeasure. Nobody is certain about what’s next, which is why everyone is selling. One thing’s for sure: the trade war is back on everyone’s mind and could reverse the economic outlook for H2 of 2019.

Fun Fact: Another trade war is brewing between South Korea and Japan. The two nations just removed each other from their preferential trade lists, which means it will become more expensive for the two nations to do business. The dispute goes back to disagreements over reparations for Japanese colonialism and related crimes from the early 20^th century. Japan claims they already owned up to all of that stuff in a treaty from a long time ago. Sounds like some deep-rooted beef. And, like they say in Japan, beef is a dish best served hot!

The Big Picture: Is a Recession Coming?

The economy, what even is it? Here’s the lowdown. For simplicity, let’s say the economy is really just a sum of 4 parts: consumer spending, investments, exports/imports, and government spending.

Consumer Spending: It’s just people buying stuff. Consumer spending has been driving most of America’s GDP growth as of late. People are buying things!

Government Spending: Government spending is high as usual, and it contributes directly to GDP. While budget deficits can be scary, that’s a whole other can of worms that we’ll open later. At LIT, we can only take so many worm cans in a day before we get sick. 😦

Imports/Exports: If you export more than you import, the net exports contribute to GDP. On the surface, Trump initiated the trade war in an attempt to improve America’s export balance. Instead, that deficit has widened. This isn’t necessarily because US exports have become less competitive, but it has a lot to do with slowing economic growth abroad and a strong US dollar.

Investments: The concerning parts of GDP right now are business and residential investment. Think of business and residential investment as the money spent on new projects that drive the economy forward like a new neighborhood or a new office building (those are the most creative examples we could think of).

Business investment is the G in GDP because without it, the economy doesn’t grow in the long-run according to any classical economist. Unfortunately, investments aren’t doing so hot.

While most of the economy is consumer spending, the business cycle is primarily driven by investment, either in the business sector itself or in residential housing. Neither look good.

Bloomberg

What’s causing lower business investment? Uncertainty from the trade war has left companies unsure of what their next move should be. With supply chains this disrupted, investment is dwindling despite the lower tax rates passed in 2017.

We’ll stop here without speculating too much. Let’s face it, we can’t predict recessions and neither can you, but the GDP picture sure is looking a little consumer-dependent.

Oh yeah, we know there’s more to economics than GDP, but we wanted to give an easy breakdown for all you simpletons in the audience.

Next Week: Market updates plus some industry focused stories as we get back into full swing leading up to the new school year. Get ready for a riot!

You’ve probably been asking yourself “why didn’t I hear from Longhorn Investment Team all July?” We have answers.

Bad News: We were tragically bulldozed by an authoritarian regulatory body and their corporate cronies for four weeks.

Good News: We’re back baby!

The Long Answer: It all started on a sweltering summer day inside the “mission control room” of an air-conditioned corporate office belonging to an unnamed financial services behemoth. In that room, one of our writers was “working” as an intern in their Investor Services department. Knowing that God came first, family came second, and LIT came third, our writer attempted to ask managers, employees, and even the kitchen staff for interviews to publish in the Weekly Insight.

Big mistake, bubba. Just for mentioning the Weekly Insight in these interview requests, our writer was sent to compliance – a word that the Deutsche Bank guys still screech at the thought of. You see, affiliates of any FINRA* member organization can’t just engage in OBA’s* willy-nilly. Approval from compliance must be obtained!

FINRA* = Financial Industry Regulatory Authority

That’s right, these jabronis don’t even have a word that starts with N in their acronym, and they are the clowns who govern this business? Unforgivable. In short, FINRA regulates any company that’s part of the finance industry including the unnamed broker-dealer.

OBA* = Outside Business Activity

Outside business activities are any extracurricular hobbies that could pose a conflict of interest with your job. For example, a blog about investing could theoretically fall into this category and be subject to approval from the firm (even though this blog doesn’t represent said firm in any way).

Back to the story! The writer submitted his OBA form to compliance. Compliance messaged the intern manager, “you up?” to which the manager replied, “yeh” to which compliance responded, “yeh so this blog is ok but definitely read it bc idk if there’s gonna be any wack posts in the future”

At this point, the drama intensifies. The manager faces a decision: that person could read the blog on an ongoing basis and allow it to be posted OR that person could just say the blog is an invalid OBA and not have to read it. That person chose the latter, and the Weekly Insight was cutoff. Nobody was allowed to crank out another issue.

An uproar ensued. The writer cried and cried, but he couldn’t win any sympathy points. He wallowed on the bathroom floor (his girlfriend had also just broken up with him) as he howled a howl of pain and sorrow.

But that dark chapter in LIT history has passed! We’re back, and we have some stories to cover. So, get ready for the hottest August in years because we’ll be back with some major updates. Plus, we’d love to catch up! Feel free to tell us about your most tragic moment from the summer. Message us on Facebook or reach out on our website. You can Instagram DM us, but that is weird.

See you tomorrow!

YEEEEeeeeeeeEEEEEE! Welcome back to the LIT Texas Two Step: Part Two. In this edition, we’re taking a tour across Texas… or the relevant parts anyway.

Brent: 65.05 (+.86%)

WTI: 58.87 (+.1.80%)

No, Brent is not a Kappa Sig. Brent and WTI refer to the two most popular grades of oil, which are commonly used to quote oil prices.

So, what’s the difference? WTI (or West Texas Intermediate) refers to the price of North American oil, while Brent represents African, European, and Middle Eastern prices.

Why are the prices different? All else equal, WTI is about $2 to $4 more than Brent because of its lower sulfur content – that’s the quality spread. But the prices can also fluctuate due to political events, which is why Brent is more expensive right now. Because of rising tensions between the US and Iran, oil in the middle east is seen as less secure, and Brent prices rose relative to WTI as a result. India just promised to increase oil production to increase supply in the Middle East and stabilize Brent prices. Thanks India!

Now that you’ve met oil, we’ll introduce you to her boyfriend, Houston.

HOUSTON (Magnolia City):

Notable HQs: Phillips 66, Sysco, Haliburton, Waste Management Inc, AstroFest

Business News: Kicking things off with a tragedy, the beloved local retailer, Southern Importers, is shutting down after 104 years of selling party supplies and holiday decorations. I know what you’re thinking – what could possibly have gone wrong? To make a 104-year story short, the internet happened.

While most big box retailers have kept up with the explosion of e-commerce by becoming omnichannel, the retail apocalypse is still no joke for local businesses that don’t have the capital to adapt to such disruptions. But hey, everything is 40% there this week so take advantage!

Houston midstream player, Archrock Inc., just inked a $410 Million buyout of Elite Compression Services LLC to increase their stake in the Permian Basin. This acquisition is nothing compared to the multi-billion-dollar buyouts of Anadarko, but it is important to look at in the context of the broader liquid natural gas (LNG) market.

LNG demand is skyrocketing due to China’s transition away from coal and transitions in Eastern Europe’s natural gas grid. Take that with the ridiculous supply of natural gas in the Permian, and you see way higher demand for natural gas shipping companies – something both Archrock and Elite Compression Services specialize in.

We can’t end Houston without mentioning some cuisine related blurb so here it is: Gabe and Sam are opening five different delivery-only restaurants in Houston. Let us know in the comments what you think about such a concept (estimated food delivery CAGR=32% till 2021).

Fun Fact: More people eat out in Houston than any other city in America!

AUSTIN (Bat City):

Notable HQs: Dell, Chuys, Whole Foods, Longhorn Investment Team

Business News:

CONTROVERSY! The Austin City Council passed a law that allows homeless people to loiter in the city as long as they don’t act aggressive. In other words, homeless people can hangout wherever without the police making them go stand somewhere else. Some people say that this will be terrible for the economic community because it could reduce tourism or lower property values. Others argue that the government shouldn’t criminalize people for having nowhere to stay. Leave your hot take in the comments.

Bad News: Rents for single-family homes in Austin are hitting new highs (+3.5% yoy). As a result, many potential buyers and even tenants are being priced out of the housing market. Austin is no stranger to gentrification. I mean just look at the place.

Good News: Unemployment is at its lowest level in 20 years in the 512 thanks to the continuing influx of high-tech yuppies. Facebook and Apple’s new offices in the area are just some of the high-profile examples. Even the vape unicorn, Juul Labs, is moving its operations to ATX. Brent from Kappa Sig just got hired on as their new product tester.

Fun Fact (from someone else’s travel blog): “During football games at the stadium, UT-Austin fans display the Hook ’em Horns hand sign.”

DALLAS (Big D):

Notable HQs: AT&T, American Airlines, Southwest Airlines Exxon Mobile, McKesson

Business News:

We’ll open with highlights from new reports from the Dallas FED. They find that Texas is not immune to the prolonged trade war, as retail sales slowed in June, but unemployment is low and the service sector as a whole has performed well over the past couple months. Roughly 40% of manufacturers reported poor outlooks due to trade uncertainty.

Dallas airports just keep flying higher, as the government just invested millions into new taxiways in Love Field and the DFW airport. Alliance, the all-cargo airport in DFW is in the midst of a $260 Million renovation that will help companies like FedEx and Amazon fulfil orders quicker.

A recent study by Emory University found that the Dallas Cowboys have the best fans of any sports team ever. Case closed.

Fun Fact: Dallas is home to the first ever microchip and the frozen margarita machine.