Nerd Rule
Posted by Eddy Elfenbein on April 16th, 2021 at 10:50 am

One of the important characteristics of the stock market that many newer investors may not realize is how widely distributed the size of companies is on Wall Street.

Simply put, you have a very small group of very, very large companies. You also have a very large group of tiny companies.

Here’s a super nerdy rule of thumb for finding the largest X% of stocks that make up Y% of its total market cap.

Take the square root of X and multiply by 10, and that’s a good ballpark for Y.

For example, the largest 16% of stocks should make up 40% of the total market cap.

Or 49% should make up about 70%. This should work for just about any reasonably-sized index or randomly-selected portfolio.

This is like the 80/20 Rule but in this case, it’s the 50/25 Rule.

No, it’s not perfect, but it’s a pretty good estimate.

Morning News: April 16, 2021
Posted by Eddy Elfenbein on April 16th, 2021 at 7:02 am

World Stocks Near Record Highs as China, U.S. Data Back Global Recovery Hopes

Sanctions on Russian Debt Are Called a ‘First Salvo’ That Sends a Message

China’s Economy Is Booming. Shoppers Are Skittish Anyway.

‘It’s a Roller-Coaster Ride’: Global Chip Shortage Is Making Industries Sweat

Old-School Quant Investor Is Taking a Value Victory Lap

Family Offices Are Targeting 800% Returns With SPAC Economics

Toshiba Bid to Test Japan’s Corporate Governance Rules

As Sanjeev Gupta Rose From Trader to Tycoon, Several Banks Backed Away

Vaccinated Will ‘Likely’ Need Third Pfizer Jab Within 12 Months, Then Annual Shots

The New Mercedes Is a Mix of Tesla and Ferrari

Why the Amazon Workers Never Stood a Chance

Joshua Brown: Five Superpowers

Michael Batnick: Housing Bubble Two Point No

Ben Carlson: Some Thoughts on Coinbase

Howard Lindzon: Daniel Cohen, Chairman of Cohen and Company, Joins Me on Panic with Friends to Discuss the Past, Present, and Future of the SPAC World

Be sure to follow me on Twitter.

Retail Sales Soar
Posted by Eddy Elfenbein on April 15th, 2021 at 10:48 am

There’s a lot of news this morning. Let’s start with jobless claims which fell to a new pandemic low of 576,000. That’s down from last week’s report of 769,000. The report is still very bad but at least things are moving in the right direction.

This morning’s retail sales report was off the charts. Last month, retail sales rose by 9.8%. This is what happens when you keep people locked up, then release them and give them stimulus checks. Wall Street had been expecting a gain of 6.1%. The number for February was revised upward to a decline of 2.7%.

The critical bar and restaurant industry saw a 13.4% surge, thanks to the increasing relaxing of restrictions as Covid vaccines accelerate to a pace of more than 3 million a day. Sporting goods spending was the highest percentage gainer at 23.5%, followed by clothing and accessories at 18.3% and motor vehicle parts and dealers at 15.1%.

March’s retail sales report was another sign that consumers overall are willing to spend, even though increasing amounts of stimulus checks are going towards savings rather than spending.

Yesterday, the S&P 500 lost 0.41%. That was the index’s worst day in the last three weeks, and it’s not that bad. The stock market is up again to a new all-time high this morning. The S&P 500 has been as high as 4,163.30 this morning. Before yesterday, the S&P 500 had risen seven times in nine sessions.

Thermo Fisher Scientific (TMO) is having a good day. Our Buy Lister said it’s buying PPD for $17.4 billion. That’s $47.50 per share.

From Bloomberg:

The drug-testing field has become a hotbed of activity as companies worldwide seek to roll out new Covid-19 drugs and vaccines, even as they continue to develop new cancer therapies and other treatments. With Covid-19 case numbers remaining high worldwide, and rising concern about future pandemics, the value of CROs is growing.

PPD has worked with Gilead Sciences Inc. on studies of the Covid drug remdesivir and on research involving Roche Holding AG’s Actemra as an arthritis treatment, according to its website. PPD also offers laboratory services.

What Bloomberg Intelligence says:

“ PPD is one of the largest contract research organizations, with scale in clinical, preclinical and central lab end-markets. The marriage of PPD with Thermo’s Patheon manufacturing unit would create a compelling end-to-end offering for biopharma customers, with compelling financial metrics.”

Morning News: April 15, 2021
Posted by Eddy Elfenbein on April 15th, 2021 at 7:04 am

Coinbase’s Public Listing Is a Cryptocurrency Coming-Out Party

Coinbase Gains as Ark Funds Buy, Analyst Sees ‘Immense’ Upside

With Earnings Soaring, Wall Street Banks See Economic Boom Ahead

Biden to Hit Putin With Russia Sanctions After Summit Offer

Big Business Seeks Unified, Market-Based Approaches Ahead of Climate Summit

JPMorgan Shoots for Green Finance Stratosphere as ESG Target Tops Peer Plans

What Happens When an Oil Giant Walks Away

TSMC Sees Chip Shortage Lasting into 2022, Books Solid Profit

Hundreds of Companies Unite to Oppose Voting Limits, but Others Abstain

Changing Strategy, E.U. Bets Big on Pfizer to Battle Covid

Major Airlines Signal Rejection of New CDC Middle Seat Blocking Guidelines

Bernie Madoff’s Downfall Left Behind A Surprising Legacy

Howard Lindzon: The Coinbase Direct Listing

Joshua Brown: Banks Make a Lot of Money When the Fed + Treasury Outlaw Losses

Michael Batnick: Should I Buy Coinbase? & “Money Losing Companies Hits Record High”

Be sure to follow me on Twitter.

Coinbase to IPO Sometime Today
Posted by Eddy Elfenbein on April 14th, 2021 at 11:03 am

The first of the big bank earnings are out today, and they’re looking very good. First up is JPMorgan Chase. The big bank earned $4.50 per share. That beat estimates by $1.40 per share. CEO Jamie Dimon has said the economy is primed for a “Goldilocks moment.”

Next up is Goldman Sachs which earned $18.60 per share. Wall Street had been expecting $10.22 per share.

Also, Wells Fargo made $1.05 per share. Wall Street was looking for 71 cents per share.

Today is the day of the Coinbase IPO. The ticker symbol is COIN. CEO Brian Armstrong owns 20% of the company. He’s going to be a very wealthy man by closing time. The Nasdaq gave them a “reference price” of $250 per share.

Lastly, Bernie Madoff has died age 82. He still had 138 years left on his sentence.

Morning News: April 14, 2021
Posted by Eddy Elfenbein on April 14th, 2021 at 7:06 am

‘Make or Break’ Call on Inflation Stumps Global Investors

The Biden Administration Is Quietly Keeping Tabs on Inflation

Fed Is More Worried by Inflation Running Too Cold Than Too Hot

Coinbase Listing Marks Latest Step in Crypto’s March to the Mainstream

Dogecoin Price Surpasses 10 Cents to Reach An All-Time High

Hungry for Investors, Some Companies Woo the Little Guy

JPMorgan Posts Investment-Banking Fee Surge While Loans Decline

How the Pandemic Helped Walmart Battle Amazon Marketplace for Sellers

Inside the Secret Battery Lab With a $20 Billion Breakthrough

Broadcast News in Flux as CBS News President Prepares Exit

Controversial Toshiba CEO Steps Down, Shares Jump on Bidding War Expectations

Nick Maggiulli: When Wealth Isn’t Real

Ben Carlson: Overnight Millionaires

Michael Batnick: Animal Spirits: A Shortage of Workers

Howard Lindzon: Crypto – The Beginning of The Beginning… and the Coinbase IPO

Joshua Brown: Nothing To Do Except Gamble, Powell: We’d Rather Clean Up After A Bubble Than Try to Prevent One, You Ever Notice?

Be sure to follow me on Twitter.

CWS Market Review – April 13, 2021
Posted by Eddy Elfenbein on April 13th, 2021 at 3:53 pm

(This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. Wow, that a deal!)

Highest Monthly Inflation in 12 Years

The big news today was this morning’s CPI report. Normally, the monthly CPI report isn’t that big of a deal, but this month, she was the belle of the ball. That’s because Wall Street expected to see a noticeable upturn in inflation.

That’s for two reasons. The first is simple comparisons. The economy went off the rails one year ago, or was pushed off, so the year-over-over number will seem elevated. The other reason is all the stimulus provided by the federal government. If people are locked up for a year, then allowed outside, plus you give them stimulus checks, well…you might see some inflation.

Wall Street was right: inflation did show up. Last month, consumer prices rose by 0.62%. That’s the highest rate since June 2009. Wall Street had been expecting an increase of 0.5%.

That’s the monthly number. Measured from one year ago, the increase was 2.64%. The year-over-year increase ending in February was just 1.68%. The largest factors for the increase were energy and food.

Gasoline prices were the biggest contributor to the monthly gain, surging 9.1% in March and responsible for about half the overall CPI increase. Gasoline is up 22.5% from a year ago, part of a 13.2% increase in energy prices.

Food nudged higher as well, up 0.1% for the month and 3.5% for the year. The food-at-home category increased 3.3%. All six of the government’s measures of grocery store indexes rose, with the biggest gain of 5.4% in the category of meats, poultry, fish and eggs.

The “core rate,” which excludes food and energy prices, rose by 0.33% last month. Over the past year, core prices are up by 1.65%. What the market really hates is unexpected inflation. Traders really don’t mind Armageddon—as long as it’s on time. This time, the market has been expecting inflation numbers like this, so the effect wasn’t that much on today’s market.

My favorite newsletter used to free but …,

— Rob Masters, Rome, GA (@Chieftain82) April 13, 2021

Touché.

What’s the impact of inflation on the stock market? That’s a good question. Inflation has an unusual impact on earnings. Not all earnings are the same, and inflation exacts a heavy toll on asset-heavy businesses. Companies with high assets relative to their profits tend to report ersatz earnings.

Inflation has an impact similar to putting a magnet near a compass. Everything gets a little screwy. Historically, stocks have not performed well during periods of high inflation. Investors who lived through the 1970s will certainly recall that. It’s no accident that Walmart was such a big winner during the 70s since it was so focused on giving shoppers lower prices.

Here’s a study I did. Professor Robert Shiller, a Nobel prize winner, maintains an online database of historical market data. It goes back 150 years. I took all the monthly data and ranked it by monthly inflation, lowest to highest. I then calculated how the inflation-adjusted stock market had performed when the months were ranked by inflation.

The results were interesting. Historically, the stock market had done pretty well until the annualized inflation rate reached 7.34%. Then it’s been like a light switch. Whenever inflation has exceeded that level, stock returns have gotten markedly worse.

Earlier I mentioned that inflation in March was 0.62%. Annualized, that’s 7.70%. That’s no reason to be scared. Last month was an outlier. I wouldn’t mind seeing inflation drift above 2%, but we’re a long way from the danger zone.

Danaher Raises Revenue Guidance

We had good news today from one of our Buy List stocks. Danaher (DHR) said that its Q1 core revenue will be at the “high end” of its guidance.

For the quarter ended April 2, 2021, the Company expects revenue growth to be approximately 57.0% and non-GAAP core revenue growth including Cytiva to be approximately 29.0%. The better-than-expected performance was broad-based across the portfolio, with particular strength in Life Sciences and Diagnostics.

In its Q4 earnings report from January, Danaher said:

For the first quarter 2021 the Company anticipates that non-GAAP core revenue growth including Cytiva will be in the mid to high-teens range.

For the full year 2021, the Company anticipates non-GAAP core revenue growth including Cytiva will be in the low-double digit range.

This is very good news. The shares were up as much as 5.6% today. Danaher will release its full Q1 earnings report on April 22. I’ll have more details in the premium letter (subscribe here).

WD-40 Drops on Disappointing Earnings

Ever hear a hallway door creek in the middle the night? When your first thought is that it could be home invaders, then you realize that it’s not a job for the police. Instead, it’s a job for WD-40.

A lot of people assume WD-40 is owned by some major industrial like Dow or 3M. Nope. WD-40 is owned by WD-40 (WDFC).

Most every homeowner is familiar with WD-40. The lubricant spray is instantly recognizable by its yellow and blue label. The company dates back to 1953, and the idea of putting WD-40 in an aerosol spray for the consumer market didn’t come about until 1957. Some folks at the firm were working on a Water Displacement formula. The first 39 tries failed, but #40 worked and the name was born.

In 1969, the company decided to rename itself after its only product and four years later, it went public and has traded on the markets ever since. Over the years, the stock has been a big winner for shareholders. Check out this chart:

Despite all its success, WD-40 is only followed by two Wall Street analysts. Why has it been so successful? Because it satisfies a basic need. It really isn’t more complicated than that. The company’s offering has grown to include many other applications for WD-40. Consumers love it.

What I like about WD-40 is that it’s a timeless product. Do-it-yourselfers will always have a need for it. No garage is complete without WD-40 and duct tape.

Did you know WD-40 can soften leather? It can also clean tile and erase crayon. It can even unstick Legos. (But do not try it on an iPhone!)

WD-40 now has more than 500 employees across 15 countries. The products are sold in 176 countries around the world. Last year, WD-40 registered sales of more than $408 million. WD-40 currently pays a quarterly dividend of 67 cents per share. That’s up from 27 cents per share 10 years ago.

The reason I bring up WD-40 is that it’s gotten clobbered recently. For its fiscal Q2, the company reported earnings of $1.24 per share. That was eight cents below estimates. Traders were not pleased. Over the past week, shares of WDFC are off about 18%.

I’ve long been a fan of WD-40 and I’ve come close to adding it to our Buy List. The problem is that it’s way too pricey. Well, in the last week, it’s gotten a lot less pricey. This is one to keep an eye on.

If you haven’t had a chance yet, please subscribe to our premium newsletter. It’s only $20 a month or $200 a year.

That’s less than $4 per week.

That’s less than 55 cents per day.

And in leap years, it’s even less!

I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Morning News: April 13, 2021
Posted by Eddy Elfenbein on April 13th, 2021 at 7:05 am

China Huarong’s Worsening Bond Rout Stokes Market Contagion

In Battle With U.S. for Global Sway, China Showers Money on Europe’s Neglected Areas

Deliveroo IPO Flop, Jamie Dimon Threats Stoke Fears of London’s Post-Brexit Future

Bitcoin Rallies to All-Time High as Traders Eye Coinbase Listing

JPMorgan Chief Strategist Says Markets May Be at Long-Term Turning Point

Texas Oil Pipelines Face Dry Months as Production Languishes

U.S. Calls for Pause on Johnson & Johnson Vaccine After Clotting Cases

Grab Agrees World’s Biggest SPAC Merger, Valued at Nearly $40 Billion

Regulators Step Up Scrutiny of SPACs With New View on Warrants

Defying Republicans, Big Companies Keep the Focus on Voting Rights

‘Master,’ ‘Slave’ and the Fight Over Offensive Terms in Computing

Uber Reports Best Month for Bookings in Company’s History

Archegos Left a Sparse Paper Trail for a $10 Billion Firm

Ben Carlson: Who Owns Stocks in the United States?

Howard Lindzon: Momentum Monday – Return Of The FAANG Gang as Rotation Continues and The Desperate Reach For Yield

Be sure to follow me on Twitter.

Powell Expects Strong Growth
Posted by Eddy Elfenbein on April 12th, 2021 at 9:53 am

Lots of earnings reports will be coming out this week. There was good news over the weekend. The U.S. administered 4.6 million vaccine doses on Saturday. That’s a record. Let’s hope this trend continues.

In business news, Microsoft is buying Nuance for $16 billion. The buy-out price is $56 per share which is a 23% premium to Friday’s close. I’m glad to see that despite the rally, firms are willing to open their pocketbooks.

The stock market is down a bit this morning but not too much. The S&P 500 closed at an all-time high on Friday. It’s closed higher six times in the last seven sessions. Ryan Detrick points out that over the past 22 quarters the S&P 500 has been higher in 19 of them.

Moody’s (MCO) got to a new high this morning. The company said it will report earnings on April 28.

On Sunday, Jerome Powell was interviewed on 60 Minutes. He had good things to say about the economy, but he cautioned that areas of the stock market could be over-priced. It’s in the nature of Fed chairs to warn of such things.

Scott Pelley: What are your projections for growth and employment?

Jerome Powell: If you look at what private sector forecasters are saying or what forecasters who sit around this table who are on the Federal Open Market Committee, our rate setting committee, what they’re forecasting is growth for this year in the range of 6% or 7%, which would be the highest level in, you know, 30 years. Or even maybe a little bit higher. And forecasting unemployment to move down substantially from 6%, where it is now, maybe to between 4% and 5%.

Scott Pelley: It seems like you’re not expecting a recovery, you’re expecting a boom.

Jerome Powell: Well, I would say that this growth that we’re expecting in the second half of this year is going to be very strong.

Morning News: April 12, 2021
Posted by Eddy Elfenbein on April 12th, 2021 at 7:05 am

A Tale of Two Tapers: This Time is Different for a Fed Focused on Jobs

Big U.S. Treasury Auctions Could Restart Rise in Yields

Simple Math Is About to Cause a U.S. Inflation Problem

With Quick Fixes, Biden’s Agencies Reverse Trump’s Wall Street-Friendly Rules

2 Korean Battery Makers Settle Dispute That Threatened Biden’s Green Agenda

Alibaba Will Lower Merchant Fees After Antitrust Fine

Ant to Be Financial Holding Firm in Overhaul Forced by China

Ameriprise to Buy BMO Unit, Adding $124 Billion Under Management

Microsoft Makes Big Bet on Health-Care AI Technology With Nuance

How A Winter Storm in Texas Sent a Chill through America’s RV Industry

Inside the Fight for the Future of The Wall Street Journal

Why We’re Freaking Out About Substack

Ben Carlson: What Happens After the Stock Market is Up Big? & Winnie the Pooh Translates Financial Jargon

Michael Batnick: Rise of the Machines

Jeff Carter: Still Trying To See Why You Need Crypto?

Howard Lindzon: The Fresh Tiny Bubble in Crypto

Joshua Brown: Costs, Why Direct Indexing is the New Killer App for Advisors & Getting Your Money Back from NBA TopShot with Me and Jason Concepcion

Be sure to follow me on Twitter.