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- Lemonade | February 15th, 2024
Lemonade | February 15th, 2024
TOGETHER WITH
Today’s report is brought to you by Lemonade, An Insurance Company Built For The 21st Century.
[ good morning ]
Here’s everything you need to know today
It’s all surprises to the downside today as a bunch of economic figures have printed with much cooler results than expected. The big news is that retail spending dropped 0.8% in January—more than double the decline the market expected. Analysts are now scrambling to understand whether or not consumers in America just held tighter to their cash in the wake of a strong holiday season or if shoppers are finally truly running out of gas.
And then—in another shock: Japan’s economy slipped into a recession. Analysts have been concerned about growth in Japan for a while now—but no one had priced in a full-blown recession yet.
Wildly, this latest GDP report from Japan has also confirmed that Germany has overtaken Japan as the world’s 3rd-largest economy. While markets aren’t immediately overreacting here, cooling growth worldwide could drag on major markets and this is something to keep an eye on.
While slower growth will help cool inflation—The Street will always be worried about interest rates pumping the brakes a little too hard. Because of that—traders hit a moment of equilibrium early today with no consistent winning trend.
So, let’s look at the trends that really are powering the market. Inflation is still hammering some businesses that can’t build more efficient operations fast enough, while other businesses are getting crushed by the very interest rates that are being used to solve inflation. And then there’s the crypto market—which is achieving momentum of its own and building toward escape velocity out of nowhere. There’s a lot to unpack during trading days like today, so let’s zero-in on the bigger dynamics:
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ agriculture ]
Deere Drops on Barren Outlook
In a crippling rate environment, the tractor king is struggling to find a path
BREAKING NEWS
Jerome Powell claimed a new victim in early trading as high borrowing costs are crushing demand over at Deere & Co. The tractor empire may have beaten Q4 expectations—but it looks like agribusinesses are going to keep costs close to their chest in 2024. Growth may temporarily be drying up.
WHAT HAPPENED
Deere managed to defy The Street’s projections—with their net income only dropping to $1.75 billion and their revenue hitting $12.19 billion for Q4. With investment in agriculture drying up, this was a huge efficiency beat for a very rate-sensitive company.
While Deere’s larger equipment sales managed to outperform—their small agriculture and turf line dropped 19% YoY, signaling that this current environment is particularly brutal for smaller farmers.
ECONOMIC DUST BOWL
Deere & Co. stock had been recovering this year as analysts were betting on a beat like this. However, Deere’s guidance for 2024 paints a pretty grim picture. Their net income projections for the year hit $7.75 billion—well short of analyst’s already muted expectations of $8.03 billion.
While Deere’s prospects can point toward recovery in the second half of 2024 depending on if the Fed lowers rates at all—the short term is going to stay tight as only the strongest operations in agriculture can afford the risk of better equipment right now.
WHY IT MATTERS
Given how fierce these headwinds are, Deere management has performed admirably by squeezing as much performance out of this market as they have. Farm equipment is a massive cost businesses have to spread out across multiple years of revenue—and this rate environment has effectively crushed farmers’ ability to take on that kind of risk. Still—The Street doesn’t hand out participation trophies or moral victories, so Deere stock continued its slow slide by dropping another 3% in early trading.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 1.60% | 8.23% | 43.70% |
| Consumer Disc. | 1.06% | 2.96% | 17.36% |
| Consumer Stap. | -0.19% | -0.15% | -0.38% |
| Energy | -0.10% | 0.97% | -6.40% |
| Financials | 0.96% | 4.88% | 7.36% |
| Health Care | 0.87% | 2.80% | 8.94% |
| Industrials | 1.67% | 5.66% | 15.30% |
| Materials | 0.64% | 0.25% | 1.28% |
| Real Estate | 0.67% | -3.84% | -5.00% |
| Technology | 1.05% | 6.71% | 43.73% |
| Utilities | 0.55% | -4.32% | -10.60% |
*Market data based on standard trading hours and calculated close to close
[ crypto ]
Bitcoin Confirms $1 Trillion Market Cap
BTC is decoupling from the NASDAQ and U.S. interest rates as the cryptoverse surges on its own fundamentals
BREAKING NEWS
As ETF mania cools—Bitcoin (BTC) has gathered enough critical momentum to maintain highs we haven’t seen since the end of 2021. Bitcoin now once again has a $1 trillion market cap as traders eye all-time highs on the horizon.
WHAT HAPPENED
In short—volume improvements and an improved outlook have investors piling back into BTC, especially after the blockchain passed the critical psychological milestone of $50,000 per bitcoin. The ‘sell the news’ phase of Bitcoin’s ETF approval has passed and bulls are now winning the price action again.
This sentiment is broadening too as Ethereum has managed to pop over 11% in the last week—retesting its own critical level of $2,800. Solana has also gained 14% in the same period.
THE NEXT SHINY CATALYST
Now that crypto traders don’t have ETF news to focus on (outside of a potential Ethereum approval)—bulls are now consolidating around the impending Bitcoin ‘halving’ that could hit around Q2. Basically, the supply of BTC will slow as the blockchain reduces the rewards miners earn. This happens periodically at Bitcoin and crypto investors figure that the Econ 101 logic of lower supply = higher prices will win out here. In the past, Bitcoin halvings have produced both sharp highs and deep cuts to the value of BTC, so it is genuinely hard to say if this logic will bear out.
WHY IT MATTERS
A significant factor here is the fact that Bitcoin and the rest of crypto are on the upswing despite some heavy hits the NASDAQ took in the last few weeks. Back in earlier bull runs, crypto used to loosely move in tandem with the NASDAQ index and U.S. interest rates Basically, the market roughly rated crypto in the same risk class as speculative tech stocks. Now that Bitcoin has begun to really pull away from that relationship with the NASDAQ—the whole crypto industry is beginning to trade under a unique set of fundamentals. This is going to be a critical period for technical analysts as we try to make better momentum models for what truly moves crypto prices. For now—BTC has surged over 1% in early trading—holding above $52,000 per coin.
[ fast food ]
Wendy’s Falls as Growth Stalls
But digital sales point to an interesting trend
BREAKING NEWS
High inflation and slow wage growth have made this a tough year in the food business—and fast food kingpin Wendy’s is feeling the heat even more today as their stock fell on a disappointing outlook.
WHAT HAPPENED
Wendy’s just barely missed expectations as they generated a $0.21 earnings-per-share (EPS) profit from $540 million in revenue. This means that while revenue still grew in 2023—Wendy’s profitability is on the decline. High costs make everything more difficult in the food space.
GETTING HOTTER
More importantly, Wendy’s also expects lower revenue and profits in 2024 than The Street was hoping to see. While that’s dropping the stock in the short term—Wendy’s also explained that they’ve also opened enough stores to restore pre-COVID opening numbers. Meanwhile—digital sales are skyrocketing enough to help make each individual Wendy’s franchise more efficient.
In context, this looks like a situation where Wendy’s is taking on a little extra risk to lean into efficiencies that haven’t fully hit their balance sheet (yet). Therefore, as Wendy’s increases efficiency and cuts costs via digitalization, their earnings outlook could easily improve.
WHY IT MATTERS
With food inflation still a fairly hot line item in the Consumer Price Index (CPI)—more pressure than ever is being placed on management teams in the food space. Wendy’s may be approaching a bottom here as digital orders take hold and improve their bottom line. Definitely something to watch in the long term. For now, Wendy’s dropped near 2% in early trading, adding to the 16% drop the brand has already experienced in the last year.
Extra Moby Snacks
Cisco stock is dropping despite new cost controls. The tech giant is laying off 5% of staff and desperately restructuring to keep up with market conditions. The stock still fell more than 3% despite these new measures.
The once-king of the lithium market—Albemarle—is tumbling hard this morning thanks to higher costs, botched deals and lower prices. With EV demand in question—can lithium players make a comeback?
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Today’s report is brought to you by Lemonade, An Insurance Company Built For The 21st Century.
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