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- TOST | January 19th, 2024
TOST | January 19th, 2024
TOGETHER WITH
Today’s report is brought to you by TÖST. Enjoy an alcohol free, dry, sparkling refresher perfect for every occasion.
[ good morning ]
Here’s everything you need to know today
We dropped a little risk from the equation today as Congress finally reached a deal to fund the government at least until March. Treasury yields have retreated a little, giving equities some breathing room.
So, bulls have just enough leverage to take control of the price action at least in early trading. The barn-burner earnings reported by TSMC yesterday are starting to reverberate across big tech, allowing the NASDAQ and S&P 500 to effectively zero out their losses from earlier in the week. The DJI is pushing hard to catch up too—but may still end up more down-than-flat for the week.
That’s life in volatility season, folks. We’re seeing equal parts bull signals and bear warnings as earnings season continues to take shape. While we look forward to next week’s GDP data, we’re not going to get any truly valuable information until the end of the month when the real meat of earnings season kicks in and Jerome Powell will outline a more concrete plan for rate cuts (if those are even on the table).
So, let’s pull back and check out the stories with a longer-term impact so we stay above the noise here. With a new layoff wave materializing and big infrastructure bets playing out globally—there’s a lot to watch as 2024 really begins to take shape.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ consumer tech]
iRobot Craters as EU Plans to Block Amazon Acquisition
Antitrust pressure is actually becoming effective in 2024
BREAKING NEWS
iRobot shares fell over 30% after credible reports came to light suggesting that the EU was about to block Amazon’s planned acquisition of the vacuum company. Let’s unpack the damage:
WHAT HAPPENED
iRobot stock has already been suffering thanks to public comments from the European Union’s antitrust group back in November. The European Commission announced that the acquisition raised ‘competition concerns’ that would need to be addressed. Now, according to a report from the Wall Street Journal, the EU Commission met with Amazon and iRobot officials yesterday to try and hammer out some of those concerns. Instead of smoothing over those issues, it appears that the meeting may have killed the deal.
ANTITRUST PRESSURE
Amazon has slowed their acquisition spree over the last few years, and this iRobot buyout was significant given how much the Roomba-maker completely owns their niche. The EU blocking this deal would effectively kill it—but the EU doesn’t have to deliver a full ruling here until February 14th.
WHY IT MATTERS
After a U.S. judge ruled in favor of the DoJ—blocking the JetBlue & Spirit Airlines merger—this move by the EU signals a potential paradigm shift in the antitrust space. With a big antitrust trial set for Apple later in the year and Google losing their Epic Games lawsuit, investors are now paying a lot more attention to anticompetitive lawsuits. In the end, while blocking this iRobot deal hurts in the short term, applying antitrust pressure to the market tends to create shareholder value over time. For now, iRobot shares fell over 35% in early trading, adding to yesterday’s 14% decline.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | -0.61% | 1.82% | 44.85% |
| Consumer Disc. | -0.87% | -4.09% | 26.47% |
| Consumer Stap. | -0.07% | 1.62% | -0.28% |
| Energy | -0.83% | -6.53% | -9.17% |
| Financials | -0.19% | -0.37% | 7.33% |
| Health Care | -0.20% | 3.55% | 5.17% |
| Industrials | -0.68% | -0.66% | 12.77% |
| Materials | -0.73% | -3.65% | 1.22% |
| Real Estate | -1.83% | -3.55% | -1.19% |
| Technology | -0.49% | 1.72% | 52.41% |
| Utilities | -1.45% | -3.86% | -12.13% |
*Market data based on standard trading hours and calculated close to close
[ labor ]
Retail Hit by Layoff Wave as Macy’s and Wayfair Cut Jobs
It’s the year of efficiency all over again
BREAKING NEWS
2024’s layoff wave finally hit retail as Wayfair and Macy’s have both opted to make significant cuts to their respective workforces. Let’s break it down.
WHAT HAPPENED
Macy’s was first to the layoff push—announcing that they’ll cut 3.5% of their workforce—around 2,300 workers. Macy’s intends to add a lot more automation to their supply chains and flatten their management structure. At the same time, Macy’s will close a handful of underperforming stores nationwide.
Meanwhile: Wayfair will make steeper cuts by laying off 13% of their workforce. Wayfair is focusing on simplifying their corporate structure and becoming as efficient as possible. This is Wayfair’s 3rd round of layoffs since mid-2022.
DEMAND SHOCK
For both retailers, these layoffs are still more of a reaction to overhiring during the boom period in 2021 and early 2022. Consumer spending stayed strong enough in Q4—though Macy’s and Wayfair both have not released earnings results yet. Given some compressing budgets, both companies talked about relying on discounts during Q4’s holiday shopping season. Cutting staff is one way to help recover margins after heavy discounting potentially crushes profitability.
WHY IT MATTERS
With automation and more efficient workflows, we’re seeing a lot of pressure being put on labor as companies fight to be as profitable as possible in 2024. While consumer spending stayed relatively strong, credit card debt is creeping up in a way that could weigh on retail budgets in the future. Layoffs like these are the best safety valve retailers have as they enter a potentially challenging 2024. What’s wild is the completely opposite reactions here. Macy’s actually declined ~4% at open while Wayfair surged near 10%.
[ aerospace ]
Spirit Airlines Reverses on Revenue Outlook
This is the third double-digit swing in three days
BREAKING NEWS
The wild ride of Spirit Airlines stock continued this morning after preliminary revenue results sent the stock rocketing upwards. Let’s make sense of all these moves:
WHAT HAPPENED
Spirit fell over 50% earlier in the week when a U.S. Judge agreed to block their merger with JetBlue. Then, Spirit added to that decline yesterday when new reports about their potential move toward bankruptcy leaked.
However, then the company released preliminary earnings projections that completely reversed that decline. Spirit now projects revenue of $1.3 billion—the top of their previous estimate. They also cut their losses to an estimated negative 13% margin. That’s a huge improvement over the near-20% shortfall the market was preparing for.
RIGHT MOVES AT THE RIGHT TIME
With budgets compressing, Spirit saw a huge uptick in bookings to end the year as more folks utilized their budget service. Meanwhile, fuel costs got crushed—which took a huge load of margin pressure off the airline. While Spirit definitely isn’t out of the woods yet—those mild improvements give the company a fighting chance of surviving on their own.
WHY IT MATTERS
Spirit honestly has a small chance of turning into a key airline for the moment as reduced consumer spending will push more travelers to use their service. While Spirit would have thrived as a part of JetBlue, maybe blocking this merger wasn’t so bad after all. Spirit has a long way to go before they make it to being profitable—but at least the stock isn’t on life support anymore. Spirit stock jumped over 15% in early trading—but the company is still down over 50% on the week. Where’s the wild ride headed next?
Extra Moby Snacks
Amazon is expanding their cloud empire with a massive $15 billion investment in Japan. The money will go towards expanding cloud computing infrastructure and AI development in the country.
Nvidia stock surged again this morning after new reports came to light suggesting that Meta is expected to add 350,000 more Nvidia H100 chips by the end of the year. The AI arms race just gets bigger and bigger.
TOGETHER WITH
Today’s report is brought to you by TÖST. Enjoy an alcohol free, dry, sparkling refresher perfect for every occasion.