Goldman to Eliminate 420(0)

Good morning,

What’s worse than a CEO who hides 420 in his offer to buy Twitter? A CEO who hides 420 in the amount of employees he’s firing.

Goldman cut ~3,200 employees last week, with ~1,000 more reported for next week. Looks like DJ Sol would rather be known for fake 7:30 a.m. meetings-turned-firings, rather than the CEO whose confirmed kills correlated to 420.

The markets are closed Monday, but that’s not slowing down earnings season. Let’s dive in.

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Bad News Dumpster Dive

Market movers like to bury bad news, so we've decided to excavate them. 👀 = degree of sus.

👀👀👀

• Goldman Sachs may shed ~1,000 more employees (NYP)

• The UK economy unexpectedly grew, reducing the risk of recession (BBG)

• Loans to junk-rated companies have been getting downgraded at the fastest pace since the pandemic (BBG)

• Apple Card has cost Goldman Sachs over $1B in losses (PCMag)

👀👀

• Crypto.com to reduce its global workforce by 20% (Reuters)

• Scott Mather, one of the top portfolio managers at PIMCO, retired from the firm (BBG)

• Laid-off Twitter employees suing over their termination lost a ruling to pursue their claims via a class-action lawsuit; they must now pursue individual arbitration (Reuters)

• Scaramucci invested in a crypto firm set up by former FTX US Head (BBG)

• Nancy Pelosi disclosed millions in trades, selling: 30,000 Google, 1000 Netflix (loss -$66,385), 5000 PayPal (loss -$424,313), 5000 Tesla (loss -$511,197), 130 Salesforce calls (loss -$733,691) & 10000 Disney (loss -$114,138) (Capitol Trades)

👀

• China sold 5X more EVs compared to the US in 2022. Sales of new-energy vehicles almost doubled in China last year (Forbes)

• Johnson & Johnson has vastly scaled back its Covid vaccine production as it faces slumping demand (WSJ)

• Canada will decriminalize the possession of up to 2.5 grams of opioids, cocaine, methamphetamine and MDMA starting Jan. 31 for citizens aged 18+ (FNHA)

• Twitter is considering selling user names to generate new revenue (Entrepreneur)

• Union Pacific and Foster Farms said enough corn shipments were made to replenish feed stocks after delayed trains caused inventories to drop to critical levels. Millions of chickens at their facilities were at risk of going unfed because of the rail delays (BBG)

Signal to Noise

Next week’s market outlook and whether you should actually care.

Signals 

• Retail sales (89% 🐂)

• Producer price index (78% 🐂)

• NAHB home builders' index (89% 🐂)

• Jobless claims (61% 🐂)

Noise

• Fed’s Beige Book (66% 🐻)

• Goldman Sachs & Morgan Stanley earnings (55% 🐻)

• Netflix earnings (71% 🐻)

Signals 

Retail Sales (1/18)

We’re watching the currently longer-duration exposure to fixed-rate debt. It’s good news because it means higher interest rates won’t hurt companies overnight.

Remember that fun stimulus from the government in 2020 and 2021? It means the balance sheets of consumers and corporates look relatively great, for now.

How the Fed navigates the unwinding of all its debt will remain the trillion dollar question. For the public sector, markets are heavily bullish that CPI inflation will remain >0% for January.

Producer Price Index (1/18)

US import prices rose +0.4% in December 2022, their first monthly increase since June. Despite this one-month rise, the imported disinflationary trend remains strong.

Markets are currently 78% bearish that core inflation will remain >0.1% for January.

NAHB Home Builders' Index (1/18)

Home sales volume is expected to trough in the first half of 2023. Trading in US mortgage bonds plunged in 2022 as new mortgage lending volume dropped and banks cut back on buying, a trend that’s likely to continue this year if mortgage rates stay relatively high.

Markets are 89% bullish that the 30-year fixed rate mortgage will be over 6.1% by the end of the week.

Jobless Claims (1/19)

Applications for unemployment insurance fell slightly in the first week of 2023, reflecting a still-tight labor market. Claims had trended higher since touching near record lows early in 2022, but continue to hover near pre-pandemic levels.

Seasonally adjusted jobless claims numbers tend to fluctuate during holiday periods. The most recent data captured the week of the New Year’s holiday. In 2019, the year before the pandemic began, claims averaged about 220,000 a week.

The U.S. labor market remains strong but has gradually lost steam in recent months. Markets are currently bullish that jobs numbers will increase this month, from 223,000 to ~224,999.5.

Noise

Fed’s Beige Book (1/18)

Every influencer needs their personal brand these days, and Jerome Powell is no different. The Fed publishes the “Beige Book” in advance of the FOMC eight times a year. Apparently, calling it a report would’ve been too easy.

But don’t expect much surprise in this week’s publication. Markets are 66% bearish that the Fed won’t cut its target federal funds rate range in 2023.

Goldman Sachs & Morgan Stanley Earnings (1/17)

Excluding the COVID shock, the “big four” banks' loan loss reserves are the highest in ten years. Ironically, that big four doesn’t include the two big bank earnings this week: Goldman Sachs and Morgan Stanley.

Last Wednesday, Goldman cut 3,200 employees, many of whom had reportedly been emailed calendar invites for fake meetings. When they showed up, some as early as 7:30 a.m, they were laid off with their manager looking on.

It mirrors the bleak condition of most S&P 500 companies’ Q4 expectations, excluding energy. For Q4 2022, the estimated earnings decline for the S&P 500 is -3.9%. If -3.9% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year decline in earnings since Q3 2020 (-5.7%).

Markets are about as decided on the outcome of the earnings calls as analysts at either firm are confident in their job security. Not at all. Each of these major finance stocks in the S&P 500 are seeing the same skepticism as predictions on the end-of-year performance for the benchmark.

Netflix Earnings (1/19)

Netflix, which was once one of six tech stocks that made up over half of the Nasdaq 100, is expected to see a similar Q4 slump to that of the Nasdaq.

Netflix (NFLX, $330.13) will report its fourth-quarter earnings after the Jan. 19 close. NFLX stock gained more than 25% in the final three months of 2022, but analysts do not expect to see similar growth on the streaming giant's income statement. Specifically, consensus estimates are for earnings of 45 cents per share (-66.2% YoY) and revenue of $7.8 billion (+1.5% YoY).

Despite this short-term hurdle, the markets see upside moving forward for the rebounding growth stock. That being said, they’re hanging that flag a bit too heavily on “best-in-class” content, with Emily in Paris and Glass Onion used as examples.

So, you have Daniel Craig’s attempt at a southern accent and…just about everything wrong with Emily in Paris to thank if the stock continues to slip.

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