What to know today

  • The employment situation is stable.
  • Apple sees value in Apple.  
  • Peloton’s ride gets treacherous.
markets

Don’t Sweat This Particular Data

The trend is your friend.

As we gear up for April jobs data, let’s make a promise to each other not to overreact.

Rather, let’s keep our heads. Let’s remember that overreactions create opportunities to profit from inefficiencies. Let’s not be the ones creating those inefficiencies.

If you have a plan, no single day’s worth of data – not the Consumer Price Index or the PCE Price Index, neither initial claims for unemployment nor even monthly jobs numbers – is ever enough to cause you to change it.

The trend is the thing. The trend is your friend. The trend is probably not changing today.

Plenty of people will attempt to interpolate the Bureau of Labor Statistics’ employment situation report through the eyes of Federal Reserve Chair Jerome Powell.

That’s likely to show up in pre-market price action as well as throughout the day as investors, traders, and speculators get ready for the weekend.

Here are the basic facts.

The BLS will release its April jobs report at 8:30 a.m. ET. A FactSet-compiled consensus expects nonfarm payroll employment to rise by 233,000. The total for March was 303,000.

The consensus expects the unemployment rate to be steady at 3.8 percent.

And hourly earnings rose 0.3 percent month over month, matching the 0.3 percent gain from February to March. A forecast annual rise of 4.0 percent would mark a slight deceleration from 4.1 percent during March.

Further deceleration on the wage-growth front would signal some easing of inflationary pressures. And that’s another thing, still: inflation. The question is whether it’s ebbing or flowing.

But we should also be sure we’re looking in the right places for the major pressures.

Shelter, the largest component of the Consumer Price Index at 40 percent, has a lagged effect on the widely watched inflation gauge.

Barry Ritholtz, the co-founder of Ritholtz Wealth Management and the proprietor of the OG blog The Big Picture, is here with “persuasive evidence” that higher interest rates are no longer necessary to bring down inflation.

“Our starting point,” Ritholtz says, “is the shelter component of the Consumer Price Index. At about 40 percent, shelter is the largest portion of the CPI.”

Removing shelter from the equation – and Ritholtz makes a solid case for doing so in this context – and the CPI is at 2.3 percent.

“I said this a few years ago, but it bears repeating here,” Ritholtz concludes, “if the Fed wants lower inflation, they should be lowering rates now.” He said on Wednesday that if he were in charge of the Federal Open Market Committee he’d announce a 50 basis point cut.

Ritholtz, like Powell, is a lawyer by training. Several weeks ago we highlighted that distinction, noting that this Fed Chair was not an economist and that his emphasis on incoming data is a product of his lawyer’s need for evidence.

And I’m sure he’s well aware of Ritholz’s line of argument.

What Powell is for above all is a stable message where investors, traders, and speculators are perpetually poised on knives’ edges.

As Mish Schneider said in her Weekly Market Outlook, this was already a choppy market before the wild intraday reaction to Powell’s post-FOMC presser.

A choppy market is a stock-picker’s market.

(Mish also highlighted one of her own picks in this environment, Moderna $MRNA, which surged more than 12 percent on Thursday and is now up nearly 14 percent since Mish made that call on Tuesday…)

It’s probably wise to prepare for more chop this morning.

deep dive

Peloton Seeks a New CEO

It looks like an uncomfortable saddle.

Peloton Interactive $PTON was a star of the “work-from-home revolution” subplot of the COVID-19 pandemic.

Now it’s heading for a second reboot.

PTON gapped down at the opening bell and traded as low as $2.70 versus Wednesday’s close of $3.22 after the company announced a restructuring that includes the departure of CEO Barry McCarthy as well as layoffs affecting about 400 people, or 15 percent of the staff.

Management also said it will continue to reduce its retail footprint, as it seeks to cut annual expenses by more than $200 million.

McCarthy, whose previous stops include Netflix $NFLX and Spotify $SPOT, replaced PTON founder John Foley in February 2022 following the initial post-pandemic bust with a mandate to establish firmer financial footing.

He was never able to efficiently and effectively establish a place in the market for the exercise equipment maker, tacking toward its luxury roots with one maneuver then seeking a wider audience with another.

McCarthy’s noteworthy initiatives include distributing through Amazon.com $AMZN and Dick’s Sporting Goods $DKS and emphasizing subscriptions to PTON’s service rather than equipment manufacturing.

“For all the activity,” Bloomberg’s Andrea Felsted notes, “Peloton has continued to post net losses.”

Karen Boone, the chair of PTON’s board, and director Chris Bruzzo will replace McCarthy on an interim basis as co-CEOs.

Peloton Interactive $PTON was down nearly 8 percent on May 2, 2024, after it announced layoffs and the departure of its CEO.

Management said free cash flow was positive for PTON’s fiscal third quarter, which is important because it faces separate $1 billion and $700 million loan maturities in the very near future.

Revenue for the three months ended March 31 was $717.7 million versus a consensus estimate of $719.2 million. Subscribers numbered 3.06 million, flat year over year but below estimates.

PTON forecast annual sales of $2.68 billion to $2.70 billion, lower than analysts expected. Its subscriber count will be between 2.96 million and 2.98 million.

That’s down from a prior forecast of 3.01 million and reflecting management’s “updated outlook for hardware sales based on current demand trends and expectations for seasonally lower demand.

PTON reached an all-time closing high of $167.42 on January 13, 2021. It last traded at $3.10.

The next CEO has a steep climb ahead.

deep dive |
May 3, 2024

Peloton Seeks a New CEO

THE MAGNIFICENT SEVEN

Apple Announces $110 Billion Buyback

Management thinks its shares are cheap.

Apple $AAPL surged more than 7 percent in after-hours trading on Thursday following the release of fiscal second-quarter earnings.

Revenue was down 4.3 percent, Charlie Bilello of Creative Planning noting that it’s the fifth negative year-over-year growth rate in the past six quarters. That’s all about slowing iPhone sales and stiffening competition from China-based competitors. 

But the $90.75 billion top-line figure beat the consensus forecast. And net income was down 2.2 percent to $23.6 billion but also exceeded expectations. 

Management also authorized a $110 billion share-buyback, the biggest such plan in the history of public financial markets, and announced a 4 percent dividend increase.

AAPL also said it’s likely to report revenue growth again for its fiscal third quarter.

The stock was up more than 2 percent on Thursday ahead of its post-close announcement.

Apple $AAPL has reported negative revenue growth for five of the past six quarters but said it will show positive growth in the current quarter.

The company is not without troubles.

iPhone unit shipments were down nearly 10 percent year over year, even as the smartphone market grew by 8 percent. And iPhone sales were down 10.5 percent to $46 billion.

And its position in China remains under serious threat; AAPL’s revenue in its third-largest market declined by approximately 8 percent to $16.4 billion. Analysts forecast $15 billion. Fiscal first-quarter revenue from China was down 13 percent to $20.8 billion.

AAPL is also facing investigations by antitrust authorities in the US and Europe, and investors, traders, and speculators want to see some new hardware, and soon.

They’re already looking forward to the Apple Worldwide Developers Conference in June, where CEO Tim Cook is also expected to reveal AAPL’s AI plan.

This buyback, in the meantime, is an authoritative announcement that management sees a lot of value in AAPL shares.

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