The FOMC Does Nothing

The JPow Eclipse came and went, leaving us unchanged June 13, 2024 | Peel #730 In this issue of the Peel: - 🤯 The JPow Eclipse came and went, leaving us unchanged - 🤡 WSO Was killing it for the day. Meanwhile, Keith Gill is screwed - 🐵 Wannabe homebuyers finally have a real reason for hope Market Snapshot 📸 = Banana Bits 🍌 - JPow goes deep in yesterday’s press conference on the [FOMC’s inner monologue](=) - The wealth effect is still lifting [consumer sentiment]( - Sony just bought… a [movie theater chain?]() - Elon “Zero Rizz” Musk has no clue how to [interact with women](=) Your Finance Career, Customized: Choose Your Track Step into a finance career that's tailored just for you with WSO Academy's new tracks. Whether you're drawn to Investment Banking, captivated by Venture Capital, or intrigued by Asset Management, we have a specialized path crafted for your ambitions. Our tracks offer focused mentorship, industry-specific skills, and networking opportunities in your chosen field. Don't settle for a one-size-fits-all approach. Choose your track, embrace your niche, and prepare for a career that aligns perfectly with your goals. At WSO Academy, your unique finance journey awaits. [Click here to join the WSO Academy Waitlist. Limited slots only.]() Macro Monkey Says 🐒 Doing Something By Doing Nothing Like the eclipse in April, Wednesday’s macroeconomic releases were perfectly timed, delivering the most important data at the exact same moment. And just like the eclipse, it was super underwhelming. Inflation and interest rates met, creating such little reaction that it’s almost like the world just kept turning. Let’s get into it. The Numbers At 8:30 am yesterday, we found out that consumer inflation ticked lower in May. The Consumer Price Index (CPI) was “unchanged” for the month. Several hours later, Fed Chair Jerome Powell took to the podium to announce that interest rates have also been left unchanged. It’s funny. “Unchanged” is exactly how I felt after the real eclipse, so it’s nice that I feel the same way after the JPow Eclipse. [Source]() Annually, inflation fell to 3.3%, confirming that headline inflation is still mostly moving lower and making JPow look extra smart for holding rates steady. Core inflation, as seen in the red line, declined as well to just 3.4%. The core metric excludes food and energy prices, keeping it elevated amid a slowdown in energy inflation. Monthly, core CPI rose 0.2%, with a slight slowdown from 0.3% in April. Inflation was led by shelter inflation, once again taking the gold medal in contributions to core price increases. As a reminder, the Fed doesn’t care about CPI, but JPow might take a glance at the core reading. Shelter costs rose 0.4% for the month and 5.4% annually. Transportation services surged the most for any line item annually, rising 10.5%, but fell 0.5% compared to April. All told, the inflation story remains unchanged, like everything else we’ve discussed today. Prices are moving lower despite no action from the Fed, indicating that the “higher for longer” narrative is working on its own. Doing something by doing nothing with prevailing rate levels in the past year or so may have been JPow’s best decision ever. It’s all been narrative and expectations. [Source](=) Here, we can see exactly what JPow and the FOMC are doing… by doing nothing. The dot plot shows FOMC member expectations for prevailing rate levels at the end of each year. Looking at the AOC—I mean—far left* dots for 2024, it’s clear Fed officials agree on one thing—rates will remain higher than previously thought. Although this does as much to tangible economic conditions as my dog barking at his own poop, this “doing nothing” is simultaneously a reset of rate expectations. Essentially, the Fed is saying that rates will remain elevated, guiding for maybe 1-2 cuts this year instead of the 2-3 or even 6-7 previously expected. Meanwhile, the statement released by the Fed along with this rate decision was almost as unchanged as the eclipse left us. The only adjustment was a slight alteration in describing inflation’s path towards 2%, changing from “lack of further progress” to “modest further progress.” That has markets feeling good for a few reasons. First, it means that inflation is no longer ripping like Nvidia, nor is it as threatening as E*Trade is to Keith Gill. Second, the conviction behind the statement “modest further progress” alongside a coalescing of dots signals to the market the Fed is more confident in its understanding of the direction in which the U.S. is heading. Mr. Market loves falling uncertainty. The Takeaway? [Source]() Although little change occurred, expectations changed quite a bit. The interest rate futures market implied odds of no rate cut by the end of 2024 fell by nearly half. Markets still don’t expect a cut until September, with yesterday’s news changing little for expectations in July. Inflation is falling, the Fed is chilling, and the only thing worth worrying about in either report is core services inflation. These line items tend to be particularly sticky, but even by doing nothing, core services saw their first decline in growth in over 2-years. [Source]( My parents always told me time heals all wounds. I just didn’t realize they were giving me advice on monetary policy and macroeconomic analysis. What's Ripe 🤩 Oracle (ORCL) 📈13.3% - The AI boom has reached fundamental analysts as their intelligence is becoming artificial. Oracle missed on earnings, but shares are booming. - The tech company reported sales and earnings below estimates, with net income falling more than 5% from the prior quarter. - Analysts (for now) love the partnership with OpenAI and their daddy, Microsoft, in which Oracle will provide cloud capacity to their competitor(s). Tesla (TSLA) 📈3.9% - Tesla’s Head of Investor Relations, Cathie Wood, is hooking up Elon & Co. once again with another ready-to-ridicule price target on the EV maker. - Wood and Ark Invest expect a 1,353% 5-year return on Tesla to hit $2,600/sh by 2029, implying an $8tn market cap and a 93.6% annual return. - Adam Neumann must’ve been the lead analyst here, but crazier things have happened. Shares surged on the new optimism, so place your bets wisely. - When your eyes fall out of your head at Ark’s price target, check our Tesla [target here]( What's Rotten 🤮 GameStop (GME) 📉16.5% - Bold move to take a “bite the hand that feeds you” approach to GameStop spokesman Keith Gill. The company just diluted the sh*t out of him. - And every other investor, but at least GameStop raised an additional $2bn in cash for CEO Ryan Cohen to day trade with. - Mr. Gill, a.k.a. Roaring Kitty, has 8 days left before his 120k options contracts expire. As long as it stays over $20/sh by then, he’ll be a hero. FedEx (FDX) 📉1.5% - Shareholder-friendly but employee-deadly—that’s the story of FedEx this week. - The mail and package delivery firm hiked its dividend by 10% on Tuesday, leading shares to rise over 2.4%, but that quickly pulled back. - FedEx is cutting 2k back-office jobs in Europe as part of its multiyear right-sizing efforts, right-sizing their investor’s wallets in the meantime. Thought Banana 🤔 Demanding Houses Realtors in 2024 have had roughly the same earnings prospects as a Blockbuster video salesman. Luckily, not being homeless is still in style, and it appears that market conditions are finally moving in their favor. Yesterday, we got fresh data on interest in new mortgages for U.S. homeowners and wannabe homeowners. Let’s check it out. The Numbers [Source](=) Applications for mortgages jumped 15.6% nationwide last week, the largest jump since the week of January 13, 2023. And as we can see in the yellow line above, that’s despite basically no changes in prevailing mortgage rates. Homebuying season is upon us, and, given the demand spike despite rising home prices and flat interest rates, this is a prime example of the “doing something by doing nothing” we discussed above. Consumers, especially wannabe homebuyers, are finally accepting their fate that we’re likely gonna be waiting a while for rates to fall. Refinancing is always an option, so more and more buyers may be getting used to the idea of starting at a high rate, letting rates fall and their home prices increase, and then refinancing. Gen Z-ers will soon become experts in refinancing as almost any of us buying homes now will certainly refinance when rates fall back to Earth. [Source]( Homebuying and building stocks, like Zillow (Z, +13.1%) and Builders FirstSource (BLDR, +5.4%) (both in the WSO Alpha portfolio) and others surged on what analysts are saying could be the start of the “fine, let’s buy it now then refinance” wave. Housing has been one of our highest-conviction calls yet for long-term investors. Check out all of our thoughts in our [Zillow research report here](), and sign up for [Alpha]() to not miss our next call. The Takeaway? Waiting is no longer an option for many in the home-buying market. And it seems like consumers are okay with that. I myself am looking to buy a home, and last week, I spent most of my days undergoing the hellish ordeal of touring homes and getting our offers laughed at. We offered $10-$30k over asking on several properties without an acceptance in sight. Round 2 is coming up soon, so hopefully, we’ll have a new Daily Peel Global Headquarters soon. The Big Question: Will mortgage rates and home prices ever return to their pre-pandemic dynamic? How long will it take? Banana Brain Teaser 💡 Previous 🗓 Last year 26 members of a certain club traveled to England, 26 members traveled to France, and 32 members traveled to Italy. Last year no members of the club traveled to both England and France, 6 members traveled to both England and Italy, and 11 members traveled to both France and Italy. How many members of the club traveled to at least one of these three countries last year? Answer: 67 Today 🕐 A store reported total sales of $385 million for February of this year. If the total sales for the same month last year was $320 million, approximately what was the percent increase in sales? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “The house is the safe haven of a man's [persons*] wealth.” — Henry David Thoreau How Would You Rate Today's Peel? 😁[All the bananas]( 😐[Meh]() 😩[Rotten AF]( Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA](=) // [ACADEMY]( // [COURSES]( // [LEGAL](=) [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States