Tech Didn't Get Wrecked!!

1. Genevieve’s Corner

TECH DIDN’T GET WRECKED

S&P is up +0.27% this week!

Best part? Tech didn’t get wrecked! 🚀

LET'S RECAP:

- S&P down -4.2% in April, the worst month since September 2023

- FED does NOT cut interest rates. Not cutting "until we have greater confidence inflation is going back to 2%"

- U.S nonfarm payrolls miss expectations (175k vs 240k), and unemployment climbs to 3.9%

- Odds of a September 2024 rate cut jump to 53% after the weaker-than-expected jobs report

- US manufacturing activity fell into contraction territory again in April

- US consumer confidence drops to lowest level in 2 years

- Elon Musk says the dollar "will be worth nothing" if the US doesn't do something about its national debt

- Home prices in the US have hit a new all-time high

- GameStop soars +39% this week (biggest rally since 2021)

- Peloton hits new low (down -61% in 1 year), misses earnings, CEO steps down and cuts 15% of jobs

- TD Bank down 7% as U.S justice department investigates money laundering allegations (3 probes ongoing at TD now)

- Google lays off 200 “CORE” employees and moves some roles to cheaper countries like India and Mexico

- Starbucks stock is down -17% this week after a bad quarter and a weak outlook

- JPMorgan Unveils IndexGPT in Next Wall Street Bid to Tap AI Boom

- DEA moving to reclassify marijuana as a less dangerous drug (HMMJ up +7.5% this week)

- 43% of small businesses were unable to pay their rent in full in April due to economic headwinds (highest rent delinquency rate since March 2021)

- Tesla short sellers lose nearly $5.5 billion over four days

- Jack Dorsey (CEO of Block) says it will buy Bitcoin every month with 10% of its gross profit (they have spent $200M buying Bitcoin worth $575MM now, up +160%)

- Bitcoin has the worst month since November 2022, down 16% (largest decline since FTX)

- Bitcoin back over $62k after falling below $57k on Wednesday

- Apple Beats Earnings ✅: EPS $1.53 vs $1.50, announces largest stock buyback in history (+$110B) and boosts dividend

- Google Beats Earnings ✅: EPS $1.89 vs $1.53; declares first-ever dividend of $0.20/share and announces +$70B buyback

- Amazon Beats Earnings ✅: EPS $1.17 vs $0.82; generates significant free cash flow & operating margin hit record high

- Microsoft Beats Earnings ✅: EPS $2.94 vs $2.83; cloud revenue soars +23% YoY and is now doing +$100B/year in revenue

- Coinbase Beats Earnings ✅: EPS $4.40 vs $1.07; earnings surge on ETF frenzy!

Stay tuned for shifts next week!

Cheers,

Genevieve Roch-Decter

2. Matt Allen’s Corner

WHY INVESTORS UNDERPERFORM

Hi Everyone! In my corner this week, I will review Why Investors Underperform The Stock Market, specifically the S&P 500. The phrase 'beating the market' denotes the accomplishment of earning an investment return that exceeds the performance of the Standard & Poor's 500 Index, also known as the S&P 500 Index. 

This index, which embodies approximately 80% of the U.S. market capitalization, is the foremost standard for large-cap U.S. stocks. 

It consists of 500 leading companies that are traded on U.S. stock exchanges.

Investor Psychology and Emotions 

Investor psychology and emotions play a crucial role in financial decision-making, often hindering the ability to outperform the stock market.

Emotions like fear and greed exert a powerful influence, leading to irrational and impulsive investment decisions. For example, during market highs, investors often get caught up in the euphoria and buy stocks at inflated prices, driven by a fear of missing out (FOMO). Conversely, during market downturns, panic and fear can prompt investors to sell their holdings at a loss, succumbing to the pressure of short-term market fluctuations.

This emotional response typically results in a 'buy high, sell low' pattern, which is the opposite of a successful investment strategy. It's a clear manifestation of herd mentality, where investors follow the crowd without considering their individual investment goals or the fundamental value of their investments.

The Prospect Theory, introduced by Amos Tversky and Daniel Kahneman in 1979, further explains how investor psychology undermines performance. The fear of losses tends to outweigh the joy of equivalent gains. This loss aversion leads investors to irrationally hold on to losing stocks in the hope of breaking even rather than cutting losses and reallocating funds to more promising investments.

Another psychological trap is overconfidence, where investors overestimate their knowledge or ability to predict market movements. This can result in excessive trading, underestimating risks, and poor investment performance.

Furthermore, confirmation bias can lead investors to seek information that supports their preconceived notions while ignoring contradictory data. This bias can result in missed opportunities or failure to recognize when a change in strategy is warranted.

Investment Fees and Taxes 

Investment fees and taxes are significant factors that can erode investors' returns, often contributing to underperformance against the stock market. While these costs might seem small, they can accumulate over time and substantially impact the net gains from investments.

• Investment Fees: Consider a scenario where you put $10,000 in a fund with an annual return of 8%. If the fund charges a 1% annual fee over 20 years, this fee alone can consume nearly $7,000 of potential earnings. In contrast, a fund with a lower fee of 0.25% would only eat into about $2,000 over the same period. The higher fee reduces the effective annual growth rate and, compounded over time, leads to a significant drag on total returns.

• Taxes: The impact of taxes on investments can be substantial, particularly for short-term trades. Short-term capital gains (on assets held for less than a year) are taxed more than long-term gains. For instance, an investor in the 24% tax bracket paying short-term capital gains taxes could lose a considerable portion of their gains to taxes. If they make $1,000 on a short-term investment, they could owe $240 in taxes, reducing their net gain significantly.

• Tax-Efficient Investing: Inefficient tax strategies can further hamper performance. For example, frequent trading can lead to higher short-term capital gains taxes. In contrast, adopting a buy-and-hold strategy reduces transaction costs and allows investments to qualify for lower long-term capital gains tax rates.

• Dividend Taxes: For dividend-paying stocks, investors must account for dividend taxes. If a stock pays a 2% dividend yield and the investor's dividend tax rate is 15%, the effective yield post-tax drops to 1.7%, affecting the overall return on investment.

In conclusion, investment fees and taxes can quietly and persistently diminish an investor’s returns. Being aware of these costs and adopting strategies to minimize them – such as choosing low-fee funds and employing tax-efficient investing practices – are crucial steps in aligning one's investment performance more closely with market returns.

Difficulty Choosing Stocks 

The challenge of consistently selecting great stocks significantly contributes to why many investors underperform the stock market. The stock market is inherently complex and unpredictable, making it difficult for individual investors to pick winners consistently.

• Market Volatility and Timing: The stock market is subject to frequent fluctuations. For instance, an investor might buy a stock based on its historical solid performance only to find its value plummet due to unforeseen market conditions or poor corporate performance. Timing the market accurately is nearly impossible; mistimed investments can lead to substantial losses.

To read the complete article, click here and check out our other articles 📚 in the VIP Member Hub! 🚀

Cheers,

Matt Allen

3. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: Palantir

Tuesday: Walt Disney, Duke Energy

Wednesday: Toyota, Uber, Airbnb, Arm, Shopify

Thursday: Brookfield

Friday: Enbridge

📈 Major Economic Events:

Monday: N/A

Tuesday: Consumer credit

Wednesday: Wholesale inventories

Thursday: Initial Jobless Claims

Friday: Consumer sentiment

The author(s) of this newsletter may own positions in the stocks mentioned in this newsletter. There is no guarantee that they will maintain such a position in the future.