📈 Now You Can Trade Like Nancy

Happy Sunday to everyone on The Street.

Before we dive in today, I want to remind everyone that Tuesday is Valentine's Day. Be sure to grab something special for your significant other. It's never a bad idea to scoop something up for mom and grandma either. Those little gestures go a long way. To help ring in the holiday, today's top story revolves around modern love, or something close to it. You'll have to let us know what you think. Now, before we get started, I want to highlight a few headlines that caught my eye this past week.

Let's begin with Joe Pinsker's post in the Wall Street Journal on Monday highlighting how "Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January." This is according to Goldman Sachs, which is projecting that by the end of the year, "they will have exhausted roughly 65% of that money." Just for context, Moody's found that households accumulated $2.7 trillion in extra savings by the end of 2021.

At the same time, consumer credit card debt continued its growth streak in December. According to the Fed’s G.19 consumer credit report released Feb. 7. December card balances jumped 7.3 percent year-over-year. This follows November’s 15.6 percent spike and October’s 12.7 percent increase.

Combined, these statistics paint a picture of an anxious America. Maybe people aren't panicking in public, but I'd be willing to bet households are feeling the heat behind closed doors.

Here's the interesting thing. Maybe this is why January's job report was so strong. If savings are running low and people are stretching their credit, well then there's really only one logical thing to do: get back to work. For months and even years, many businesses have been struggling to find people. This is why the service at your local diner was brutal and the owner was forced to close it one day a week.

Last month, however, the biggest growth was seen in services, specifically in the leisure and hospitality sectors as restaurants and bars added back employees. It's just a thought.

Anyway, that's what I have for you to chew on this week. I also wanted to discuss how stocks with "AI" in their names have gone parabolic to start the year, but I've gone too long already. For now, just look at the YTD returns for C3.Ai (+105%) and SoundHound AI (+124%).

There's definitely a crypto-craze element to this, however, some of the AI products on the market are more tangible and understandable than "smart contracts" and "the blockchain". We have a story on how to think about getting exposure to AI below.

As always, tell me what I'm missing and what you find interesting. I'll see you back here next week.

• Brooks

Review

After a mixed session on Friday, all three major indexes ended the week lower. In fact, the S&P 500 registered its worst week of the year.

Investors are attempting to square the Federal Reserve’s 0.25-point increase with a surprisingly robust January jobs report. While strong employment numbers are generally viewed as a positive development, sometimes these figures can negatively impact equities. This is because a tight labor market might encourage the central bank to keep rates higher for longer to help keep inflation in check.

Wall Street was also digesting another series of corporate earnings and news that Russia plans to cut its oil production in response to Western sanctions.

Oil prices rose following the announcement, as the country signaled it would cut its output by 5%, or 500,000 barrels per day. Russia stated the production cut was a direct response to Western sanctions and price caps implemented over the last few months, aimed at limiting the nation’s primary export.

On the earnings front, Lyft shares dropped more than 35% after providing lackluster guidance for the upcoming quarter. The popular ridesharing company beat analyst expectations on revenue for the previous quarter, but pointed to seasonality and lower prices as major headwinds to future revenue.

Meanwhile, Yelp shares caught a boost after topping analyst expectations and reporting record-level core income and revenue for 2022. The crowdsourced review platform accredited its positive numbers to the strength of its broad-based local advertising and projects similar growth throughout 2023.

On the economic front, the Michigan Consumer Sentiment index showed the highest level of consumer confidence in thirteen months. After three consecutive monthly increases, sentiment is now 6% higher than a year ago, but still 14% below the same month in 2021.

In total, the Dow Jones Industrial Average ended the week 0.17% lower, while the S&P 500 lost 1.11%. The Nasdaq Composite declined 2.41%.

Preview

Tomorrow, the New York Fed 1-year and 5-year inflation expectations reports are due for January. The December reading showed that median one-year inflation expectations dropped to 5.0 percent. This was the lowest reading since July 2021 so economists will be watching to see if this trend continues.

Tuesday, investors will learn whether the Fed is achieving its goal of hitting an economic “soft landing” with the release of the Consumer Price Index (CPI) and core inflation rate. In December, the average rate of inflation slowed for the 6th-straight month but still came in at a relatively-high 6.5%.

On Wednesday, investors will get an update on the average 30-year mortgage rate, industrial production, and monthly retail sales. In particular, retail sales declined 1.1% month-over-month in December which continued the downward trend from November.

Thursday will offer investors insight on the real estate industry with reports for housing starts and building permits. In December, building permits fell 1% from November to hit 1.34 million. Additionally, investors can expect two speeches from members of the Federal Reserve.

On Friday, investors will get monthly reports for imports and exports. In December, exports dropped 2.6% from November while imports rose 0.4% during the same period.

Earnings Spotlight

Roomba-maker iRobot (IRBT) will get things rolling by shining a light on its holiday season. With an acquisition by Amazon (AMZN) pending, iRobot will likely also offer insight into how it plans to integrate its portfolio of products with its new parent company.

Airbnb (ABNB) is up on Tuesday. The home and apartment rental booking platform is coming off a strong Q3 2022 – it posted a record profit of $1.2 billion. Coca-Cola (KO) and the car rental company Avis (CAR) will also hand in report cards.

On Wednesday, investors will hear from Tripadvisor (TRIP) and Zillow (Z). Additionally, Kraft Heinz (KHC) will report. As a massive, diversified conglomerate, it will be telling to see the effect inflation is having on Kraft Heinz’s portfolio of food and beverage products.

On Thursday, WeWork (WE) reports. After years of turmoil, preliminary numbers show that WeWork may surpass its fourth-quarter guidance. Elsewhere, DoorDash (DASH) will offer an update on the food delivery industry.

On Friday, Marcus & Millichap (MMI) will round off the week. The global brokerage firm will be able to provide a comprehensive look at both commercial and residential real estate markets.

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The Undisputed King of Dating Apps

Swiping Right Isn’t Going Away Anytime Soon

Whoever said, “don’t judge a book by its cover” hasn’t been on Match.com’s (MTCH) Tinder app lately. Despite talks of its demise as competitors roll out dating services that match people based on personality, hobbies, or beliefs, Tinder is still the undisputed leader. Unless there are unforeseen changes in the space, that should remain the case, even if its parent’s stock ended 2022 down 69%.

Sure, growth is expected to slow down in 2023 but Tinder still has over 11 million paid users across the globe. Bumble (BMBL), which is currently sitting in second place, ended 2022 with slightly under two million paid users.

One potential reason? Pew Research surveyed close to 5,000 US adults in 2019 and found both men and women value looks above everything else when perusing a dating app. What’s on the surface does seem to matter, even if you’re not supposed to admit that nowadays. Whether you like it or not, Tinder caters to people who prefer appearances above other items on the list.

Looks Matter A Lot

Digging deeper into the data illuminates a few important preferences. First, in regards to females, roughly three-quarters said profile photos were extremely important. Secondly, just about half of all respondents said they don’t care much about whether potential suitors had children or similar interests. Finally, less than 20% of men cared about their potential partner’s job, religion, political affiliation, or race.

Now, it's worth noting that Match isn’t the only dating app getting punished by investors. Bumble’s stock ended 2022 down 40%, despite posting revenue growth of 28% year-over-year. Meanwhile, Grindr (GRND), the LGBT+ dating app saw its shares sink 85% since November when it went public through a SPAC deal.

More Room to Grow?

With 11 million paid users it might be hard to see where future growth can be found, but Match thinks the app has plenty of upside.

Last year, in the ten largest US markets Match said about 15% of eligible singles between the ages of 18 and 24 are monthly Tinder users. That means there’s still an opportunity to capture more market share. Tinder isn’t resting on its looks-first laurels either.

The company rolled out more features in recent months which enable daters to find matches based on similarities. That could draw even more singles to the platform.

Zooming out, when it comes to dating, people are largely still shallow and tend to begin their search based on looks. It's the reason why the swipe right will always be displayed prominently on Tinder and why the app remains so popular. Although investors may need more time to see if it’s a Match, for now, Tinder is still the undisputed leader in the modern love ecosystem.

Big Tech Bets on AI

Microsoft's ChatGPT Ushers in New AI Race

Technology companies are on the hunt for the next big growth driver. Many of them think they’ve found it in AI. Ever since Microsoft (MSFT) launched its ChatGPT conversational chatbot late last year, the tech world has been abuzz. The app, which is developed by OpenAI, had 1 million users in its first week on the market. Microsoft has poured billions of dollars into the chatbot and just this week announced a new version of its search engine Bing, which will be powered by the same AI technology that underpins ChatGPT.

These developments haven’t been lost on Alphabet’s (GOOGL) Google. Last year the search giant warned that moving too fast with AI could hurt its reputation. However, in an about-face, the company is now planning to launch its LaMDA language model and new AI features sooner rather than later. CEO Sundar Pichai told employees Monday the company is going to need all hands on deck to test Bard, its new ChatGPT rival. Investors and analysts alike tend to think that if Microsoft is successful it could come after Google’s dominance in search.

It's not just Google and Microsoft that are going all in on AI. Amazon (AMZN), META (FB), and Apple (AAPL) are gearing up to make their mark in this area of tech as well.

Good Not Great

The newfound interest in AI shouldn’t come as too much of a surprise. More than a decade of growth came to a screeching halt last year thanks to soaring inflation, rising interest rates, and the potential for a recession.

Megacap growth stocks, many of them technology names, were battered in 2022. ChatGPT’s launch and subsequent success has given many of these companies a reason to speed up their AI efforts, something they previously thought would be a longer-term growth driver.

“Those companies, which we believe includes Microsoft, with the best, brightest, and most creative minds plus access to the broadest range of curated data are likely to gain the biggest advantage from AI,” wrote Bernstein’s Mark Moerdler in a recent research note. “The rest of the world will deliver good but not great solutions.”

It's Not Just Microsoft

While Microsoft is getting most of the love at the current moment, Wall Street analysts see other big tech companies benefiting from the adoption of AI.

Take Amazon’s AWS unit, for example. Timothy Horan, an analyst at Oppenheimer thinks that the business will benefit from integrating AI and machine learning into its cloud offering, improvising data collection and management procedures.

Meanwhile, AI is already helping Meta Platforms serve up more relevant content (aka ads) to its Facebook and Instagram users. It might just be the tool the company needs to help it fight back against Apple’s “privacy” crusade. Speaking of Apple, the company is also using AI to detect crashes and falls on its Apple Watch and iPhones.

Beyond big tech, analysts point to Airbnb (ABNB), Bookings Holdings (BKNG) Uber (UBER), Qualcomm (QCOM) and Nvidia (NVDA) benefiting from AI.

In reality, the AI arms race has been one in the making for years. ChatGPT brought this battle to the public sphere. Although it feels a bit like the crypto and blockchain craze of yesteryear, there are certainly elements of it to keep on your radar.

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Now You Can Trade Like Nancy

You Can Trade Like Ted Too

Are you convinced that certain insiders have access to information that you don’t, giving them an unfair edge? Perhaps they are members of Congress, privy to insights that might impact the fortune of major publicly traded corporations.

Now, we’re not suggesting that anything intentionally nefarious is taking place, but we’re also not not suggesting that either. In September The New York Times reported that “at least 97 current members of Congress bought or sold stock, bonds or other financial assets that intersected with their congressional work.” It makes you wonder. If you’re tired of wondering, however, and want to take action instead, well now you can.

Two new ETFs launched last week, which allow Americans to invest in the same stocks as members of the US Congress. The funds, called Unusual Whales Subversive Democratic ETF (ticker NANC) and Unusual Whales Subversive Republican ETF (KRUZ), are based on financial disclosures from lawmakers and their spouses.

Rules are … Rules?

The ETFs aim to take advantage of the recent controversy surrounding stock transactions made by members of Congress and their close associates.

“We believe members of Congress have more information than the rest of us, and if they can trade on that information, we should be able to do the same,” Subversive Capital Advisor’s Christian Cooper, portfolio manager of both funds, said in a press release. “Now we can.”

The current rules state that members of Congress must disclose any stock transactions worth over $1,000 within 45 days. With that said, 78 members of Congress have violated a law designed to prevent insider trading and stop conflicts-of-interest, according to reporting from Business Insider. For example:

• Sen. Dianne Feinstein, a Democrat from California, was months late disclosing a five-figure investment her husband made into a private, youth-focused polling company.

• Meanwhile, Sen. Tommy Tuberville, a Republican from Alabama, was weeks or months late in disclosing nearly 130 separate stock trades from January to May.

The list goes on…

As for the ETFs

The ETFs will mimic the stock trades of the lawmakers and will be actively managed with an annual fee of 0.75%.

NANC consists of nearly 800 stocks while KRUZ has more than 500 securities. According to a press release, the overall holdings of Congress outperformed the S&P 500 by around 1.2% in 2021 and by 17.5% on average in 2022.

Portfolio manager, Christian Cooper of Subversive Capital Advisors, believes that members of Congress have more information and thus, if they can profit from it, others should be able to as well.

Last Week's Poll Results

Are you bullish or bearish on Choice Hotels International?

• 🟨🟨🟨🟨🟨⬜️ 🐂 Bullish

• 🟩🟩🟩🟩🟩🟩 🐻 Bearish

Which stock are you most bullish on over the next decade?

• 🟩🟩🟩🟩🟩🟩 First Solar (FSLR)

• 🟨🟨⬜️⬜️⬜️⬜️ Plug Power (PLUG)

• 🟨🟨⬜️⬜️⬜️⬜️ Baker Hughes (BKR)

Are you bullish or bearish on Lowes over the next 24 months?

• 🟩🟩🟩🟩🟩🟩 🐂 Bullish

• 🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish

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