Great Retirement boom, plus Dow Jones index changes, SPR, Softbank, and private companies
Great Retirement boom, plus Dow Jones index changes, SPR, Softbank, and private companies
The Sandbox Daily (2.21.2024)
Welcome, Sandbox friends.
Today’s Daily discusses:
the “Great Retirement” wave
changes coming to Dow Jones indices
update on the SPR
Arm’s earnings pop
one simple question
Let’s dig in.
Markets in review
EQUITIES: Dow +0.13% | S&P 500 +0.13% | Nasdaq 100 -0.38% | Russell 2000 -0.47%
FIXED INCOME: Barclays Agg Bond -0.30% | High Yield -0.18% | 2yr UST 4.668% | 10yr UST 4.323%
COMMODITIES: Brent Crude +0.87% to $83.06/barrel. Gold -0.25% to $2,034.8/oz.
BITCOIN: -1.56% to $51,356
US DOLLAR INDEX: -0.08% to 103.996
CBOE EQUITY PUT/CALL RATIO: 0.55
VIX: -0.52% to 15.34
Quote of the day
“The stock market always does exactly what it is supposed to do, but never when.”
- Richard Russell, Dow Theory Letters
The “Great Retirement” wave
Economists have long expected the share of retirees in the population to soar as Baby Boomers aged. Covid-19 then caused the number to spike well beyond expectations, a surge dubbed the “Great Retirement” boom.
The United States now has roughly 2.7 million more retirees than predicted in a model designed by Miguel Faria-e-Castro, an economist at the Federal Reserve Bank of St. Louis.
Investment portfolio values are up, home prices have risen post-pandemic, and a wave of companies enforcing return-to-office mandates have all contributed towards this phenomena.
Source: Federal Reserve Bank of St. Louis, Chartr, Bloomberg
Changes coming to Dow Jones indices
S&P Dow Jones Indices announced changes are coming next week to the roster of its two foundational indexes.
First up. Amazon (AMZN) is set to join the Dow Jones Industrial Average, replacing Walgreens Boots Alliance (WBA), in a move that surprised exactly no one.
The “Dow,” which debuted in 1896, is a price-weighted stock index comprised of 30 publicly-traded companies that are each considered category leaders. The index seeks to be the broadest representation of the United States economy, and as such, is often cited and tracked as a benchmark for performance measurement. So, adding Amazon is a no brainer.
As for removing Walgreens, added just 6 years ago, the move seems more or less straightforward. The nation’s 2nd largest pharmacy slashed its dividend last month by almost half, the stock has since been removed from the S&P 500 Dividend Aristocrats list, industry analysts have assigned the stock a consensus Hold recommendation for more than five years (lowest rated in the Dow), has long been a market laggard in respect to performance, and the final nail in the coffin was its ever-shrinking share price.
The timing of the index swap, though, may be less than ideal. Over the last year, Amazon is up +78% while Walgreens is down 39%. Investors who passively invest by ETFs or major announcements will be effectively selling low and buying high. Many have been quick to quip about the 2020 Dow roster changes when the Dow booted Exxon Mobil and added Salesforce.com after a nearly identical price performance setup.
Lost in the shuffle of the announcement is a change coming to the Dow Jones Transportation Average, where JetBlue Airways (JBLU) will be removed in favor of Uber Technologies (UBER). This change gives the Transports index exposure to the ride sharing industry.
Over the past few years, CEO Dara Khosrowshahi has quietly built a massive user base, developed its payments and logistics infrastructure, turned the company cash flow positive, squashed his main competitor in Lyft, grown the Uber eats business, and recently accepted an invitation to the S&P 500 index. Since the beginning of the pandemic alone, Uber has added $88 billion in market cap, just over a double. The transformative company has become an everyday verb in your lexicon.
The index changes are effective on Monday of next week.
Source: Bloomberg, Kiplinger, S&P Dow Jones, The Reformed Broker
Update on the SPR
The Biden administration drew down more than 40% of the Strategic Petroleum Reserve (SPR) to help contain rising fuel prices amid Russia’s invasion of Ukraine. The stockpile reached its lowest level since 1983.
The administration says it has a three-pronged strategy to return oil to the reserve: 1) buying back oil, 2) the return of oil on loan from the SPR, 3) and working with Congress to cancel congressionally mandated SPR sales through 2027, which lawmakers previously voted for to fund government programs.
As of January 31, only 23.1 million barrels have been bought back. In theory, oil prices should be supported as the U.S. replenishes the coffers.
Source: Ned Davis Research
Arm’s earnings pop
Masayoshi Son’s SoftBank owns 90% of Arm Holdings (ARM), the chip designer who powers most of the mobile devices in the world.
Their stake in Arm is now worth almost 150% of the value of SoftBank itself.
It will be fascinating to watch how this arbitrage fixes itself, especially since the public float of Arm’s stock is very small.
SoftBank is under a lock-up provision under terms laid out in the initial public offering from September and cannot sell Arm’s stock until March.
Source: Wall Street Journal
One simple question
If you could buy any 3 private companies, what would they be?
Here’s a good sample of answer from FinTwit.
Source: Patrick O’Shaughnessy
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.