Mad Hedge Technology Alerts!
In December, the US economy and the American tech sector ($COMPQ) showed who is boss in the world economy by blasting past employment expectations.
This comes at a time when every professional economist is calling for a gloomy outcome in the short term.
From the tech side of the equation, remote jobs are rebounding at a blistering pace.
Full-time workers plunged by 1.5 million in just one month to the lowest since February 2023.
Part-time workers made gains of 762,000 the highest on record.
Multiple jobholders hit a time-high 8.56 million.
What does this tell us?
Work from home can do more than one job and those are mainly tech jobs. A lot of the time they are IT and software engineering jobs as well.
The other group this could have affected is the group affected by Bidenflation which has crippled the budget of many low-income workers living in the US and this cohort needs two low-paid jobs.
The reality is that these multiple job holders are a mix of each group.
It’s now highly common for remote workers to work 3 or 4 jobs at once because these workers don’t need to be physically present in any office.
They can simply clock in and clock out when they choose to and this has been a boon for tech companies who have taken advantage of this trend and fired many full-time workers who became too pricey.
For the past year, Silicon Valley has taken a machete and chopped off the fat from its business model.
Their leanness was a massive reason for the overperformance of tech stocks last year and even though that same boost won’t happen to the same extent in 2024, it has given the blueprint to management on how to run a tech company.
The largest economy in the world saw the addition of 216,000 new jobs in December 2023, surpassing projections of a decline from the previous month, as per data from the Labour Department.
The joblessness rate remained steady at 3.7 percent, a figure that is notably low historically and counters predictions of a slight increase.
These impressive job market statistics arise amidst the context of rising interest rates. The Federal Reserve has aggressively raised and maintained high rates for the benchmark lending rate to moderate demand and control inflation.
In terms of wages, December witnessed a consistent rise, with a 0.4 percent increase from November 2023, according to the Labor Department. Year-over-year, average hourly earnings went up by 4.1 percent.
Tech jobs are evolving into a different type of existence with agility becoming more important and that is highly positive for tech companies.
Silicon Valley was at the forefront of the firing spree last year, but job numbers were more than compensated by the additions in government, health care, and services.
The strength of the US economy means that it’s painfully obvious that traders are still too early betting that the Fed will drop rates by 1.5% by the end of 2024.
My belief is that we will end up with a drop of .5%-.75% of Fed Funds rate cuts which means we have a little ways to go to reverse from this overshoot.
This idea that the economy is stronger than people think is verified by rising wages and lower unemployment.
I do believe that high inflation and high rates are here to stay and the 0% rate of yore was just a weird anomaly that defied historic data.
Delaying the “recession” yet another year means once we absorb this pullback, tech stocks will be off to the races again.
Mad Hedge Technology Letter
January 3, 2024
Fiat Lux
Featured Trade:
(FORMING THE NEXT BUYING OPPORTUNITY)
(APPL), (TSLA)
Apple didn’t release a new iPad model in 2023 which speaks volumes to the short-term trajectory of the tech firm that Steve Jobs built.
The current CEO Tim Cook is still living off of Jobs’ past creativity.
I believe the new Apple VR headset named the Vision Pro is still a speculative product that won’t result in any meaningful revenue for at least the next few years if at all.
Part of the blame for Apple’s underperformance stems from the poor macro environment for pure multinational corporations as deglobalization accelerates.
Apple also took their lineup of smartwatches off the display cases minutes before last Christmas signaling a continued malaise for big tech companies that are finding it rough to move the needle along.
Many behemoth tech companies are feeling the pressure to squeeze that incremental revenue out of the consumer and Apple is no different from a company like Tesla which is under attack from Chinese EV maker BYD.
Competition is real and it’s only getting worse.
The proverbial low-hanging fruit has been plucked dry.
Luckily, the lack of expansion didn’t mean that Apple’s stock went down in 2023.
It was very much the opposite with Apple marauded over 40% higher because of the ultra-lucrative tailwind of the “Fed pivot.”
More minutely, Apple managed to underperform other big tech which is where the blips in the operating and creative spheres start to show up.
In 2023, which ended in September, Apple’s iPad revenue dropped 3.4% to $28.3 billion. On a unit basis, iPad sales were even worse, falling 15%.
Even for Apple’s new products, like Mac computers, consumers showed less desire for devices with minor upgrades. Sales of Mac PCs and laptops fell nearly 27% to $10.2 billion in fiscal 2023. Unit sales declined 11%.
In order to return to revenue growth and support its $3 trillion market cap, Apple needs to strike it rich with some new products and global demand for smartphones and laptops to recover.
Despite less-than-stellar performance, Apple is no slouch. The company recorded $383 billion in total revenue in 2023 and earned nearly $97 billion in net income.
Last November, Apple CFO Luca Maestri said the company’s December quarter will experience no growth compared with last year. He warned that Macs, Wearables, and iPads would see a sales drop.
Much of this weakness will eventually drop shares lower, but it is highly likely that a dip will be a garden variety.
Yesterday’s downgrade was a little surprising, but I do believe analysts are prone to issue a downgrade as a reversion to the mean play.
Many might argue that Apple doesn’t deserve as high of a stock price, because its recent near-term ceiling is relatively sagging compared to the past.
That said, its $2.85 billion market cap isn’t too shabby and just a shallow pullback will allow bulls to coalesce around another optimal entry point.
A drawdown will certainly result in a rip-your-face-up move.
Betting against Apple has traditionally been the worst strategy of modern stock trading.
Bears will smartly take profits and run for the hills to get out of the way of the next wave of buy orders.
Wait for the dip to buy Apple.
