What You Missed Yesterday

Tuesday, February 6

Once again—the fear of higher interest rates for longer is fueling a moment of equilibrium in the market. Bulls are jumping on winning stocks while Bears sell losers even harder.

In this phase of earnings season—we’ve got winners and losers in relatively equal measure. A small number of winners are netting massive gains while a larger number of weaker companies offset that with tough pullbacks.

While the market continues to worry about inflation running hot—layoffs appear to be ramping up as every major tech player makes big cuts to keep up with the efficiency of big players like Meta and Alphabet. Despite this—America added enough jobs in January to keep bond yields firmly above 4%. For companies outside the very top, that adds a ton of pressure for their profits to outperform. Right now, only the biggest players have the scale necessary to prove the efficiency model.

As more mid-size players are forced to play Mark Zuckerberg’s game—we’re going to see some companies crack from the pressure after netting short-term gains thanks to layoffs. Not everyone is going to get the efficiency model right. We have to stay measured in our investments despite how attractive some short-term gains may seem as more and more rounds of layoffs get announced.

With that in mind—there are still plenty of players who went full-efficiency last year who are demonstrating they can still drive growth. At the same time, some companies have access to new revenue lines that completely offset their need for more efficient operations. While there are fewer and fewer ways to win in this market—the winners are reaping bigger and bigger rewards. Let’s check in with some of those winning plays and see how they can keep up their outperformance no matter what 2024 throws at us.

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