Max Oeser ’25 and Treasurer Henry Nicosia ’24 delivered this week’s market update. Markets remained constant before a significant decline later in the week likely due to comments made by members of the Federal Reserve about the trajectory of inflation Two federal reserve officials stated on Thursday that the US Central bank should have lifted rates more aggressively earlier in the month and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.
Other major economic indicators included retail sales increasing 6.4% YTY, CPI increasing 6.4% YTY and home purchases falling 46% YTY. In other news, gambling revenues have increased 14% YoY to $60B, metal prices have increased due to China’s reopening, and Bao Fan, a Chinese billionaire tech banker, disappeared which has led to China Renaissance Holdings falling about 28%.
Industrials Analyst Spencer Thomas ’24 presented an Industrials sector update. Representing 15% of the portfolio, the advantage to investing in industrials is their strong history and proven track records, where the risks lie in the volatility of the global macroeconomic landscape the many tariffs involved.
Of the 11 sectors in the S&P 500, industrials had the 2nd best performance to energy in the past year, but its 5.22% YTD growth trails most other sectors. 2022 for the economy overall has been marked by high inflation’s effect on interest rate policy and slower economic demand, however the Aerospace and Defense sectors have experienced strong growth in 2022.
The highest performers of the club’s 11 Industrial stocks over the past year include Caterpillar (26.59%), Otis Worldwide (9.67%), and General Dynamics (7.88%), while the worst performers have been Union Pacific Corporation (-20.11%) and Fedex (-5.66%) due to network inefficiencies and high inflation.
Spencer sees three main themes for the near future of the industrials sector: sustainability, digitization, and onshoring. Sustainability is due to the switch to low-carbon energy sources that will technologically and economically challenge firms, especially those who are highly energy-intensive and heavily industrial. Digitization is because of digital investments like AI and cloud computing that will enable meaningful improvements within the sector, including greenhouse-gas emissions, factory output, order-to-delivery lead times, speed to market, and customization. Finally, onshoring because companies are increasingly making plans to diversify and reinforce their supply bases, and to bring supply chains closer to home
Moving forward, issues with raw material costs, supply chains, logistics, and labor should ease in 2023 and while a recession dampens short term outlook, this is unlikely to change the favorable longer-term prospects for some industrial companies. The industrials sector is very steady and provides the portfolio a consistent source of alpha. Future plans could look to add a few more positions in this part of the portfolio and diversity within the subsectors of industrials.
Head Analyst Alex Hunter ’24 delivered a Peloton Sell Pitch. The company began in 2012 and was brought public in 2019, offering high-end at home gym equipment along with monthly membership classes and athletic wear. Growth soared during the pandemic when many consumers looked for at-home luxuries to avoid and cap the covid spread.
The club purchased Peloton in spring 2019 for around $110 per share under the guise that Covid-19 conditions would be long-lasting and consumer habits would be forever changed. The current price sits around $13 a share with a -85.22% return to date. However, the club has held off on the sell position due to the potential for new buyers. While past performance does not indicate future performance, the company has lost $100M in retail and has cut workforce by 3,000 since 2021. The company just announced new CEO Dustin Grosz as of this week.
Other important metrics include -26.2% YOY sales growth, -120.1% YOY EPS growth, 101.58 Volatility, 1.97 Beta, and most important of all as it omits any reason to vote as a club, an ESG Rating of CCC. The ESG policy the club voted on in the spring semester of 2022 makes a CCC rating an automatic sell for the club.
Finally, Co-Presidents Shaan Shuster ‘23 and Nick Tufano ’23 shared the plan for next Friday which will be a panel presentation of several prestigious Lafayette Alumni and Board of Trustees at 12 pm in the auditorium of Kirby Hall of Civil Rights.