Dow, S&P Continue to Surge Through Mixed Economic Data

Dow: +0.04% | Nasdaq: +0.35% | S&P: +0.30%

Catch Up Quick

• Joby Aviation, a “flying car" company boasting an ultra quiet electric propulsion system and zero emissions, began trading yesterday on the NYSE under the ticker “JOBY” → shares surged 30% yesterday while falling 15% today

• A new coronavirus Lambda variant has been detected in 44 states

• More than $600M was stolen in one of the biggest crypto thefts ever, as hackers exploited a vulnerability in Poly Network, a platform that connects different blockchains → however, hackers returned almost half the stolen money in a strange turn of events

• Space company Momentus will go public on the Nasdaq just a month after settling SEC charges of misleading investors

• Airbnb reported a whopping revenue jump of 300% → shares however fell over 4% driven by expectations of Delta variant market volatility

• Rocket Lab will provide space factory start-up Varda with 3 Photon spacecrafts to support its first in-space manufacturing missions

• Facebook (FB) may be forced to sell Giphy (its GIF website) in wake of mounting UK anticompetition concerns

• Japan's government will create a new indicator called “green GDP” that will show progress in reducing greenhouse gas emissions compared to GDP (Nikkei Business Daily)

• Disney (DIS) unveiled a blowout Q3 performance across the board, with U.S. theme parks returning to profit

• Reddit, the online bulletin board and forum, raised $410M in Series F funding at a valuation of >$10B → Fidelity Investments led the round

• Airfares once again are falling as international travel is increasingly being discouraged by the Center for Disease Control and Prevention

• San Francisco will require full coronavirus vaccination proof for indoor entertainment (restaurants, bars, gyms, etc)

• Credit Suisse downgraded Virgin Galactic (SPCE) → shares fell 5%

• We are giving away $500 in two weeks — see below :)

Thought of the Day

• Amid the quantitative analysis within the realm of finance, perhaps the most widely-used metric is the price to earnings ratio (“P/E”)

• As a refresher, in its simplest form, this refers to a company’s stock price divided by its earnings per share (which is essentially the net profit it generated per each share it has outstanding)

• Even if this doesn’t make 100% sense, the ratio itself is important, and can be understood in this context:

  Let’s say you are looking to buy a house, and two options each cost $1M. This information alone isn’t helpful, because what if one house is twice the size of the other? Comparing the total price doesn’t reflect that. Therefore, most homebuyers look at price per square foot. In the stock market, price to earnings is analogous to this metric!

• Now, if you frequently read this newsletter or simply follow markets at a high level, you likely know that 1) stock prices have been rising despite various risks in the market (inflation, virus variants, etc) while 2) companies have been reporting record earnings

• The S&P 500’s forward P/E ratio (the same metric referred to above except calculated using estimated earnings per share over the next 12 months) sat at 24x at the end of August 2020, before falling slightly to 21x as of the end of July 2021 (FactSet)

• In other words, expected corporate profits have surged higher than stock prices themselves, indicating shares of companies have actually become cheaper relative to the earnings they’ve produced

• Illustratively backtracking to the homebuying example, this would equate to houses themselves growing at a faster rate than their cost (thus, price per square foot actually drops, even though the market itself is rising)

• While simple at its core, this concept is important for investors to understand → stock prices alone don’t reveal anything, but after calculating P/E ratios you can begin to validly compare similar companies, drawing conclusions with respect to valuation, etc

Yes...We Are Giving Away ONE $500 Visa Gift Card

• To a single beloved subscriber who refers to our newsletter the most people over the next two weeks

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WEEKLY REMINDER that tomorrow is FRIDAY