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☕ The market finally has some red meat to chew on

Jan 22, 2025

Good morning! 👋

Keith is en route back to the US today, but I wanted to share what we spoke about this morning before he took to the air.

We’re fully back into earnings season now.

Good.

This gives the market some red meat to chew on rather than having them lurch from headline to headline.

As Keith has said before, earnings volatility almost always presents opportunities once the dust settles and strong numbers could jumpstart the markets or, at the very least, put a solid floor under them.

We’re already seeing signs of this, with all three indices off to a strong start in 2025.

Looking ahead, and as Keith mentioned when talking to Kristen Scholer and Cheryl Casone, he forecasts the S&P 500 to rise to ~7,000 by Q2, followed by a pullback and then 7,122.24 by year end, especially if the market conditions play out favourably.

Big US tech will lead the way yet again as the world continues to digitalize, a key theme for the OBA Family for years.

Speaking of which...

1 – Netflix beats, time to buy?

Netflix reported Q4 earnings, beating both EPS and revenue estimates. (Read)

Reported EPS was $4.27 vs expected $4.20
Reported revenue was $10.25 billion vs expected $10.11 billion, +16% YoY
Paid memberships came in at 301.63 million vs expected 290.9 million, +15.89% YoY
Increased 2025 revenue forecast

Notably, the quarter saw the highest number of new paid members ever added (18.91 million), alongside the announcement of a $15 billion stock buyback.

As Keith has mentioned before, he doesn’t own Netflix and probably won’t because he’s focused elsewhere. But we are both happy as heck for all those of you who do!

Great numbers prove something that is truer than ever... Buy the best, ignore the rest!

2 – Should you worry about Microsoft losing exclusivity?

Microsoft is no longer OpenAI's exclusive cloud provider but retains a "right of first refusal" for additional computing capacity requests. (Read)

Keith’s POV: This isn’t a big surprise, but it’s still great for Microsoft because it frees up capacity and allows ‘em to reallocate resources to broader opportunities beyond OpenAI. This stands to benefit Nvidia too.

Microsoft shares have returned 986.70% over the past decade. This means that a $10,000 investment into Microsoft made ten years ago would now be worth $108,670.

The S&P 500, by comparison, has turned in a very respectable 193.20% over the same time frame. This means that a $10,000 investment in the S&P 500 made ten years ago would be worth about $29,320 today.

And to a point Keith made on Varney & Co, the company is still “tremendously” undervalued. (Watch)

3 – Luxury stocks set for a recovery?

The luxury sector has faced challenges recently, due to concerns about China's economic slowdown or shifts in global spending patterns.

However, a recovery may be on the horizon, fueled by Richemont - owner of the well-known Cartier brand - reporting better-than-expected Q3 sales alongside signs of improving consumer spending. (Read)

Shares of other major European luxury companies, including LVMH, Hermès, Kering, Moncler, and Burberry, rose in response.

Keith’s POV: It’s about time, honestly. While I’m not convinced this will immediately translate into substantial profits, it could mean survival for many brands previously tied to China.

4 – China stocks fall

Both the Hang Seng Index and the CSI 300 are falling.

Why?

President Donald Trump's suggestion that a 10% tariff on Chinese imports could be implemented as soon as February 1. (Read)

If anybody is surprised, they’re not paying attention.

Invest because of China, not in China... a point Keith has made thousands of times over the past 15+ years.

Also, watch how fast China makes peace with Trump if this begins to bite Beijing's economy.

5 – Europe’s wake-up call

At the World Economic Forum (WEF) in Davos, CEOs and policymakers warned that Europe risks falling behind the U.S. and Asia unless it accelerates innovation, deregulates, and simplifies its regulatory frameworks. (Read)

Absolutely correct.

Again, something we have talked about many times and something Keith has observed firsthand during his recent trip: Europe’s politicians need to act decisively, or risk falling behind permanently.

During this trip, Keith has had numerous discussions with European executives who are acutely aware of the challenges - even if their politicians are not. 🤦