Update on the 'Stinky Six'/'Frightful Five'; Consumer sentiment disconnected from spending; Scott Galloway interviews Morgan Housel; Ben Stiller interviews Scott Galloway
1) It was less than three weeks ago in my October 29 e-mail that I shared my "Stinky Six" stocks to avoid...
These are:
- Palantir Technologies (PLTR)
- AppLovin (APP)
- Tesla (TSLA)
- QMMM (QMMM)
- Signet Jewelers (SIG)
- Hims & Hers Health (HIMS)
(QMMM was – and remains – halted. So I'm removing it from my Stinky Six and renaming the list the "Frightful Five." I'll reincorporate QMMM if it ever resumes trading – at which point I expect it to be down 90%, if not 99%.)
I felt confident these stocks were all heading south. But I'm surprised at how quickly they've done so – down an average of 13% versus only a 3% decline for the S&P 500 Index:
Incidentally, the "Terrible 10" I named on January 2, 2024 and wrote about on October 29 have dropped much further, bringing their average decline from 23% to 35%:
(Note for this table that prices are adjusted for splits and spinoffs.)
My views haven't changed a bit – continue to avoid all 15 of these stocks.
2) I also nailed the shutdown of the federal government when I told my readers to tune it out – from an investing perspective.
At 43 days, it was the longest shutdown in U.S. history. But the S&P 500 gained about 2% during this period – hitting eight more all-time highs.
3) The University of Michigan Consumer Sentiment Index is close to an all-time low (since 1952)...
Take a look at this chart from the latest Week in Charts blog post from Creative Planning's Charlie Bilello:
Looking at this, you would think we were in a recession – driven by plunging consumer spending (which accounts for roughly two-thirds of our GDP).
But instead, retail sales are strong. As Bilello also noted in his post, U.S. retail sales recently jumped 4.8% year over year ("YOY") – which outpaced inflation. Here's the chart he shared:
As Bilello correctly notes:
We've never seen a disconnect this wide between what the US consumer is saying and what they are doing.
What explains this?
I think a major reason is that the sentiment index is driven by a broad swath of average Americans, who are being hit hard by inflation as well as job insecurity and job losses.
In contrast, retail sales are largely being driven by wealthy Americans. These folks are doing much better – benefitting from the stock market doing so well. (The top 1% of U.S. households own about 50% of all stocks and mutual fund shares, and the top 10% of households own close to 90%.)
Such a divergence in the economic fortunes of Americans isn't healthy for our country in the long run. But as far as the markets go, stocks are likely to hold up well as long as total spending remains strong.
4) While total retail sales remain strong, certain companies are getting hit by weakening spending among the bottom 90% of households... which has crushed their stocks.
In his recent Week in Charts post, Bilello highlights three of them: Chipotle Mexican Grill (CMG) (which I discussed in my November 6 e-mail), Shake Shack (SHAK), and Cava (CAVA). Take a look at this chart:
But the real story isn't declining sales...
Instead, it's wild valuations. At the beginning of this year, Chipotle was trading at 48.2 times next-12-month expected earnings, Shake Shack at 126.5 times, and Cava at 194.0 times.
Buying at such massive valuations for those stocks is more speculating than investing.
Fast-forward to this month: While one could argue that Chipotle is now fairly valued at roughly 26.2 times next-12-month expected earnings, Shake Shack at about 57.2 times and Cava at around 78.7 times both remain hugely overvalued.
5) Longtime readers know how much of a fan I am of Scott Galloway...
He's an NYU marketing professor – and a friend of mine. Here's a picture of us from a few years ago:
I really enjoyed the recent 26-minute interview he did with Morgan Housel – partner at the Collaborative Fund. Housel is also the author of many books. His most recent book came out last month: The Art of Spending Money: Simple Choices for a Richer Life.
Here's the summary of Galloway's interview with Housel, which you see on YouTube right here:
Scott Galloway brings back Morgan Housel to answer your questions on "enough," financial independence, and the art of spending. They discuss why our money goals keep moving, how to know when you can slow down, and why saving is really about buying independence, not things. Morgan also explains why holding extra cash can be a smart emotional hedge, while Scott shares how he spends today and what he wishes he'd known earlier.
And for easier navigation, here are some timestamps from the summary that go to the three main topics:
00:32 – When to Slow Down on Earning
08:44 – When to Hold a Cash Balance
17:38 – Where Scott and Morgan Spend Money
6) I can't wait to check out Galloway's new bestselling book, Notes on Being a Man (you can read an excerpt from it here). In it, he writes about the struggles of young men.
Galloway has been on a book tour and has been on The View, The Daily Show, Real Time with Bill Maher, etc. in the past week. But I think the interview he did with Ben Stiller is the best he has ever done.
You can watch it watch it here on YouTube. And here's the summary:
Scott Galloway joins actor, director, and comedian Ben Stiller live at 92NY for a conversation on modern masculinity – friendship, fatherhood, purpose, and building a life filled with meaning and connection.
They discuss why mentoring young men has become controversial, how masculinity can evolve without reverting to old stereotypes, and the cultural forces leaving men lost in the digital age. Scott also opens up about his relationship with his parents, the lessons of forgiveness, and what it means to find fulfillment as a partner and father.
And here are some timestamps from the summary to navigate to the topics they covered:
1:04 – Ben introduces Scott
6:37 – Why is it so controversial to talk about mentoring young men?
14:33 – What do you actually do?
22:21 – How did your parents influence you?
29:24 – How did you handle your [parents'] aging friends?
35:58 – Why does [marriage] make you happy?
49:54 – How important is masculinity in a marriage?
54:25 – How important is empathy for those outside your immediate circle?
49:39 – How big of a role does repressed emotion play in this young men issue?
1:10:14 – As a father, how do you have an impact on a daughter?
Check it out!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.