December 20, 2021

Good morning traders,

Welcome back to The Daily Setup. Markets were down yesterday, but more on that later. Here’s what’s on the docket today:

  • Rivian reports earnings (spoiler: it didn’t go well)
  • FedEx reports earnings
  • Stock buybacks could increase in 2022

So have a cup of coffee, read through the newsletter, and let’s make today a good one.


Rivian, FedEx, and the Stock Market


It’s OK Rivian, You’ll Get Better

With Practice

Nobody is great their first time, but Rivian (RIVN) absolutely flopped in its virgin reporting quarter as a public company. The EV maker reported a quarterly loss of $1.2B and announced that it would fall short of its annual production goal of 1,200 units. Seriously Rivian, you can’t even get 100 trucks a month out the door?

  • Shares of RIVN were down more than 10% on Friday to close at $97.70.
  • The company is struggling to produce vehicles due to component shortages and difficulties getting an Illinois production plant up to speed. Reservations remain strong, currently about 71,000.
  • Rivian announced plans to build a second production facility in Georgia, but as with all EV companies not named Tesla, we’ll believe it when we see it.

Rivian came out of the gate fast, rising 130% from its IPO price of $78, but like many of us as awkward high schoolers, it just didn’t have much stamina. With deep-pocketed partners such as Amazon and Ford, however, RIVN may just need a bit of seasoning. If the company can manage to build and deliver vehicles (a big ask, I know) it may be the firm that can challenge Tesla. After all, its pickup actually looks like a pickup, unlike the Cybertruck, which looks like something a three-year-old would build out of Duplo blocks.


That’s Quite a Package

What’s in the box?

FedEx (FDX) smacked Wall Street expectations like Covid smacked NFL rosters this week, after the company announced strong earnings and a $5B buyback on Friday. The company reported $4.83 in EPS on $23.5B in sales vs. expectations of $4.27 in EPS and $22.4B in revenue. FDX also raised full year guidance to $21 per share from $20.38 per share.

  • FedEx has been a bit bipolar this year, cutting guidance in September only to raise it again in December. Tis the season for hanging out with crazy friends and relatives I suppose.
  • In previous quarters the company had warned about labor inflation, but the most recent results may be a bellwether that proves some rising input costs can be managed. Shares of FDX rose 4.9% on Friday.

A strong holiday season could continue to build momentum for FedEx, as it is finally starting to pick up speed after trailing the market by about 12 points this year. Regardless of the stock performance, be sure to thank your FedEx and UPS drivers, those people literally keep our economy moving. They deserve a pat on the back and maybe a nice bottle of bourbon. Especially if you’re like me and regularly order 40 pound bags of dog food from Chewy.


Market Madness: Major Indexes

Drop after Volatile Week

Michael J Fox Falling GIF by Back to the Future Trilogy - Find & Share on GIPHY

It keeps going and going and going!

American stock indexes tripped, then stumbled, then tripped again before landing flat on their face the previous week after some serious volatility. On Friday, the Dow fell 532.2 points to close at 35,284, the S&P dropped 48.03 points to close at 4,620.64, with the Nasdaq dropping 10.75 points to finish at 15,169.98 points. As is usually the case, the related causes were of myriad origin, from the scheming of the Fed, to our good ol buddy Omicron, compounded by just plain bad timing.

  • Last week was marked by the Fed’s recent hawkish turn regarding the tapering of bond-buying, which naturally has turned the market temporarily bullish as caution abounds. The potential for interest rate hikes in the coming year certainly do not help the sentiment.
  • Some of the volatility is being attributed to “quadruple witching”, the concurrent expiration of single-stock options, single-stock futures, stock-index options, stock-futures, and end of quarter fund rebalancing. This was always going to happen on Friday, but when paired with Omicron and the Fed, it lends itself to further volatility.

After a year of record-setting weeks on the major indexes, a week like this could seem really gloomy for the future by comparison. But when you step back and gain a little perspective on the situation it isn’t cause to hit the ejector seat just yet. By and large, these market drivers were the cause of investors taking a moment to process the Fed’s new policy and the spread of omicron in the US. Quadruple witching just happened to occur at the same time. Perhaps take this as an opportunity to pursue some stocks you’ve been monitoring for the dip (if applicable) and see how the situation develops.

The Federal Government Shows off Its Crypto Portfolio

Token Talk

Gaming GIF - Find & Share on GIPHY

Question: How Many FBI Agents Does it Take to Understand Doge?

In following the tradition of dragons and other cold-blooded beasts, the feds happen to be hoarding a sizable mountain of crypto currencies accrued via the seizure of assets. While it might seem that the federal government could muscle its way into heavily affecting the market, you can take solace in the fact that they are also continuing the tradition of big government being behind the times since they are apparently really bad at capitalizing on any kinds of gains.

  • This revelation is not actually anything new. The government has been auctioning off seized Bitcoin etc. for years now. In 2018 they had auctioned off 500 BTC to Riot Blockchain for $5M. That amount would be worth roughly $23M today.
  • The feds are usually liquidating seized BTC via auctions handled by the US Marshals who claim to have auctioned nearly 185k coins by this point. Seizures have grown from $700k worth in 2019, to $1.2B in 2021. Currently $56M of BTC are being auctioned after the BitConnect Ponzi scandal.

It might be a knee-jerk reaction to worry that the federal government could become too involved in the crypto market, even when considering that these seizures make them one of the largest holders of crypto in the world. Fortunately, Jarod Koopman, director of the IRS’ cybercrimes unit, has claimed there is no intention for the feds to flood the market and affect market prices. There is likely validity to this statement as much of the seized crypto is tied up in various funds intended for agency use (that or the feds don’t want their personal portfolios to be tanked too).

MORE! – Stock Buybacks Could Continue to Increase in 2022

Rumor has it

By this point there’s no denying that 2021 was a record-setting year for stock buybacks, with companies on the S&P 500 buying $234.5B of shares in Q3 alone. This alone breaks the previous record set in 2018 (in the before times), but there are chances that the surge in buybacks has no reason to end according to various analysts.

  • Nicholas Colas, co-founder of DataTrek Research, believes companies are “not buying nearly enough stock as they can”, noting that the S&P 500 is earning $205 per share in 2021, 27% higher per share than in 2018. This really buffs up their profit margins and should be leaving room to suck up more of these companies’ own shares.
  • Companies leading in stock buybacks are (naturally) the big names in big tech, with Apple, Facebook Meta, Alphabet, and Microsoft leading the movement through the first 9 months of 2021.

Conditions certainly are looking ripe for continued stock buybacks into the new year. Sure the beginning of the pandemic temporarily put a damper on buybacks (especially in the banking sector), but 2021 was an entirely different deal. Banking is now in a much better place, barely trailing tech for stock buyback, and neither show any signs of slowing down. Of course Omicron and the Fed’s hawkish pivot on monetary policy will leave companies cautious for the time being, but they’ve certainly gained too much runway to stop themselves from pumping their stock further and really take off. If this ends up being the case, it may be worthwhile tracking the stocks of these buyback leaders before they’re truly lost in the clouds.

Link Roundup 📿

Other News

Other News Link Roundup

  • Uncle Sam has laser eyes (Read)

  • Pfizer is on a run, this is my shocked face (Read)

  • Netflix stock is struggling – we need the new seasons of Cobra Kai and Stranger Things stat! (Read)

  • Lawyers say Theranos investors should’ve known it was a fraud (Read)


DC is healing, via @hipster_trader

Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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