🎙️ Keep Moving

A lot is going on in markets — plenty of ever-evolving dynamics, from falling oil prices — which just posted their biggest one-day fall since 2022 — to a jam-packed week of earnings for big tech.

Meanwhile, last week, the Nasdaq Composite logged its seventh-straight weekly gain. Gold and bitcoin keep moving higher. Eight days from the U.S. presidential election, there’s no shortage of storylines. Let’s dive in.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Americans expect more stock gains, regardless of election outcome

• David Einhorn sizes up beaten-down Peloton

This, and more, in just 5 minutes to read.

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In The News

📈 Americans Expect More Stock Gains Regardless of Election Outcome

Because markets are so forward-looking, they tend to look past (most) news events. Markets are also rooted in fundamentals, at least over the long term. It’s often no different with the U.S. presidential election: Stocks tend to march higher over time, no matter who wins the White House. 

A Bloomberg survey shows that Americans believe the S&P 500, gold and bitcoin will all keep climbing higher after the election next week. 

The S&P 500 benchmark index is up about 22% so far this year. That could continue, as many investors realize that elections have limited — if any — long-term impacts on markets. Deutsche Bank strategists noted that 13 of the past 15 U.S. presidents have overseen annualized stock returns between 10% and 17% during their terms, regardless of party. 

• Stocks also typically rise after the election, once its related uncertainties dissipate. During the past eight elections, the S&P 500 rose by an average of 6.6% in the six months after Election Day, compared with 1.5% gains in the six months prior, according to Bloomberg.
  

• “Market performance has more to do with economic fundamentals and the earnings outlook than it does with who sits in the White House,” a chief investment officer told Bloomberg.

Why it matters:

The election is Tuesday, Nov. 5. While election cycles tend to be more relevant in emerging-market economies or economies with weaker institutions, elections are unlikely to truly move markets in any meaningful way in the U.S. 

• “The presidential election not being a notably 'market-moving' event," Fidelity’s director of quantitative market strategy notes. “The election cycle is usually not the dominant theme of the market.”

Risky business: It’s tempting for investors to bet on the stocks or sectors that will benefit from an administration’s politics, but that’s also risky. Fidelity research found that “there are very few consistent patterns of relative sector returns in election years, which makes placing sector bets around partisan outcomes very risky.”

• One portfolio manager notes that “it's exceedingly rare that a candidate will be able to deliver on exactly what they've proposed once they take office. If you're making investment decisions based on such proposals, that could be a risky way of managing one's money.”

As a Fidelity analysis points out: 

• It would be natural to assume that the heightened emotions and uncertainty of an election year could substantially impact market sentiment and performance. However, historical data does not back up this intuition.
  

• Rather, markets have historically generally continued to rise in election years.
  

• It's important to remember that markets are nonpartisan. 
  

• Portfolio positioning should generally be dictated by a long-term plan rather than by current events.
  

• As Jurrien Timmer, Fidelity’s director of global macro, concludes, “Elections tend to have less impact on the markets than politicians may like to believe.”

Read more

More Headlines

💰 More families making over $150,000 are living paycheck to paycheck

🛢️ U.S. oil has worst day in two years after Israel spares Iran crude facilities

💵 U.S. money market funds see large inflows as election nears

📈 The time it took for big companies to reach a $1 trillion valuation

☁️ Why the wealthy are renting homes instead of buying in New York City

🚲 David Einhorn Makes a Case for Peloton Stock

David Einhorn is one of Wall Street's most closely watched investors for a reason. Whether he’s long or short, he makes bold investment calls. His latest: Peloton. 

The hedge fund manager sees big potential in Peloton’s future. In a presentation at a recent Robinhood investor’s conference, he said his firm, Greenlight Capital, holds a $6.8 million stake in the exercise company that was founded in 2012 and rose to prominence during the pandemic’s at-home exercise craze. 

Forcing change: Einhorn says Peloton’s stock could surge five-fold if the company slashes cuts and doubles its current adjusted EBITDA projections. EBITDA — short for earnings before interest, taxes, depreciation, and amortization — is an alternate measure of profitability to net income.

• "Facing bankruptcy can force change," Einhorn stated during his presentation. "Peloton has started to right-size, and cash burn has stopped. It refinanced its debt to push out maturities. And with a loyal customer base that pays $44 per month, it's a valuable subscription business."

Keep moving: The company's stock-based compensation expense stands at $305 million for fiscal 2024, almost double the peer median and more comparable to much larger corporations like Netflix. Peloton has made major job cuts and plans to cut another 15% of staff while reducing annual expenses by over $200 million by fiscal 2025's end. It will also close showrooms. 

• Greenlight’s analysis doesn’t assume “any growth in subscription revenues from new customers or price increases or other new initiatives, such as activation fees from the growing used bike market and international expansion,” Einhorn said.

Why it matters:

Peloton is a popular brand with a cult following, but its stock has suffered mightily since breaking out during the pandemic. 

Peloton generated $1.71 billion in subscription revenue in fiscal 2024 with a 68% gross margin. But Einhorn criticized their spending, noting that "Peloton spends about twice the R&D that Adidas spends... in dollar terms. And Adidas has 8 times more sales than Peloton and an order of magnitude more product lines."

• Einhorn also said Peloton needs new, better management. (A new CEO is expected within 1-2 weeks.)
  

• Einhorn compared Peloton to fitness companies like Planet Fitness, consumer subscription companies like Chewy, and online subscription businesses like Spotify and Netflix. Peloton sits at the confluence of all of them.
  

• “The nice part of our thesis is that we don’t have to convince Peloton this is the right approach,” Einhorn said. “Peloton’s interim co-CEOs are telling the same story of a recurring, high-margin subscription revenue stream business. They have also implemented an initial cost-cutting plan, which still leaves plenty of room for the new CEO.” 

The final word: Einhorn’s analysis concluded: "Working out in the comfort of your own home is not a fad. And a trend towards healthier lifestyles should all drive underlying subscriber growth over time."

Peloton stock has risen about 11% this year and 39% over the past 12 months but has fallen by about 75% in the past five years. It peaked at about $162 per share in late 2020 and now trades at roughly $6.50. Its market cap today is $2.45 billion.

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Quick Poll

On Friday, we asked: Do you agree with Paul Tudor Jones that commodities are currently "ridiculously under-owned"?

— Three-fourths of respondents said they agree with Paul Tudor Jones. “I would never disagree with PTJ,” one said. Others pointed to the strong performance of their gold and silver.

— Another investor simply wrote, “My Bitcoin is doing well.”

See you next time!

That's it for today on We Study Markets!

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^{*The content is not intended to provide legal, tax, or investment advice. Past performance is not indicative of future performance. Investing involves risk. “Net Annualized Return” refers to the annualized internal rate of return, or IRR, net of all fees and costs, to holders of Class A shares from the primary offering, calculated from the final closing date of such offering to the date the sale is consummated. A more detailed breakdown of the Net Annualized Return calculation for each issuer can be found in the respective Form 1-U for each exit. The 3 median returns above represent the ones closest in percentage to the median of the 12 exits with holding periods over 1 year. Masterworks internally appraises artworks that are held by entities administered by Masterworks Administrative Services on an ongoing basis, and obtains an independent review of appraisals by a third-party appraiser on an annual basis.Appraisals are prepared in accordance with the 2024-2025 Uniform Standards of Professional Appraisal Practice (“USPAP”) developed by the Appraisal Standards Board of the Appraisal Foundation, although it is noted that there are potential conflicts of interest given that some or all individual members of the appraisal committee are employees of Masterworks and Masterworks retains an ownership interest in the subject artworks as well as ownership of the Masterworks Platform. Masterworks compiles historical data from public auctions to produce metrics that we believe can be helpful in measuring and analyzing historical trends in artist markets and the historical price appreciation of specific artworks. See important Reg A disclosures at masterworks.com/cd.}

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