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Hi reader,
It was another volatile market week caused primarily by the ongoing earnings season. The NYSE also brought “good news” for all of us this week: they are extending the trading hours! I’ll discuss why this might have happened and its implications for long-term investing in the market overview.
Without further ado, let’s get on with the articles of the week.
Articles of the week
I published two articles this week. The first was part 2 of the company I recently added to my portfolio, where I discussed the financials and growth drivers. I think it’s an important article because none of these topics are normalized for the company, and understanding why is key:
The second article of the week was Danaher’s earnings digest. The company reported what looked like a good quarter, but management continued on the path of conservativeness. There might be a reason behind management’s caution, and I discuss it in the article. This one is free to read for everyone:
Market Overview
Both indices were down this week, although the Nasdaq was practically flat:
As you might know, we are currently immersed in earnings season, so it’s normal to see some volatility and a divergence between both indices. The divergence between both indices might have come from Tesla’s (TSLA) earnings. The company reported earnings this week, and the stock price surged more than 20% in one single day:
In situations like this one, it’s tough to believe in market rationality. I struggle to understand how a $600 billion+ company can add more than $100 billion in value in one day due to reporting “better-than-expected” earnings.
We saw another example of such behavior with the earnings of West Pharmaceuticals (a long-time US compounder). The company reported better-than-expected earnings this week and surged 20%+ in a single day (despite trading at 8x sales and having a $20 billion market cap). I’ve read the earnings, and while they were good, there was honestly nothing in them that could’ve explained such a strong reaction. The stock subsequently “relaxed” and ended the day around +15%. The market seems to have understood its overreaction, and West’s stock dropped around 7% the following day:
It’s honestly tough to be a believer in market rationality when things like this happen. And if you are worried because there wasn’t enough volatility or algorithmic trading you don’t have to be worried because the NYSE has some great news for you:
The NYSE is obviously “thrilled” to extend trading hours, and I suspect most of its stakeholders are too. The reason is that more trading hours means more transactions, which means more money for exchanges, brokers, etc. It also means more information for market makers and brokers, who will later sell this incremental data to companies that will use it to trade against those individuals who believe they have a short-term edge (commonly known as “dumb money”).
As a long-term investor, I don’t think it changes much besides the fact that there will be significantly more noise; therefore, it might become more challenging to mute this noise. Conversely, this noise will most likely create more volatility, which will probably bring increased opportunities. I’ve discussed several times that the investment horizon is arguably our most relevant edge, and I think this news by the NYSE confirms just that: the industry’s incentives guide it to become more and more short-term oriented because they live off transactions. I don’t think this edge will ever evaporate because markets and people are inherently short-term-oriented. Abundant transactions are what precisely kills long-term returns (to understand how you can read this article I wrote some weeks ago: ‘The Hidden Costs that Hinder Long Term Returns’)
The industry map was pretty much red, with the exception of some Mag 7 companies which enjoyed excellent performance. As discussed above, the highlight was Tesla. Most of these companies are reporting earnings soon, so we’ll see how it plays out:

The fear and greed index dropped significantly and went from extreme greed to almost neutral:

We already know how fast sentiment can change in the market, and I understand some people might be worried about the perceived optimism with indices at ATHs. However, the reality is that many stocks (not necessarily companies) are not going through their best moment despite the great performance of the index, which is heavily skewed toward a handful of companies. The S&P 500 equal weight is up year to date, but significantly less than the market cap weighted S&P 500. The reason is that there’s been quite a bit of weakness across many companies outside of mega cap tech:
That’s the free content for today. Remember you can sign up to get access to all the content (including the deep dive library), access to a private community, and more.