What we’re reading (1/7)
“The Stock Rally Has Stalled. Now Comes Earnings Season” (Wall Street Journal). “U.S. stocks defied expectations to rally in 2023 but have struggled to extend gains into the new year. The S&P 500 shed 1.5% in the first week of January. Tech stocks, which led the market last year, have stumbled, with Apple and Microsoft falling 5.9% and 2.2%, respectively, in the past week. For many investors, quarterly results and commentary from executives will help signal if the recent stock-market declines are warranted or whether companies’ profits are strong enough to renew the rally.”
“I.R.S. To Begin Trial Of Its Own Free Tax-Filing System” (New York Times). “The Internal Revenue Service is rolling out a free option for filing federal tax returns this year to some residents of a dozen states. Last month, the agency published details of its plan to test an in-house filing system, in which taxpayers submit their federal tax returns directly to the agency online at no cost. Residents of 12 states are eligible to participate if they meet certain criteria…While the direct filing system is starting on a limited basis, it has already faced some resistance, particularly from commercial tax-preparation companies.”
“Short Sellers Lost More Money Betting Against Tesla Than Any Other Company Last Year” (CNN Business). “That estimate, from markets analytics firm S3 Partners, isn’t a shock – Tesla shares slightly more than doubled during the course of the year. But for the shorts to take that kind of hit, there needs to be not only gains for the shares, but also a large group betting the other way.”
“AQR Tops Multistrategy Funds In 2023” (Institutional Investor). “AQR posted strong gains in its multistrategy portfolios, topping most of the other well-known funds in its categories. The firm’s AQR Absolute Return strategy, the longest-running multistrategy offering, was up 18.5 percent in 2023 after surging 43.5 percent the previous year, according to someone who has seen the results.”
“Can Stocks Surpass 2022 Highs? Yes, But The Math Looks Scarier From There” (Wall Street Journal). “A parallel can be drawn with 2013, when a corporate upswing was also kicking off following an earnings rout. Investors who bought then saw the price of their stocks increase at a compound annual rate of 10% over the following decade, without adjusting for inflation. To deliver this, the broad S&P Composite 1500 had to go from trading at 17 times earnings to 23 times, as earnings only grew 8%. Replicating this performance over the next 10 years would take valuations to a whopping 28 times. If earnings grow from their trough at the long-term historical average of 6%, valuations would have to climb to 32 times to achieve the same gains. History suggests they are much more likely to compress to around 21 times, which would imply an annual price return of 7% or less.”
