💣 Is Lululemon’s 10% Rally The Real Thing?

🌞Good Monday Morning, Folks!

This week? A mess. But not for the reasons everyone’s screaming about.

While headlines are obsessed with “soft landings” and “AI bubbles,” what’s really happening underneath is far simpler — investors have forgotten how to think independently. One earnings beat sparks euphoria, one CEO exit triggers panic, and suddenly every stock becomes a Rorschach test for collective emotion.

I’ve been watching this cycle unfold with Lululemon — a company that got punished for being human, then rewarded for showing signs of life. The numbers didn’t change dramatically; the story did. And when the story changes, price follows. Always.

This week’s One Big Idea breaks down why LULU’s 10% rally wasn’t luck — it was a masterclass in how belief moves faster than fundamentals. Because in markets like this, the smartest money isn’t chasing perfection… it’s front-running conviction.

If you’ve been feeling whiplash from the constant “what now?” chatter, this issue’s for you. It’s not about timing the next move — it’s about understanding why clarity always appears right after you almost give up.

⚡ Quick Hits

📉 End of the Berkshire Way? Combs Departure Isn’t the Only Big Change as Buffett Transition Nears
Todd Combs — one of Warren Buffett’s key investment managers and CEO of GEICO — is leaving Berkshire Hathaway to join JPMorgan, where he’ll run a strategic investment group and advise CEO Jamie Dimon. This comes amid a broader leadership reset as Buffett prepares to hand over the CEO role to Greg Abel, and longtime CFO Marc Hamburg plans to retire in 2027. The shake-up raises questions about how Berkshire’s famed investment culture will evolve without one of the leaders Buffett once positioned as a potential successor.

🤖 Broadcom’s AI Accelerator Business Is Booming — Could It Change the AI Landscape?
Broadcom’s custom AI acceleration silicon and infrastructure products are driving rapid revenue growth, with AI semiconductor demand expanding sharply year-over-year. Analysts highlight that this momentum positions Broadcom as a key AI infrastructure player alongside or even beyond the usual GPU-centric narratives. For investors, the ability to turn that growth into durable margins and ongoing contract wins could define Broadcom’s role in the next phase of the AI build-out.

📊 Trump Has Suggested His Now-Dwindling Tariff Revenues Could Pay for at Least 9 Different Things
Former President Trump has floated using revenue from tariffs — which have shrunk as global trade patterns shift — to fund various domestic priorities, including infrastructure, border security, and social programs. Shifts in tariff income impact not only federal budgeting debates but also investor sentiment around trade-sensitive sectors like semiconductors, industrials, and exporters. This continues to highlight how political policy tools are being discussed as funding mechanisms amid broader economic debate.

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💡One Big Idea: Lululemon’s Rally Is A Narrative Reset - Not A Mirage

When a stock has been cut nearly in half over the past year and finally rallies, it isn’t because everything is perfect. It’s because investors finally see a reason to believe again.

That’s what just happened to Lululemon (LULU).

After months of selling and fatigue, the stock jumped almost 10% following its third-quarter results and the surprise announcement that CEO Calvin McDonald will step down in early 2026.

This wasn’t about perfection. It was about clarity — the market finally got a coherent story after a year of confusion and disappointment.

Lululemon didn’t explode higher because the numbers were spectacular. They were simply better than fear had priced in. Combined with a $1 billion buyback expansion and the leadership change, it was enough to reset sentiment across Wall Street.

📊 Earnings: Strong Enough To Stop The Bleeding

• Revenue: $2.6 billion, up roughly 7% year-over-year.

• Earnings per share: $2.59, solidly beating consensus.

• Comparable sales: Flat in North America, strong double-digit gains internationally.

• Margins: Slightly compressed but still near a healthy 57%.

• Buyback: Another $1 billion added, bringing total authorization to $1.6 billion.

Nothing explosive — but for a stock that had lost half its value, these numbers were good enough to signal stabilization.

Buybacks tell a story of confidence: we believe our own stock is undervalued.

And right now, belief matters more than guidance.

🧭 Leadership Change That Turned Into Relief

The CEO news hit harder than the numbers.

Calvin McDonald stepping down would usually be read as risk. But investors, already worn down by flat U.S. growth and missteps in product cadence, treated it as renewal.

New leadership means optionality — the chance to reset direction, culture, and consumer momentum.

The board will search for a successor with a stronger digital and brand-building background. Until then, the CFO and Chief Commercial Officer will share control, keeping operations stable.

Markets love stability in transition. More importantly, they love a new story.

🧠 The Psychology Behind The Rally

Here’s how belief returns:

1. Fatigue peaks. Investors stop caring.

2. A credible signal appears. In this case — an earnings beat, buyback, and CEO change.

3. The mind reframes. “Maybe it’s not broken, just bruised.”

4. Capital flows. Price reacts before fundamentals fully recover.

That’s exactly what we saw with LULU.

When markets stop expecting disaster and start expecting direction, valuations expand faster than earnings.

📉 Where LULU Stands Now

LULU trades around $185–$205, far below last year’s highs above $420.

At this level, it’s sitting on deeply discounted multiples — roughly half its five-year average valuation. That means the market isn’t pricing in much recovery yet.

When expectations are this low, even modest execution can drive a re-rating.

⚙️ The Pragmatic Playbook

Here’s how pragmatic investors can frame this opportunity:

1️⃣ Short-Term (1–3 months)

• Support Zone: $170–$180 — buyers have consistently stepped in here.

• Resistance Zone: $200–$220 — where traders likely take profits.

• A sustained move above the 200-day moving average would confirm returning conviction.

Tactic: Build partial positions, not full exposure. Add only if price confirms strength above $200.

2️⃣ Medium-Term (3–12 months)

The next test is proof of execution:

• U.S. sales stabilization

• Margins holding near 56–57%

• Progress on the CEO search

If these hold, LULU could trade toward $230–$260 over the next year.

Tactic: Scale in over time — 30% near support, 30% above $200 on confirmation, 40% after leadership clarity.

3️⃣ Long-Term (1–3 years)

You’re betting on narrative restoration.

Lululemon still has pricing power, a premium brand, and strong loyalty. What it needs is product energy and sharper storytelling under new leadership.

If the next CEO reignites U.S. growth while protecting margins, this becomes a textbook recovery trade.

🧩 Macro Context: The Consumer Rotation

LULU’s rally fits a bigger story.

Discretionary stocks — Nike, Deckers, On Holding — have quietly stabilized as markets anticipate rate cuts and stronger 2026 consumer spending.

Investors are rotating into premium brands that were oversold last year. Lululemon checks every box:

• Beaten down ✅

• Still profitable ✅

• Brand intact ✅

• Leadership change narrative ✅

When macro tailwinds align with story resets, sentiment shifts faster than fundamentals.

🧠 Behavioral Takeaway

Markets don’t wait for certainty. They price belief first.

LULU’s surge shows how quickly capital returns once a story feels coherent again.

The key for investors is to distinguish hype from structure — is there a believable plan behind the optimism? In this case, yes: a leadership reset, stable margins, and global growth strength.

That’s enough to justify conviction, not just curiosity.

📌 What I’m Watching Next

• New CEO appointment and their strategic direction

• Sequential improvement in North American comps

• Gross margin stability above 56%

• EPS upgrades from analysts

• Technical behavior around $200 — does it act as resistance or a new floor?

If these align, this rally could evolve from relief to renewal.

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🧠 Final Thought

Every market story has a point where the numbers stop mattering and the narrative starts to bend. That’s what I saw in Lululemon’s rebound — a reminder that conviction doesn’t always return when the data says “go,” but when the mind finally says “maybe.” Most investors crave certainty; professionals learn to live with ambiguity long enough to recognize when the crowd has priced in too much fear.

What separates noise from signal isn’t foresight — it’s composure. The ability to stay rational when others are rewriting the story in real time. Sometimes that means holding through fatigue, other times it means re-entering while disbelief still fills the air. Either way, markets reward the few who can think clearly when the rest are emotionally exhausted. That’s not optimism — it’s discipline disguised as patience.